1 PRESIDENT'S COMMISSION ON TOBACCO
2
3 PUBLIC FORUM
4
5
6 Executive West Hotel
7 Louisville, Kentucky
8 Friday, November 10, 2000
9
10 COMMISSION MEMBERS PRESENT:
11 ROD KUEGEL, CO-CHAIR
12 MATT MYERS, CO-CHAIR
13 JIMMY HILL
14 LYNN CAROL BIRGMANN
15 JESSE WHITE
16 ANDY SHEPHERD
17 ART CAMPBELL
18 RON STROUFE
19 CASS WHEELER
20
21 Also Present:
22 DOUG RICHARDSON, Staff Director
23 CHARLES HATCHER, Designated Federal Official
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2
1 I N D E X
2 Welcome the Commission............................ Page 4
John-Mark Hack
3 Introduce Dr. Rice Leach.......................... Page 7
John-Mark Hack
4 Introduce Julie Brackett.......................... Page 11
Commissioner Smith
5 Introduce Commission Members and HHS
6 Representatives................................. Page 12
Julie Brackett
7 Acknowledge Designated Federal Official
8 Charlie Hatcher................................. Page 12
John-Mark Hack
9 Introduce Rod Kuegel.............................. Page 13
John-Mark Hack
10 Comments.......................................... Page 13
Rod Kuegel
11 Introduce Matthew Myers............................ Page 15
Julie Brackett
12 Hearing Format.................................... Page 18
Doug Richardson
13 Statements by:
William Snell.......................Page 22
14 Billy Ray Smith.....................Page 38
Will Ed Clark.......................Page 41
15 Patrick Jennings....................Page 46
Scott Ballin........................Page 56
16 Paul Perito.........................Page 68
Pat McMillian.......................Page 77
17 Danny McKinney......................Page 85
Marc Cammack........................Page 92
18 Donald Smart........................Page 100
Franklin Dukes......................Page 104
19 Paul Kaiser for Mike Kuntz..........Page 110
John Berry..........................Page 114
20 Kelly Tiller........................Page 118
William Fritz.......................Page 128
21 Julie Brackett......................Page 131
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1 Martha Parrish......................Page 135
2 Keith Parrish.......................Page 140
3 Dan Borthick........................Page 149
4 Vicki Rigsby........................Page 153
5 David Freshwater....................Page 157
6 Lee Meyer...........................Page 163
7 Pem Pfisterer Clark.................Page 168
8 John Patterson......................Page 171
9 James Benham........................Page 176
10 Richard Fellows.....................Page 177
11 Steve Miller........................Page 181
12 Peggy Kidwell.......................Page 185
13 Joe Hemp Kidwell....................Page 186
14 James Smith.........................Page 189
15 D.W. Robbins........................Page 194
16 Anne Powell.........................Page 194
17 Governor Paul Patton................Page 200
18 Joe Elliott.........................Page 207
19 Jerry Cooke.........................Page 209
20 Closing and Wrap-Up............................... Page 212
21 Rod Kuegel
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4
1 MR HACK: Good morning. On behalf of Governor
2 Paul Patton, I want to extend a very warm Kentucky welcome
3 to Chairman Rod Kuegel -- as if he needs a Kentucky
4 welcome -- Chairman Matt Myers; Executive Director, Doug
5 Richardson, and the members of the President's Commission on
6 Improving Economic Opportunities in Tobacco-Dependent
7 Communities while Protecting Public Health. Matt, that
8 acronym comes out something like CIEOTDCPPH (pronouncing).
9 But -- it doesn't roll off the tongue very well.
10 But welcome to each of you in the audience today.
11 I'm John-Mark Hack, and I serve as Executive Director of
12 Governor Patton's Office of Agricultural Policy. Governor
13 Patton has some other commitments to which he's attending
14 this morning, but he will join us around 2:00 p.m. this
15 afternoon to provide testimony to the Commission.
16 We in the Governor's office are especially pleased
17 to be co-hosting this truly historic Commission meeting,
18 along with Commissioner Billy Ray Smith and the Kentucky
19 Department of Agriculture, Commissioner Rice Leach of the
20 Kentucky Department for Public Health, and Kentucky Action,
21 a coalition of health and tobacco prevention organizations.
22 Commissioner Smith had another commitment with his
23 agricultural leadership summit, but he will join us in a
24 very short while.
25 We're excited by today because, to a great extent,
5
1 this Commission in general -- and today's hearing in
2 particular -- represent the fruition of months of effort and
3 dialogue between Governor Patton and President Clinton and
4 Vice President Gore. This past summer, Governor Patton on
5 several occasions impressed upon the President and the Vice
6 President the urgent and dire economic situation in which
7 tens of thousands of Kentucky farm families find themselves,
8 a situation that is exacerbated by tremendous anxiety and
9 frustration with the uncertainty of the future.
10 President Clinton and Vice President Gore are to
11 be applauded for their vision in establishing this group.
12 The President's Executive Order establishing the group is a
13 continuation of what has been his unwavering support for
14 Kentucky farm families and the federal tobacco program
15 throughout his administration.
16 And the President and Governor Patton share
17 another concern. The epidemic of tobacco consumption by our
18 children and youth in Kentucky and across the country.
19 While it was the Governor's motivation of the Clinton-Gore
20 administration that helped establish this group, the
21 groundwork for collaboration between farm groups and health
22 groups was laid several years with the establishment of the
23 Kentucky Health and Agriculture Forum, a group of health
24 leaders and farm leaders dedicated to finding common ground
25 between tobacco farm families and those working hard to
6
1 reduce tobacco consumption in Kentucky and across the
2 country.
3 The Kentucky Health and Agriculture Forum
4 continues to build on that foundation today with regular
5 meetings that provide a fertile climate for rich
6 deliberation of issues of immense public importance. There
7 are some in Kentucky and around the country who claim to be
8 sympathetic with tobacco farmers, who openly question the
9 union of tobacco and health interests. They claim that the
10 interests of these parties are incompatible with one
11 another. Today I would submit to you that anyone who does
12 not recognize the inextricable link between tobacco farmers
13 and health groups have their head in the sand and are
14 providing a disservice to our farm families.
15 While those of us supportive of farm family
16 interests may not always agree with the perspectives and
17 opinions of health groups, it's imperative that we join
18 together in a thorough deliberation of the needs of farm
19 families and the epidemic of tobacco consumption among our
20 youth. We don't have to agree on everything in this hearing
21 today, but we will benefit from truly and openly listening
22 to and considering the perspectives of folks who may not on
23 the surface share our concerns.
24 Public deliberation is the only way to produce
25 ground for meaningful sustainable public action. Through
7
1 understanding the perspectives of folks that we may disagree
2 with, we can gain a better understanding and improved --
3 excuse me, an improved understanding of our own
4 perspectives.
5 With that said, the opportunity presented to us
6 today is one that can establish ground for more thorough and
7 open dialogue, more inclusive dialogue of people from across
8 the spectrum of tobacco interests and health interests.
9 One of the key players in the Patton
10 Administration and a tireless advocate for public health in
11 general is Dr. Rice Leach. Dr. Leach serves the Governor as
12 Commissioner of Public Health and came to this
13 administration after service as chief of staff to the U.S.
14 Surgeon General. I'd like to introduce Dr. Leach now, who
15 will provide some welcoming comments from the Department of
16 Public Health.
17 (Applause.)
18 DR. LEACH: Thank you very much John-Mark. This
19 is some serious business that we're undertaking. And for
20 those of you who are not from Kentucky, you cannot imagine
21 how hard people in this room from Kentucky worked to keep us
22 on track and avoid polarization of an issue that could have
23 polarized us. As a -- you've got no idea what it's like to
24 be a public health commissioner in a burley-growing state.
25 And thanks to the people in the room, it has been a
8
1 manageable activity.
2 I would like to second everything that John-Mark
3 Hack said about the importance of this and the folks that
4 are here. But I'm a doc, and I've kind of got to talk like
5 a doc, so I'm going to take just a couple of minutes to read
6 you about what I think is going on here. And I'm proud of
7 it.
8 The Kentucky Department for Public Health fully
9 recognizes the need to reduce the risks associated with
10 tobacco use while supporting the economic wellbeing of the
11 farm community. Persons familiar with the Kentucky economy
12 know that the revenue from the tobacco crop purchases health
13 insurance, education, food, mufflers and brakes, infant car
14 seats, good automobile tires, warm clothing, safe heating
15 appliances, bicycle helmets, and any number of other goods
16 and services that protect farm families against injury and
17 illness.
18 At the same time, this Department realizes that
19 there is much to do if we're going to reduce the really
20 significant disease burden our citizens bring on themselves
21 because so many of them use tobacco heavily. We have
22 dropped to second place among adult smokers, but Kentucky
23 men still smoke more than any other state. Male Kentuckians
24 are more likely to die of lung cancer than any other state,
25 and tobacco use among our youth is unacceptably high.
9
1 Fortunately for this public health official,
2 Governor Paul Patton has taken the position that it is time
3 to get serious about youth smoking. Senator David Williams,
4 President of the Senate, and Representative Jody Richards,
5 Speaker of the House of Representatives, and many of their
6 colleagues have joined Governor Patton in meeting this
7 challenge.
8 The 2000 General Assembly appropriated funds to
9 support tobacco cessation and substance abuse in general.
10 The first phase of this program has been two-fold. First,
11 each local health department has received funds to enable it
12 to work with others concerned about tobacco use among youth.
13 They are well along their way to completing plans to address
14 the four -- the four Centers of Disease Control and
15 Prevention objectives of smoking cessation among children
16 and adults, decreased numbers of new smokers, reduced
17 exposure to second-hand smoke, reduced disparity among
18 ethnic and economic groups with high health risks from
19 smoking.
20 And the second component is a requirement our
21 department put on all groups contracting with us to
22 demonstrate what they are doing with their activities to
23 address the CDC objectives. This language in those
24 contracts has influenced millions of other health care
25 dollars.
10
1 My favorite example of what can happen when
2 concerned persons put their heads together is a program in
3 Allen County, Kentucky, down south just across the
4 interstate from Bowling Green. Mr. Montgomery, an employee
5 of the United States Department of Agriculture took the lead
6 with local farmers, the middle school, the board of
7 education, the health department and others to promote a
8 non-smoking middle school. He gets his funds from donation
9 of -- donations from 300 -- 300 of the 800 farmers in the
10 county, and others. The health department helps and has
11 contributed a modest amount.
12 Their results, an 87 percent reduction in smoking-
13 related incidents at the middle school. I've visited their
14 school and spoke with many of the people, including the
15 custodian. The custodian contributes to this program
16 because he believes in it, because there are less cigarette
17 butts to clean up. Not only has our rank in smoking adults
18 dropped, but our butt count's on the way down, too, at least
19 in one middle school.
20 This kind of imaginative approach to tobacco
21 control is what one can expect to see popping up all over
22 Kentucky as we move forward as a tobacco state concerned
23 about its youth.
24 Thank you for being here. I look forward to
25 listening what gets said this morning and this afternoon to
11
1 incorporate it in things as we go forward.
2 (Applause.)
3 MR. HACK: Now please introduce Julie Brackett.
4 Julie works as Director of Advocacy for the American Heart
5 Association, and serves as a steering committee member for
6 Kentucky Action. She'll bring welcoming remarks on behalf
7 of our co-hosting organization, Kentucky Action and
8 introduce the members of the Commission. Julie?
9 (Applause.)
10 MS. BRACKETT: Good morning, and welcome. On
11 behalf of my colleagues at the American Lung Association and
12 American Cancer Society, as well as the American Heart
13 Association, I'd like to welcome you here to the second
14 hearing of this Presidential Commission. I also welcome you
15 on behalf of the Coalition for Health and Agricultural
16 Development, and the Kentucky Health and Agriculture Forum,
17 which has been meeting for the past five years to discuss
18 many of the issues that will be covered today.
19 It's my pleasure to introduce the members of the
20 Commission this morning. First, the co-chairs, Rod Kuegel,
21 President of the Burley Tobacco Growers Cooperative
22 Association, and Matthew Myers, President of the Campaign
23 for Tobacco-Free Kids. The Commission members are Lynn
24 Carol Birgmann, Executive Director of Kentucky Action; Art
25 Campbell, Assistant Secretary, Economic Development
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1 Administration, U.S. Department of Commerce; James T. Hill,
2 a flue-cure tobacco grower; John Seffron, the CEO of the
3 American Cancer Society is a Commission member but was
4 unable to be here today; Andy Shepherd, a flue-cured tobacco
5 grower; Ronald George Sroufe, a Burley tobacco grower; Cass
6 Wheeler, CEO of the American Heart Association, and Jesse
7 White, Federal Co-Chair of the Appalachian Regional
8 Commission.
9 I'd also like to introduce some guests from HHS.
10 Ripley Forbes, the Senior Advisor and Legislative Director
11 to the Assistant Secretary for Health, Surgeon General, Dr.
12 David Satcher. Mr. Forbes is a former member of the
13 Legislative staff of the House Commerce Committee,
14 Subcommittee on Health and the Environment; Joey Epstein is
15 special assistant to Dr. Thomas Novotney, Director, HHS
16 Office of International Health and Chair of the U.S.
17 Delegation to the World Health Organization Framework
18 Convention on Tobacco Control. And Karil Bialostosky is
19 Health Policy Analyst with the Office on Smoking or Health
20 of the U.S. Centers for Disease Control and Prevention in
21 Washington.
22 Finally, I'd like to introduce Charles Hatcher,
23 Director of the Tobacco and Peanuts Division of the U.S.
24 Department of Agriculture. He's serving as the designated
25 federal official for this hearing today.
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1 Again, welcome to Louisville, welcome to Kentucky,
2 and welcome to what we hope will be a historic event for
3 both tobacco growers and public health. I'd like to
4 introduce now Rod Kuegel, Co-Chair of the Commission, to
5 make a few opening comments.
6 (Applause.)
7 MR. KUEGEL: Thank you, Julie. And we want to
8 thank the co-sponsors of this forum this morning who made it
9 possible for us to be here and get your input. The
10 Governor's office, the Department of Health, Heart
11 Association and the Ag Commissioner. We appreciate them co-
12 sponsoring this event.
13 We also have a small but very efficient staff that
14 is supporting this Commission. Doug Richardson and Eloise
15 Taylor -- Eloise, where are you? Eloise is back there at
16 the back. And they are doing a great job in staffing our
17 Commission, and we appreciate it, Doug and Eloise.
18 We know the problems in our rural communities all
19 too well. Economic disruption of our local communities from
20 tobacco quote cuts, problems of high rates of teen smoking
21 in tobacco states and our struggle to sustain family farms
22 in the light of rapidly-changing economic markets and the
23 decline in our farm income. We're asking from you for
24 solutions to these problems, for ideas, and specific
25 recommendations that would work in your community or region.
14
1 Your specific recommendations on ways to deal with the
2 changing agricultural economy and how family farmers can
3 remain independent producers in the growing world of global
4 corporate structures.
5 Your specific ideas are needed on methods to
6 decrease youth smoking that's so high in our tobacco states.
7 Today through this Commission, we're building on a dialogue
8 that started many years ago. John Berry's here this
9 morning. 1985, instrumented talks between the health groups
10 and the tobacco communities that have already benefitted
11 farm families and rural communities. Not only in the
12 dialogue and the structure that has come about since that
13 time, but even in the fights on the floor of Congress
14 maintaining our tobacco program, this friendship has been
15 invaluable.
16 For the tobacco farmers to transition an economy
17 with more certain -- with more of a certain future than what
18 we have today, we need help and understanding from all of
19 our community citizens, not just the tobacco farming
20 families. In fact, all the farmers of this nation, to have
21 a future which includes and supports prosperous independent
22 family farms, we need the support and participation of urban
23 people in making that future a reality.
24 People from urban areas and all other walks of
25 life must understand the needs and concerns of farmers and
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1 the work of this Commission play a major role in building
2 the dialogue that we started years ago and can further yet
3 today. We can provide the model of ways that rural people
4 and urban folks can work together for the future of our
5 communities, both a healthy economy and healthy citizens.
6 Julie, I think you're -- rather than come back up
7 here, do you want me to introduce Matt or do you want to
8 come back up here and introduce Matt?
9 Matt Myers is the President of the Campaign for
10 Tobacco-Free Kids, and already, in our discussions, as co-
11 chair, as we've tried to set up some logistics for this
12 commission have found him easy to work with and responsive
13 to the concerns of tobacco farmers. Matt Myers?
14 (Applause.)
15 MR. MYERS: Rod, thank you. John-Mark Hack, Dr.
16 Leach, Julie, I also want to thank you. I mean, the
17 leadership that has created the energy for this commission
18 and motivation for this committee has truly come from
19 courageous and daring people from both communities who have
20 been working for years to make this possible.
21 On behalf of the entire Commission, I'd like to
22 welcome all of you today. This Commission truly does
23 reflect a unique combination of members from the public
24 health community and the tobacco-growing community. I think
25 it reflects a belief that the public health community and
16
1 family farmers who grow tobacco and their communities share
2 many of the same beliefs, values and concerns, and that we
3 will all have the greatest opportunity of addressing those
4 concerns if we work together.
5 Today we are here to learn and to listen. Make no
6 mistake about it, this Commission is non-partisan and non-
7 political. It is here to hopefully find real solutions for
8 real people for the long term. We don't come into these
9 hearings with any preconceived notions or fixed ideas, and
10 won't be driven by ideology. Instead, we'll be driven by
11 what will work.
12 I'm truly honored to be co-chairing the Commission
13 with Rod Kuegel because Rod has been a leader, and Rod is
14 the type of person whose commitment to the tobacco farmer is
15 unquestioned, and whose ability to reach across communities
16 is one of the unique traits that will make this Commission
17 succeed.
18 These discussions are a reflection, a true
19 reflection of the leadership, hard work and determination of
20 many individuals in organizations, many of whom are in this
21 room today, that have brought both the public health
22 community and tobacco farmers together. These discussions
23 have already resulted in the issuance of a core set of
24 principles that recognize that the farm community and public
25 health community have very important interests in common.
17
1 We are both members of one community. We want our
2 children to be healthy, and our brothers and sisters,
3 husbands and wives, mothers and fathers to live long,
4 healthy and productive lives. None of us want our children
5 to smoke and all of us want to reduce the number of people
6 who are harmed by tobacco. At the same time, we all want
7 our communities to be well off, economically as well as
8 medically, and we believe that hard-working people deserve
9 to be treated fairly and rewarded honestly for both their
10 short-term and long-term efforts. If change is occurring,
11 family farmers who grow tobacco and their communities
12 deserve to have their needs addressed.
13 This Commission was created in part because we all
14 recognize that, in recent years, there have been fundamental
15 changes in the dynamics affecting the economics of growing
16 tobacco. On the surface, it appears that real change has
17 already occurred. This change is caused by a multitude of
18 factors. Equally important, given the significant quota
19 cuts, the increase of tobacco being grown overseas, the
20 increasing use of foreign-grown tobacco in our products and
21 the rapidly rising manufacturing capacity overseas, even
22 more change is inevitable, whatever the pace of change due
23 to public health concerns.
24 The challenge for us all is to manage these
25 changes in a way that will protect and promote both the
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1 public health and tobacco producing communities. On this
2 Commission, we believe that we can meet that challenge. But
3 there should be no mistake, we do not expect, and we know
4 that there is no simple solution and no magic bullet. Our
5 hope is that we can join together to better understand the
6 issues and agree on a set of far-ranging recommendations
7 that, when implemented, will both promote the public health
8 and the economic wellbeing of family farmers and their
9 communities, in the short run, and even more importantly in
10 the long run.
11 Today we're looking forward to learning more, not
12 only about the problems that tobacco growers and their
13 communities are facing, but equally as important, about the
14 kinds of activities, ideas and solutions that we should
15 consider as we move forward. I know that I speak for every
16 one of the Commissioners when telling you that we take very
17 seriously our commitment to carrying out the mandate as set
18 out in the President's Executive Order, and will do
19 everything we can, listen to everyone who has a voice, about
20 how to come up with a set of recommendations that will, in
21 fact, make a positive difference.
22 Thank you.
23 (Applause.)
24 MR. RICHARDSON: Good morning, all. I'm Doug
25 Richardson, Executive Director of the Commission. I'm glad
19
1 to be in Kentucky, rarely get out because I have to fly in
2 one day and out again. That's what we're doing today. I'd
3 love to get some way to stay a few days, but it hasn't
4 worked out.
5 I want to thank a few people before we get
6 started. Lisa Thomas with the Governor's office, and Hoppy
7 Hinton, the State Executive Director of the Farm Service
8 Agency, for helping us get the meeting room set up and
9 providing some FSA employees to help us man the tables and
10 the testimony table and everything this morning. Since it's
11 a federal holiday, Hoppy, you need to do something for these
12 guys that came in here on their day off.
13 A couple of things I want to mention before we go
14 over the procedures for testimony, and you've heard both of
15 them -- one of them mentioned a couple of times this
16 morning, and it's the little pamphlet, The Core Principle
17 Statement. If you don't already have it, please pick up one
18 of these before you leave, and it's on the table in the
19 center of the room back there.
20 Another important sheet of paper is what I call a
21 fact sheet on how to get up with the Commission. It gives
22 you everything about us, our location, our mailing address,
23 phone numbers, toll-free numbers, fax numbers and e-mail
24 address. And more importantly, the website address. We --
25 before we left D.C. on Wednesday, we'd had only 17 comments
20
1 received over the website. A person can sign onto our
2 website, fill in, make their statement or make their comment
3 or recommendation on the issues facing the Commission, and
4 then it will be put out on the website for everyone to see
5 and respond to. And I think that's an excellent way to get
6 input from everyone. So keep that in mind. If -- you may
7 be like me, you don't like to speak in front of large
8 crowds, so if you want to do that, the computer won't bite
9 you, so just sit down and type that in.
10 You can also fax us your comments or mail us your
11 comments. But as Matt said, we do want to hear from
12 everyone, or as many people as possible.
13 With that said, let me sort of run over how we're
14 going to run the testimony this morning. When you come up
15 to testify, please give your name and address when you begin
16 your testimony, and I will pre-apologize for
17 mispronunciation of your names, when that happens, and I
18 guarantee you I'll do that. We ask to hold your testimony
19 to five minutes. If you have not been given a longer period
20 of time -- and I believe there's only three people that
21 have, and the first person that's going to testify will be
22 one of those. If you're going to testify, and if you
23 brought copies of your -- written copies of your testimony,
24 please drop those off at the registration table. It's not a
25 requirement that you have two copies, it just helps us out.
21
1 What we will do is give one copy of that to the court
2 reporter that's taking down verbatim what's happening, and
3 we will take one copy back to Washington and photocopy it
4 and get it out to the Commissioners so they can study over
5 the comments that are made.
6 When you're testifying, an FSA person -- it might
7 be Don a lot of the time -- will hold up a sign when it's --
8 you've got one minute to go. That's the warning to you to
9 go ahead and start your summarization and bring your
10 testimony to a halt. When your allotted time is up, he will
11 change that to zero. And that will indicate that your time
12 is up. And we want to hear from as many people as possible,
13 we already have 26 people pre-registered to speak, and I've
14 seen several sign in since I -- they brought me the last
15 list.
16 After you testify, the Commission members may want
17 to ask you some questions, so please stay there for just a
18 moment until we check to see if they want to ask questions.
19 I will ask the rest of us in the room to give the person
20 testifying the respect they need and not be talking and
21 interrupting them and so forth. So let's give them our full
22 attention.
23 We must be out of here by 3:00 o'clock today. Our
24 plane leaves -- my plane leaves at 4:15, so we've got to do
25 that. And thank goodness, the airport's not far away.
22
1 We had 43 people testify in Raleigh yesterday, and
2 we stayed there until about -- I believe about 2:00 when we
3 broke up in Raleigh yesterday. So with that said, I hope I
4 have covered all of the testimony procedure, and I will shut
5 up. And the first person to testify this morning is Will
6 Snell. And everyone knows Will is an extension professor at
7 the University of Kentucky. Will?
8 STATEMENT OF WILLIAM M. SNELL
_____________________________
9 MR. SNELL: Good morning, my name is Will Snell.
10 I live at 778 Hume Bedford Road, Paris, Kentucky.
11 Thank you, Doug, Mr. Kuegel, Mr. Myers and members
12 of this Commission. It's certainly an honor for me to
13 testify before this Commission. My name is Will Snell and
14 I'm an agricultural economist at the University of Kentucky.
15 I was raised on a small farm outside of Paris,
16 Kentucky that has been in my family for five generations.
17 Tobacco dollars, like for many other farm kids in this
18 state, enabled me to receive a college education. I'm also
19 married to a health professional that works in neonatology
20 at the University of Kentucky Medical Center where she
21 observes the health risks associated with premature babies
22 from teenage mothers who smoke. So I'm exposed to the
23 tobacco issue from both sides.
24 Today though, I'll focus on the economics of the
25 tobacco industry and some potential policy options to
23
1 address the multitude of issues facing our farmers in rural
2 communities. Let me just begin with some background
3 information. Tobacco has traditionally been Kentucky's most
4 valuable agricultural commodity generating around one
5 quarter of Kentucky's farm cash receipts. Nearly 45,000 of
6 Kentucky's 82,000 farms grow tobacco, averaging just over
7 five acres of production per farm. Tobacco is grown in 117
8 out of Kentucky's 120 counties, averaging over $1 million of
9 sales annually for more than 100 Kentucky counties.
10 Besides contributing directly to farmers, a
11 significant portion of these tobacco dollars, as Dr. Leach
12 pointed out, have traditionally been used to pay off debt,
13 support diversification efforts, pay college tuition and
14 purchase various goods and services such as health care in
15 the local economies. Thus while the state's overall
16 dependence on tobacco has diminished over the years, tobacco
17 remains the backbone of much of rural Kentucky.
18 To the surprise of many, Kentucky tobacco sales,
19 which includes both burley and dark tobacco, actually
20 established a record high of nearly $1 billion in 1998. But
21 recently the tobacco industry has been hit with a multitude
22 of adverse factors, including slumping cigarette sales,
23 increased legal liability, excessive stock levels, movement
24 of cigarette production overseas, a loss of exports and
25 increased imports. Collectively these factors have reduced
24
1 marketing quotas by two-thirds from their record level in
2 1997, and as a result, annual Kentucky tobacco sales in this
3 post-tobacco settlement era may be more in the neighborhood
4 of $500 million compared to our more traditional eight to
5 $900 million.
6 Kentucky farmers are currently evaluating and
7 adopting various alternatives to supplement their lost
8 tobacco income, and I'm confident that some of the
9 initiatives that will be going forward as part of our phase
10 one tobacco settlement program will certainly be beneficial
11 to our state's long-term farm economy. But the future of
12 our ag economy, and the structure of farming that we cherish
13 so much in this state still hinges critically on a viable
14 and sustainable tobacco economy.
15 Much of the unique structure of farming in this
16 state can be attributed to the U.S. tobacco program, a
17 program whose price and income support over the years has
18 sustained thousands of small family farms. But despite its
19 success, the current program does present some serious
20 challenges and concerns for our growers. First, while the
21 program does provide price stability, it does not protect
22 against quota instability. Second, recent quota cuts have
23 caused lease prices to escalate, and third, the program's
24 effectiveness has diminished over the years as production
25 increases and quality improvements overseas have
25
1 deteriorated U.S. burley competitiveness and thus market
2 share.
3 In reality, the biggest threat to the program
4 these days may not be evolving from Washington, D.C., but
5 from internal forces. How long will growers and companies
6 support a program which exhibits low quotas, high lease
7 prices and the increasing presence of contract growing?
8 Without a program, price volatility would increase
9 significantly, and U.S. burley prices could fall 25 percent
10 or more, causing a downward spiral in world tobacco prices.
11 A price decline of this magnitude would likely
12 reduce the number of farms growing tobacco -- growing burley
13 tobacco in the United States by more than 75 percent, with
14 some of the most vulnerable farms being located in some of
15 our most tobacco-dependent areas, many of which exhibit
16 limited agriculture diversification alternatives, limited
17 off-farm employment opportunities, relatively low education
18 levels and high poverty rates. Without a program, tobacco
19 production and the scale of production would increase and
20 gravitate to concentrated low-cost-of-production areas.
21 The bottom line is that some of our nearly 250,000
22 farms that currently possess burley tobacco quotas could
23 survive and could compete quite effectively without a
24 program. But they would be in the minority. Put simply,
25 program elimination will induce major structural changes and
26
1 significant adjustment cost in the burley belt.
2 Despite its shortfalls, I would anticipate that
3 burley farmers will vote to maintain the program in the
4 upcoming referendum. However, the program remains
5 vulnerable without attention to several items. First let me
6 address the quota formula. Given the volatility and quota
7 and pool stock levels, many are questioning whether the
8 formula is actually working in balancing supply with demand.
9 To address these concerns, the industry recently legislated
10 changing the reserve stock adjustment and limiting the
11 volume of carry-forward quota, and we may also need to look
12 at fine-tuning the export component of the formula, as well
13 as creating additional incentives for purchase intentions to
14 more closely match actual purchases.
15 Collectively, these changes will help but by no
16 means erase the potential of large quota swings. In fact,
17 quota instability is inherent with the design of the tobacco
18 program. The program results in enormous price stability,
19 as witnessed by market prices remaining relatively constant
20 in recent years, despite a multitude of adverse factors.
21 Consequently, almost 100 percent of the adjustment in an
22 excess supply or demand situation for tobacco must occur on
23 the quantity side of the ledger. If less volatility in
24 quota is desired, the program must be revised to allow for
25 more flexibility in price, which of course is a very
27
1 controversial issue.
2 Another major item is the escalating rental value
3 of quota. Tobacco companies and growers often state that
4 they want to eliminate this cost from the price of U.S.
5 tobacco. The only way to completely eliminate the value of
6 quota is to either eliminate the program or to eliminate the
7 profitability of growing the crop within the program. To
8 effectively lower lease prices, we either have to increase
9 leasing supplies through quota increases or reduce the
10 demand for quota through actions, such as transferring the
11 base from non-active quota owners to active growers.
12 Consequently, there is increasing support for the transfer
13 of quota into the hands of actual growers.
14 A quota buy-out is one option that has surfaced
15 recently to accomplish this goal, however the structure of a
16 potential buy-out leads to some very difficult and
17 controversial issues, such as what is an acceptable quota
18 buy-out price, what would be the source of funds to finance
19 a buy-out, the selection of a base year and compensation
20 period, whether it's a mandatory or voluntary buy-out, the
21 treatment of tenants in such a plan, and of course, whether
22 or not production control program and price support
23 provisions exist after a buy-out.
24 But even if a buy-out evolves, which of course at
25 this point is a major assumption, a buy-out, by itself, does
28
1 not improve the competitiveness of U.S. tobacco. What the
2 buy-out does affect is the cost structure of the remaining
3 growers. With lease prices historically averaging 40 cents
4 a pound in Kentucky, and given only about a fourth to one-
5 third of the crop being leased, the effect of leasing on the
6 overall margin of cost to production has been relatively
7 low.
8 Nevertheless, additional production opportunities
9 would provide existing growers with a lower cost structure,
10 and thus the incentive to examine the potential quantity
11 increases associated with a lower price for U.S. tobacco.
12 Then the critical question becomes how responsive is demand
13 to price changes? Our only experience with a major price
14 adjustment for burley tobacco was a 15-percent rollback in
15 the average price support in the mid-1980s. Demand did
16 increase, but underproduction of burley quota, coupled with
17 price adjustments by foreign competitors resulted in a
18 disappearance of U.S. burley increasing by less than 15
19 percent. Consequently, total revenue for burley tobacco
20 growers fell following the price reduction.
21 In closing, undoubtedly, farm group leaders and
22 policymakers associated with tobacco face some very
23 difficult decisions ahead. Most of us realize that the
24 future growth in the Kentucky ag economy will depend greatly
25 on our ability to diversify our income base. But it would
29
1 be economic suicide for a farm economy for us to give up on
2 tobacco being part of that income equation. Yes, tobacco in
3 the future will be lower than normal, tobacco income will be
4 lower than normal, will be produced by significantly fewer
5 growers and may be grown and sold under different
6 conditions. But I'm confident that tobacco will still play
7 an important role in the state's overall ag economy.
8 Tobacco companies cannot completely abandon a supplier who
9 produces over one-quarter of the world's burley and grows a
10 crop whose top quality cannot be duplicated anywhere else in
11 the world.
12 A last comment, but at the same time, we have to
13 be realistic. Demand is not going to rebound back to pre-
14 tobacco-settlement levels, and may decline further unless we
15 address some critical issues. Changes will have to evolve
16 to sustain a viable tobacco economy in this state, and these
17 changes will not allow everyone to survive. Thus it becomes
18 critical for this Commission and other participants in the
19 industry to work together to develop an environment which
20 provides opportunities for those growers in rural
21 communities who want to remain a part of this industry to
22 survive, while minimizing the transition cost for those who
23 choose to exit.
24 Thanks for your attention, and I look forward to
25 working with the Commission on achieving this ultimate goal.
30
1 MR. RICHARDSON: Thank you, Will.
2 (Applause.)
3 MR. RICHARDSON: Any questions? You'll have to
4 turn those mics on, there's a little switch on the back of
5 them.
6 MR. HILL: Is it on? Okay.
7 A question on the quota, the leasing. What
8 percentage of quotas are leased from quota -- I guess to
9 rephrase -- what percent of non-producing quota holders do
10 you have and what percentage is totally rented in where the
11 farmer owns no quota and rents all in, and then what
12 percentage of the quota is owned by actually growers?
13 MR. SNELL: We do have specific numbers on the
14 volume of tobacco leased. Basically anywhere from 25
15 percent to -- this year I think we're up to about 33 or 34
16 percent of that tobacco or those pounds are being leased
17 out.
18 As far as the active versus non-active quota
19 owners, certainly we have a lot of tenant-landlord
20 relationships in the state. I don't think we have a very
21 good feel on the actual number of tenants that we have. But
22 probably a half to two-thirds of the tobacco grown in the
23 state is either through a lease combination or lease --
24 through leasing or through a tenant-landlord relationship.
25 MR. HILL: Would you sort of define the tenant for
31
1 us?
2 MR. SNELL: Tenants in this state basically
3 provide their labor and equipment in exchange for a share of
4 the crop, whereas the quota owner generally in the state
5 will provide the quota, the land and the barns.
6 MR. HILL: Thank you.
7 MR. RICHARDSON: Any other questions of Will?
8 MR. CAMPBELL: Do you have thoughts about any
9 market incentives that could be built in to effect this
10 transfer of the quotas to the active growers, users?
11 MR. SNELL: Well, obviously you've got -- I think
12 there is a lot of support out there among the growers, and
13 to some extent the quota owners for the buy-out. But you've
14 got to provide some adequate compensation for those quota
15 owners. A lot of these owners have bought farms and quotas
16 over time, and they feel like that that's an asset that has
17 to be, you know, obviously compensated before any transfer
18 would exist.
19 We've got some potential policy options that you
20 could gradually move that quota from the quota owners to the
21 growers without compensation. But again, I think to get the
22 political support, obviously, from those quota owners,
23 you've got to have a fair compensation package. And then
24 the question becomes, where are the funds going to become
25 available to provide for the compensation?
32
1 It's a very difficult issue. It sounds good on
2 the surface, but again, there's a lot of complicating
3 factors that would have to be taken into account.
4 MR. RICHARDSON: Rod?
5 MR. KUEGEL: Will, I'm going to take you way out
6 on a limb. You made the statement that there's no way to
7 reduce the value of quota unless you either reduce the
8 profitability or reduce the demand. By reducing demand, you
9 went in to explain that the possibility of moving quota by
10 compensation from those not producing to the producers.
11 That solves a temporary problem. In ten years from now,
12 when I retire, and I want to pass that to my son, or if I
13 want to get out of the business, how do we solve that
14 problem? How do we not just temporarily roll it over into
15 the next generation and then -- and then when the next
16 generation's ready to retire, not have the same problem
17 reoccur again? Have you come up with any ideas on that?
18 MR. SNELL: Again, that's another complicated
19 factor. We know that, again, as long as we have a program
20 where that asset has value, specifically if you attach that
21 value of that asset to a certain piece of land that that
22 asset is going to continue to have value.
23 There is some basically opportunities to attach
24 that quota to an individual. And again, you could reduce
25 that value of that quota, since it's attached to an
33
1 individual versus land, but you do have the problem of
2 transfer among generations. And without basically stripping
3 that asset away from an individual when he does -- he or she
4 does die, in reality, deeding it to another individual
5 within the program after that, you're still going to have
6 the problem of value being built into that asset.
7 So as I pointed out, there is a lot of
8 complicating factors that will have to be worked out in
9 trying to resolve these issues.
10 MR. RICHARDSON: Matt?
11 MR. MYERS: Thank you. I think we all found your
12 testimony incredibly useful. I have a couple of questions
13 if you don't mind.
14 If -- what's the difference today between the
15 price that's paid for burley in Kentucky and the price
16 that's paid for burley grown outside the United States and
17 what would be the impact on both prices if there was no
18 price protection here?
19 MR. SNELL: Average price of U.S. burley in recent
20 years has been around $1.90 per pound. You've got a lot of
21 different producers out there in the world market with
22 different quality characteristics. Obviously our tobacco is
23 the highest-price. Tobacco in South America may be bringing
24 generally somewhere between 50 to -- 50 cents to a dollar a
25 pound. You've got tobacco in Africa right now that's
34
1 bringing below 50 cents a pound.
2 Without a program, obviously the U.S. tobacco
3 price sets kind of a price umbrella, and when the U.S.
4 prices adjust, world burley and world tobacco prices would
5 adjust accordingly.
6 So I think we saw in 1985, when we rolled back our
7 price, we certainly saw price adjustments around the world.
8 So it's difficult, you know, for me to give you a specific
9 answer. There's no doubt that world burley prices and world
10 tobacco prices are tied to the price of U.S. tobacco.
11 MR. MYERS: Do you have even a ball park figure of
12 what you think would happen to the price of U.S. burley if
13 there was no U.S. price protection?
14 MR. SNELL: Well, you look at the value of quota
15 right now that's part of the program, and obviously without
16 the program you eliminate that value. And traditionally,
17 it's been somewhere around 25 percent of our market price.
18 So I think that gives you a starting point for where the
19 price of U.S. tobacco might fall, without -- without the
20 program. That would assume you have the same amount of
21 production, but obviously without a program, you'd probably
22 have higher production, and therefore the likelihood that
23 the price could fall even more than 25 percent could evolve.
24 MR. MYERS: Let me just ask you two other
25 questions.
35
1 Over the last ten to 15 years, what's the
2 difference in the amount of burley tobacco that's actually
3 being grown overseas? And I'm not talking about the lowest
4 quality, but the burley tobacco that they would try to use
5 to substitute for some American burley?
6 MR. SNELL: Well, 30 years ago, the U.S. burley
7 tobacco producer had 99 percent of the domestic market.
8 Right now we're looking at burley tobacco imports accounting
9 for about 35 to 40 percent of the domestic market. So --
10 MR. MYERS: What's the potential for actually
11 increasing the amount of burley that's grown overseas? In
12 other words, if somebody made a conscious decision that we
13 want to, as a purchaser, cut price, how easy would it be for
14 them to get even more of the burley overseas over the next
15 four to five years?
16 MR. SNELL: Well, we always talk about the
17 challenges facing our farmers in this state with limited
18 alternatives, and those alternatives available for foreign
19 producers are even more limited. And I think there's no
20 doubt that there's potential for additional production
21 capacity overseas, and I think we'll see those production
22 increases continue over time. But again, it depends on how
23 much of a quality advantage that we have and how much we can
24 maintain to sustain the markets that we have.
25 MR. SHEPHERD: Will -- and you and I have talked
36
1 about this some in the past -- but don't you also see,
2 without some licensing arrangement or some form of quota
3 retention, movement of burley production within the United
4 States into the Piedmont area of, say, Virginia or North
5 Carolina? I mean, to be quite honest, in Virginia, years
6 ago, when the Maryland tobacco situation was such that it
7 could move around in production areas, we grew quite a bit
8 of Maryland tobacco until political solutions were found to
9 that.
10 So not only would it be foreign competition for
11 you folks out here, I think there would be significant
12 competition from other tobacco-producing states. If you let
13 historic production areas be moved, they're going to move,
14 too, and not just within the state of Kentucky. I think you
15 need to factor that into the situation with burley tobacco,
16 especially. Would you agree with that?
17 MR. SNELL: Yes, there's no doubt that the
18 potential would exist for burley tobacco production to move
19 outside of the traditional belt. And I will also point out
20 that I had some additional testimony that I'll provide to
21 the committee on import issue, on contracting as well as
22 some discussion on a two-tier pricing system that I would
23 like for you to look at as well.
24 MR. RICHARDSON: Jesse?
25 MR. WHITE: I guess this is kind of a rephrasing
37
1 of Jimmy's question. Yesterday in North Carolina, we heard
2 that only one in ten quota holders actually farmed their
3 quota. And I guess that's kind of -- is that what -- is
4 there a similar number for burley? Do you know that number?
5 MR. SNELL: I don't know a specific number, but I
6 think we have more burley tobacco quota owners that -- well,
7 a lot more quota owners that participate in the program as a
8 grower as compared to --
9 MR. WHITE: Flue-cure?
10 MR. SNELL: -- flue-cured. So again, a number
11 that has been tossed around, a third's leased out, a third
12 may be producing in a tenant-landlord relationship, and a
13 third of it's produced by the quota owner, might be a more
14 comparable figure.
15 MR. RICHARDSON: Any other questions of Will while
16 he's on the hot seat?
17 MR. MYERS: Can I ask just one last question?
18 You mentioned the limitations of what the impact
19 of a buy-out would be. And maybe not to answer today, but
20 just to provide us separately, because the implication of
21 what you said was that you had a vision of what more needed
22 to be done in order to bring some meaningful stability and
23 help to the system, because it was -- I thought I heard you
24 say the answer isn't just a buy-out. That if you're going
25 to think about that, you have to do more. And I thought I
38
1 also heard you say, the answer isn't to eliminate a tobacco
2 program all together. And I think we would all benefit by
3 hearing your thoughts about that piece that you didn't fill
4 in for us. And you don't need to take the time today, right
5 now, to do that, but I think we'd all like to hear it.
6 MR. RICHARDSON: Any other questions of Will?
7 (No response.)
8 MR. RICHARDSON: Thank you, sir.
9 (Applause.)
10 MR. RICHARDSON: I'm going to turn the podium over
11 to Rod for just a moment.
12 MR. KUEGEL: We have just joining us our
13 Commissioner of Agriculture, Billy Ray Smith. Commissioner,
14 if you want to come up and have some opening remarks.
15 He just completed his Kentucky Ag Summit
16 yesterday, and his Women in Agriculture Summit is today. So
17 he's probably going to be here about five minutes, and then
18 I don't blame him if he goes back to Women in Agriculture
19 meetings.
20 STATEMENT OF BILLY RAY SMITH, KENTUCKY COMMISSIONER OF
______________________________________________________
21 AGRICULTURE ___________
22 MR. SMITH: Thank you, Mr. Chairman, members of
23 the Commission. We are deeply grateful to you for coming to
24 Kentucky and offering the farmers of Kentucky and those
25 interested in the tobacco business and its future an
39
1 opportunity to come here today and say a few words and
2 express our feeling about this all-important topic.
3 As many of you know, tobacco, in bygone days, had
4 counted for at least a third of our farm cash -- farmgate
5 income, and to, of course, lose 70 percent of that is a very
6 healthy blow to -- hard blow to our cash income and to the
7 profitability of our Kentucky farmers.
8 As Commissioner, I want to extend a warm welcome
9 to you, and thank you again for coming to our state and we
10 know that your time is very valuable and very limited, and
11 we're happy to host this occasion. Also our congratulations
12 to our Chairman and to Ms. Birgmann from Kentucky being
13 named to this very important Commission. You have a very,
14 very lofty and heavy responsibility, dealing with I guess in
15 Kentucky the most important issue out there today.
16 I do not have a solution for you, as Commissioner
17 of Agriculture. We certainly don't have a monopoly on all
18 the good ideas. I'm hoping that everything is on the table,
19 and that you'll look at many, many opportunities and many
20 options. Of course, we're very concerned about the quota
21 system. We're very concerned about the price support
22 system. We're very concerned about contracting, we're also
23 very concerned about the buy-out program. These are many of
24 the things, I'm sure, that you're going to be weighing and
25 discussing and hearing in your deliberations and your
40
1 discussions.
2 I have only one piece of advice, that our
3 deliberations are very thorough and that all the options can
4 be and will be discussed, as far as the future of this
5 endeavor. We want you to know that our department is ready
6 to assist you and provide information. I know that Hoppy
7 Hinton and Will Snell and all the others here that's going
8 to testify will provide that same sense of support and --
9 for you in your deliberations, as you continue to work in
10 your endeavors.
11 Again, our support to you, and our expression to
12 you that this is very important to Kentucky, even maybe more
13 so than any other state in the union. We are looking at
14 diversification, we are not sitting back and saying that
15 tobacco's going to be what it always has been to Kentucky.
16 We realize that, and we are looking at other opportunities
17 and niches, diversification for our farmers.
18 But again, we thank you for coming to Kentucky.
19 We feel like there'll be a number of people here today to
20 express their ideas, producers, both processors and others
21 who work in this field.
22 Rod, our congratulations to you again being named
23 co-Chairman of this endeavor, and please know of our support
24 and our ability to work with you as a resource in the
25 department, along with the other farm agencies and farm
41
1 organizations in Kentucky.
2 Thank you very much.
3 (Applause.)
4 MR. RICHARDSON: Thank you, Commissioner Smith.
5 The next person to testify is Mr. Will Ed Clark.
6 And Will Ed is the manager of the Western Dark Fired Tobacco
7 Growers Association. Will Ed?
8 STATEMENT OF WILL ED CLARK
__________________________
9 MR. CLARK: Good morning. Rod, Mr. Kuegel and Mr.
10 Myers, members of the Commission, we certainly appreciate
11 the opportunity to be here, and we do welcome you to the
12 state of Kentucky.
13 Again, my name is Will Ed Clark, and I am manager
14 of the Western Dark -- Dark Fired Tobacco Growers
15 Association. Our headquarters are in Murray, Murray,
16 Kentucky, and we have about 3,000 members. Tobacco growers
17 in northwestern Tennessee and western Kentucky grow the best
18 dark fire cured and dark air cured tobacco in the world. I
19 say that because no one would challenge that statement. In
20 fact, people come from all over the world to purchase our
21 tobacco.
22 The situation in the dark family community is
23 somewhat different than in the smoking tobacco areas, but we
24 share a common concern for the future of our farmers, and
25 that's why I'm here. The community I represent is dependent
42
1 on tobacco production, and I want to make it clear, we are
2 proud of what tobacco has done for us. We know that things
3 don't stay the way they were, or even -- the way they were,
4 or even our -- and that changes are inevitable in this
5 controversial industry. Tobacco production involves a lot
6 of people, some of which are not represented on this
7 Commission.
8 This Commission needs to decide whether it will
9 recommend such radical proposals as banning all tobacco farm
10 production in this country or not. It has to decide if it
11 will recommend eliminating the tobacco program or not. The
12 Commission has a credibility problem since it includes only
13 growers and none of the other essentially elements involved
14 in the tobacco industry. The Commission must find a way to
15 provide meaningful input for these interested parties or I
16 believe its conclusions will be given little weight by dark
17 growers.
18 I agree that many of the problems in the tobacco
19 family are complex, but in order to solve them, I'm
20 hopefully we can find a way to bring the dark tobacco
21 manufacturers and other tobacco family members into a
22 process to resolve them.
23 I want to stress to this Commission, there is a
24 major difference between dark tobacco producers and burley
25 and flue-cured producers. There is a major difference
43
1 between dark tobacco manufacturers and cigarette
2 manufacturers. The smokeless tobacco industry is minute
3 when compared to the cigarette industry. The relationship
4 between the smokeless tobacco industry and the dark tobacco
5 growers is excellent. The relationship between the
6 cigarette industry and burley producers is less than
7 desirable.
8 Please remember that just because something is
9 good or bad for the cigarette industry may not mean it is
10 good or bad for the smokeless tobacco industry. The price
11 support program has worked well for dark tobacco producers.
12 We agree it needs some fine tuning. We would like to see
13 the quota in the hands of the growers, but those with the
14 quota now must be compensated fairly. The grading and
15 selling process has problems which can and should be
16 changed. The grading and -- I believe we should all be
17 working within the industry to make improvements within the
18 system. We want to be a part of the solution.
19 The other part of this Commission is to protect
20 the public health. A major underpinning of the core
21 principles that is and was the basis of this Commission
22 calls for FDA regulation of the manufacturers. And I think
23 it's important to stress, manufacturers. I personally don't
24 want or expect FDA inspectors to ever be allowed to enter
25 the farm community. I have talked to many of my
44
1 manufacturers, the smokeless tobacco manufacturers, and they
2 are still scratching their heads when you talk about FDA
3 regulation. These companies have been manufacturing tobacco
4 products in the U.S. since the 1800s. They comply with
5 government regulations over labels, ingredient submissions,
6 advertising, marketing and distribution already. What
7 further good will duplication of FDA regulation do for the
8 public health? None of the FDA regulatory proposals I have
9 heard about in Congress have the farmer -- leave the farmer
10 alone. Even the so-called First Bill, which contains
11 specific language regarding FDA personnel coming onto the
12 farm property would dramatically affect the production of
13 tobacco on the farm.
14 No distinctions are made between components, which
15 occur naturally in tobacco leaf, and other components that
16 are added during the manufacturing process. Giving federal
17 regulators the power to regulate components in the leaf
18 itself means you have given federal regulators the power to
19 change tobacco production on the farm, plain and simple.
20 Farmers understand this new expansion of power would affect
21 them deeply. I might add, they also understand that such a
22 new expansion of federal power to regulate the tobacco plant
23 itself has absolutely nothing to do with you smoking. I
24 hope the Commission will give that their consideration.
25 I stated earlier that my area is tobacco
45
1 dependent. What good will come to my area if FDA regulators
2 -- regulation forces smokeless manufacturers and growers out
3 of business? It will take an artful balance by this
4 Commission to call for FDA regulation to this traditional
5 industry without causing unintended negative impact.
6 In summary, we represent only a small segment of
7 the industry. We have no big complaints about the system as
8 it currently is, however we see change coming and want to be
9 a part of it.
10 I do appreciate the opportunity to be here, and I
11 want to conclude on a positive note. I do appreciate the
12 focus on the Commission on the tobacco communities. There
13 are ideas within the Commission that we like and want to
14 explore, namely the idea of giving quota -- putting quota
15 into the hands of the growers. Again, many in my area are
16 tobacco dependent. Those that want to continue to be
17 dependent would like to have the opportunity to grow more
18 fine-quality tobacco and build their own nest egg.
19 MR. RICHARDSON: Thank you, Will Ed.
20 MR. CLARK: Thank you. And I know I'm overdone.
21 MR. RICHARDSON: Thank you, Will Ed.
22 Any questions of Mr. Clark?
23 (No response.)
24 MR. RICHARDSON: Thank you, sir.
25 (Applause.)
46
1 MR. RICHARDSON: The next person to testify is
2 Patrick Jennings, representing the Kentucky Farm Bureau.
3 Pat?
4 STATEMENT OF PATRICK JENNINGS
_____________________________
5 MR. JENNINGS: My address is 9201 Bunson Parkway,
6 Louisville, Kentucky, 40250.
7 As was said earlier, my name is Patrick Jennings,
8 I'm the Legislative director for the Kentucky Farm Bureau.
9 And on behalf of all the members of Kentucky Farm Bureau, I
10 want to thank you for giving us the opportunity to make
11 comments here today.
12 I think all of us in this room understand the
13 importance of tobacco to the Commonwealth of Kentucky.
14 Tobacco allows many families to maintain the viability of
15 their farming operations. What truly makes tobacco unique
16 is its ability to allow prosperity for small farmers. In
17 1997 Census of Agriculture conducted by the National Ag
18 Statistics Service showed that of the 45,000 tobacco farms
19 in Kentucky, over 35,000 of those were based on ten-acre
20 allotments or less. Kentucky Farm Bureau is committed to
21 maintaining the viability of tobacco and thus ensuring that
22 all farmers, both large and small, have a fair chance of
23 making a decent profit.
24 Kentucky Farm Bureau fully supports the tobacco
25 program. Since the conception of the program in 1938, the
47
1 Kentucky Farm Bureau has been proactive in promoting, and
2 when necessary tweaking the program to make it fit the needs
3 of tobacco farmers. We're carrying out that duty even
4 today. Kentucky Farm Bureau and North Carolina Farm Bureau
5 jointly hosted a meeting of all tobacco leadership entities
6 recently to discuss what changes needed to be made to ensure
7 the long-term viability of the tobacco program. That
8 meeting was held in Raleigh, North Carolina. We're planning
9 another meeting in Louisville and plan to have a date picked
10 soon.
11 We believe that two components of the tobacco
12 program, the price support and the quota systems, help keep
13 the small farmer in business. Tobacco would still be grown
14 in Kentucky if the program became obsolete, but it would
15 probably be grown by a selective few. Without the program,
16 thousands of small farmers in Kentucky would be forced off
17 the farm and into other less desirable occupations.
18 Many in the burley belt -- excuse me, many in the
19 burley belt believe that the current contracting program by
20 one of the manufacturers will kill the tobacco program.
21 Some wonder how successful the pilot program on contracting
22 has been and will be. I believe that contracting is here to
23 stay. I would predict that in the next few years, many
24 other manufacturers will begin contracting for the burley
25 that they buy, assuming that Kentucky Farm Bureau believes
48
1 the tobacco leadership organizations in Kentucky and other
2 states must work to ensure that the program adapts to
3 survive the contracting system.
4 Kentucky Farm Bureau believes that the first steps
5 in helping the program survive through contracting are to
6 ensure that all tobacco sold receives the grading fee, and
7 that all burley and flue-cured tobacco, whether sold through
8 the contract system or the auction system, must be graded by
9 a federal grader.
10 As you know, the Agricultural Marketing Service
11 trains and provides graders for tobacco. This year, the
12 budget for the AMS grading department was cut because such a
13 large amount of tobacco was sold under contract and thus did
14 not pay a grading fee. The grading fee must be collected on
15 all burley and flue-cured tobacco to adequately fund the AMS
16 grading department. Some would say that since the federal
17 graders do not grade contracted tobacco that producers
18 shouldn't have to pay that grading fee. However, those
19 producers still have the option to reject the contract price
20 and sell their tobacco on auction using a federal grader.
21 In essence, they would be paying a minuscule amount to
22 maintain the viability of the tobacco program.
23 Next, the Kentucky Farm Bureau believes all burley
24 and flue-cured tobacco sold should be graded by a federal
25 grader. AMS graders allow producers to have an arm's-length
49
1 transaction with the tobacco manufacturers. Also if AMS
2 measure the quality of tobacco sold, they would more than
3 likely be grading on the basis of a federal price support
4 program.
5 I also believe it would be beneficial to combine
6 some of the grades that we currently have. By consolidating
7 some of the many grades, one would simplify an, at times,
8 confusing system. This action would also help maintain the
9 program.
10 Kentucky Farm Bureau believes that the program can
11 and needs to be slightly adjusted to ensure that the quota
12 and price support system live under a contracting system.
13 However, I believe it is important to thank Senator Mitch
14 McConnell and others in the Kentucky Congressional
15 Delegation for allowing us the time that we need to discuss
16 and make needed changes in the program. The Senator's
17 action to declare the 1999 drought-stricken pool stock a
18 disaster was a monumental feat in Congress. Having worked
19 some time on Capital Hill myself, I can assure all of you
20 that Senator McConnell's action was not easy to accomplish,
21 and based on the opinion of tobacco in Washington, D.C., it
22 was nothing short of miraculous.
23 Removing the 1999 pool stock from the system was a
24 turning point for burley tobacco producers. Many who had
25 previously planned to leave the farm, now see a ray of hope
50
1 and are staying in the tobacco business. Tobacco leaders
2 have also been given a gift, because Senator McConnell's
3 initiative gives them the time they need to make fair and
4 equitable changes to the tobacco program.
5 I would lastly like to mention the public health
6 issues surrounding tobacco. Kentucky Farm Bureau
7 discourages smoking amongst youth people in this and other
8 nations, and our policy speaks for that. We think it is
9 good governmental policy that when funds are allocated for
10 youth smoking programs, that the purpose of those funds be
11 broadened to include programs centered towards curbing youth
12 consumption of drugs and alcohol. We also believe these
13 worthy programs should be structured with sufficient
14 safeguards and accountability.
15 While we discourage youth smoking, Kentucky Farm
16 Bureau feels that, as long as people in this world use
17 tobacco products, they should use America's tobacco
18 products. Therefore we are opposed to excessive taxation of
19 tobacco products in America which forces companies to buy
20 more tobacco from overseas.
21 Again, I want to thank you for allowing me the
22 opportunity to represent Kentucky Farm Bureau here today.
23 The organization I work for has one interest in mind, and
24 that is representing Kentucky tobacco producers. We welcome
25 the help of any organization whose primary goal is ensuring
51
1 the long-term prosperity of tobacco producers. And I thank
2 you again.
3 MR. RICHARDSON: Thank you, sir.
4 Any questions of Mr. Jennings? Lynn Carol?
5 MS. BIRGMANN: Mr. Jennings, thank you.
6 I wanted to ask you a question about your views on
7 contracting and what effect over time it might have on the
8 smaller growers in the eastern part of the state?
9 MR. JENNINGS: I think it fully depends, as I
10 mentioned, on whether or not we can maintain a quota system
11 and a price support system. I think that by -- if you can
12 restructure the current program to maintain the price
13 support system, that the risks involved for those producers
14 is somewhat smaller than what it would be if you didn't have
15 that.
16 I think that it's very feasible to be done through
17 Congress, and I don't want to speak for the Legislators who
18 have to make that happen. But based on conversations that
19 we've had, and I think all the tobacco organizations are
20 unified on that, that the program can be altered to minimize
21 the risk to those producers.
22 MS. BIRGMANN: One more question. What are your
23 views on the companies actually going directly onto the farm
24 to negotiate the contract, as opposed to having some sort of
25 central office that would help growers, particularly maybe
52
1 the smaller ones, to negotiate the contract?
2 MR. JENNINGS: Kentucky Farm Bureau right now is
3 working with the Burley Co-op to try to find some state
4 legislation that provides protection under the contract
5 existing. We're basing what we're doing on the Iowa
6 legislation, the Attorney General contracting model, and I'm
7 sure some of y'all are familiar with the Producer Protection
8 Act. We've taken that -- excuse me, and tried to alter it,
9 sort of to fit Kentucky, to fit the needs of tobacco
10 producers, to make sure that those producers who do contract
11 have sufficient protection and information they need to
12 negotiate their own contracts, without having to go through
13 a commission in Frankfurt or Louisville, or wherever it
14 would be, that would negotiate it for them.
15 So I guess, again, my statement on that is, if you
16 can provide them with the time they need to look at their
17 contracts, make them simple for them to read, that most
18 farmers can make their own decisions on that.
19 MR. RICHARDSON: Ron, I believe you had a
20 question?
21 MR. SROUFE: Mr. Jennings, we've heard a great
22 deal of talk the last couple days regarding contracting and
23 so forth, and the motives of large tobacco companies. Why
24 are so many farmers signing up for contracting, they're --
25 if they believe that this is not to their long-term benefit?
53
1 MR. JENNINGS: I think definitely the price
2 incentive that the companies have offered has helped make
3 the decision for a lot of producers. To be quite honest
4 with you, I think some producers are looking at this and
5 thinking that if they don't sign up now, they might not be
6 able to sign up in the future. So they're trying to get on
7 board as quickly as possible.
8 The manufacturers have been very aggressive in
9 recruiting producers, and I think the overriding key of it
10 is is that there's some fees that they don't have to pay
11 currently by not going to the auction system. And that,
12 coupled with the price incentives the companies have
13 offered, have led many producers to make that decision to
14 contract.
15 MR. SROUFE: Thank you.
16 MR. WHEELER: Mr. Jennings, at some point would
17 you submit to the Commission how you might combine some of
18 those grades so that we can just -- you don't have to do it
19 now, but just so we'd have the benefit of your thinking on
20 that?
21 MR. JENNINGS: Sure.
22 MR. WHEELER: Thank you.
23 MR. JENNINGS: If I can have help from Rod and
24 others.
25 MR. MYERS: Mr. Jennings, if I could ask one
54
1 question, have you guys at the Farm Bureau looked into how
2 you're going to maintain an export market in the face of
3 contracting for domestic production?
4 MR. JENNINGS: We haven't specifically looked at
5 that. Right now most of our efforts have concentrated on,
6 number one, making sure the program can survive with that,
7 and also making sure the producer has protection under the
8 contracting. So to answer your question, we haven't really
9 looked at that option of it yet, because -- of course, as
10 y'all know, this has been thrown on us pretty quickly, and
11 there's a lot of things that we have to discuss and talk
12 about.
13 MR. SHEPHERD: In flue-cured, in particular, we're
14 quite concerned that, as we move toward contracting --
15 historically, as much as 60 percent of our production has
16 been for export use. And quite honestly, if the warehouse
17 system is destroyed by contracting, what avenue would the
18 states or whomever have to have a situation where those
19 foreign purchasers, how could they come in here and buy the
20 roughly half of the U.S. flue-cured -- and I don't know what
21 percentage of burley? But I think we need to consider our
22 foreign customers also.
23 Because so far, at least in flue-cured, all we've
24 seen is contracting for domestic production needs. And
25 quite honestly, I'm real concerned about throwing away half
55
1 of our quota just to jump on contracts for domestic
2 production. And I think the farm organizations and the
3 farmers themselves need to understand that fact real plain.
4 We've already lost half our quota. I would certainly hate
5 to lost another half of what's left in a -- in a mad surge
6 to contract, because we're afraid we won't get one if we
7 don't do it real quickly. And I'm speaking as a producer
8 now.
9 MR. JENNINGS: Sure.
10 MR. SHEPHERD: And I -- you folks may need to look
11 at that in your organization, also.
12 MR. JENNINGS: If I can respond quickly to that, I
13 think also that, coupled with what we need to do, something
14 I hope this Commission will think about, currently tobacco
15 is not included in the export enhancement program or the
16 market access program. Both programs funded by the federal
17 government, administered by the USDA. And in my opinion,
18 those things have cut somewhat into the amount of export
19 that we have. And something that -- I feel like tobacco is
20 like any other commodity in this country, and I hope those
21 restrictions will be removed soon.
22 MR. RICHARDSON: Any other --
23 MR. WHITE: Do you know what percentage of burley
24 is exported versus domestic?
25 MR. JENNINGS: I don't, but I know Will does.
56
1 MR. RICHARDSON: Dan, Will, one, can you help him
2 on that?
3 MR. JENNINGS: Will says about 25 percent.
4 MR. WHITE: Export?
5 MR. JENNINGS: Export.
6 MR. RICHARDSON: Thank you, Mr. Jennings.
7 MR. JENNINGS: Thank you.
8 (Applause.)
9 MR. RICHARDSON: The next person to testify is
10 Scott Ballin, and I know Scott will stay within his time
11 limit, but let me please request that you stay within your
12 allotted times. Thank you.
13 STATEMENT OF SCOTT BALLIN
_________________________
14 MR. BALLIN: Thank you very much.
15 I appeared before the Commission yesterday in
16 Raleigh, and so I'm going to summarize some of my
17 observations again, because I also think it's important that
18 this audience in Kentucky also hear some of the things that
19 were said yesterday.
20 First of all, I believe that the work of this
21 Commission is absolutely essential and critical. I've been
22 working with growers, and I come from a public health
23 background and I've been working with the growers for the
24 last four or five years, but I really go back even longer
25 than that. And I think that what has happened over the last
57
1 four to five years is absolutely remarkable, but it only --
2 it's really only the beginning of what needs to happen. I
3 mean, these are very, very complex issues, and even after
4 four years, I still don't understand the tobacco program and
5 how it works. And I keep hearing and trying to get more
6 information. So -- and I hope that the growers are going to
7 be listening to what the issues are from the public health
8 standpoint, and I'm going to address some of those today.
9 It's been my privilege to work with a lot of
10 members on the Commission, both on the health policy side,
11 which is, as I said, my background, but also on the
12 agricultural side. And I think the recognition that we must
13 come to grips with the public health consequences of tobacco
14 use, and at the same time find short-term and long-term
15 viable solutions for tobacco producers and their families is
16 absolutely long overdue. We've ignored this for more than
17 three decades, and we can't ignore it any more.
18 If there's one element that I would say that has
19 allowed the progress to go forward over the last four years,
20 it's the element of honesty, trust and integrity. And I
21 have found many of the farmers -- in fact, most of the
22 farmers I've dealt with, to have the highest standards of
23 integrity and trustworthiness. We don't always agree on a
24 lot of things, but I think that was what led to the
25 establishment of the core principles, and I think it's going
58
1 to be those kinds of elements that are going to be essential
2 in the coming months, and years, to accomplish what we want
3 to accomplish.
4 In the time that I have, I'm going to address
5 several issues for your consideration. These are my own
6 views, and I -- but I think they represent some of the kinds
7 of things I've heard and picked up over the last four years
8 from both the public health community as well as the
9 growers. Things where there is commonality, I think we can
10 make some significant progress.
11 First, I believe there's a unique opportunity
12 that's arrived that will allow us to fundamentally change
13 the way in which tobacco companies have conducted their
14 business for the last 45 years, and to craft a system that
15 protects public health and ensures the economic viability of
16 tobacco-producing communities. I know this involves dealing
17 with a lot of many overlapping complex issues, ranging from
18 production and growth right on through manufacturing, sale,
19 distribution and marketing of tobacco products.
20 It also means recognizing that there are new
21 technologies, there are new alternatives to tobacco being
22 developed, as well as new uses for tobacco on the horizon.
23 We've got a lot of commission boards allocating phase one
24 monies in all the tobacco states, and I think those are
25 important things that need to be looked at by this
59
1 Commission, what's already going on and how does this fit
2 into what the Commission's objectives are.
3 So I would strongly recommend that the commission
4 look at what kind of system is going to be needed in the
5 future to be able to deal with these issues on an ongoing
6 basis, that involves decision making that includes public
7 health people, that includes the agriculture committee and
8 policymakers, so we don't have to keep coming back and
9 trying to correct problems, that we have a system in place
10 that's going to deal with these things in the future.
11 I also want to suggest that that be done, first of
12 all, on the governmental side, that we need that operation,
13 and that agencies like the EPA and the USDA and the FDA
14 should be part of that process. And there needs to be input
15 on an ongoing basis.
16 I would also suggest that we need a private sector
17 agency or entity of some sort, a non-profit organization
18 that actually brings and continues the work that we put
19 together up to this point, to deal with these issues, to do
20 policy development, to do lobbying in the states and the
21 regions, and nationally, to look at how to resolve some of
22 these problems. This Commission's recommendations and
23 proposals are just the first step. A lot of work will have
24 to be done in the coming months and years by a lot of
25 different organizations.
60
1 Some mention has already been made of the FDA this
2 morning, and I want to address that issue because this has
3 been something that I have been passionate about for many,
4 many years. And I believe that the growers shouldn't fear
5 the agency as much as they do. And I think they should
6 embrace it as a logical and next step for ensuring proper
7 controls over labeling and sale and distribution and
8 marketing of all manufactured tobacco products. The FDA is
9 the key public health agency charged with ensuring that all
10 manufactured products, including drugs, devices, foods,
11 cosmetics, are properly manufactured and fairly marketed.
12 Why, when we know that tobacco does cause disease and is
13 addictive, should they be treated any differently? If the
14 FDA can regulate a package of broccoli, why can't it
15 regulate tobacco -- a package of tobacco? Just as many
16 tobacco farmers believe there should be a tobacco program,
17 because it protects their interest, the public health
18 community believes the FDA is the cornerstone to the public
19 health community's national agenda.
20 So we need to have a regulatory agency in place
21 that can deal with the complex health and safety issues in a
22 flexible and ongoing manner. Growers who choose to stay in
23 the production business need to be thinking about these
24 issues now, and I would think that this is an opportunity
25 for growers and health groups to continue the dialogue about
61
1 where this is all headed. And I would suggest -- and I've
2 suggested this in many talks to growers, go and talk to the
3 FDA about any concerns that you have, get those issues
4 resolved now. Don't wait for a political fight. It's not
5 in your interest and it's not in the public health
6 community's interest.
7 Also I want to reiterate that the public health
8 community is generally supportive of the concept of a buy-
9 out for tobacco farmers, as one way of reducing the growers'
10 economic dependency on tobacco. And I think you've heard
11 that reflected in some of the comments of the Commission and
12 others who are here today. I would also suggest that people
13 shouldn't fear excise taxes as much as they do, especially
14 if there's an opportunity to allocate some of those excise
15 taxes to grower needs.
16 And I think that the core principles speak very
17 carefully and accurately when it says that any portion of an
18 excise tax, the public health community is very willing to
19 look at either allocation of a federal tax, or a state tax,
20 to going to assist some of the tobacco growers. It may be a
21 buy-out, it may be economic development, I think that those
22 are issues that the Commission needs to be thinking about.
23 But I don't think that excise taxes should be ruled out,
24 just because of past history and the opposition of taxes by
25 the tobacco companies.
62
1 Remember -- and I would hope that growers will
2 look at just how much the tax has increased compared to the
3 actual price that the companies have put on consumers. Just
4 take a look at a chart that's in the "False Friends" report.
5 You will see a significant difference between the price
6 increases that the companies have saddled with the consumer
7 versus what the federal excise tax has actually done. I
8 hope you'll take a careful look at that.
9 I want to also mention that I think that, for both
10 domestic and international reasons, I believe that some type
11 of tobacco program governing the production of tobacco needs
12 to be seriously considered by this Commission. I don't
13 think it means preserving the status-quo of what the tobacco
14 program has been, and I think that some of the things that
15 I've heard today, there is some new thinking in this area.
16 I encourage growers and health groups to continue to work in
17 those particular areas.
18 A program of production and price controls in my
19 view must also include standards for issues related to the
20 health and safety of the leaf as well as issues related to
21 what's reconstituted tobacco, use of pesticides, how tobacco
22 is handled, and other testing requirements that I think will
23 be the future requirements, both by the FDA as well as USDA
24 and EPA, as we look at the complexity of the tobacco issue.
25 Many growers fear that, if the tobacco program is
63
1 eliminated, the growers will be at the mercy of the tobacco
2 companies who will dictate contractual terms for production.
3 I believe that if contracting is coming, I would suggest to
4 the Commission that you consider ways of maintaining a
5 program, but you look at ways of building contracting into
6 that system, that gives the farmers and the cooperatives the
7 primary responsibility and authority for defining the terms
8 and parameters under which such contracts are entered into.
9 I also want to make some comments on foreign
10 tobacco. One of the charges of this Commission is to
11 consider the tobacco-related health consequences, not just
12 in the U.S. but also abroad. What occurs here in the U.S.
13 affecting production and manufacture of tobacco and tobacco
14 products also affects what happens overseas, and vice versa.
15 I think U.S. growers and the public health community here in
16 the U.S. are in a very unique position in helping how to
17 shape tobacco production as well as the health issue on a
18 global basis as well.
19 It is interesting that there are those that argue
20 that the plight of the tobacco farmer is the result of
21 public health policies and reduced consumption. A look at
22 the facts says otherwise.
23 Manufacturing plants and leaf processing plants
24 funded by and built by U.S. tobacco companies are springing
25 up all over the globe. Companies purchase tobacco at rock-
64
1 bottom prices, and there are few controls over health and
2 safety. I think we need to be concerned about this.
3 I've got one minute left. I would -- I want to go
4 back to something I started out by saying about the
5 cooperation. If anyone had asked me just a couple of years
6 ago what the state of tobacco would be in the next five to
7 ten years, I would have given them a very, very different
8 answer than I do today. Much progress has been made, but
9 much more needs to be accomplished. There's no one answer,
10 there's no one solution that will resolve the challenges
11 facing tobacco-producing states, or which will accomplish
12 our public health objectives. Quick fixes, Band-Aid
13 approaches must be replaced with short-term and long-term
14 planning that involves a broader spectrum of people and
15 organizations living and working in the tobacco-producing
16 states.
17 Health organizations in these states and the
18 agricultural organizations in these states must have a
19 better understanding of each other's goals and objectives.
20 Health organizations should not be viewed as anti-tobacco,
21 and growers in a community should not be identified as pro-
22 tobacco, but as pro-farm families and communities. Whether
23 it's public health or whether it's farming communities, we
24 are in the people business. We want to see a quality of
25 life preserved for future generations, and I believe that
65
1 this can be done.
2 Thank you.
3 MR. RICHARDSON: Thank you, Scott. I don't think
4 I said, Scott is a tobacco consultant -- tobacco and health
5 consultant from Washington, D.C.
6 MR. BALLIN: Well, I'm a resident of the
7 Commonwealth of Virginia.
8 MR. RICHARDSON: That's true.
9 MR. KUEGEL: Scott, in your statement, you said
10 that tobacco farmers shouldn't fear excise taxes, but we do.
11 MR. BALLIN: I know you do.
12 MR. KUEGEL: Every one of us in this room fear
13 excise taxes. Part of the reason that we fear excise taxes
14 is because just last week one of the companies told me
15 directly that, if you pass an excise tax, it will be the
16 beginning of the end. If we lose the program, it's the
17 beginning of the end. If we lose the price support, it's
18 the beginning of the end. We just about think we're there.
19 But convince me, if you can, after we witness what
20 happened with the McCain deal, and we see a dollar figure
21 that starts through Congress and it builds and builds and
22 builds, and finally it gets so big it's one of the biggest
23 bills that's ever been negotiated in Congress. Tell us why
24 we should not fear that any move that we would make to
25 implement an excise tax is not one that could be of
66
1 detriment to our own health?
2 MR. BALLIN: Well, I think you're talking about
3 the possibility of a Christmas-tree effect, that once the
4 door is open then everything else is going to be added on
5 again.
6 I think that the Commission has to sort through
7 those issues. I mean, what your charge is and what you're
8 trying to accomplish, you maybe want to very -- be very
9 specifically focused on how those excise taxes are to be
10 allocated. Some of it may be very narrowly focused on the
11 growers, and some of it may be focused on some public health
12 initiatives. But I think that you're making a very valid
13 point. I think the objective needs to be, what are the
14 problems, what is it going to take to solve those problems,
15 what is the funding requirements, and to look at those
16 things.
17 I would hope that this Commission would make some
18 very specific recommendations on taxes, and what they should
19 be allocated to. And I would hope the growers and public
20 health groups would look at those things as they approach
21 Congress or their state houses and decide whether they can
22 support those things. I think a lot of work and energy and
23 discussions need to take place before we get to that point.
24 I think so much happens that we -- that is thrown on the
25 legislative tables and is reactionary, a reaction against
67
1 things or for things.
2 I think you are in a very unique position to
3 assess all the difficult issues and come up with some very
4 specific recommendations on how taxes should be raised, and
5 how they should be allocated, that people could actually
6 look at before going to a legislature.
7 MR. KUEGEL: Do you think that -- that the
8 possibility exists that public health and the tobacco
9 communities could put forward a proposal that could be
10 specific and limited to and not be tacked on to, and added
11 on to, to go through and introduced on the floor of the
12 Congress?
13 MR. BALLIN: Well, I think that's a question that
14 you're going to have to ask some of your fellow
15 Commissioners. I think it's possible. I mean, you and I
16 have talked about this over the years, that I think we have
17 to approach some of these things on a piece-by-piece basis.
18 You know, if we put everything all on the table, then I
19 think we're -- you know, as what happened in McCain, we have
20 a lot of problems and nothing gets passed. But I think if
21 we identify certain issues and try to address those issues,
22 I think it can be done. I think the purpose of this
23 Commission is to do just that, and I think that having the
24 leadership of the public health community sitting on this
25 Commission, as well as leadership from the growers, I think
68
1 something can be crafted. And I would hope that health
2 groups and grower groups in both the tobacco states, and on
3 a regional basis as well as nationally, would endorse such
4 an effort.
5 It doesn't mean that other proposals will not be
6 put on the table, but I think that focusing on what you're
7 trying to do here should be narrowly focused and presented
8 in that fashion to Congress, or to your state legislators,
9 whatever those proposals may be.
10 MR. RICHARDSON: The next person to testify will
11 be Mr. Paul Perito, and he's from Chester, Virginia and he's
12 Chairman and President of Star Scientific, Incorporated.
13 STATEMENT OF PAUL PERITO
________________________
14 MR. PERITO: Mr. Chairman, members of the
15 Honorable Commission, distinguished guests and members of
16 the American farm family, my name is Paul Perito and I'm
17 Chairman and President of Star Scientific. I'd like to take
18 this opportunity to thank each of you for allowing us to
19 share our views with you and to support the crucial work
20 that you have and the daunting task in a short period of
21 time.
22 Let me say initially that we do not believe that
23 public health interests and interests of the American farm
24 community are at odds. Star is very committed to ensuring
25 the viability of the American tobacco farmer and the
69
1 American tobacco farm family by providing the American
2 tobacco farmer with new tools and new technology to compete
3 more effectively in the world market.
4 Star Scientific does support the quota system,
5 recognizes that they -- that it may need some adjustments in
6 the manner in which quotas are set and price supports are
7 established. I am not an authority in that area, I am not a
8 farmer. I have Jim Jennings with me, who is our vice
9 president for grower relations and a third-generation
10 farmer, and Dr. Harold Britton who has consulted with us and
11 has overseen our testing program. And they are far more
12 able than I am to respond to those questions.
13 Star Scientific believes that it has and can
14 provide the American farmer with an opportunity to be a part
15 of the solution to the continued adverse health consequences
16 associated with long-term smoke and smokeless tobacco use.
17 We believe Star's record of performance demonstrates that we
18 have been a catalyst for positive change in the cigarette
19 industry that has been too long insensitive to broader
20 societal responsibilities.
21 Unlike most conventional tobacco companies, we are
22 a small public company involved in technology in tobacco
23 with a health-centered mission. One of our purposes is to
24 attempt to demonstrate the potential -- the potential, and I
25 underscore potential -- viability of production of less
70
1 hazardous tobacco products. We take our responsibilities
2 very seriously in that regard. We have developed, over a
3 five-year period, a technology that substantially reduces or
4 precludes the formation of tobacco-specific nitrosamines,
5 considered by respected health and medical authorities to be
6 among the most powerful and abundant cancer-causing agents
7 in tobacco and tobacco smoke.
8 However, we believe that we have a responsibility
9 in so doing to share with the consumer of tobacco products
10 that that doesn't mean that we can produce a safe product.
11 Indeed, we don't believe any manufacturer can produce a safe
12 smoked cigarette product. One of the things that we have
13 attempted to do is provide full disclosure of what we are
14 doing and what our products contain.
15 Star Scientific's goals and initiatives all derive
16 from our acceptance of the harsh realities of the global
17 tobacco market. Worldwide, we have 1.2 billion of our
18 fellow citizens who take smoke deeply into their lungs every
19 day, and as a result, in excess of four million will die
20 prematurely from smoking-related illnesses. What does that
21 mean? Notwithstanding these harsh realities, it's unlikely
22 that any rational legislator, a member of Congress, will
23 embrace prohibition. Given that reality, there is an urgent
24 need to manufacture tobacco products in the least hazardous
25 fashion possible, given available technologies. We believe
71
1 we have one of those technologies.
2 Now the Surgeon General has stated that clearly in
3 his recent 29th report. Lessening the toxicity of all
4 tobacco products needs to be a compelling reality. It is
5 Star's position that good science should drive tobacco
6 product manufacturing and that technology centered on the
7 delivery of less-hazardous toxins and cessation ought to be
8 the standards for measurement in the 21st century, not upon
9 Madison gimmickry or cartoon characters. We are committed
10 to ensuring the future prosperity of the American farmer.
11 And if I may take another minute, Mr. Chairman?
12 We have been able to demonstrate during the past
13 24 months that the process of large-scale, commercially-
14 feasible production can be effected in a rational and
15 responsible fashion. We have introduced a new product in an
16 attempt to prod the industry to focus on the viability of
17 producing less hazardous or potentially less hazardous
18 tobacco products, in face of the unfortunate situation that
19 we not have comprehensive regulation by FDA of the
20 production, manufacturing and marketing of tobacco products.
21 Our second step we believe is critical. And that
22 is to assist the American farmer to be competitive. Forty-
23 five percent estimates of leaf used in the United States is
24 foreign. We believe that by providing a superior
25 technology, the American farmer can compete more effectively
72
1 with its foreign producers.
2 Star's new propriety curing process has
3 significantly altered, we believe, the manner in which
4 tobacco is traditionally handled. We have been able to
5 produce, vis-a-vis flue-cured tobacco, tobacco with
6 exceedingly low levels, namely below 200 parts per billion.
7 We thank you for this opportunity to be here and
8 to provide you with our views. I would be happy to answer
9 any questions that you have. If questions are beyond my
10 kin, I would refer to either Dr. Burton or to Mr. Jennings.
11 And ladies and gentlemen, your work is crucial, and I am
12 awed by the fact that you have a task where you have to
13 complete a preliminary report by December 31. Best of luck.
14 MR. MYERS: Thank you, Mr. Perito. Questions?
15 Cass?
16 MR. WHEELER: Mr. Perito --
17 MR. PERITO: Yes, sir.
18 MR. WHEELER: -- does Star support FDA regulation
19 for --
20 MR. PERITO: Yes, sir, we --
21 MR. WHEELER: -- production, manufacturing and
22 marketing?
23 MR. PERITO: Yes, sir, we do. And in our policy
24 statement articulated in June, our third statement in that
25 policy statement, which is attached to my statement, states
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1 unequivocally that the lead health agency ought to be the
2 FDA and we need FDA regulation. And frankly, I believe we
3 were the only company that, at the time, in March, when the
4 Supreme Court rejected the jurisdictional methods of FDA, we
5 stated that the 107th Congress needs to address this. And
6 we need an even playing field.
7 In order for us to compete, and for other
8 companies that hopefully that will have equal or better
9 technology, we need to have an equal scientific playing
10 field. Right now we don't have it. And the only way that
11 we can -- we think we can, in fact, prod the industry, as
12 well as attempt to demonstrate the commercial viability of
13 potentially less hazardous tobacco products is through
14 competition and full disclosure.
15 If there was an FDA in place, they could say the
16 standard on TSNA levels is 200 parts per billion or less.
17 Those that can compete in that wouldn't have to say a word.
18 The World Health Organization stated that they believe
19 there's a critical need to set limits on smoking
20 constituents, particularly TSNAs, and specify progressive
21 reductions. And brands unable to conform should be excluded
22 from that country's markets. We agree with that, sir.
23 MR. MYERS: Other questions?
24 MR. CAMPBELL: Yeah, one question.
25 MR. PERITO: Yes, sir.
74
1 MR. CAMPBELL: How soon -- the sense of how soon
2 you can bring to market the technology that could make these
3 less hazardous products?
4 MR. PERITO: Well, let me respond to that two
5 ways, sir. First, we have in test market now in Kentucky
6 and Virginia a new product called Advance. We believe it's
7 the first premium cigarette product that delivers
8 substantially less TSNAs, and we use what has been
9 recommended by many respected health officials, namely a
10 combination activated charcoal and acetate filter to reduce
11 other gas-phase toxins. For example, acrolein, hydrogen
12 cyanide, benzopyrenes.
13 But we could not bring that to market responsibly
14 unless we did something that no other company is doing. We
15 have full information on the complete back of the pack,
16 which starts out, "there can never be a safe cigarette", and
17 ends with "cessation should be the first option", and it is
18 better -- it is better to quit than to switch or smoke. And
19 to add informational package inserts, very much like a
20 pharmaceutical, that give the smoking constituents.
21 Now we are hopeful that we will have enough burley
22 in this harvest so that we can integrate our burley into
23 this. It's all U.S. flue-cured. It's selective burley
24 because we did not have enough. We are hopeful that,
25 ultimately, we can produce a product with only U.S. flue-
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1 cured and burley tobacco. That's our objective.
2 Frankly one of the appalling issues to me is that
3 most people outside this country think American blend equals
4 American tobacco, and it doesn't. And we would like to
5 bring that reality to market. We also are hopeful, within
6 the year, of -- within this coming year, to produce at least
7 two new smokeless tobacco products, where we believe we
8 can -- we can be able to say, and scientifically prove, that
9 they have virtually unidentified levels of tobacco-specific
10 nitrosamines. We believe we can get them down that low.
11 MR. CAMPBELL: Notwithstanding the disclaimer that
12 you have to put in --
13 MR. PERITO: Yes, sir.
14 MR. CAMPBELL: -- does the science lead you to be
15 able to talk about the degree of safety of products?
16 MR. PERITO: No.
17 MR. CAMPBELL: It doesn't lead you that far?
18 MR. PERITO: Unfortunately, it doesn't. I believe
19 it's based upon -- I'm a creature of my experience. Thirty
20 years ago I was deputy drug czar at the White House. And
21 one of the things that shocked me was -- and we were
22 focused on heroin and cocaine and stimulants and depressants
23 -- shocked me to find that the greatest mortality and
24 morbidity was in smoked tobacco use. And I wondered why at
25 that time companies didn't focus on reducing nitrosamines.
76
1 And they weren't. They -- most major companies knew about
2 this for 40 years.
3 We believe that the science to be able to say that
4 will take several decades, as you -- as those on the panel
5 far more experienced than I know, that the onset, for
6 example, of cancer might be 20 or 25 years. It may take a
7 couple of decades for us to get sufficient scientific
8 information so that we can make a, quote, health claim.
9 However, in the interim, we think there is no
10 compelling reason, if we have the technology that can either
11 preclude or substantially reduce a series of known
12 carcinogens and other known toxins that affect
13 cardiovascular and pulmonary disorder, not to do it. But
14 our challenge, particularly in this unfortunate window of
15 unregulated product production, is to teach the consumers
16 that they have a right to make an informed choice, even
17 though we cannot say that a reduction in exposure to certain
18 toxins is equated with a reduction in health risk, because
19 we can't prove that.
20 MR. MYERS: Mr. Perito, unfortunately we have to
21 move on, but let me ask you two quick questions --
22 MR. PERITO: Yes, sir.
23 MR. MYERS: -- to see if I understood you
24 correctly.
25 As a tobacco executive, what I thought I heard you
77
1 saying was that you actually need FDA to be able to look at
2 your product so that you can, with some degree of certainty,
3 communicate to the American public?
4 MR. PERITO: Absolutely. And --
5 MR. MYERS: But what I thought I also heard you
6 saying was that you needed FDA as well -- you thought FDA
7 jurisdiction, under those circumstances, would actually
8 benefit the family -- the American farmer because it would
9 allow it to set standards that would put the American farmer
10 at a competitive advantage over their overseas competitors?
11 MR. PERITO: Without doubt. Without doubt.
12 MR. MYERS: If we have other questions, why don't
13 we submit them to you. We have a lot of witnesses, we need
14 to move on today.
15 MR. PERITO: Thank you. Thank you for your time.
16 (Applause.)
17 MR. MYERS: Pat McMillian from the Maryland
18 Department of Agriculture. Thank you.
19 STATEMENT OF PAT MCMILLIAN
__________________________
20 MR. MCMILLIAN: Thank you, Mr. Chairman, and
21 members of the Committee. I'm Pat McMillian, I'm
22 representing the Maryland Department of Agriculture today at
23 the request of Secretary Burts.
24 Many people who aren't from Maryland are often
25 surprised to hear that we grow tobacco there. We have --
78
1 approximately one percent of the cigarette tobacco produced
2 in the United States is Maryland-type tobacco. Maryland has
3 been in this game for probably as long as any state in the
4 country has, at least 375 years. There is currently a small
5 amount of Maryland-type tobacco that is grown in
6 southeastern Pennsylvania.
7 Because we are such a small part of the picture,
8 we find it's often necessary to remind people that we exist.
9 If we were growing a burley or flue-cured tobacco, it might
10 not be necessary or relevant, but we happen to be the only
11 cigarette tobacco in the United States that is not produced
12 currently under a quota program.
13 We have, in the past, had a quota program in
14 Maryland, it was voted out in the '60s, but it remains an
15 option available to Maryland tobacco growers, should they
16 choose, when that referendum comes up periodically. But we
17 find that we are -- our tobacco growers are under a
18 tremendous amount of stress, in the absence of a quota
19 program, and probably would be if we had a quote program.
20 They're facing many of the same economic difficulties
21 tobacco producers around the country are.
22 The general concern that we would like to raise
23 and ask for your consideration, as you go through
24 deliberations and formulate recommendations for the
25 President's consideration, is to be mindful of the fact that
79
1 we -- that there is a small amount of tobacco produced for
2 cigarettes that isn't grown under quota. A lot of your
3 issues are going to relate to the quota program, and our
4 concern would be that the proposals for assistance to
5 tobacco growers would be formulated so closely to the quota
6 that it might potentially exclude the -- any consideration
7 of our growers in Maryland.
8 And even though they're just one -- we represent
9 about one percent of cigarette tobacco, for those growers,
10 that's 100 percent of their income, many of those farmers.
11 So it is an important issue in our southern counties of
12 Maryland.
13 I know you are all aware that we have initiated in
14 Maryland a program to offer farmers the opportunity to get
15 out of tobacco production. And it's being characterized as
16 a buy-out program. Again, we're not buying quota, farmers
17 in -- who want to make a clean break from tobacco are being
18 given an opportunity to have a stable source of income for a
19 period of time, to give them the opportunity, free up their
20 management time and their resources to pursue other farm
21 enterprises. This has just been launched, and as -- before
22 I came, I checked and I understand that, at this date, as
23 many as a quarter of the tobacco farmers in the state have
24 indicated their interest in participating. And that's only
25 following a few weeks after this was made available to them.
80
1 So I think that reflects the kind of pessimism that our
2 tobacco-growing community has right now, as far as any
3 future that exists for them in the tobacco industry.
4 I would offer some proposals that maybe you won't
5 hear as much from because I know so much of your attention
6 is going to be concentrated on the quota program. But we're
7 going down this avenue, given the unique situation that
8 we're in. Even though we -- farmers are being offered an
9 opportunity to get out of tobacco, I can tell you that
10 nobody has an answer to exactly what they're going to do
11 when they stop growing tobacco. And there is a general
12 concern that we could see farmers succumb to the temptation
13 in southern