6 Executive West Hotel

7 Louisville, Kentucky

8 Friday, November 10, 2000













21 Also Present:

22 DOUG RICHARDSON, Staff Director

23 CHARLES HATCHER, Designated Federal Official








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










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










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,






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






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






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






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.






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.






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






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






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.






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.






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






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






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.






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






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






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






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.






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.






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?



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






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






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






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






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






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






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






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.






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






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?






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.


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






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.


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






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.






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






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.


25 MR. WHITE: I guess this is kind of a rephrasing






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






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.



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






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






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






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?



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






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






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






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






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.)






1 MR. RICHARDSON: The next person to testify is

2 Patrick Jennings, representing the Kentucky Farm Bureau.

3 Pat?



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






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






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






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






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






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






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?






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







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






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.


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.






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.



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






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






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






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.






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






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.






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






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-






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






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






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






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






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.



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






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






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






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






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






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.






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-






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.






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






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.



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 --






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






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.






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 Maryland just to simply get out of agriculture

14 all together, and there are no end of willing buyers that

15 would like to take that farm land and convert it to other

16 uses. So we have to face the very real possibility we could

17 lose our critical mass necessary to even have the potential

18 for other alternative farm enterprises.

19 One area of assistance that I -- you maybe won't

20 hear from other folks, but it's very relevant to what we're

21 trying to do is farmland preservation efforts. We have a

22 very ambitious program in Maryland to offer farmers an

23 opportunity to get equity out of their land in exchange for

24 the development rights, but there's not enough money to do

25 it, and certainly not in this scenario. I think that the






1 Secretary would like to convey to you the -- that that would

2 be very useful, if there were some additional resources

3 found to help offer that opportunity for farmers to get some

4 equity out of their land as we go through this transition

5 period, to try and find other crops that are viable

6 alternatives to tobacco, and nobody knows exactly what

7 that's going to be right now.

8 Others would -- generally any programs that could

9 attract private investment in those tobacco-growing areas,

10 that would create opportunities for farmers to develop

11 alternative farm enterprises, which again, aren't entirely

12 clear right now exactly what those are going to be, as any

13 tobacco farmer, I'm sure, in Maryland would tell you, and

14 probably elsewhere in the country.

15 So that's the general recommendations and the

16 request that we would have of you, is that you stay mindful

17 of the fact that we've got that little bit of tobacco up

18 there that's not dealing with quotas, but any changes in

19 your quota program, I can assure you, would affect our

20 market in Maryland, no doubt about it. We tend to track

21 that burley market.

22 And I'm sorry, I didn't even see your zero there.

23 Thank you very much.

24 MR. RICHARDSON: Thank you, Pat, and we appreciate

25 you coming over.







2 MR. RICHARDSON: Any questions of Mr. McMillian?

3 MR. SHEPHERD: I would just like to say one thing

4 quickly. I graduated from the University of Maryland.

5 MR. MCMILLIAN: Oh, right. Right.

6 MR. SHEPHERD: And I've got some good folks,

7 friends of mine, that raise tobacco in southern Maryland.

8 So no doubt I'll keep what you're saying in mind, because

9 I've got some old fraternity brothers that will certainly be

10 mindful of that fact.

11 MR. MCMILLIAN: Thank you.

12 MR. SHEPHERD: But I'll guarantee you your views

13 will be taken into consideration.

14 MR. MCMILLIAN: Thanks very much, I appreciate

15 that.

16 MR. RICHARDSON: Maybe you shouldn't have answered

17 that.

18 MR. MCMILLIAN: What did your friends have to say

19 about the buy-out offer?

20 MR. SHEPHERD: They're the ones that gave me some

21 seeds several years ago to grow some Maryland tobacco.

22 MR. MCMILLIAN: Well, I know that Mr. Richardson

23 and I spoke, and he did want me to emphasize the point, this

24 was a grower-initiated proposal, and I can assure you it

25 was. It's voluntary, and it does come with strings






1 attached. It was not the will in Maryland, really, to put

2 state dollars into a program that would be perceived as

3 subsidizing tobacco production. And so there has -- there

4 is an obligation on the growers' part in order to

5 participate, that they do agree that they're stepping out

6 and making a clean cut from tobacco.

7 MR. SHEPHERD: And I've heard some different views

8 from some of your farmers.

9 MR. MCMILLIAN: Yes, I'm certain that there are.

10 MR. RICHARDSON: Lynn Carol?

11 MS. BIRGMANN: Could you -- could you just briefly

12 describe the formula for the buy-out?

13 MR. MCMILLIAN: It's based on the same data we use

14 to certify growers for the National Tobacco Growers

15 Settlement Trust. We looked at three years of sales data,

16 and they are taking those average sales for this three-year

17 period and offering farmers $1 a pound a year for ten years.

18 That's the buy-out proposal that's on the table now. And I

19 can't -- there could be some additional refinements or

20 others that --

21 MR. SHEPHERD: There was a transition payment,

22 too, I think.

23 MR. MCMILLIAN: There was a transition component,

24 but truthfully, I don't think there's any expectation that

25 farmers are going to take it. I don't believe we've had any






1 applications for it because it's just simply -- it doesn't

2 make economic sense to the alternative.

3 MS. BIRGMANN: And this -- it was financed by your

4 master settlement agreement?

5 MR. MCMILLIAN: It's master settlement agreement

6 revenue.

7 MS. BIRGMANN: State money, okay.

8 And the next question, if you could just real

9 briefly tell me, the -- so you're -- the farmers who are

10 opting for the buy-out are permanently retiring their quota,

11 or is the quota --

12 MR. MCMILLIAN: Well, again --

13 MS. BIRGMANN: -- the quota will remain --

14 MR. MCMILLIAN: -- we do not have a quota

15 currently, and haven't --

16 MS. BIRGMANN: Oh, that's true. Okay.

17 MR. MCMILLIAN: -- since the '60s. And what they

18 are doing is signing a contract, essentially, with the Tri-

19 County Council, which is a multi-county governmental agency

20 that's administering this program. And they're signing a

21 contract that they agree to give up, forever, any tobacco

22 growing.

23 MS. BIRGMANN: But they are permanently -- they

24 are permanently retiring from growing tobacco?

25 MR. MCMILLIAN: That's correct.






1 MS. BIRGMANN: That's correct.

2 MR. MCMILLIAN: That's correct.


4 MR. RICHARDSON: Any other questions of Pat?

5 (No response.)

6 MR. RICHARDSON: Thank you, sir.

7 MR. MCMILLIAN: Yes, sir, thank you.

8 MR. RICHARDSON: The next person to present

9 testimony is Danny McKinney, and he is the manager -- are

10 you the CEO now -- of the Burley Tobacco Growers Co-

11 operative Association. And before Danny starts, I want to

12 thank you on behalf of the Commission for providing the

13 refreshments for the group this morning. We really do

14 appreciate that. Thank you much.



16 MR. MCKINNEY: You're welcome. We live in a world

17 of bribes, so take it just as that.

18 (Laughter.)

19 MR. MCKINNEY: I'm Danny McKinney, I'm a tobacco

20 farmer, and I'm also the chief executive officer of the

21 Burley Tobacco Growers Co-op. My address is Post Office Box

22 860, Lexington, 40588.

23 The Burley Co-op in Lexington represents

24 approximately 150,000 farmers in five states. We do

25 administer the price support program. And as one politician






1 said about tobacco one time, if it's -- if it's good for the

2 farmer, we're for it, and if it's bad for the farmer,

3 brother, we're against it. And that's kind of the way the

4 Burley Co-op works, I think. And besides administering the

5 program, working on all the issues that relate to tobacco

6 farmers.

7 A lot of what I was going to talk about today has

8 already been said, so I'm going to hit some points, and then

9 move on. Doug reminded me yesterday that there was a five-

10 minute, and not to go over that.

11 The main point that I would make to this

12 Commission is that we've got to keep the program. I don't

13 think we want to return to the situation that we had in the

14 early 1900s here in Kentucky, where we had companies pitted

15 against farmers, farmers against farmers, we had the black

16 patch wars in the early 1900s, in Kentucky, and there was

17 more people killed during that time over tobacco issues

18 and -- or the marketing of tobacco, and so on, than there

19 was even in the Hatfield and McCoy feud. Very few people

20 have heard about those wars, but they were real, and it was

21 a really terrible time in Kentucky. And I don't -- again, I

22 don't think we want to return to that situation, of farmers

23 being pitted against each other. And that's what happens in

24 the absence of a program, I think.

25 In 1938, Congress basically looked at these 15 or






1 so tobacco-growing states and said, tobacco is too important

2 to their economy not to have it regulated. So since 1938,

3 we've had a tobacco program, production controls, price

4 stabilization, and it's worked. And in the absence of that,

5 then again, we're going to return to a situation that none

6 of us want to.

7 Contracting is a big threat to our program. I

8 think we all have to admit that it's here and it's here to

9 stay. And we've got to be able to work contracting into the

10 program or make the program work with program. I guess if

11 you'd asked the Burley Co-op six months or a year ago our

12 position on contracting, we would have had it banned in

13 Kentucky, and particularly in the tobacco-growing area. But

14 that's not going to happen. So we've got to figure out a

15 way that contracting can work with the program.

16 We need legislation on contracting. Farm Bureau

17 and others are working with the Co-op. There are 16

18 attorneys general in the states that have endorsed some

19 legislation, and we'll be moving forward with that. And in

20 the next session in Frankfort, we hope to accomplish

21 something on that.

22 We can't leave these farmers out here as

23 vulnerable as they are to contracting. Someone asked the

24 question of Mr. Jennings as to why were the -- why were so

25 many farmers signing up? Money is the big thing, but it's






1 also the threats that they receive. Either sign up now or

2 you may never get the opportunity again. And a lot of

3 farmers, out of fear, have had to sign a contract. We've

4 got to have some legislation to help that farmer, to make

5 sure that he's not standing there naked.

6 The program has worked, it can continue to work,

7 it can continue to provide an arm's-length protection for

8 our growers. It provides that protection for a small grower

9 as well as a large one. We've got to keep it in place. The

10 program doesn't sell a single cigarette, but it does provide

11 some protection for that small farmer, and if he's growing

12 500 pounds or if he's growing 500,000 pounds, that program

13 will -- levels that playing field for him.

14 I want to mention some work that Commodity Growers

15 has done on diversification. And I'm going to ask Karen

16 Armstrong Cummins, the administrator of that organization,

17 to submit to this group the information and a summary of

18 what they've been doing, and would encourage you to look at

19 that work, and encourage others to pick up on it.

20 And the final thing is, a lot of people worked

21 long, hard hours, months and even years on the core

22 principles. Many of you worked on those. Keep those in

23 mind. I think they're a basis for some good decision-making

24 on down the road.

25 Thank you.






1 MR. RICHARDSON: Thank you, Danny. Any questions

2 of Danny?

3 MR. SHEPHERD: I'd like to ask one.

4 Danny, when you were talking about the program,

5 are you saying that the Burley Cooperative is in favor of

6 retaining the program, or a program?

7 MR. MCKINNEY: I think we have to retain a

8 program, and I think the program that we have now can work.

9 But there probably has to be some fine-tuning done. And

10 what is the program? It's production controls, it's price

11 support, that sort of thing. And after 62 years, I guess we

12 would have to say that there's some fine tuning needs to be

13 done.

14 MR. MYERS: Yesterday we heard a number of

15 witnesses talk about their belief that the program was the

16 reason that American tobacco had become less competitive

17 overseas. This morning you've said, program absolutely

18 essential. To what extent -- it's not so much an issue of

19 blaming, but how do you balance those two interests?

20 MR. MCKINNEY: I suppose there are individuals

21 that would say that the program keeps the price artificially

22 high in the world, and it does. Now if -- when you admit to

23 that, then I suppose you have to also admit that, as you

24 keep the price higher, then you're less competitive in the

25 world. I'm not -- I'm certainly not going to be here






1 advocating a price support -- or a price cut, because our

2 Burley Co-op directors firmly stand on the price issue at no

3 cut. We do not want to take less, and I don't think the

4 health advocates want us to take less so that somewhere down

5 the road the companies get that tobacco cheaper.

6 We have to look at our price situation, and look

7 at how competitive we are in the world. Is that -- only way

8 to do that, is that cutting price? I'm not so sure.

9 MR. MYERS: So what would your recommendation be

10 then, if you were going to make an argument for a program,

11 can you give us the parameters and what's the best argument

12 for it?

13 MR. MCKINNEY: Well, the program, as we have it

14 now, with price supports and production controls, has to

15 stay in place. Now do we look at the number of grades that

16 Patrick Jennings was talking about this morning? Do we look

17 at the price of those individual grades? There is so much

18 there to be discussed, I'm not sure that it could all be

19 covered here today.

20 But I come back to say, price support for those

21 farmers and production controls, and protection for that

22 farmer.

23 MR. WHEELER: Could you tell us how you would work

24 the contracting into the existing program?

25 MR. MCKINNEY: One of the biggest threats that






1 contracting is causing right now is the fact that the

2 tobacco that has been contracted this year in burley will --

3 that tobacco will not have a grading fee paid on it. So

4 there's about 100 -- 110 million pounds that no grading fee

5 will be collected on, yet we're still trying -- we have to

6 maintain our grading service out here, those employees still

7 have to cover the entire burley belt. But yet, again, 100

8 million pounds are not going to be paying a grading fee.

9 Quite often, the farmers have been told in this

10 contracting deal, if you want to contract, you don't need

11 your tobacco graded, the company will grade it for you. And

12 if you don't like that, you can fall back to the program.

13 But unless we do something about the grading fees being paid

14 on all tobacco, there's not going to be a grading service.

15 And if there's no grading service, there's no price support

16 program.


17 But so -- to continue on to answer your question,

18 that's one of the things that we have to look at to make

19 contracting mesh in with the program. Just one thing.

20 MR. WHEELER: So the contracting is really back to

21 the grading, which is then back to the price support, versus

22 a particular price support as far as contracts are

23 concerned?

24 MR. MCKINNEY: The contract that the company has

25 signed with the grower specifies how much that grower will






1 be paid on certain grades. As the farmer brings his tobacco

2 to the contracting station, then a company employee looks at

3 that tobacco and decides what grade it is, and therefore

4 what price the farmer's going to get.

5 On the other side in the program, we've got a

6 third party doing that appraisal, a government employee.

7 And that is, again, a third party that offers that opinion,

8 rather than the -- the controlling company.

9 MR. RICHARDSON: Thank you, Danny, I appreciate

10 that.

11 MR. MCKINNEY: Thank you.

12 (Applause.)

13 MR. RICHARDSON: The next person to present

14 testimony is Marc Cammack with the American Heart

15 Association. Marc?



17 MR. CAMMACK: Good morning, members of the

18 Commission. My name is Marc Cammack, I live on a working,

19 tobacco-producing farm in Harrison County, Kentucky. Nearly

20 all of my life I have lived on a farm and have been directly

21 involved in the growing of tobacco.

22 I also represent the American Heart Association.

23 Currently I am the Chairman of the Board of the Ohio Valley

24 affiliate, which encompasses Ohio, Kentucky and West

25 Virginia. Being a part of these two groups provides me a






1 unique perspective of both viewpoints. The two communities

2 have joined, as you know, in our state through organizations

3 such as Kentucky Action and the Coalition for Health and

4 Agricultural Development, to work together in the spirit of

5 cooperation and with a commitment towards reducing disease

6 caused by tobacco products and ensuring the future

7 prosperity and stability of the American tobacco farmer, the

8 tobacco farm family and tobacco farming communities.

9 In many ways, the cooperation that's been

10 developed in the last three, four, five years has been

11 remarkable. To these ends, more than anything else we

12 consider today, we should all recognize the importance of

13 continuing the dialogue, which is what this is all about,

14 among all interested parties to achieve these objectives.

15 The health consequences of the use of tobacco are

16 well documented. No doubt others will speak to you today,

17 have spoken to you frequently, will substantiate this

18 premise. To the tobacco grower, the issue of production is

19 not one of end use or consumption of the product but one of

20 individual economic survival. Granted the landscape has

21 been muddied by several recent occurrences, actions,

22 including the tobacco -- actions by the tobacco processing

23 companies, reduction of the grower quota and revelations

24 about health consequences.

25 The trend in addressing the health issues seems to






1 be in the right direction, though much more remains to be

2 done. The tobacco farmers and the rural communities they

3 constitute continue to face grave uncertainty about their

4 future. The elimination of production and price control

5 quotas would be devastating to the American tobacco

6 producers. This would serve to expand domestic production,

7 as it moves from the traditionally-grown areas into new

8 areas, and would encourage overseas producers to increase

9 their importation of tobacco, over which there is less

10 control over the additives, the pesticides and other

11 unregulated processes.

12 I offer for your consideration one remedy for the

13 plight of the farmer. The voluntary buy-out of tobacco

14 quota. Those who choose the buy-out would be fairly

15 compensated for their allotment, if reimbursed at the rate

16 of $8 or more per pound. This would result in the reduction

17 of the number of people financially dependent upon tobacco

18 and the amount of domestic production.

19 The farmers that choose to continue under a

20 government program would then remain protected by USDA

21 regulations and the price support system. Coupled with the

22 buy-out, federal funds should be made available for rural

23 economic development for communities that are heavily

24 dependent upon tobacco income, and for agricultural

25 diversification and for worker retraining. Educational and






1 preventative programs should also be put in place or

2 enhanced, if existing, to further reduce the use and harmful

3 effects of tobacco products.

4 My son is a junior in college. He has been

5 actively involved in our farm operation for over half his

6 life, and has had the full responsibility for raising our

7 tobacco crop for the last five years. What he has learned

8 about work and commitment has been invaluable to him. The

9 income from the crop has made it possible for him to attend

10 college without the specter of sizable debt faced by many

11 students. His story is not unique.

12 The economic dependence on tobacco touches tens of

13 thousands of families and reaches to hundreds of millions of

14 dollars. The economic impact of America's health care also

15 reaches to hundreds of millions of dollars as a result of

16 tobacco use. Tens of thousands of families are affected by

17 the disease and death caused by its use. The goals of both

18 the health care advocates and the tobacco-producing

19 community are proper and pressing. May we continue this

20 dialogue to achieve the objectives of all in a fair and

21 equitable manner.

22 My thanks to the President for empowering this

23 Commission to -- and to you members of the Commission for

24 the opportunity to speak. Thank you.

25 MR. RICHARDSON: Thank you. Any questions? Rod?






1 MR. KUEGEL: Mr. Cammack, the -- you bring up an

2 interesting point there about voluntary versus a mandatory

3 buy-out. If we fund or if we recommend funding of a

4 voluntary buy-out, what would you foresee the topography to

5 look like in 20 years of the tobacco grower? Wouldn't we --

6 if it was just a voluntary buy-out, in 20 years, wouldn't we

7 be in a position to have to repeat it again, because the

8 quota then would be in the hands of people not producing

9 again?

10 MR. CAMMACK: That's possible. The -- I think

11 that the tobacco companies are going to buy their tobacco

12 somewhere, as long as the demand for the product exists. It

13 would be very difficult to speculate as to 20 years from

14 now, where they might purchase that tobacco. But I do think

15 that the issue at this point in time is the protection of

16 those people economically dependent upon the tobacco and the

17 protection of the American farm family.

18 And to do that, I think the most equitable way to

19 do that would be a buy-out, a voluntary buy-out. Those

20 people that choose to stay in the program might do so, but

21 based on -- I live in a rural community, I talk to a lot of

22 farmers, I talk to my representative who's very active at

23 the state level in the tobacco issue, I've talked to

24 warehouse owners, and I get the sense that a very large

25 percentage of people would accept a buy-out.






1 Now this is anecdotal, there is no survey been

2 done, there would be no say to substantiate that. But based

3 on casual conversation, there's an overwhelming sense or a

4 willingness on the part of people to get out of the

5 business. Particularly your smaller producers who, rather

6 than raise a small quota, would just as soon not fool with

7 it at all and take some sort of compensation.

8 MR. RICHARDSON: Any other questions?

9 MR. SROUFE: Mr. Cammack, are you recommending

10 that when the pound would be bought, that they would be

11 redistributed to other producers, or completely abolished?

12 MR. CAMMACK: I'm sorry, I didn't make that clear.

13 Those pounds would be retired. In other words, the people

14 that chose to stay in the program would continue grow the

15 remaining pounds that are left under the allotment system.

16 But those people that take the buy-out, those pounds would

17 be gone forever.

18 MR. SROUFE: Thank you.

19 MR. RICHARDSON: Thank you, sir -- I'm sorry.

20 MR. HILL: Yes. My question, don't you have the

21 sale of quota separate from land in place now?

22 MR. CAMMACK: Yes. And it would --

23 MR. HILL: Isn't that a voluntary buy-out?

24 MR. CAMMACK: Yes, it --

25 MR. HILL: And why -- why wouldn't the owners of a






1 quota that would accept a federal buy-out have not already

2 accepted a private buy-out?

3 MR. CAMMACK: I'm not aware of a private buy-out

4 of pounds which retire those pounds from the quota system.

5 I'm not aware --

6 MR. HILL: It wouldn't retire it, but the option

7 is there for a non-producing quota holder to sell to a

8 producing quota holder, right?

9 MR. CAMMACK: Exactly, yes. Yes. That option

10 does exist. There are two problems to that. One, it does

11 not retire the pounds from production, and two, there's not

12 much of that going on because of the price that's offered

13 for those pounds.

14 MR. HILL: That -- that would be my point. Why

15 hasn't there been that voluntary movement of the quota

16 from -- flowing from the non-producing quota holder into the

17 producer?

18 MR. CAMMACK: Probably more than anything else

19 would be the uncertainty of the future of the program. Very

20 few farmers are willing to pay much for an allotment from

21 another farmer or quota holder, based on his inability to

22 predict the future of his income. That has done -- that's

23 probably the biggest reason that that price has been

24 depressed.

25 MR. HILL: And therefore it's not attractive to a






1 potential seller?

2 MR. CAMMACK: That's right.

3 MR. WHITE: You mentioned in your statement about

4 the need for some funds and investments for community and

5 economic development, diversifying the economy of these

6 tobacco-dependent communities. I wonder if you had any more

7 elaboration on that? Any more thoughts on that?

8 MR. CAMMACK: Boy, that's a tough one. If you're

9 asking about diversity, I don't know where you go with that

10 one because, at this point in time, there's just simply not

11 anything legal that comes close to tobacco.

12 (Laughter.)

13 MR. CAMMACK: There have been all kinds of people

14 that have addressed that issue for years, and they just

15 simply haven't come up with anything else.

16 Now as far as money for programs, you know, five

17 minutes is really not a lot of time. But they don't

18 necessarily have to be new dollars or tax dollars. This

19 could be the oversight of some group that says, let's use

20 some of the tobacco settlement money for these programs,

21 that these programs appear to be aimed in the correct or in

22 the right direction to achieve the goals that we want. And

23 it might not be necessary to involve additional tax dollars

24 there.

25 MR. RICHARDSON: Any other questions?






1 (No response.)

2 MR. RICHARDSON: Thank you, sir.

3 (Applause.)

4 MR. RICHARDSON: The next person to testify is

5 Donald Smart. He's Chairman of the North Carolina Burley

6 Tobacco Commission -- Committee. Mr. Smart?



8 MR. SMART: My name's Don Smart, address is 6827

9 Rushfort Road, Clyde, North Carolina 28721.

10 I'm a full-time burley tobacco farmer from western

11 North Carolina. I come here today to speak on behalf of

12 7,000 burley tobacco growers in the great state -- part of -

13 - the western part of the great state of North Carolina.

14 And I'd like to say to you that burley tobacco pays the

15 bills and puts jingle in the pockets of those people.

16 From all the rhetoric we hear across the country

17 today, one would think that tobacco is the only ills this

18 country has, and that the only thing that's killing people

19 is tobacco. Cancer and heart disease, I admit, is a

20 terrible thing affecting every family in this country, but I

21 think tobacco's been used too long for the scapegoat to

22 cover up for our medical inefficiencies.

23 When the Surgeon General reported in 1964 of the

24 warnings on a pack of cigarettes, one out of four people

25 either died or had cancer. Today it's one out of three. I






1 think something else is causing our demise besides tobacco.

2 Fighting tobacco is a big business. If it was not, we would

3 not be assembled here today.

4 The American smoker and tobacco farmer have been

5 under the shadow of an epidemic of power-hungry, Puritan

6 bigots. The Clinton administration is an anti-tobacco ally

7 that's declared an all-out war on tobacco. It's no secret

8 that their intentions is to wipe tobacco off the American

9 landscape.

10 Total marketing quota for burley tobacco fell from

11 a high of 724 million pounds in '91 to 247 million pounds

12 this year. There is no doubt the western North Carolina

13 farm families have borne the brunt the administration's all-

14 out war on tobacco. The administration has piled tax upon

15 tax on tobacco products as a means to fund their spending

16 agenda. They demand taxpayer dollars for lawsuits against

17 the tobacco industry. In the time being, western North

18 Carolina tobacco farmers find it more and more difficult to

19 put food on their tables and pay their mortgages. The

20 Clinton administration must realize that its vendetta

21 against the so-called big tobacco only serves to hurt the

22 family farmers whose proud tradition of growing burley

23 tobacco stretches for generations across the state of North

24 Carolina. Tobacco production is not a crop, where I come

25 from, but a way of life.






1 Tobacco is the only cash crop western North

2 Carolina farmers can depend on year after year to pay the

3 bills and put jingle in their pockets. And folks, I know we

4 do more than grow tobacco. We run dairy, keep beef cattle

5 and grow the vegetables, and I'm tired of hearing about,

6 let's alternate crops. I left beans in the field this year

7 that I couldn't sell, and my broker said, son, those other

8 farmers, tobacco farmers out there are growing beans, we

9 don't need no more beans.

10 So we got three things, folks, we can do in the

11 tobacco situation. The way I see it, we can leave things

12 just like they are today, and American tobacco farmers are

13 going to perish. The situation right now is not tolerable.

14 The second thing we can do is we can -- if we tobacco

15 farmers are killing American citizens, then for God's sake,

16 take some of the billions of dollars you're getting out of

17 these taxes, excise taxes, and pay us off. We'll quit.

18 We'll turn our farms into concrete and quit. But if you're

19 going to do that, compensate the farmers on the 1997-'98

20 crop year when our production was at a level we could live

21 with. Don't compensate us on the 2000 year quota. It's

22 gone, we got nothing. If y'all pay us off now, we ain't got

23 anything to pay us for. That's not right.

24 Or you can do the third thing. Stop some of the

25 ridiculous attacks on the tobacco industry and quit taking






1 away a man's choice and freedom to decide whether he wants

2 to smoke or not. Don't tax me to death because I smoke. I

3 chose to smoke, it's my decision. Let us have the right to

4 do what we want to do.

5 And don't deny us access to foreign markets.

6 Today we -- the federal government will not let us try to

7 promote our tobacco products in other countries. We're

8 handicapped, we can't compete. And let's try to get the

9 production back up to the '97, '98 year level where farmers

10 can live. Folks, people are going to continue to smoke in

11 this country, and in the world, and somebody's going to grow

12 tobacco. And it ought to be the American farmer ought to be

13 the one doing it.

14 Now that's all I've got to say and I appreciate

15 you hearing my comments. I would like to say one for Mr.

16 Myers, he's a good man. I probably won't get to see him

17 again. But when the farmers back in Haywood County, we had

18 a doctor on our local health board, he was a good man, and

19 we fought over the smoking restrictions. And we kept

20 telling him in our county, there hadn't been a teenager

21 that's ever smoked that didn't finish school, but there's

22 been a lot of them didn't finish because they got

23 intoxicated. Well, he didn't believe us. And this past

24 weekend, that doctor buried his teenage son. He came home

25 from a fraternity party drunk, and he wrecked his sports






1 car. So I don't have to tell you fellows any more.

2 Thank you.

3 (Applause.)

4 MR. RICHARDSON: Thank you, Mr. Smart. Any

5 questions of Mr. Smart?

6 (No response.)

7 MR. RICHARDSON: Thank you, sir.

8 The next person to present testimony is Dr.

9 Franklin Dukes. He is the director of the Institute for

10 Environmental Negotiations, University of Virginia, and the

11 Southern Tobacco Communities Project.



13 DR. DUKES: Thank you.

14 MR. RICHARDSON: Thank you, sir.

15 DR. DUKES: I know one difference between this

16 group and other groups I work with is you all have gone

17 longer without a bathroom break than any other one, so

18 congratulations.

19 (Laughter.)

20 DR. DUKES: Thanks, Commission members --

21 MR. RICHARDSON: I'll tell you what, and they're

22 not going to get a lunch break, either.

23 (Laughter.)

24 DR. DUKES: Thank you for this opportunity to

25 speak and for listening as well. My name is Frank Dukes, I






1 am a mediator and I'm also director of the Institute for

2 Environmental Negotiation at the University of Virginia and

3 project director for the Southern Tobacco Communities

4 Project. I am at 1625 Robin Lane, that's Charlottesville,

5 Virginia 22911.

6 I know how important both elements of your charge

7 are. It is morally right and necessary to reduce the

8 premature death and illness that tobacco use produces. It

9 is morally right and necessary to sustain the economic

10 health of tobacco-producing families and communities.

11 Furthermore, it is not only right to do both, neither

12 problem can be addressed very well unless the problems are

13 addressed together.

14 I've been working on this exact problem for about

15 six and a half years. My role has been to help people work

16 together to find answers that make sense, that can work and

17 that are the right thing to do. It's been a privilege to

18 work with people of integrity, of creativity and of courage

19 who produced many positive and unforeseen changes, including

20 the core principles that help guide your deliberations.

21 It's not been my role to offer solutions, so I'm

22 not going to offer solutions. What I'm going to do instead

23 is offer you my ideas for how this problem can be addressed

24 together, what gets in the way of collaboration and what is

25 necessary to make collaboration and consensus-building of






1 this sort productive. This is true for whether this is a

2 commission or any other entity that seeks sustainable

3 solutions, based on our work with the Southern Tobacco

4 Communities Project, as well as other researchers and

5 mediators.

6 First, it's natural for us to associate and rely

7 only on those who share our views or our political

8 affiliation. But a set of problems of this sort won't be

9 solved that way. Any solutions that will be worked for the

10 long term must respond to and actively involve all of those

11 farmers, public health advocates, community and political

12 leaders affected by the problems.

13 Second, we often make decisions without the

14 information we need, so there needs to be available high-

15 quality information and the mutual exchange of that

16 information that is seen as credible by all the parties

17 involved. That means identifying jointly what you need to

18 know and ensuring that you get and share that information

19 before coming to any conclusions.

20 Third, we all make assumptions that we may not

21 even be aware of. Some of the more common and wrong

22 assumptions are that others know what we know, that people

23 don't change and because something has always been done a

24 certain way, it should continue to be done that way. Old

25 assumptions like these and others need to be identified and






1 then challenged. Not always overthrown but challenged.

2 Fourth, we often approach a problem by coming up

3 with an idea and then defending that idea against all

4 others. Instead, first take time to clearly identify the

5 problems that need to be addressed before coming up with

6 solutions.

7 One final comment about what it takes to solve

8 complex problems, we all have short-term needs and our most

9 common mistake is to sacrifice what is best in the long run

10 for those short-term needs. I'm going to say something that

11 might be a little different here. If I were a burley

12 tobacco producer, I would have been thrilled at the

13 announcement of the loan forgiveness. But I must report

14 other consequences of that short-term bonus on the long-term

15 issues. The way this was done has pitted burley against

16 flue-cured farmers. One political party against another.

17 It's raised the ire and attention of many fiscal

18 responsibility groups who otherwise were not unfavorably

19 inclined towards tobacco farmers, but who saw this slip

20 through Congress without debate. It's also hurt those

21 public health advocates who have been working hard, and very

22 publicly, to explain to their colleagues that the tobacco

23 program is good, that the tobacco program is not a subsidy,

24 and perhaps it has increased the risk to that program.

25 So in the long run, that loan forgiveness may






1 prove to have been a good thing, but it also may do more

2 harm than good. Long-term solutions will come from non-

3 partisan, inclusive efforts that build on high-quality

4 information, that challenge assumptions and that think

5 carefully about long-term consequences. The Southern

6 Tobacco Communities Project has helped provide opportunities

7 for many people who have been working together with

8 integrity, creativity and courage to learn from each other.

9 We're honored to do so, we'll continue to do so. I look

10 forward to hearing the ideas and recommendations that you

11 will be considering and expect that we will continue as well

12 to offer our help to those farmers and public health

13 advocates and others who want to consider and discuss those

14 ideas and recommendations together.

15 And to close with a little quote, one of my

16 favorite quotes from an old book called, "The Secret


17 Garden," "At first, people refuse to believe that a strange


18 new thing can be done. Then they begin to hope it can be

19 done, then they see it can be done, then it is done and all

20 the world wonders why it was not done centuries ago."

21 My hope is that your work will parallel that.

22 Thank you.

23 (Applause.)

24 MR. RICHARDSON: Thank you, Dr. Dukes. Any

25 questions?






1 MR. KUEGEL: I don't have a question -- Frank, I

2 don't have a question, but I have a statement. Two or three

3 inaccuracies in what you said about the burley loan

4 forgiveness that I want to point out and be sure that we

5 have in the testimony.

6 Number one is that all the flue-cured leadership

7 was aware of our efforts before we started with the loan

8 forgiveness of the '99 crop. Number two, it is not a

9 subsidy. We have from the -- its inception, and continue to

10 work for the destruction of that crop because that crop was

11 a disaster. And just because we're tobacco farmers doesn't

12 mean that we can't have a disaster. We had a disastrous

13 year in 1999. That tobacco never had a season the whole

14 time it hung in that barn. And we took -- we put the crop

15 out for bids, and the closest bid we got for about five

16 percent of the crop was an 85 percent discount.

17 And so it's been portrayed not only by the public

18 health groups as a subsidy, but as the press -- by the press

19 as a subsidy. And I take offense at that because it is not

20 a subsidy. We had a disaster. Corn farmers have disasters,

21 cattle farmers have disasters. And we had a disaster. And

22 that was a disaster assistance forgiveness, and it was not a

23 subsidy, nor will it be a subsidy.

24 MR. RICHARDSON: Any other questions?

25 (No response.)






1 MR. RICHARDSON: Thank you, sir.

2 The next person to testify is Mr. Mike Kuntz, and

3 he is the testifying representative of the American Lung

4 Association and Kentucky Action.



6 MR. KAISER: Greetings. Mr. Kuntz had a prior

7 commitment, he had a board meeting in Harrisburg, Kentucky

8 with the American Lung Association, so he's asked me to read

9 his statement on his behalf. My name is Paul Kaiser, I'm

10 the project manager for Kentucky Action, and -- good

11 morning.

12 My name is Mike Kuntz, I serve as the director of

13 education and advocacy for the American Lung Association of

14 Kentucky, as well as serving as the current chair of

15 Kentucky Action, a statewide coalition of over 60

16 organizations dedicated to decreasing the use of tobacco. I

17 live at 3114 Bobolink Road, Louisville, Kentucky 40213.

18 First, let me extend my appreciation to the

19 distinguished members of this Commission for your

20 willingness to serve and confront the critical public health

21 and agricultural issue. The American Lung Association of

22 Kentucky has been an active member of the Kentucky Health

23 and Agriculture Forum since its inception over five years

24 ago. We have signed the statement of core principles and

25 remain committed to continuing a constructive dialogue with






1 the agriculture community.

2 The tobacco industry has led the Kentucky farmer

3 down a primrose path. It is time for us to prepare for a

4 new future for agriculture in the Bluegrass, however it is

5 also time to finally acknowledge that tobacco is more than

6 just an economic issue related to agriculture in Kentucky.

7 Kentucky spends between 800 million and $1 billion every

8 year related to the treatment and care of sick smokers. 200

9 million of this total is in Medicaid alone. Tobacco kills

10 one-quarter of our citizens. Statistically, one Kentuckian

11 dies from tobacco-related disease every hour. Ninety

12 percent of these individuals began smoking as children. In

13 fact, 55 Kentucky children today will become addicted

14 smokers for life.

15 Yet the public health agenda in this state has

16 been held hostage by the interest of the tobacco companies.

17 For years, the fallacy has prevailed that a step for public

18 health would be a step backward for our farmers. Because of

19 this misconception, progress has been stifled. Recently

20 Kentucky has finally devoted some resources to tobacco

21 prevention, however it is only a small first step.

22 I speak for many in the health community when I

23 say we encourage this Commission to consider recommending

24 long-term solutions in three key areas. Number one, an

25 excise tax. The excise tax must be increased at both the






1 federal and state levels. It is no coincidence that, on

2 average, the states with the largest excise tax have the

3 lowest rates of smoking.

4 The excise tax in Kentucky, a mere three cents,

5 has been suppressed far below the national average of 42

6 cents. In fact, it hasn't changed in over three decades.

7 Increasing a Kentucky excise tax to just the national

8 average would lower the adult smoking rates by roughly five

9 percent in this state, and lower our youth smoking rates by

10 about eight percent. Moreover, this increase would generate

11 well over $200 million annually. This new revenue source

12 could be used for expanding tobacco prevention activities,

13 reducing the burden of tobacco-related diseases, funding

14 buy-outs of tobacco farmers or economic development

15 initiatives in tobacco-dependent communities.

16 Number two, the FDA. Congress must act to give

17 the Food and Drug Administration full authority over the

18 regulation of the manufacture, sale, distribution, labeling,

19 advertising and marketing of all tobacco products. This is

20 an essential part of the national, state and local effort to

21 keep tobacco out of the hands of youth, to provide legal

22 users of tobacco products the full and complete truthful

23 information that will allow them to make an informed choice,

24 and to ensure that quality control and health safety

25 standards are maintained in the production of tobacco, both






1 domestically and abroad.

2 Number three, local control. Local communities

3 must have the power to protect their citizens. Since the

4 late 1980s, thousands of communities throughout the country

5 have enacted local ordinances that restrict smoking in

6 public places or regulate the sale of tobacco to minors.

7 The strategy of community activism has proven very

8 successful. So successful, in fact, that beginning in the

9 mid-1990s, the tobacco industry responded with a counter-

10 strategy, using its political influence at the state level

11 to promote and encourage the passage of state laws that

12 preempt local control of tobacco. These preemptive laws

13 eliminate the authority of local jurisdictions to enact

14 their own legislation to control the smoking epidemic.

15 Unless these laws are repealed, communities in

16 Kentucky and many other states will be unable to implement

17 tobacco control policies that have been proven to work.

18 These three areas can yield the most improvement

19 in the arena of public health, and I encourage the

20 Commission to consider all three.

21 Again, thank you for your time and your dedication

22 to our family farms and our public health. I wish you the

23 best in this important endeavor. Thank you.

24 MR. RICHARDSON: Thank you, sir. Any questions?

25 (No response.)






1 MR. RICHARDSON: Thank you.

2 (Applause.)

3 MR. RICHARDSON: The next person to testify needs

4 no introduction, but I will have to call his name anyway.

5 Mr. John Berry, Jr. He will be testifying as an attorney

6 and a farmer.



8 MR. BERRY: Thank you all very much. Thank you

9 for the opportunity to let me speak here today, and for the

10 willingness on your part to serve. This is a formidable

11 task you've undertaken. You've placed constraints on us as

12 witnesses that I have trouble living within, so as a form of

13 self-restraint, I decided to write something last night. I

14 don't do this very well, so you all bear with me.

15 There will be a lot of talk and a lot of

16 discussion about alternatives and forms of diversification

17 that are available to our farmers. And there will be a lot

18 of discussion about the tobacco program and what needs to be

19 done to it, or may not need to be done to it.

20 I notice that the term -- terminology fine-tuning

21 has been used a lot today. Fine-tuning has been around for

22 a long time, in connection with making the tobacco program

23 better. I remember my dad said one time to me, when somebody

24 was proposing to fine tune the tobacco program, he said,

25 yes, and they'll get fine-tuned. And sure enough, today,






1 some of the things that need to be done to the tobacco

2 program are to reverse the fine-tuning of the past.

3 So I would urge you, when you're undertaking to do

4 that, to be careful. The fundamental concept behind that

5 program is sound because it's built around fairness and

6 decency. And it's the right thing to do. Don't take

7 chances on losing that program, it's the only thing we have

8 left. There are no other commodities in agriculture today

9 from which you can make a decent profit year in and year

10 out. If we're going to make a transition, we've got to use

11 it as the means to get there.

12 But instead, I've decided to discuss with you what

13 I see as your opportunities and responsibilities as a

14 Commission appointed by the President of the United States,

15 and by an Executive Order that in no way limits your

16 prerogatives. We all know that we have a problem. Nobody

17 needs to tell us that. And in Kentucky alone, we have the

18 legislature, our governor, numerous boards, commissions,

19 task forces, committees, farm organizations, et cetera,

20 trying to solve it. They all have the fundamental purpose

21 to help our farmers who have met with hard times.

22 Most of them have concurrent or overlapping

23 jurisdiction, many have duplication of membership but are

24 still working in different directions and often taking or

25 coming up with conflicting positions. There's a flurry of






1 activity and an abundance of energy and a ton of money being

2 devoted to fixing the problem. What comes out of all this

3 is everyone's and anyone's guess. But the outcome will

4 affect the lives of millions of people in the rural areas of

5 the tobacco-producing states, and may affect the lives of

6 people beyond that, who are connected with agriculture.

7 For the most part, I think that we are proceeding

8 without a vision. No one is asking the questions like, what

9 should the future of this country in rural America look like

10 50 years from now? Or who do we want to produce our food

11 and fiber, or whether our rural communities, family farms

12 and farm families are worth saving. Or most importantly,

13 what direction is our current farm policy leading, and is it

14 the direction we want it to take us?

15 It would be much easier for all of us to design

16 and build a road to the future if we knew where we wanted it

17 to go. The food policy of every country, and ours

18 especially, should be a dependable and sustainable supply of

19 food, sufficient to feed our own people to the extent that

20 our soil, topography and climate permit. The foreign policy

21 of every country, and especially ours, should include food

22 for those countries that cannot provide for themselves.

23 Maintaining the people, the land and the culture

24 necessary for these purposes would appear to be important

25 enough to warrant some discussion by our political leaders






1 and the media. The reason there is no vision is because

2 there is no such discussion. It is unfair to ask or entice

3 our farmers to continue to invest the same labor and capital

4 to produce crops that won't make a living, or in many cases,

5 even a profit. It is unfair to ask our farmers to engage in

6 direct free-for-all competition in a world market, with

7 farmers who are paid less than slave wages and where what

8 they sell sets the market. It is not right to ask our

9 farmers to be satisfied with filling niches, because the

10 mainstream of agriculture has been taken over by the large

11 national and multi-national corporations. It is the

12 cruelest kind of economics and public policy to take the

13 farmers' money and plan for the future where there is none.

14 This Commission is unique and distinguishable from

15 all the others. You're not limited by what it is possible

16 for governors and state legislatures of our various states

17 to do. You have the opportunity to tell the President of

18 this country your vision for rural America and the role you

19 want your farmers to play. And the extent to which this

20 nation's farm and trade policies permit that to happen.

21 You have an opportunity to bring public awareness

22 to this issue, and maybe even get the attention of

23 politicians, and you, who serve on this Commission who are

24 farmers have the opportunity to work with people who are not

25 farmers but who are as concerned about farmers as you are.






1 Your charge is to couple the effort to save farms and

2 farmers with the effort to save children. The effort to

3 save farmers must be coupled with the effort to create an

4 economy in which they can survive. You are uniquely

5 constituted, and as such can contribute something to this

6 overall discussion and task that is missing, and which is

7 absolutely necessary if we are to succeed.

8 You have a great opportunity, and as a result, an

9 awesome responsibility. And I challenge you to depart from

10 the course that's been taken by most who are involved in

11 this effort, and to be bold, and to address the subject that

12 will solve the problem, and not just heal the symptom.

13 Thank you.

14 (Applause.)

15 MR. MYERS: Thank you. Any questions?

16 (No response.)

17 MR. MYERS: Thank you again, Mr. Berry.

18 The next witness is Kelly Tiller, an Agricultural

19 Economist from the University of Tennessee.



21 MS. TILLER: Mr. Chairman, thank you for the

22 opportunity to speak before this Commission. My name is

23 Kelly Tiller, I reside at 1757 Arrowhead Boulevard,

24 Maryville, Tennessee 37801.

25 I'm an agricultural economist with the






1 Agricultural Policy Analysis Center at the University of

2 Tennessee working in the areas of tobacco policy and farm-

3 level economic analysis. Today in my remarks, I'd like to

4 present some general economic data related to tobacco

5 production and the tobacco program, focused primarily on

6 Tennessee burley, and also summarize some of the dialogue

7 and concerns of the Tennessee tobacco working group.

8 Tobacco has played an important role in Tennessee

9 for generations, and as you see in the chart here, tobacco

10 remains a vital source of income in Tennessee today,

11 contributing more than one out of every $10 in all

12 agricultural receipts in 1999, and leading all crops in cash

13 receipts. Tobacco cash receipts in Tennessee in 1999

14 totaled $218 million, accounting for 22.6 percent of all

15 crop cash receipts.

16 No other major crop in Tennessee comes close to

17 generating the level of income that tobacco does. The

18 average per acre value of production for tobacco in 1999 was

19 $3,794 compared to $252 for cotton, $199 for corn and $86

20 for soybeans. Net income per acre averages nearly $2,000

21 for tobacco.

22 I don't have to tell you this, I'm sure, but

23 burley tobacco quotas have declined about two-thirds since

24 1997. Assuming the manufacturer purchase intentions change

25 little over the 2000 level, I think assumption, the 2001






1 quota could increase 30 percent. While this projection is

2 considerably more optimistic than the outlook appeared only

3 a short time ago, a 30 percent increase in the 2001 basic

4 quota still only results in a basic quota of about 55

5 million pounds in Tennessee next year. Tennessee has

6 historically marketed less tobacco than the annual quota,

7 allowing significantly higher effective quotas to buffer the

8 impacts of recent quota reductions.

9 If we look at the same burley basic and effective

10 quota, as well as the pounds produced and marketed, you'll

11 see that during the '90s, tobacco production in Tennessee

12 has averaged about 100 million pounds. While the basic

13 quota dipped below the historical production average in

14 1999, effective quota remained sufficiently high so that

15 acreage and production were not significantly affected. In

16 fact, production in 1999 was at its highest level since

17 1994. Projections for the 2000 marketing year are for a

18 reduction of 94.5 million pounds, but with an effective

19 quote of -- in year 2000 of 87 million pounds, indicating

20 that the declining basic quotas have now eroded that buffer

21 of protection of the effective quota.

22 The result is that, despite a more optimistic

23 outlook for quota next year, Tennessee growers will still be

24 forced to reduce tobacco acreage drastically in 2001 as

25 effective quota continues to decline.






1 If basic quota in Tennessee increases by 30

2 percent in 2001 to 55 million pounds, assuming the '99

3 average yield of 1,920 pounds, tobacco acreage could decline

4 to under 29,000 acres in Tennessee in 2001. This would be a

5 reduction of more than one-third over the 2000 acreage, and

6 a 47 percent reduction from the 1999 acreage. So while the

7 prospect of increasing quotas in 2001 is certainly positive

8 for the tobacco industry, Tennessee burley production is not

9 expected to rebound to the levels of the last decade over

10 the next few years.

11 I'd like to talk a little bit about the economic

12 fundamentals of tobacco production. Because U.S. tobacco is

13 differentiated from foreign tobaccos, which implies a

14 downward sloping demand curve, supply restrictions are

15 effective in elevating U.S. prices, the basis or premise for

16 this federal tobacco program. Quota, or the right to

17 produce and market tobacco, then becomes an asset with value

18 and allows quota owners to exercise cartel rents via the

19 program. The program allows economic grants to be

20 transferred from producers and quota owners -- from

21 purchasers and producers to quota owners, which may or may

22 not then grow the tobacco.

23 The difference between the program price and the

24 economic cost of producing the tobacco is the rental rate

25 for quota, the mechanism for transfer of the rents for






1 purchasers and producers to quota owners. Price supports

2 are not very responsive when demand declines because they

3 are determined by a weighted average of changes in

4 production costs and historical market prices. The

5 effective result is that prices remain relatively constant

6 and supply is shifted downward via reduction in the quota

7 restriction. When demand declines, the quota declines

8 without reducing prices, the rental rate for quota

9 increases.

10 The policy of cutting quotas while maintaining

11 relatively stable prices tends to place more of the burden

12 of reduced market demand on growers than on quota holders.

13 As demand shifts downward, quotas decline and prices remain

14 relatively fixed. Adjustment in the market comes through

15 the rental rate which increases, thus quota owners recover

16 some of the value of lost quota by increasing the value of

17 the quota remaining.

18 The growers leasing a significant portion of the

19 quota he grows bears the brunt of the downward adjustment

20 through higher quota lease rates, though still benefiting

21 from the reduced risk of relatively stable prices. Quota

22 and income losses for U.S. producers are not expected to

23 recover in the near future. The industry demand curve for

24 U.S. burley tobacco has been shifting downward over the last

25 few years, and the forces responsible for that shift are not






1 expected to reverse.

2 The downward pressure on industry demand stems

3 from a number sources, including increasing imports of

4 foreign leaf, declining exports of U.S. leaf, declining

5 domestic consumption of cigarettes, movement of cigarette

6 production overseas, and legal and political uncertainty.

7 Relatively high stable U.S. prices, compared to world leaf

8 prices, and projections for continued declines in domestic

9 consumption of manufactured products and continued movement

10 of U.S. production overseas suggest that total demand for

11 U.S. burley is likely to be about a third lower over the

12 next few years compared to historical levels.

13 For nearly three years, I've been working with a

14 diverse group of tobacco stakeholders in Tennessee through

15 the Tennessee Tobacco Working Group. This group is a state-

16 level tobacco dialogue modeled after the Southern Tobacco

17 Communities Project. The goal of the group is to use the

18 core principles to identify areas of common ground among

19 participants, and to work together to strengthen the

20 economic vitality in Tennessee's tobacco-producing

21 communities while protecting public health.

22 About 75 individuals have participated in this

23 dialogue, representing the interests of growers and quota

24 holders, producer organizations, public health

25 organizations, warehouse operators, academic researchers,






1 state agencies and elected officials. What I'd like to do

2 is summarize some of the key issues and concerns of this

3 group.

4 During the summer of 2000, the Tennessee

5 legislature decided to use their initial tobacco settlement

6 payments, totaling over $200 million in the first year, into

7 two funds; one for public health, the other for agriculture,

8 which each receiving half of the current payment.

9 Legislators did not, however, determine any specific uses

10 for the funds.

11 Two legislative committees have recently been

12 established to make recommendations for specific uses of the

13 funds. Allocations will require the approval of the full

14 legislature during the next legislative session.

15 Tobacco stakeholders in Tennessee are very

16 concerned about potential uses for these funds.

17 Participants feel it's important that tobacco settlement

18 dollars be used to address tobacco issues, including

19 preventing and solving tobacco-related health problems and

20 ensuring economic vitality for growers and communities,

21 historically dependent on tobacco income.

22 The public health community has recently completed

23 a comprehensive state-level tobacco use reduction and

24 prevention plan for the state. Lack of adequate funding has

25 severely limited implementation of the plan, and






1 participants are interested in using a portion of the

2 settlement payments to fund this plan. Participants are

3 also interested in using the agriculture portion of the

4 settlement funds to provide economic assistance to tobacco

5 growers through development of alternative and supplemental

6 enterprises, marketing and assistance education, and

7 addressing long-term transition to changing tobacco markets.

8 Participants recognize that it seems likely that

9 the use of contracts in tobacco purchasing will increase,

10 exacerbating the trend toward fewer larger farms. Growers

11 are particularly concerned about the ability of the tobacco

12 program to accommodate significant portion of contract-

13 produced leaf. Although by no means specific to tobacco,

14 contracts in general impose some risks on producers, but

15 also have some producer benefits. Growers are concerned

16 that movement toward extensive contracting without

17 modification to the tobacco program will result in eventual

18 elimination of the program, leading to sharp declines in

19 prices, movement of production out of many communities

20 currently dependent on tobacco income, and asset losses for

21 quota owners without compensation.

22 I'm sorry, I had prior approval to speak for ten

23 minutes, but -- is that being accounted for?

24 Okay. I'm sorry, I'll wrap it up, then.

25 MR. RICHARDSON: Thank you.






1 MS. TILLER: In conclusion, the changing tobacco

2 markets and persistent uncertainty are resulting in a number

3 of unanswered questions and I commend you for addressing

4 these difficult questions here. But often these are

5 characterized by polarized views, and addressing these will

6 require careful examination, not just of current data but

7 also some new information. I think it's important that

8 estimation of regional costs of production, regional

9 identification of additional grower and quota owner,

10 demographic and economic characteristics, estimation of

11 price responsiveness under alternative market scenarios and

12 regional evaluation of available economic and ag development

13 resources will be important to address the questions that

14 are on the table.

15 Thank you.

16 MR. RICHARDSON: Thank you, Kelly. Any questions

17 of Kelly?

18 MR. WHEELER: We've heard a lot of testimony that

19 the tobacco program is broken. Tell me how you think it

20 should be modified?

21 MS. TILLER: How long do we have for this?

22 (Laughter.)

23 MS. TILLER: Well, if we go back to the graph

24 here, the way the program is structured right now, as I've

25 said, it does -- the benefit of quota is in the hands of the






1 quota owners rather than the producers. One possibility

2 that has been suggested would be to try to shift that value

3 to the growers, although that again raises a number of

4 questions that I'm sure you've been hearing over the last

5 couple of days, as to how to do that equitably and

6 efficiently to achieve the desired result.

7 I don't have the answers to all the questions

8 about how you can accomplish that, but I think that that

9 would be one requirement for a program to work effectively.


11 MR. MYERS: Yeah, what might be useful for us. I

12 know you can't do it in five minutes, but with the working

13 group with which you're associated, give some thought

14 quickly and provide us your best answer to that question.

15 Because we're going to have to answer that question, and the

16 more people who tell us what they really think, the more

17 likely we are to be able to make a recommendation that we

18 can develop a consensus and have a chance of it being

19 adopted. So that our request to you would be to go back to

20 your working group and spend some more energy on that, and

21 put it down on paper for us, and we'll share it. And you

22 can be sure it will be taken into consideration.

23 MS. TILLER: I'll do that.

24 MR. RICHARDSON: Any other questions of Kelly?

25 MR. WHITE: I'm just sort of learning a lot about






1 the tobacco program myself. But do you think it would be a

2 fair statement to say that, as a result of federal

3 government policy, that a tangible and negotiable asset was

4 created for individuals in the form of quotas?

5 MS. TILLER: Yes, originally the asset was created

6 attached to land, although it's come to be more of an

7 individual-owned asset in recent years.

8 MR. RICHARDSON: Any other questions?

9 (No response.)

10 MR. RICHARDSON: Thank you, Kelly.

11 (Applause.)

12 MR. RICHARDSON: Kelly, will your charts that you

13 used be a part of your testimony that you turn in?

14 MS. TILLER: They're included in it.

15 MR. RICHARDSON: Thank you.

16 The next person to testify is Mr. William Fritz,

17 and he is president of the Council for Burley Tobacco and a

18 Tobacco Farmer. Mr. Fritz.



20 MR. FRITZ: Hello, I am William Fritz from

21 Harrison County, Kentucky. I am a tobacco and beef cattle

22 farmer, and I am currently the President of the Council for

23 Burley Tobacco.

24 The Council for Burley Tobacco is a broad-based

25 organization representing the grassroots of the burley






1 tobacco industry. The Council represents the eight-state

2 burley belt region, and is funded by a check-off paid by

3 burley tobacco farmers in Kentucky. Through regular council

4 meetings, and coordination of the Burley Tobacco Steering

5 Committee, the Council for Burley Tobacco provides a forum

6 to consider and resolve problems facing the tobacco

7 industry.

8 To maintain unity within the industry, the Council

9 will not take a position on a policy unless there is a

10 unanimous agreement among all representatives. I would like

11 to thank the Presidential Commission for your interest in

12 the fate of our tobacco farmers, and for allowing me to

13 share my comments today.

14 Kentucky is among a very short list of states that

15 still has a family farm culture. The reason we have a large

16 number of family farms is pure and simple, because of our

17 tobacco production. Tobacco -- tobacco production requires

18 limited land and capital input, so it works very well as a

19 key that keeps our family farms in business.

20 Tobacco also is the only crop grown in Kentucky

21 that can produce excellent returns for large numbers of

22 family farms. The changes that have taken place over the

23 past three years are having and will continue to have major

24 impacts on our family farms, our agriculture business and

25 our rural communities. The effective quota for burley






1 tobacco has dropped from 880 million pounds in 1997 to 362

2 million pounds for 2000. The loss of 518 million pounds of

3 effective quota is just an unbelievable financial loss for

4 our farm families.

5 The reason that many of our farms are still able

6 to survive is simply because of the phase two tobacco

7 settlements and the government TLAPP, Tobacco Loss

8 Assistance Program Payments. We all know that this is not

9 the way to maintain our farms in the long-term. The phase

10 two payments are indexed to consumption, so these projected

11 payments are likely to drop in the future. And the TLAPP

12 payments are very uncertain and may not be available at all.

13 The tobacco program needs some changes, but it has

14 been, over the years, the most successful USD agriculture

15 program of all. The past year, the Burley Tobacco Steering

16 Committee has made several changes that will keep production

17 in line with demand, but additional changes are needed if

18 the program is to survive. Without a supply and control --

19 supply, control and price support program, the price of

20 burley tobacco would drop to or below the cost of

21 production. This would certainly destroy our family farms

22 and our family farm culture would be lost.

23 We are pleased that the Presidential Commission

24 will be looking at our family farms and how they are

25 impacted by key issues like price, quota, imports, exports,






1 the tobacco program, and so forth, in deciding what is -- in

2 deciding what is the right thing to do for these changing

3 times. Our future is in your hands.

4 Again, thank you very much. We at the Council for

5 Burley Tobacco look forward to working with you to solve

6 these very difficult problems.

7 (Applause.)

8 MR. RICHARDSON: Thank you, Mr. Fritz. Any

9 questions of Mr. Fritz?

10 (No response.)

11 MR. RICHARDSON: Thank you, sir.

12 The next person to testify is Julie Brackett,

13 representing the American Heart Association and Kentucky

14 Action. Julie?



16 MS. BRACKETT: Thank you. I'm Julie Brackett, I

17 reside at 4909 Southern Parkway here in Louisville 40214.

18 As Director of Advocacy for the American Heart

19 Association in Kentucky, I've worked for more than a decade

20 with volunteers and other voluntary organizations to

21 strengthen Kentucky's tobacco control laws, especially with

22 regard to protecting children. It should come as no

23 surprise to anyone here that the legislative victories we've

24 achieved since 1990 have been few and far between. And

25 while we've made progress in this area, Kentucky's laws






1 regarding youth access and clean indoor air are still very

2 weak compared to most other areas of the country.

3 I'm also a steering committee member for Kentucky

4 Action, a coalition of more than 60 organizations dedicated

5 to tobacco advocacy and education. Kentucky Action's most

6 recent policy campaign was called, Our Children, Our Future.

7 During the 2000 Kentucky legislative session, we lobbied for

8 $21 million annually of the state's tobacco settlement

9 monies to be allocated to tobacco prevention and cessation

10 efforts for youth. Truly historic was the fact that

11 representatives of the Burley Tobacco Co-op supported our

12 settlement plan. And Kentucky Action supported the concept

13 of 50 percent of the settlement funds being allocated to

14 agricultural efforts.

15 In the end, Kentucky legislators allocated just

16 over $5 million annually for tobacco prevention and

17 cessation programs. As was the case in many other states,

18 the amount allocated in Kentucky for prevention and

19 cessation efforts was just a fraction of the amount

20 recommended by the Centers for Disease Control and

21 Prevention. Still this allocation was historic in that it

22 was the first time state dollars had been allocated for

23 tobacco and health.

24 As president of the Coalition for Health and

25 Agricultural Development, or CHAD, I'm proud that CHAD has






1 been instrumental in convening the Kentucky Health and

2 Agriculture Forum for the past five years. Health advocates

3 had always been perceived as the enemy by tobacco growers, a

4 misconception heavily promoted by tobacco companies. Even

5 though we may not have fully understood the issues facing

6 tobacco farmers, health advocates never considered ourselves

7 anti-farmer. Indeed, we truly appreciate the importance of

8 public health in the broadest sense, including the health

9 and wellbeing of our tobacco farm families.

10 Those early meetings between health and

11 agricultural leaders were tense, often tedious, as we slowly

12 began to understand both sides of the tobacco issue and

13 began to break down barriers and look for areas of common

14 ground. The core principles statement developed in 1998 was

15 a tremendous step forward in the effort to work together to

16 accomplish our common goal. Dealing with livelihoods and

17 lives is serious business, to say the least. If the

18 impressive list of organizations and individuals who have

19 endorsed the core principles can agree on items like the

20 tobacco program and FDA regulation of tobacco products,

21 surely positive solutions can be achieved for both sides of

22 the tobacco dilemma.

23 As the parent of an eight-year-old daughter, my

24 highest priority is protecting my child from harm. I've

25 seen friends and loved ones devastated by the effects of






1 tobacco-related disease. And while I'll do everything in my

2 power to make sure that my daughter doesn't use tobacco

3 products, I'm painfully aware that 20,000 Kentucky children

4 begin smoking every year, and that a third of those will die

5 prematurely of tobacco-related disease.

6 As a parent and as a health advocate, I know that

7 more can be done to educate our children. But resources

8 must be available for that education, enough resources for a

9 truly comprehensive program on the scale of those

10 implemented in states like Florida, Massachusetts and

11 California. I know that raising our cigarette excise tax,

12 currently second-lowest in the country, will help to reduce

13 Kentucky's alarmingly high tobacco use rate. And I know

14 that strengthening local laws, allowing local communities to

15 address the tobacco issue, can be more effective than any

16 state-level effort.

17 As a native Kentuckian, I'm proud of our state,

18 its beauty, its traditions, the strength of our people.

19 It's important to me to preserve the rural landscape of the

20 tobacco-producing region and to help identify a viable

21 solution that will enable tobacco farm families to maintain

22 their way of life in a future less dependent on tobacco.

23 For too long, many have argued that tobacco-growing states

24 would be able to maintain the status quo. With tobacco

25 companies depending more heavily on cheaper foreign leaf,






1 and increasingly moving their operations overseas, now is

2 the time for American tobacco farmers to look to a new

3 future.

4 I'm pleased to be here today to provide these

5 comments. This Commission is the next logical step after

6 five years of discussions between health advocates and

7 tobacco growers, here and in the region. At the end of this

8 historic week in American politics, it is my sincere hope

9 that we can all put politics aside and enable this

10 Commission to effectively address the economic and physical

11 health of the nation's tobacco-producing states.

12 Thank you.

13 MR. RICHARDSON: Thank you.

14 (Applause.)

15 MR. RICHARDSON: Any questions of Julie?

16 (No response.)

17 MR. RICHARDSON: Thank you.

18 The next -- I started to say person, but people to

19 testify, my notes have been changed to say Martha and Keith


20 Parrish. And they are tobacco farmer and tobacco farmer's

21 wife from Benson, North Carolina.



23 MS. PARRISH: My name is Martha Parrish, I'm from

24 Benson, North Carolina. Honorable members of the

25 Commission, special guests, farmers and farm families, my






1 name is Martha Parrish. I live on a family farm outside of

2 Coats, North Carolina. I have a husband who is a farmer and

3 two sons.

4 Our oldest son has graduated from college and our

5 youngest son is a junior in college. My sons have watched

6 their dad struggle to keep the farm profitable and fight

7 farm issues at the same time. They see there is no longer

8 enough profit to support their coming home to farm. Their

9 hearts will be in the sandy soils of Harnett County, but

10 their income will come from their education.

11 I too worked off the farm at a school in our home

12 town. These are the reasons I feel compelled today to speak

13 my voice on the troubling issues of our tobacco farming

14 future. Here is my story.

15 I was born and raised on a small farm not far from

16 the farm we own and operate today. I along with my two

17 older brothers were raised when dad had a tractor and a

18 mule. I tried in every way to stay up with my brothers

19 because I thought they were cool. I remember many days

20 riding that mule in the field and pulling a drag of tobacco

21 behind us. I thought my job was important, but now I know,

22 dad probably put me there to get me out of the way, because

23 old Fuzzy always seemed to know where she was going.

24 The older I got, the greater the responsibility.

25 I remember dad would bellow, time to get up, at 3:00 in the






1 morning, to take out a barn so we could harvest tobacco that

2 day. At that moment, I despised farming and tobacco. Dad

3 would say, oh, someday you will be proud you had a chance in

4 life to live on this farm. It will mean everything to you.

5 I did not realize how quickly that thought would come to

6 pass.

7 As my children were growing up on the farm, my

8 husband and I would find ourselves saying the very same

9 words to them. On those bright and early mornings, we would

10 bellow to our boys, time to get up, we got to get to the

11 fields and be ready to start on time. I don't think our

12 boys were very happy at that moment, with the appearance of

13 sleep upon their faces. We would tell our children, oh, one

14 day you will be proud that you had a chance in life to be

15 raised on this farm. You'll see. One day you'll look back

16 and be proud of your involvement and what the farm has

17 taught you.

18 Now here I am, a decade or more later, speaking on

19 behalf of my family and other wives like me. I would like

20 to elaborate about some issues that are hitting home in

21 North Carolina, as well as Kentucky and other tobacco-

22 growing states. Farming has given us freedom to grow and

23 produce crop after crop for many years. The pride and joy

24 you feel when you have produced a splendid crop is

25 indescribable. The motivation and hard work you put forth






1 on a farm is simply incredible. Therefore, what I have to

2 say comes straight from my heart and mind.

3 We all know how farming has benefitted our states.

4 In North Carolina, we've built churches, towns, schools,

5 hospitals, streets, highways and so forth with hard-earned

6 money from the hands of our forefathers who farmed day and

7 night so that we could have better living standards and a

8 brighter future. None of us ever dreamed that it would come

9 to pass that fellow farmers would be standing in front of

10 you today saying, show us the money, put it in the farmer's

11 hand. Let us have a chance to decide how it will best

12 benefit our farms.

13 This is exactly how I feel. We have had so many

14 ups and downs, controversies and misunderstandings through

15 our own representatives in Congress. We have allowed so

16 many people to make decisions for us, telling us what is

17 best for the farming future. Sometimes we've had no other

18 choice. We were told to trust them, believe in them, they

19 will help us.

20 As for the nitrosamine issue, the company's own

21 scientists can't even agree. There has not been enough

22 research to justify farmers making changes and spending

23 their own money. Well, today I say, stop fiddling with our

24 money. If the quota system is on its way out, then pay me

25 for my loss, pay the eight and four to all the farmers and






1 quota holders. Treat all of us fairly, give us hope and the

2 great feeling that the people who are responsible for making

3 decisions about farmers' livelihoods did the right thing.

4 This is America. I, Martha Parrish, was living the American

5 dream, until one day someone got greedy and put their hands

6 in my purse.

7 If farmers here today are again having to trust

8 another group, which is you, I feel you have been chosen

9 because you have the expertise to compile the feelings, the

10 hurts and the accurate research of our financial

11 difficulties. I trust you will do the right thing. I trust

12 that it will weigh heavy on your hearts and minds. You will

13 not be led by those who can find another way for everybody

14 else to make money except the farmers. Money for our quota

15 and other losses, this is what I am asking. As soon as

16 possible, please, because time has almost run out. This is

17 truly what we, as farmers of the new millennium, hope and

18 deserve.

19 Thank you very much.

20 MR. RICHARDSON: Thank you, Ms. Parrish.

21 (Applause.)

22 MR. RICHARDSON: Any questions?

23 (No response.)

24 MR. RICHARDSON: As I do a lot of times, I did not

25 understand the note I was handed, so now I will introduce






1 Keith Parrish. Mr. Parrish.



3 MR. PARRISH: Doug, what I should do is just let

4 Martha say what she said and me not say anything else. I

5 certainly appreciate this opportunity to be here today.

6 I am Keith Parrish, a tobacco farmer from Coats,

7 North Carolina. I also serve on many boards that help set

8 policy for tobacco. Presently, I serve as the Executive

9 Director of the National Tobacco Growers Association, which

10 represents both burley and flue. I'm here today as a

11 fourth-generation tobacco farmer, and I love what I do, just

12 as I love the country in which I live today.

13 I've stood strong for farmers all through my life,

14 and fairness and common sense has been an approach to the

15 resolution of these many problems that we've had to face in

16 the past. I'm also very involved as a lead Plaintiff in a

17 federal suit called DeLoach versus Phillip Morris and

18 others. There's approximately 6,500 farmers from burley and

19 flue that have signed on to this, and are pleading for help.

20 Over the past three years, tobacco quotas have

21 been cut in flue and burley, as you all know. These cuts

22 were out of control of the growers. The tobacco

23 manufacturers have been in direct control of our program

24 since the '80s. We've been on a roller coaster ride that

25 never stops ever since then. It's served us well and






1 provided security, but it has also allowed for value to be

2 placed on quota. That value in the form of rent has created

3 higher prices and a cost added to our products that the

4 companies felt they had no return on. It placed our crop

5 well above world prices, and this problem, and our

6 unwillingness to vote out our program seems to have

7 initiated a plan by the companies to destroy the program

8 from within.

9 Planned quota cuts and a continued manipulation of

10 the auction system has put us well below any means to earn a

11 profit. Under these suppressed times, contracts are

12 suddenly being introduced. Every major tobacco organization

13 signed proclamations against contracts at a meeting held in

14 Lake Lanier, Georgia. Manufacturers have ignored these

15 pleas from burley and flue, and our willingness to make

16 changes demanded by them to our program has been fruitful.

17 The companies know that farmers have no choice but

18 to grab the first lifeline that they throw their way.

19 Survival is what we plead and desperation is what we feel.

20 Contracts just offer us a job, not our usual way of life.

21 We've problems and many of them under our present

22 auction system. We know that our auction is not an auction

23 at all, and we know that allocation, corruption and

24 intimidation are the norm. Tie bids are prevalent on all

25 markets, burley and flue. We must ponder what would our






1 prices received on the floor be if certain companies would

2 have allowed competitive bidding to take place.

3 It's my belief that we have very few choices. We

4 can stay where we are and watch the companies control our

5 future or we can stand together and make the necessary

6 changes. Our leadership must represent everyone. We must

7 make these changes and many of our leaders that we see were

8 offered -- and were the first offered contracts. We must

9 not allow personal gain and self survival to cause us to

10 forget our fellow man.

11 It would be great to maintain production control

12 and price support programs based on production cost. But

13 that may not be realistic. We must admit that we are not as

14 politically needed as we once were. Our numbers are smaller

15 and decreasing every day. We should go after the money, and

16 we know that we have -- just as my wife has stated before --

17 the only thing that can keep us in the business is to go

18 after the money today.

19 We have to take the value out of quota, and have

20 those who grow the quota in control of it. We need a plan

21 that allows no future value to accrue. You cannot achieve

22 this without a buy-out of quota and compensation to growers.

23 Make it a very simple and fair program, make the buy-out on

24 quota based on 1997 when our quota was at one of its highest

25 levels. A plan similar to what I'm talking about was one






1 that was presented to Congress as the amended Luger Bill.

2 If the freedom is what companies are really after and what

3 they desire, then pay those that are most damaged by the

4 things that have taken place in the past. The producers

5 must be compensated.

6 A buy-out plan that only allows us to produce

7 under contracts with no monetary compensation only makes us

8 slaves to the companies. We must have some independence,

9 and that only comes if we can afford to say no to contracts.

10 Fear is what's driving the contracts. We need bargaining

11 power, and that way we will not have to beg and take the

12 first contract that comes our way.

13 One of the major reasons farmers are demanding a

14 buy-out is the profit. There is no profit in growing

15 tobacco anymore. Fixed costs have quadrupled and

16 agriculture in general is in desperate times. I've not had

17 a single farmer tell me that he can pay out this year, not a

18 one. We're farming on our equity and that equity is almost

19 gone. Without checks from the Washington offices, many more

20 farmers will have to exit.

21 I beg the members of this Commission to be

22 realistic in its recommendations. Let fairness and common

23 sense be your guide. Please help us preserve our way of

24 life and let our young farmers have a future. Set free with

25 dignity those who wish to exit. We must not allow thousands






1 to perish when their only crime was that they played by the

2 rules.

3 Farm families are very proud, please allow us to

4 stay that way. Thank you.

5 MR. RICHARDSON: Thank you, Keith. Any questions?

6 MR. KUEGEL: Keith, first of all, stay out of your

7 wife's pocketbook.

8 (Laughter.)

9 MR. PARRISH: Yeah, well, she's the only one

10 that's working off the farm right now, so --

11 MR. KUEGEL: I know your organization has put

12 together a lot of thought about a buy-out. Have you or any

13 of your members of your organization come up with a way that

14 you thought was satisfactory in redistributing the license

15 idea and finding an equitable way to transfer that through

16 generations or from farmers who are no longer interested in

17 producing?

18 MR. PARRISH: We had, as you know, or are well

19 aware of, a proposal about two years ago that we presented

20 to all the manufacturers and to the leadership from all

21 cross burley and flue. At that particular time, I guess

22 that it was not something that most of the organizations

23 felt was that necessary. I'm not saying we could see the

24 handwriting on the wall, but it sure has proved fruitful

25 that these things have come to pass, that farmers are now






1 desperate enough that it may become something that everybody

2 would grasp and get ahold to.

3 But to answer the question about a buy-out

4 proposal, we would like to see production controls and price

5 support controls still be instigated. But our feeling at

6 this point in time is that we need to go forward with some

7 form of a buy-out and let the group of people who are in the

8 business of setting policy, the growers associations, the

9 farm bureaus, the stabilization boards, get together in a

10 room, shut the door, lock that door and stay there until

11 they come up with a proposal that everybody can agree on.

12 And it's got to be burley and flue. It can't be one without

13 the other. And I think we've seen that before in the past

14 history.

15 But we don't have a definite proposal that I think

16 everybody will agree on. I don't think anybody does. But I

17 think the capability is there, the knowledge is there. It's

18 just a matter of getting in a room and doing it. But the

19 first and foremost thing that I want to reiterate is that we

20 need a buy-out to get people compensated, to get them to the

21 point they don't have to declare bankruptcy. And that's

22 happening every day. Every day, both burley and flue.


24 MR. MYERS: Keith, could you provide the

25 Commission with a copy of the proposal from two years ago?






1 MR. PARRISH: Yes, be happy to.

2 MR. MYERS: That would be useful to us. I'm just

3 trying to figure out what the implications of your proposal

4 would be. What would a farmer like you do then, if you

5 got -- as your wife said, show us the money? Would you get

6 out of farming? What would you all do?

7 MR. PARRISH: I think -- in my personal case, I

8 think that I have probably strained my relationship with the

9 manufacturers, due to the fact that we've sued them. So I

10 don't think that --

11 (Laughter.)

12 MR. PARRISH: -- I don't think that I can look --

13 you're asking for a personal opinion, so I'm giving you a

14 direct answer. I don't think that I would be someone that

15 they would be very eager to contract with, and I honestly

16 believe contracts is the way of the future. That's what's

17 coming. I think you're going to see Philip Morris make

18 their announcement at some time in the near future for flue-

19 cured, and it's a matter of time then before everything we

20 have worked for all our lives, which is saving this program,

21 collapses around us. So we have to be realistic and look at

22 what's really going on out here.

23 The answer is, I don't know what I'll do. I

24 really don't know what will happen to me.

25 MR. MYERS: Let me just ask another question --






1 the answer may be obvious, but I think it needs to be asked.

2 We've heard witness after witness talk about how valuable

3 tobacco is as a crop, and how there's nothing comparable to

4 it. We've all heard that for a long time. And yet we've

5 also heard witness after witness say -- in words probably

6 not as concise as yours -- there's no profits anymore in

7 tobacco. We can't make a living in tobacco.

8 How do -- how do we merge those two, and how do

9 we, as a Commission, explain that to somebody outside?

10 MR. PARRISH: Well, I think you can explain it in

11 one way, which I stated, is we are farming off our equity.

12 But you have an awful lot of farmers who have no equity

13 left. They're in areas of our state, North Carolina, and

14 particularly where I live, that do not have development

15 taking place, they can't sell their land to developers to

16 put houses on. Certain areas of Sampson County, certain

17 areas of the western part of the state come to mind. And

18 all there is there are chicken farmers, hog farmers and

19 tobacco farmers, and mainly tobacco farmers. But we're

20 facing a lot of environmental issues with livestock, too.

21 So you've got problems there with folks who no

22 longer have that equity to farm with. I'm lucky, I'm eight

23 miles from 40 and seven miles from 95. My farm value has

24 gone up year after year on my land, but it's not for sale --

25 at least I hope it's not.






1 MR. CAMPBELL: Mr. Parrish, would most farmers

2 prefer a one-time payout with the buy-out, or would they

3 prefer it to be over a number of years?

4 MR. PARRISH: I think some people have mentioned

5 having tax problems and liabilities if it happens real

6 quick. I'm not one of those, and I don't know any friends

7 of mine who would have a tax liability problem over a short

8 period of time.

9 A three- to five-year buy-out, I think, would be

10 something that would be more agreeable to farmers and let

11 them take that money and reinvest in ways to do something

12 themselves to better themselves for the future. If you're a

13 quota holder and reinvested in CDs or other investments,

14 they're still getting the same return that they've gotten in

15 the past from renting that quota. But a farmer, give him an

16 opportunity to get some money up front, that he can spend

17 that money to redo his own livelihood.

18 MR. CAMPBELL: Thank you.

19 MR. RICHARDSON: Any other questions?

20 (No response.)

21 MR. RICHARDSON: Thank you, Keith.

22 MR. PARRISH: Thank you very much.

23 MR. RICHARDSON: The next person to testify is Mr.

24 Dan Borthick, and he is Chairman of the board of directors

25 of Eastern Dark Fired Tobacco Growers Association.








2 MR. BORTHICK: Thank you, sir.

3 I am Dan Borthick, I live at 5654 Borthick Road,

4 Springfield, Tennessee.

5 I read that there was a Commission formed several

6 years ago. They put up a sign out in Arizona, out there in

7 Skeleton Hollow, said this is where Geronimo surrendered. I

8 wonder if you folks are making signs going to put up on my

9 farm, this is where the tobacco farmer surrendered.

10 As it was stated, I am president of Eastern Dark

11 Fired directors, Eastern Dark Fired Growers Association,

12 probably the oldest association here. I think that's --

13 that is a true statement. As stated in our attached fact

14 sheet, Eastern Dark Fired Growers Association represents

15 dark producers, and only one other person today has spoken

16 dark producers, Mr. Clark. We produce in a quota -- the

17 producers and quota owners in south-central Kentucky and

18 northern-middle Tennessee, that is generally known as the

19 area east of the Tennessee River and south of Western

20 Kentucky Parkway. Our association being a cooperative

21 marketing association is not a -- is a not-for-profit

22 corporation.

23 Nationally, dark tobaccos are considered minor

24 types, making up around five percent of the total tobacco

25 grown in this country. Our area of dark tobacco is anything






1 but a minor type, in our area it's very important. Our

2 growers, in most cases, grow three types of tobacco on their

3 family farms; dark fired, dark air-cured and burley. We're

4 in the burley situation as others.

5 Our tobacco is used primarily for moist snuff and

6 roll-your-own smoking tobacco that is popular in Europe.

7 Other uses include dry snuff, tobacco twists and certain

8 types of cigars. The makers of these products, who are our

9 customers, have been very supportive by supplying volunteer

10 purchase intentions so that they can -- so that we can try

11 to produce the amount of dark tobacco needed.

12 Last year, tobacco generated more than $71 million

13 in our small production area. If you include our other

14 sister associations, that amounts to $105 million. This

15 money was directly infused into the local economy where

16 economists tell us that it turns over at least three to five

17 times. While our current program is sound, during the mid-

18 1980s our type suffered through quota cuts of more than 55

19 percent, pooled stocks and no-net cost assessments

20 exploding. By working with our buying companies, USDA

21 agencies, auction warehouses and our sister associations, we

22 were able to correct this situation. We were fortunate that

23 we did not have the import pressures that some of the other

24 types have.

25 We have two distinct groups of customers that have






1 different stalk positions and quality requirements, and that

2 all the groups that were willing to work together to ensure

3 that the production of dark tobacco remained profitable for

4 the growers. We revised each support grade of tobacco to

5 reflect market conditions in an effort to keep low-quality

6 tobaccos out of the pool. Loan rates on good tobacco were

7 increased to entice the grower to strive for quality.

8 Quotas were intentionally kept low to reduce pool stocks.

9 Due to the constraint of the no-net cost program and the

10 fact that our growers pay 100 percent of the no-net cost

11 assessment, attempts were made to grow only the amount of

12 dark tobacco that the trade required.

13 Companies were encouraged to keep their own

14 internal stock surfaces for periods of under-production.

15 Regular pooled inventory would only be kept should they

16 decide to assume a larger part of the no-net cost

17 assessment. It's been further relayed to companies that if

18 pooled inventories are rotated regularly and pooled tobacco

19 is sold out at cost, there is no need to collect any no-net

20 cost fund from either party.

21 For many years, we regularly sell about one-half

22 of our tobacco in the country or at the barn door. This can

23 vary from more than 80 percent going non-auction to more

24 than 80 percent sold at auction in a given year. Crop size

25 and weather are the determining factors to the amount of






1 country buying. The buyers inspect each barn after the

2 tobacco's been cured. They may buy all of the grower's crop

3 or just part of the crop. The country tobacco contributes

4 to the no-net cost program at the same rate as tobacco that

5 is sold at auction.

6 While many growers like to sell directly to

7 companies, they also want to have the option to receiving

8 price supports, should they not be able to sell tobacco non-

9 auction. With production costs in excess of $4,000 per

10 acre, the safety net that the support program offers greatly

11 reduces the risk of planting the crop. In many cases, the

12 local bank will use the average support price and the

13 grower's average yield to determine the amount of money they

14 will lend.

15 There have been many rumors about a quota buy-out

16 over the past several years. Any detail of any proposed

17 buy-out must be known before an informed decision can be

18 reached. These details must also include the funding

19 mechanisms. High tobacco taxes hurt the producer in the

20 long run. If demand drops, so does production, or the

21 companies will simply pay less for tobacco. Or worse, both

22 production and price are reduced which penalizes those that

23 need to continue to raise tobacco to stay on a farm.

24 All this being said, we realize that our fate

25 rests on changes implemented for the major types of flue-






1 cured and burley tobacco. We realize that our small size

2 and limited influence would make it extremely difficult to

3 maintain a traditional quota and price support program just

4 for minor types. It's our hope that the final report of

5 this Commission includes all tobacco. I would suggest that

6 the Commission, if you want to read a little history on

7 tobacco, get a book entitled, On Bended Knee. It tells a


8 good history about the early 1900 tobaccos.

9 Thank you.

10 MR. RICHARDSON: Thank you, Mr. Borthick. Any

11 questions of Mr. Borthick?

12 (No response.)

13 MR. RICHARDSON: Thank you, Dan.

14 The next person to --

15 (Applause.)

16 MR. RICHARDSON: The next person to testify is

17 Vicki Rigsby, and she's speaking for the American Heart

18 Association.



20 MS. RIGSBY: Mr. Kuegel, Mr. Myers, and members of

21 the Commission, I am honored to be able to provide testimony

22 here today. As stated, my name is Vicki Rigsby, I'm a

23 registered nurse, a transplanted Louisvillian who resides at

24 6529 Krantz Corner in the farming community of Charlestown,

25 Indiana 47111. That's approximately 25 minutes north of






1 downtown Louisville.

2 In addition to practicing nursing in the states of

3 Indiana and Kentucky, I'm an active member on the board of

4 the American Heart Association. I am also attending

5 graduate school to provide advanced practice nursing to our

6 community, specializing in family practice. But my biggest

7 priority and most honored career is being the mother of my

8 two children that are eight and ten.

9 Tobacco use among children continues to increase

10 in America where 3,000 kids become regular smokers. One-

11 third of these children are predicted to die prematurely

12 from lung cancer, emphysema, heart disease and other

13 tobacco-causing diseases. It is estimated that 4.5 million

14 children between the ages of 12 and 17 are smoking.

15 Supported by medical and nursing studies, smoking and

16 tobacco use is the single greatest cause of preventable

17 illness and premature death. California, Florida, Oregon,

18 Massachusetts and Arizona have established and implemented

19 smoking prevention and cessation programs utilizing tobacco

20 settlement funding.

21 Additional multiple medical studies show that

22 smoking cessation and prevention programs have decreased the

23 amount of adolescent and adult smokers. Incorporation of

24 these programs into regular health care provides the

25 opportunity to promote better health care and overall health






1 for all the residents of Kentucky.

2 The U.S. Centers for the Disease Control and

3 Prevention, CDC, estimates the annual cost of an effective

4 comprehensive tobacco prevention program for the state of

5 Kentucky is between 25 million and $69.9 million,

6 approximately per capita expenditure of $6.42 to $17.88.

7 Kentucky currently allocates per capita funding of $1.49 for

8 tobacco prevention, which is only 23 percent of the CDC's

9 minimum recommendations and ranks. As Dr. Leach has stated

10 this morning, the approach to tobacco control has started.

11 But in lieu of these financial figures, there appears to

12 represent a missed opportunity to promote better health and

13 prevent illness with children and adults in the state of

14 Kentucky.

15 It is my understanding, under the terms of the

16 1998 Multi-State Settlement Agreement, the tobacco industry

17 paid Kentucky an initial amount of 42.3 million in 1998.

18 Beginning in 2000 and each year thereafter, Kentucky is

19 scheduled to receive a payment between 112.9 million and

20 147.8 million, subject to various factors that may increase

21 or decrease the payment. Kentucky is also a part of a

22 separate negotiated settlement with the tobacco industry

23 that provides a total 5.15 billion to the National Tobacco

24 Growers Settlement Trust Agreement. This settlement called

25 phase two additionally provides up to 1.5 billion over 12






1 years directly to tobacco -- Kentucky tobacco growers.

2 In April 2000, the Kentucky legislature and

3 Governor Paul Patton enacted three bills which allocated all

4 the tobacco settlement dollars as follows: 50 percent of

5 the tobacco growers -- 50 percent goes to tobacco growers in

6 rural development initiatives; 25 percent to public health

7 initiatives; and 25 percent to early childhood development

8 programs. While Kentucky has allocated a small portion of

9 the tobacco settlement money towards smoking prevention and

10 cessation programs, that's ten percent of the 25 percent

11 provided to public health initiatives, only 2.5 percent of

12 the total fund is directed to the youth of our commonwealth.

13 Reevaluation of the allocation of the funds with

14 legislative changes must be considered to further ensure the

15 health of our population. 47 percent of the high school

16 students in Kentucky continue to smoke. Establishment of

17 direct communication between public health and the tobacco

18 grower communities must become a priority to ensure all

19 concerns are addressed and ossification of issues cease.

20 Change is difficult, but only one of the few things that is

21 constant.

22 Reduction of disease caused by tobacco products

23 while ensuring future prosperity and stability of the

24 American tobacco farmer, their families and farming

25 communities must equally take precedence. Prevention is






1 worth a pound of cure. It takes a village to raise a child.

2 It takes cooperation and commitment to care for our society.

3 Communication is the utmost importance to obtain victory for

4 all involved. Let's take care of our tobacco farmers but

5 not at the expense of our youth.

6 Thank you for this opportunity to speak.

7 (Applause.)

8 MR. RICHARDSON: Thank you, Ms. Rigsby. Any

9 questions?

10 (No response.)

11 MR. RICHARDSON: Thank you.

12 The next person to testify will be Mr. David

13 Freshwater from the University of Kentucky.



15 DR. FRESHWATER: Thank you for this opportunity to

16 testify. My name is David Freshwater, I'm a professor at

17 the University of Kentucky in the Agricultural Economics

18 Department. I live at 1412 Hampshire Place in Lexington,

19 Kentucky.

20 I'd like to talk to today about a proposal that is

21 a transition project for farmers that the College of

22 Agriculture and the New England Research Institute have

23 jointly submitted to the National Institutes of Health for

24 funding. What this proposal intends to do is to try and

25 address the critical problem for diversification. And that






1 problem is that we know that there is a lot of pilot work

2 that suggests that farmers can remain profitable, albeit at

3 a lower rate of profit, with alternatives to tobacco. But

4 we've never been able to scale those results up from those

5 pilot studies. That is, we know that ten farmers can grow

6 tomatoes, we don't know that 100 farmers can grow tomatoes.

7 Actually what we tend to suspect is that, without some

8 significant changes in marketing, 100 farmers can't grow

9 tomatoes. And that is the essence of what we're trying to

10 do.

11 But what I'd like to also talk about is the fact

12 that what we did was put together a coalition between the

13 College of Agriculture at UK, which has historically been

14 known for assisting farmers in the production of tobacco,

15 and the Major Health Research Policy Institute, that has a

16 national, and even an international reputation in public

17 health research, the New England Research Institute. And I

18 think that speaks to the potential for building the

19 coalition between agriculture and the health community.

20 It may seem a long stretch to think that the

21 National Cancer Institute is interested in this type of

22 work, but NERI seems to believe that it is, and we're

23 following their advice in submitting this proposal to the

24 NCI.

25 To help farmers work through this adjustment






1 process, we are proposing action by the New England Research

2 Institute and the College of Agriculture, and that project

3 will provide adaptation assistance in the form of farm

4 management and marketing advice to a large sample of farms

5 in Kentucky, which are currently dependent upon tobacco

6 income for a major share of their total farm income.

7 The study will use two different forms of

8 assistance to sub-groups of farmers, as well as

9 incorporating a control group, in an effort to identify the

10 most effective way for farmers to acquire information and

11 reduce their dependence on tobacco production. In essence,

12 what we want to do is provide a new form of tailored

13 extension programs to a group of farmers to assist them in

14 making a transition from dependence on producing tobacco.

15 UK will be responsible for conducting the actual work with

16 farmers and NERI will manage the evaluation component.

17 Specifically, we intend to identify the most

18 effective approaches for delivering assistance programs,

19 provide direct assistance to 1,800 farmers participating in

20 the project, provide tobacco farmers in various parts of the

21 country with a strategy for adaptation to tobacco health

22 policy initiatives and rigorously evaluate by social

23 experiment the effectiveness of diversification programs for

24 tobacco farmers.

25 While there have been multiple prior studies that






1 have examined the potential for other crops and livestock

2 activities to offset tobacco income, they have all been

3 relatively short-term pilot studies that worked with a small

4 number of growers. Although many of these studies suggest

5 adaptation is possible, none of them operated at a large

6 enough scale to provide evidence that a significant number

7 of producers can adopt the approaches and make money.

8 By contrast, we propose to work with 1,800 farmers

9 over a five-year period, because large sample results over

10 an extended time interval are necessary if we are to fully

11 assess the potential commercial opportunities for

12 alternative farm enterprises.

13 I can provide the Commission with a copy of the

14 proposal which details the methodology and the work that

15 we're undertaking. But essentially what we'd like to do is

16 have one control group, a second group where we will work

17 with individual farmers who will make decisions based on

18 what is best for their farm, but act independently, and then

19 the second group of farmers we'll try to encourage the work

20 through joint decision-makings and perhaps through

21 cooperative production and marketing approaches, to see what

22 -- which method of delivering the services and which methods

23 of production make the most sense.

24 This is a proposal that's in the process of being

25 reviewed by the NCI. We should find out early next year






1 whether they're going to fund it. We submitted it in 1999

2 and were asked to resubmit it in the spring of this year.

3 And in 2001 we should find out whether we get the funding.

4 Beyond that, I think the process that we went

5 through, which took us four months of intensive work, may

6 have some benefit for the Commission. And I'd like to give

7 you -- share with you a few key points. The first one is

8 that prior studies of alternatives do identify potentially

9 viable approaches, but nobody knows whether they're going to

10 work at a full scale. And we're talking about such a large

11 number of farmers that have to make adaptation decisions

12 that we need some more information if they're going to work

13 efficiently in getting from here to there.

14 How do we scale up these pilot projects? And

15 nobody knows the answer to that question. Many individual

16 farmers are interested in change, but past experience has

17 made them skeptical about the profitability of alternative

18 enterprises. It's not that farmers haven't tried to adjust,

19 but the farmers who have tried have often failed, and those

20 failures are deep within the memory of people in the farm

21 community. And often we suspect it's because they didn't

22 have the support they needed to try and introduce a new

23 strategy.

24 It seems to us that the critical element is not

25 production but marketing. Tobacco farmers are good at






1 production, but one of the inherent flaws of the tobacco

2 program is it requires that the farmers not have -- or it

3 doesn't require that farmers think a lot about marketing.

4 That's done through the co-op. And getting into something

5 new requires that you spend at least as much time on

6 thinking about the markets as you do about how you're going

7 to produce it.

8 Unfortunately, the existing cooperative extension

9 system doesn't have the capacity to provide this type of

10 coordinated, comprehensive adjustment assistance to farmers.

11 The extension people that I know are stretched about as thin

12 as they can be expected to be, and their responsibilities

13 don't allow them to take on this kind of additional work.

14 The -- my colleague, Lee Meyer, is going to speak

15 after me, and he is going to talk about some focus groups

16 work that we did at the community level. And I'd like to

17 close with an anecdote. Because no alternative enterprise

18 can generate the same rate of profit as tobacco, most

19 producers have been unwilling to consider alternative

20 enterprises, except when tobacco production has been

21 threatened. This is one of those times. This is rational

22 behavior on their part, but that behavior may lead farmers

23 to wait too long to make the changes in the hope that

24 tobacco revenue will return, and in the process they

25 dissipate the assets that could make them effective in






1 another form of production.

2 In 1987, I worked on the Hill with the Senate

3 Agriculture Committee, and lots of farmers called me and

4 said that, if they'd only known in 1985 how bad their

5 financial situation was going to be, they could have gotten

6 out with some assets. But by 1987, they had nothing left.

7 And I think it's really critical for you as a Commission to

8 think about how people can make effective transitions in a

9 fairly timely basis while they still have the resources to

10 bring them about.

11 Thank you.

12 MR. KUEGEL: Thank you.

13 VOICE: Good point.

14 MR. KUEGEL: Any questions for David?

15 (No response.)

16 MR. KUEGEL: Thank you.

17 (Applause.)

18 MR. KUEGEL: Dr. Lee Meyer from the Department of

19 Ag Extension, University of Kentucky at Lexington.

20 STATEMENT OF LEE MEYER ______________________

21 DR. MEYER: My name is Lee Meyer, I'm an extension

22 professor at the University of Kentucky, and I live at 669

23 Bayswater in Lexington. And when I came into the room this

24 morning, a friend said, Lee, why are you here? You work

25 with livestock. And my response was, very easily, you know,






1 I really -- I work for farmers. And I think that's one of

2 the real issues we're faced with today.

3 And the other thing that I want to say is that I'm

4 a friend of Will Snell's and I hope that gives me

5 credibility.

6 What I want to talk about is this focus group

7 analysis that Dave Freshwater referred to. We look at the

8 impacts of the changing tobacco economy on farmers and rural

9 communities in Kentucky. I think to a lot of members of

10 this Committee, some of these things might seem like things

11 we already know, but we now have some documentation for

12 that, and I think some depth that goes beyond some of the

13 anecdotal information that most people have seen when we've

14 been dealing with this.

15 To sort of summarize or give an overview of where

16 we've gone, we -- back in April, we conducted focus groups

17 with five different groups of participants, in farmers in

18 rural communities around Kentucky. This was a team of staff

19 from the University of Kentucky, and from the New England

20 Research Institute.

21 We selected five groups of people. One group was

22 a group of farmers, a second group was a group of farmer

23 leaders. And we distinguished those two as one group was

24 the farmers who took an active role in their community, but

25 we also wanted to separate that from the role of the farmers






1 who really focused on their own farms. We didn't -- they

2 weren't good farmers or bad farmers, it was just a

3 difference in orientation. A third group included rural

4 community leaders, some elected officials as well as members

5 of rural development organizations. A fourth group we

6 called the farm support group, and that included

7 agribusinesses, tobacco warehouse representatives, the USDA

8 folks, that kind of group. And the fifth group included

9 extension agents.

10 What we did is asked participants in these groups

11 to discuss their views. Views, concerns about themselves

12 and their neighbors, changes in farming and how those

13 changes would affect their communities, alternatives to

14 tobacco production, the potential benefits of alternative

15 farm enterprises, the barriers to switching to alternatives,

16 and finally how to help farmers adopt various alternatives.

17 What kind of folks participated in these? Well,

18 we did ask the farmers especially to give us a little bit of

19 the information. On average, they had about 234 acres and

20 farmed 523 acres. And this was a little bit -- well,

21 somewhat larger than a typical Kentucky farm of 150-owned

22 acres, but really somewhat representative of farms in the

23 central Kentucky Bluegrass area.

24 A majority of the individuals in the non-farming

25 group were involved in agricultural enterprises. And this






1 is very important, because it shows the pervasiveness of

2 tobacco in our communities. People who identified

3 themselves as elected leaders, virtually everybody in rural

4 communities is some way connected with tobacco production.

5 Tobacco is listed as frequently the most important source of

6 income, and that was over 85 percent of the farmers who

7 completed the questionnaire. Cattle was second.

8 And finally, only 38 percent of the, quote,

9 regular farmers had tried alternative farm enterprises,

10 compared to 78 percent of the farm leader group. And I

11 think this is important, because it gives some direction

12 about who is going to be most easily -- adopt some changes.

13 Key concerns and impacts, increasing instability

14 of the tobacco enterprise was important. So not only the

15 cuts but the variation in income has certainly hit home to

16 producers. Increasing global competition, loss of market

17 power, and that's seen as international corporations as

18 having a large impact.

19 We heard something like this, wait until tobacco

20 marketing season and there will be a lot less money. That's

21 when you'll really find out what the impacts are. So I

22 think in many ways, we don't really know what this is yet,

23 because we're certainly seeing some buffering going on this

24 year.

25 When -- it's hard to quantify this one part, but






1 the instability of the thing is really shown as a cultural

2 change. Tobacco is a part of our culture in Kentucky, and

3 that part is certainly having radical changes.

4 In terms of alternatives, focus group participants

5 really had difficulty identifying ready alternatives to

6 tobacco, and most felt that tobacco offered more advantages

7 than did the possible alternatives. Key barriers, the lack

8 of knowledge about production of alternatives, the need for

9 financial support to invest in alternative enterprises, the

10 need for assistance in developing new markets and learning

11 new marketing skills -- marketing keeps coming up often -

12 more often and more often. Difficulties in finding labor to

13 help with production. And then structural barrier --

14 transportation, processing, distribution, those

15 infrastructure needs are certainly a key part of the

16 solution, too.

17 Finally, one part that's very important is that,

18 who's most likely to adopt change? Age is certainly a big

19 part of that. Younger farmers were more amenable to change

20 than older farmers. The real grim logic here is that, the

21 older and less well-educated farmers are going to have the

22 ones -- or be the ones that have most difficulty adopting

23 change, and they're the ones who will be most at risk. So

24 those are some conclusions from that.

25 Again, this is a well-documented study, and we'd






1 be glad to provide the Commission with a copy of that

2 report. Thank you very much.

3 (Applause.)

4 MR. KUEGEL: Any questions for Dr. Meyer?

5 (No response.)

6 MR. KUEGEL: Thank you. Lee, you said you would

7 provide a copy of that study?

8 DR. MEYER: Yes.

9 MR. KUEGEL: And David, I think you had one also.

10 Would you provide us with that?


12 MR. KUEGEL: Thank you.

13 Next is Pem Pfisterer-Clark, Stemming District

14 Tobacco Association. Pem?



16 MS. PFISTERER CLARK: Ladies and gentlemen, I'm

17 Pem Pfisterer-Clark, general manager of Stemming District

18 Tobacco Association, located at 125 First Street in

19 Henderson, Kentucky 42420.

20 Our primary role is to administer the United

21 States Department of Agriculture's price support program for

22 dark air-cured Type 36 Green River tobacco, a specialty

23 tobacco grown in 11 counties in the Commonwealth of

24 Kentucky, and used primarily in smokeless tobacco products.

25 Our production is only a tiny percentage of that of burley






1 or flue-cured. Last year our gross sales totaled only

2 3,800,000 pounds, but those few pounds put over $7 million

3 in the pockets of our farmers. In the government tobacco

4 reports, we are often referred to as a minor type, a title I

5 take issue with at every opportunity because, for many of

6 our farmers, it is their dark tobacco crop that keeps the

7 wolf away from the door. And there is nothing about that

8 that is minor.

9 We have had our problems in dark tobacco. A

10 decade ago, the dark industry was in a downward spiral.

11 Dedicated people working together turned it around, and

12 while more recently dark air-cured tobacco has enjoyed quota

13 increases, good prices at the market, empty pools and a

14 great relationship with buying companies, we are threatened

15 by the overall national tobacco situation.

16 My farmers that are enjoying this comparatively

17 rosy dark tobacco picture are all burley farmers, too. I

18 cannot name 20 farmers in the entire Stemming District that

19 do not grow burley tobacco. And historically, when things

20 have gone south for burley and flue-cured, it has not been

21 long until dark tobacco has suffered a similar crisis.

22 The Commission requested input on eight specific

23 issues, as stated on the website. Stemming District Tobacco

24 Association does not represent burley or flue-cured growers,

25 so there are several of these issues that it may not be






1 appropriate for me to address. But I would like to state

2 that, as long as an adult that has anything to do with

3 tobacco, whether a user of the product or a grower of the

4 leaf, is Washington's poster child for political

5 incorrectness, the downward trend in tobacco quotas will

6 likely continue.

7 That tobacco is a legal adult product, and there

8 are laws in place in the Commonwealth of Kentucky that make

9 it illegal for children to purchase tobacco products. And

10 that the "We Card" program has been a successful tool in

11 helping the prevention of tobacco purchases by minors. That

12 a tobacco production and price support program in some form

13 is essential for the protection of tobacco producers and

14 tobacco-dependent communities, and that the whole concept of

15 replacing tobacco, the golden leaf, with peppers or potatoes

16 or kumquats is mind-boggling. How do you replace gold?

17 Ladies and gentlemen, our dark tobacco farmers

18 have many of the same concerns as burley and flue-cured

19 producers. Bottom line, we are all in this together. Thank

20 you for the opportunity to be heard today and Stemming

21 District Tobacco Association would appreciate the

22 opportunity to communicate with the Commission as you

23 proceed in the weeks and months ahead.

24 Thank you.

25 (Applause.)






1 MR. RICHARDSON: Thank you, Pem. Any questions of

2 Pem?

3 (No response.)

4 MR. RICHARDSON: Thank you.

5 The next person to present testimony is Dr. John

6 Patterson.



8 DR. PATTERSON: I'm John Patterson, a family

9 physician in practice in Irvin, Kentucky for over 20 years,

10 population 5,000. I'm also the current president of the

11 Kentucky Academy of Family Physicians. I'm the KMA,

12 Kentucky Medical Association, representative to Partners for

13 Family Farms and have just agreed to serve on the executive

14 committee of Partners.

15 I'm also privileged to be a member of Kentucky's

16 Health and Agriculture Forum. The mission statement of the

17 forum, I think, serves as a model for this dialogue. It is,

18 quote, to provide a safe place for people with diverse

19 positions on tobacco issues to work together to sustain

20 health for individuals, families, farms and rural

21 communities, which are all interconnected.

22 I urge the Commission to recommend major support

23 for the Health and Agriculture Forum, and groups like it in

24 other tobacco-producing states. I want to also voice my

25 support for three priorities you'll hear others speak to






1 today. First, raising federal excise taxes is a proven

2 strategy to lower tobacco product consumption and provide

3 funding for both tobacco use control programs and

4 agricultural diversification efforts.

5 Second, giving the FDA authority to regulate

6 tobacco products can help both tobacco use control programs

7 and help the tobacco-producing community by regulating the

8 safety and quality of tobacco used in manufacturing, a

9 process that favors U.S. tobacco growers over foreign

10 growers who use more toxic chemicals. And third, research

11 shows it is necessary to fully fund tobacco use prevention

12 and cessation programs to help prevent youth smoking and

13 help both youth and adult tobacco users who want to quit but

14 find it difficult due to physiologic addiction and

15 psychologic dependence.

16 I want to make some comments now about

17 agricultural diversification. The agriculture and public

18 health communities have an unprecedented opportunity to help

19 each other achieve mutual goals. By aligning

20 diversification efforts with public health nutrition

21 guidelines, we stand to improve the health of consumers,

22 farm families and farm communities. Based on overwhelming

23 scientific research on nutrition, all public health

24 organizations now recommend a low-fat, high-fiber diet based

25 largely on plant foods plus low-fat animal products.






1 Cardiovascular disease is the number one killer in

2 the U.S. This category includes heart attack, stroke and

3 high blood pressure. The new American Heart Association

4 dietary guidelines stress the use of whole grains, fruits

5 and vegetables and replacing red meat with lower-fat sources

6 of protein. A recent article in the Journal of the American


7 Medical Association showed that increased whole grain


8 consumption reduces the risk of stroke by as much as a

9 third. Other recent research has shown that a diet rich in

10 fruits, vegetables, whole grains and fiber can help to lower

11 blood pressure, which is a leading risk factor for both

12 heart attacks and stroke.

13 The American Cancer Society's list of

14 recommendations for the prevention of cancer begins by

15 stating, quote, choose primarily foods of plant origin,

16 unquote. The National Cancer Institute and the CDC jointly

17 promote the five-a-day program, urging the daily consumption

18 of five servings of fruits and vegetables to help prevent

19 cancer. The World Institute for Cancer Research recently

20 reviewed the worldwide medical literature on the

21 relationship between diet and cancer and concluded that a

22 substantial portion of cancers can be prevented by a diet

23 rich in fruits, vegetables, grains and legumes.

24 The Harvard School of Public Health is sponsoring

25 medical seminars hoping to convince physicians all over the






1 world to prescribe eating patterns popularly known as the

2 Mediterranean diet and the Asian diet. Both these diets

3 have historically been associated with much less heart

4 disease, stroke and cancer than in affluent cultures, such

5 as the U.S. And both diets are rich in fruits, vegetables,

6 grains and legumes.

7 And now a word about agricultural chemicals.

8 Physicians for Social Responsibility, the recipient of the

9 Nobel Peace Prize, recommends the elimination of 12

10 chemicals known to have widespread effects on animal and

11 human health, ranging from reproductive disorders to cancer.

12 These chemicals are referred to as persistent organic

13 pollutants because, once released into the environment, they

14 persist for decades in soil, water and the fat tissue of

15 animals and humans. Most of these chemicals are pesticides.

16 Occupational exposure to pesticides, including use

17 by farm workers, has been linked to the development of

18 Parkinson's disease, and children of migrant farm workers,

19 many of whom work along with their parents in the fields,

20 have shown measurable differences on tests of cognitive

21 function, suggesting damage to the developing human brain

22 and nervous system believed to be the result of agricultural

23 chemical exposure.

24 The Environmental Health Committee of the American

25 Academy of Pediatrics has estimated that current recommended






1 residue levels may be 100 times the safe level for children.

2 Consumer Reports analyzed USDA data from '94 to '98 and


3 concluded that while pesticide residues on fruits and

4 vegetables were virtually all within legal limits, many of

5 those limits are at odds with what the government now deems

6 safe for children.

7 And a word about CAFOs. Confined animal feeding

8 operations pose significant environmental and public health

9 risks. Animal wastes from CAFOs pose a major challenge for

10 effective environmental management, and there is also

11 decreased air and water quality, bacterial resistance

12 resulting from widespread use of antibiotics and the

13 presence of infectious agents that can be pathogenic to

14 humans.

15 So in conclusion, I urge the Commission to

16 recommend major support for agricultural diversification,

17 focusing on the production of foods being recommended by the

18 public health community, on minimizing or eliminating the

19 use of pesticides, antibiotics and other agricultural

20 chemicals. Such support should favor the small family

21 farmer and small-scale animal production facilities.

22 MR. RICHARDS: Thank you, Dr. Patterson.

23 DR. PATTERSON: Thank you.

24 MR. RICHARDSON: Any questions of Dr. Patterson?

25 (No response.)






1 MR. RICHARDSON: Thank you, sir.

2 (Applause.)

3 MR. RICHARDSON: The next person to testify is

4 James Benham, and he's vice president of the Indiana Tobacco

5 Growers Association.



7 MR. BENHAM: My name is James Benham, I'm from

8 Versailles, Indiana, my address is 416 East County Road,

9 Versailles, Indiana 47042. I am vice president of Indiana

10 Tobacco Growers Association, I have a brief comment to make

11 on their behalf.

12 We the members of Indiana Tobacco Growers

13 Association would like to go on record as supporting the

14 burley tobacco program. Further, we support current

15 warehouse marketing systems and therefore stand against

16 contracting in its current form.

17 Additionally, we support a buy-out which would

18 benefit the quota holder and pass quotas to the actual

19 growers at or above current levels of income. Basically we

20 support Kentucky's Governor Patton's plan, except we object

21 to lowering the support price.

22 Thank you.

23 MR. RICHARDSON: Any questions of Mr. Benham?

24 (No response.)

25 MR. RICHARDSON: Thank you, sir, for being short






1 on that.

2 (Applause.)

3 MR. RICHARDSON: The next person to testify is Mr.

4 Richard Fellows, and he's from the -- testifying for the

5 Indiana Commission for Agricultural and Rural Development.



7 MR. FELLOWS: Thank you. I also will be short. I

8 want to say that my name is Richard Fellows from Nab,

9 Indiana, the ZIP Code 47147. And, I want to thank you all

10 very much for the opportunity to speak today.

11 As a member of the Indiana Commission for Ag and

12 Rural Development, I was the only member of that group in

13 Indiana that grew tobacco or knew anything about tobacco,

14 and tobacco was in my area, so they asked me to chair the

15 Indiana Tobacco Advisory Committee for the phase two

16 distribution, that distribution, obviously, from the master

17 settlement agreement.

18 That process has made it obvious to me that there

19 was adequate monies from phase two to adequately compensate

20 tobacco growers from the adverse financial effects from the

21 MSA. The tobacco farmers and leaders looked to phase one of

22 the master settlement agreement for additional help to each

23 state, and it has -- each state has a completely different

24 plan. Some plans are good, some are not so good. You heard

25 today, I think Virginia, they talked about -- maybe they






1 didn't today, but anyhow they're talking around $12 a pound

2 for a buy-out. I think Maryland did make the comment today,

3 somewhere around $1 a pound for ten years. Indiana has no

4 plan at all to compensate the tobacco growers in the state

5 of Indiana.

6 Rod, as you well know, your family depends on

7 tobacco, just like my family does in Indiana. There's no

8 difference between a Kentucky grower and an Indiana grower,

9 or one in Virginia or wherever. What I'd like to recommend

10 to you members of the Commission that the federal government

11 looked to equalize the financial health to the quota of

12 tobacco farmers of all states. Secondly, look at a

13 possibility of a buy-out of the quotas at the highest

14 possible price, plus 50 percent of the compensation for

15 pounds that the farmer has grown over and above his own

16 basic quota. Also, reallocate the tobacco pounds to the

17 active growers continuing the supply-price support program

18 with the changes necessary to continue the success of

19 tobacco production in the United States.

20 Again, I said I would be short. I'd like to leave

21 a little time for questions. I'd love to answer some

22 questions.

23 Thank you.

24 MR. SHEPHERD: Are what you're trying -- the point

25 about the different states and how they're handling the






1 phase two, and maybe even phase one monies, is your point,

2 you'd like to see some -- a more level playing field for

3 growers in all states, similar programs?

4 MR. FELLOWS: Yes, let me make a comment about

5 that. Obviously phase two was something that was put

6 together, and basically all the growers in all the states

7 handled about the same, little differences, really no major

8 difference.

9 But handling the phase one monies was completely

10 different from one state to another, and we talked about

11 some of that today. Again, a tobacco farmer in Indiana

12 receiving zero for compensation, one in Virginia receiving

13 12, one in Maryland receiving ten, it puts the tobacco

14 farmers in each state really at a major balance -- you know,

15 just completely out of balance.

16 So again, I'd like for your Commission to be sure

17 to look at that as you go through all your process. I

18 understand the short time period that you have, and adding

19 this on top of, but I think it's something that you must

20 look at in the compensation. If we would have had this

21 Luger buy-out plan some years ago, it would have been a

22 federal buy-out, all quota owners would have been handled

23 equally, it wouldn't have, you know, such an imbalance here

24 between farmers in one state versus another. It's kind of

25 like divided we fall. And together we could have won. But






1 again, that's past.

2 But again, trying to do this on a federal level,

3 it's very important to try to equalize and help us all to be

4 successful.

5 MR. RICHARDSON: Any other questions.

6 MS. BIRGMANN: Thank you for your testimony.

7 I was wondering, in Indiana, the public health

8 community in Indiana got quite a significant sum of money

9 for tobacco control programs. Did the growers in Indiana

10 attempt to work at all with the public health community?

11 MR. FELLOWS: Yes. I appreciate you asking that.

12 The political make-up obviously in Indiana is much different

13 than Virginia and Kentucky. Southeastern Indiana is the

14 only place we raise tobacco, it's 33 counties in

15 southeastern Indiana. Actually, only four counties grow

16 tobacco of any significance. Therefore, our political clout

17 is basically zilch. And that's where we ran into a problem.

18 We were unable, politically, to get any phase one monies to

19 help.

20 Now there is some areas that is being concerned

21 here with the coming legislation, but very, very little.

22 It's going to be rural community health, that type thing.

23 MR. RICHARDSON: Any other questions of Mr.

24 Fellows?

25 (No response.)






1 MR. RICHARDSON: Thank you, sir.

2 (Applause.)

3 MR. RICHARDSON: The next person to testify is Mr.

4 Steve Miller. He's representing the Buffalo Trace Area

5 Development. Mr. Miller.



7 MR. MILLER: Thank you, Mr. Chairman, Committee

8 members. I'm Steve Miller, my address is Route 1, Box 281,

9 Clemmingsburg, Kentucky 41041. I am the executive director

10 of the Buffalo Trace Area Development District, based in

11 Maysville, Kentucky. We're a regional planning and

12 development organization with economic prosperity of our

13 region as our number one priority.

14 The area is comprised of Bracken, Fleming, Louis,

15 Mason and Robertson Counties. This is generally an area

16 between Lexington in northern Kentucky and the Ashland area.

17 Our board of directors is composed of elected officials,

18 citizen members, including the agricultural community.

19 One thing I wish to point out today is that four

20 of the 15 identified most vulnerable counties to the decline

21 in burley tobacco quota are in our area. Robertson County

22 was identified as having the greatest impact upon it by the

23 reduction in quota. Fleming and Bracken Counties followed

24 fifth and fourth in impact. Louis County was also

25 identified in the top 15 of impact in Kentucky. This was






1 done in a report done by the Kentucky Long-Term Policy

2 Research Center based in Frankfort.

3 I would also add that Mason County, the other

4 county in our area, has historically been the second largest

5 market for burley tobacco in Kentucky. I think these points

6 reveal the significance of tobacco to our region.

7 Obviously, we're involved in economic growth and

8 diversification for our area, but certainly a key and very

9 vital part of our economic health is in tobacco in our

10 region.

11 As an observer and attender of some of our phase

12 one committee meetings and other ag meetings in our area,

13 certainly the goal of our farmers is to maintain profitable

14 operations, and that certainly in their mind includes

15 tobacco to maximize their profits. It is not their

16 preference for off-the-farm job opportunities. I'm not

17 hearing that at all. They want to maintain viable farm

18 operations.

19 I think it's -- right now, the optimism, I think,

20 is very low in most of these groups meeting about the

21 future. Having experienced the 65 percent quota cuts since

22 '97, farmers have suffered tremendously. And not only is it

23 certainly first and foremost of importance is the family

24 farm, but it's also having a negative multiplier effect as

25 well. I mean, we have our feed stores, we have our farm






1 implement stores, we have our auto dealerships, others that

2 depend historically on the income that tobacco has brought

3 upon -- into our region for its prosperity.

4 Certainly with the quota cuts, farmers are looking

5 at viable options. That's been mentioned today. I'm no

6 agricultural expert, but there -- of course there have been

7 a few farms that I'm aware of that have had some success

8 with some alternates to supplement lost income in tobacco

9 thus far. But certainly there has been nothing identified

10 with broad-base expected success to replace tobacco.

11 Therefore, again, putting much more importance on preserving

12 the program.

13 Obviously with -- if the program does not continue

14 as it's been known and bring that type of economic impact to

15 our area, there does need to be some type of fair

16 compensation provided to our farmers or quota holders for

17 that quota and their depreciated land values.

18 And I thank you for the opportunity to make these


20 MR. RICHARDSON: Thank you, Mr. Miller. Any

21 questions of Mr. Miller?

22 MR. CAMPBELL: Just one, Doug.

23 Mr. Miller, I believe you all do a comprehensive

24 development strategy -- or groups like yours. I don't know

25 if you do one, per se.






1 MR. MILLER: Yes.

2 MR. CAMPBELL: I'm just wondering if you've done

3 any noodling around or have any kind of thoughts you can

4 share with us about what you propose in terms of economic

5 development strategies in that four-county area?

6 MR. MILLER: Well, frankly, most of our

7 development strategies have not been agricultural-based.

8 That hasn't been one of our main missions. Typically we try

9 to work cooperatively with our extension service groups and

10 agents, and so forth. We do recognize the importance of

11 agriculture in our area, but we have not felt that we're the

12 appropriate entity to set those objectives.

13 What we try to do is recognize the objectives that

14 our agricultural groups within our area are making. We tend

15 to deal more with the infrastructure goals, the -- for

16 instance, industrial parks, airport expansions, things of

17 that nature.

18 MR. RICHARDSON: Any other questions?

19 (No response.)

20 MR. RICHARDSON: Thank you, sir.

21 MR. MILLER: Thank you.

22 MR. RICHARDSON: The next person to testify --

23 (Applause.)

24 MR. RICHARDSON: Thank you. The next person to

25 testify, I want to introduce Dr. Peggy Kidwell, who will






1 introduce the witness Mr. Joe "Hemp".



3 DR. KIDWELL: My name is Dr. Peggy Kidwell, and

4 I'm a clinical psychologist specializing in law and

5 corrections. I am here to introduce my husband, Joe "Hemp"

6 Kidwell who has been spending almost every waking hour over

7 the last four years on research, scientific research

8 investigation into both the medical as well as the

9 industrial uses for hemp, as an alternative here in Kentucky

10 to tobacco.

11 And I have, as a medical, mental health

12 specialist, I have definitely investigated all of the

13 medical aspects of tobacco. We understand that the

14 legislators here in Kentucky at the present time are

15 considering industrial hemp, although over 13 states have

16 voted in medical hemp as well. Exporting of medical hemp

17 may be a consideration for Kentucky farmers.

18 In reference to industrial hemp, we have met with

19 a number of senators here in Kentucky, as well as ex-

20 governors and have attended a number of seminars,

21 conferences, et cetera, in this area of tobacco and

22 alternative crops, which -- what my husband has is a

23 proposal regarding industrial hemp.

24 There is going to be a hemp conference on the 17th

25 of November at Midway College in Midway, Kentucky, an all-






1 day conference regarding the industrial uses of hemp, and

2 also the proposal in reference to the manufacturing, the

3 marketing and all the financial information regarding hemp

4 production. And this has been investigated throughout the

5 world as well as not just in the United States. Some

6 researchers in New Hampshire are going to come in who've

7 been doing a lot of research on exact information concerning

8 financial information, especially, regarding hemp.

9 I have been especially involved in the research

10 going on medically at UCLA in California regarding the

11 medical uses, and also involved with all the legal aspects,

12 the federal laws and the state laws around both medical and

13 industrial use of hemp.

14 And so I'd like to introduce my husband, he can

15 give you some more information. We're both natives of

16 Kentucky, although we've spent the last four years in

17 California. And this is Joe "Hemp" Kidwell.



19 MR. KIDWELL: Thank you, Peggy. Hi, my name is

20 Joe Hemp -- Joe Kidwell is my given name. My business name,

21 a.k.a. is Joe Hemp. We have -- excuse me. There's two

22 parts of Joe Hemp. Founding member, one, Joe Kidwell,

23 myself; founding member number two, David Clancy. We have

24 our document recorded in the state of California for Joe

25 Hemp's First Hemp Bank and Distribution Network, the






1 parenting firm. Our agent in Kentucky is Peggy Kidwell,

2 she's -- hers is Joe Hemp's First Hemp Bank, Kentucky Hemp

3 Farmers Network. Our -- excuse me.

4 Our EIN number for medical/industrial hemp, with a

5 private held membership under agricultural farmers

6 cooperative, under joint venture, we are taxed under the

7 Department of Treasury, IRS services, and we do manufacture,

8 which is conclusive of cultivation, but our main part of

9 manufacturing is packaging and labeling for personal

10 property. We're a depository, a private-held membership.

11 I don't know, I'm a simple country boy, is there

12 any questions? I just do this, I'm -- we're a legal

13 caregiver. We're the third mechanism in the United States

14 for marijuana, medical/industrial hemp. The first one is

15 your law enforcement, which is for disposal. The second one

16 is medical for research and development. We're a

17 depository, like a food bank, blood bank, hemp bank. Our

18 legal currency is marijuana under this.

19 What we propose is for the smaller farmer, for

20 example, for industrial hemp, you grow acres. For the

21 smaller farmer, we have -- under federal regulations, we use

22 greenhouses with 12-foot-tall fences, barbed wires,

23 everything under green -- I mean, federal regulations. And

24 I mean, it's -- if you don't mind me saying so, it's

25 logical. I have eight doctors that recommend marijuana for






1 me for my diabetes and my heart condition. I was in an

2 accident that caused this stuff to start up with. I've got

3 arthritis and I live in, you know, chronic pain all the

4 time. It's the only medication that doesn't affect me

5 adversely, and it keeps me so I can function.

6 Now plus under federal law, by the way, they're

7 called approvals under the federal doctrines, they're not

8 allowed to give recommendations.

9 But with the smaller farmer -- if I ramble,

10 gentlemen, bear with me, I'm so nervous you couldn't even

11 possibly believe it -- but for the smaller farmer in

12 Kentucky -- I'm from Kentucky, and I know that the biggest

13 store that's in Kentucky right now is used clothes and used

14 furniture, because there's no industry. This allows your

15 small farmer to have his own crop, he can make up -- we pay

16 $5 per gram for marijuana for medical -- for medical

17 marijuana that we produce in California, for processing and

18 redistributing. $5 a gram is $2,400 a pound. And that's --

19 believe me, that's extremely good for this kind of

20 marijuana. I mean, it's a good price. The patients -- it's

21 a lot cheaper for us to do that than the patients can afford

22 the medicine better.

23 I've got one minute left, I guess. That's good.

24 That's basically it. Is there anything I -- if

25 this makes sense to anyone?






1 MR. RICHARDSON: Any questions of Mr. Kidwell?

2 (No response.)

3 MR. RICHARDSON: Thank you, sir.

4 MR. KIDWELL: Thank you.

5 (Applause.)

6 MR. RICHARDSON: The next person to testify is Mr.

7 Jimmy Smith, a tobacco farmer. Mr. Smith.



9 MR. SMITH: I'd like to thank you. My name is

10 Jimmy Smith, I live at Route 2, Box 522 on Yellow Creek in

11 middle Tennessee. I'm a tobacco farmer of 22 years. I'm a

12 full-time tobacco farmer for 19 years.

13 The subject I want to speak on is core principle

14 for tobacco farmers. The buy-out of all quota tobacco -- a

15 buy-out of all quota tobacco, and the buy-out would include

16 growers, quota holders and tenants. A buy-out should be the

17 core principle of this Commission. As for the subject of

18 bringing stability to tobacco growers, quota holders and

19 their communities, a buy-out would bring immediate and

20 lasting stability.

21 Why? First, debts would be paid, bringing

22 stability to lending institutions, many of which is local.

23 Diversification and alternative farm ventures of all types

24 could be pursued. Farmers are a creative group of people

25 and no one knows their interest and strengths better than






1 themselves. With direct payments to farmers, materials such

2 as building, fencing and equipment, and some specialized

3 equipment would be purchased. There would be annual

4 purchases of feed, seed, fertilizer and parts to meet

5 production -- to meet the products demands of a strong

6 agricultural economy.

7 These annual purchases would support local

8 communities and give the greatest possible return for the

9 dollar. A buy-out would bring relief, enabling farmers to

10 practice more and better conservation practices such as

11 erosion control, seeding, stream banks, silt-catch basins,

12 terraces, establishing or improving forests, and many more.

13 A buy-out would enable farmers to enroll in an already-

14 established conservation practices and programs for

15 improving and creating wildlife habitats. This would

16 increase the sports of hunting and fishing and the annual

17 revenues of our local communities.

18 And now I want to respond to some of the questions

19 that you had on the Internet. The question, do you believe

20 the downward trend of quotas is due to the short-term

21 factors? My answer is, no. Until the lease or any type of

22 production -- production control cost is removed from the

23 price of tobacco, production will remain low.

24 Question, what will the economic consequences of

25 contracting be? When tobacco companies complete their plans






1 for contracting, who will purchase the tobacco at the

2 warehouse? Nobody. And if anybody says they will, they're

3 speaking with somebody else's checkbook. This will collapse

4 the auction system, loading pool stocks, bankrupting the

5 price support and rendering the quota system worthless.

6 Question, what role should federal and state play

7 in contracting of tobacco production? After a buy-out, the

8 answer is none. There would be no need of controlling

9 domestic tobacco companies' purchases. Any types of

10 control, such a license to grow, will have monetary value

11 adding to the price of tobacco, making it less competitive.

12 That's what Mr. Kuegel was speaking of, it being passed on

13 to generations, on how to get around that. And I don't know

14 the answer to that question. I don't think anybody does.

15 Question, is the tobacco production control

16 program in the best interest of public health? My answer is

17 no. Foreign and domestic demand for quality American

18 tobacco will increase when leasing and non -- other non-

19 production costs are eliminated. Our country and health

20 groups have little or no control of what or how chemicals

21 are used in production of foreign tobacco in other

22 countries. American leaf is the safest in the world and in

23 the interest of public health, it makes sense that a

24 domestic cigarette would contain a larger percentage of

25 cheaper quality American tobacco.






1 Question, is the -- is the tobacco production and

2 price support in the best interest of tobacco farmers?

3 Without a buy-out -- without a buy-out, yes. The tobacco

4 production control and price support programs are like

5 inseparable twins. If you separate them, they both will

6 die. The price support guaranteed sale provides collaterals

7 for loans enabling growers to borrow money to finance each

8 crop. With a buy-out, there would need -- with a buy-out,

9 there would be no need to continue either, although, I

10 firmly believe the co-ops' stabilization should remain

11 intact. These co-ops restructured could introduce growers

12 to more and new foreign markets. These privately-funded co-

13 ops would consist of members producing tobacco to meet

14 foreign contracts. In the event of need and available

15 inventories, domestic tobacco companies also could purchase

16 from the new co-ops. Some types of self-administered

17 production controls would be necessary for these new co-ops.

18 And I'm right out of time, but let me say this.

19 At what rate of pounds should be paid -- set for

20 compensation? Equal to $12 a pound on 1997 quota levels,

21 because growers' debts and so -- I believe a 50/50 split

22 should be between growers and quota holders, and in events

23 of landlords and tenants and quota holders, it would be one-

24 third, one-third, one-third.

25 I'm sorry for running over.






1 MR. RICHARDSON: No problem. Thank you, Mr.

2 Smith. Any questions of Mr. Smith?

3 MR. SHEPHERD: Just one brief question. Are you

4 kind of advocating that the cooperatives take over an

5 auction function for export demand? Did I understand that

6 to be what you were saying?

7 MR. SMITH: I don't know for sure if it would be

8 an auction. I'm not that knowledgeable of it, and that's my

9 point, that why the cooperatives should do it. They're

10 knowledgeable. There's been an awful lot of talk about

11 China, we don't know if we're going to get in that or not.

12 But if we do get some burley over there and they blend it

13 with their cigarettes and charge a premium price for it, it

14 certainly should create a market for us. And the point I'm

15 making is, I don't have no access or any other grower does

16 to do this. Only the cooperatives have the capability of

17 doing this.

18 MR. SHEPHERD: So you see that as a function of

19 the cooperatives in whatever system comes out?

20 MR. SMITH: Yes, sir.

21 MR. SHEPHERD: To definitely --

22 MR. SMITH: Yes, sir, to help us develop foreign

23 markets.

24 MR. RICHARDSON: Any other questions of Mr. Smith?

25 (No response.)






1 MR. RICHARDSON: Thank you, sir.

2 MR. SMITH: Thank you.

3 (Applause.)

4 MR. RICHARDSON: The next person to testify is

5 D.W. Robbins, a tobacco farmer. Mr. Robbins.



7 MR. ROBBINS: Thank you for the opportunity to

8 speak here. I'm Douglas Robbins. I live at Woodlawn,

9 Tennessee, 3051 Rollins Road.

10 And I'm in favor of a buy-out, because American

11 farmers cannot compete with foreign growers who have cheap,

12 real cheap labor. And if somebody cut your labor -- your

13 salary three-quarters of a percent -- three quarters of your

14 salary in three years and told you to go down the street and

15 flip hamburgers, you'd be where the farmers are today. So

16 I'm in favor of a buy-out.

17 Thank you very much.

18 (Applause.)

19 MR. RICHARDSON: Thank you, sir.

20 The next person to testify is Anne Powell, and she

21 is with the Kentucky Nurses Association.



23 MS. POWELL: Greetings. My name is Anne Powell,

24 I'm the executive director for the Kentucky Nurses

25 Association, representing approximately 47,000 registered






1 nurses in the state of Kentucky. We are the largest health

2 care provider, and I appreciate the opportunity to bring

3 comments to the Commission today, and thank you for being

4 here.

5 I cannot stress or over-emphasize the need to

6 communicate our efforts to reduce the diseases that are

7 caused by the use of tobacco products in our state. We are

8 seeing a tremendous impact and rise in our health care

9 costs, a significant strain on our resources to provide

10 care, and preventable deaths to Kentuckians due to the

11 tobacco use in our communities.

12 The impact to the adult and youth populations is

13 measurable, outlined most recently in the Healthy


14 Kentuckians 2010 Report and the Medicare data that has just


15 been released. Adults' respiratory and cardiac diseases and

16 respiratory ailments of our youth are skyrocketing.

17 Cardiovascular disease is the leading cause of death in

18 Kentucky. Kentucky is ranked as being the 11th highest

19 cardiovascular mortality state in the nation. These are not

20 statistics to be proud of when many of these deaths are

21 preventable. We know that the major risk factors can be

22 modified, and those include high blood pressure, high blood

23 cholesterol, cigarette smoking, physical activity and

24 obesity. We also know that counseling and education by

25 health care providers could help increase the awareness






1 about signs and symptoms of a heart attack and reduce and

2 control factors that increase an individual risk for a heart

3 attack.

4 Smoking rates are high among all age groups in

5 Kentucky, and we have an alarming increase in the 18 to 24-

6 year-old smokers. Even our older age groups, those in the

7 groups from 65 to 74 and 75-plus, have seen an increase.

8 Our goals must be to eliminate health disparities, and

9 increase the years of healthy lives. We must also consider

10 how to manage and provide access to care, with the ever-

11 increasing numbers of the uninsured in our state.

12 Our priorities are consistent with the federal

13 health priorities for health communication and expanding our

14 public health infrastructure to prevent disabilities and

15 respiratory diseases. We must still focus on the reduction

16 of smoking. Our actual and future health care needs are

17 staggering. Combined with the lack of nursing resources in

18 our state, the impact of the nursing shortage over the next

19 five to ten years, and our own aging work force, and the

20 lack of preventative education to our consumers, we have the

21 recipe for a health care disaster in the state of Kentucky.

22 We need support for programs that prevent tobacco

23 use by youth and help our adult smokers who want to quit.

24 We must have focused initiatives which allow the emphasis

25 and partnership with our public health departments to offer






1 community education and prevention strategies. We must

2 advance beyond these partnerships and provide education and

3 educational materials to our health care providers, enabling

4 them to focus on prevention and alternative lifestyles for

5 all Kentuckians. We must change the reimbursement focus at

6 the federal level to allow nurses and physicians to be

7 directly reimbursed for the prevention and wellness

8 education and initiatives, not encouraging them to allow

9 citizens to become unhealthy and then providing care, but to

10 change the federal programs. If you change those, a change

11 will occur with all third-party payers. An employer,

12 starting with the federal government, should demand

13 prevention for their employees, thus breaking the cycle we

14 are in.

15 We believe the other areas and key strategies lie

16 in the economic and work force development initiatives that

17 have to be implemented. Without economic alternatives for

18 our communities who are tobacco-dependent, we are continuing

19 our cycle of failure. No economic stability, no incentive

20 to change, then no ability to have a healthy lifestyle with

21 prevention.

22 We must focus on our health care prevention and

23 wellness, combined with our economic and work force

24 development. I thank you for the opportunity to provide

25 these comments today, and on behalf of the Kentucky Nurses






1 Association, we look forward to becoming a working partner

2 with you.

3 Thank you very much.

4 (Applause.)

5 MR. MYERS: Thank you. Any questions?

6 MR. KUEGEL: I'm as lost as Matt was a month ago

7 about the tobacco program; but what you're talking about,

8 I'm lost.

9 Are you suggesting that -- I don't understand the

10 program. Are you suggesting that the nurses and physicians

11 should be compensated for telling people to live a healthy

12 lifestyle? I don't understand what you're --

13 MS. POWELL: Yes, sir. Right now physicians and

14 nurses are not directly reimbursed for spending time with

15 families and individuals, helping them alter their

16 lifestyles, offering them prevention, wellness education.

17 It is something that is supposed to be included when you see

18 a patient in a five-minute cycle. And without the change

19 and the focus on prevention, we will never break our cycle.

20 MR. KUEGEL: So you are suggesting that they be

21 compensated for the time they spend to tell people --

22 MS. POWELL: I am. Providers right now are only

23 reimbursed when patients become so sick that that's all we

24 can do is try and restore them to a level of wellness. If

25 at some point providers can spend time with individuals and






1 their families, talking about what they can do to make

2 changes in their lifestyle and be reimbursed for the time

3 they are spending with them, then we can break our cycle of

4 unhealthy lifestyles.

5 MR. MYERS: You're talking basic compensation for

6 a broad range of prevention services, as well as treatment

7 after people get sick?

8 MS. POWELL: Yes. Broadening those preventative

9 services. And we have to start with the federal government

10 as the employer. We want better for the employees in this

11 country.

12 MR. MYERS: You're not necessarily suggesting

13 that's something this Commission tackle?

14 MS. POWELL: No, sir, I'm just simply offering my


16 MR. MYERS: Other questions?

17 (No response.)

18 MR. MYERS: Ms. Powell, thank you very, very much

19 for your testimony.

20 MS. POWELL: Thank you so much for letting me

21 participate today.

22 (Applause.)

23 MR. MYERS: The next witness is Governor Patton

24 and he should be here in about five minutes, so the

25 Commission suggests that we take truly a five-minute break






1 and ask people to stay close so that we can reconvene as

2 soon as Governor Patton arrives.

3 (A short recess was taken.)

4 MR. KUEGEL: It is an honor for me to welcome our

5 co-host this afternoon. I want to say that Governor Patton

6 is a little more than a co-host to this Commission. Whether

7 or not you agree with the buy-out proposal -- and from

8 testimony today, there's a lot of farmers that do -- but

9 whether or not you agree with that, Governor Patton took the

10 initiative, the leadership to come forward and address a

11 problem, to bring the focus of this problem to national

12 prominence and attention, and it's with great honor that, as

13 co-chair of this Committee, I welcome him to not only speak

14 to us as a co-sponsor but to add testimony to our

15 Commission.

16 Governor Patton.

17 (Applause.)



19 GOVERNOR PATTON: Thank you. Thank you Chairman

20 Kuegel and Chairman Myers, and members of the Commission,

21 and thank you for the opportunity to discuss with you this

22 subject while you're in the Commonwealth.

23 President Clinton and Vice President Gore are to

24 be commended for their commitment to formally establishing

25 this group at the very highest levels of the government. In






1 the twilight of the Clinton-Gore administration, it's also

2 appropriate to applaud the unwavering commitment of the

3 administration to the farm families of the country and to

4 raising our collective consciousness to the dangers

5 represented by tobacco use among our children and young

6 people.

7 In several of his numerous trips to the

8 Commonwealth, President Clinton has reaffirmed his support

9 time and time again for farm families of our state and the

10 federal tobacco price support program. These two issues,

11 the future of tobacco farm families and their communities,

12 and the future of public health, were bound to converge at

13 one point or another. Now with the irony of more smokers in

14 the country and around the world than at any point in

15 history, and with tobacco farm families in Kentucky and

16 across the southeast on the edge of economic ruin because of

17 severe reductions in the amount of tobacco that we're

18 allowed to sell, the issues have come together, and are from

19 this point forward inextricably linked.

20 The timing is near perfect, the stakes are

21 unimaginatively high and your task is critical. You can

22 develop a plan to address this long-term economic insecurity

23 of hundreds of thousands of tobacco farmers across the

24 southeast, and at the same time develop a plan to help us

25 better combat and prevent tobacco consumption by our young






1 people.

2 Some have charged that this committee was

3 politically motivated, and that it will be abolished if the

4 Governor of Texas is elected into the presidency. But

5 regardless of the outcome of the election, you should not be

6 deterred from working between now and December 31st when the

7 President expects your initial report to permanently set the

8 record straight from the highest levels of government that

9 as cigarette manufacturer's profits climb as smokers

10 increase in numbers here and around the world, as more

11 children get addicted to cigarettes, and as the economic

12 future of tobacco farm families here, and across the

13 southeast, become more and more uncertain, it has become

14 clear that substantial movement by the federal government is

15 imperative and the need for such movement is urgent. This

16 is a family health issue, the health of family farms and the

17 health of families with young children.

18 On the tobacco production side, we believe there

19 are some relatively simple steps that can be taken, that

20 should be taken, to make the American flue-cured and burley

21 tobacco producers more competitive. Before I share some of

22 our thoughts toward these desired ends, let me state

23 strongly that I believe firmly in the freedom of adult

24 choice, and that tobacco use is a legal practice that should

25 stay that way. We believe that American tobacco is the






1 finest quality, safest tobacco product in the world. We

2 also believe that the federal government bears the

3 responsibility for taking the steps necessary to facilitate

4 American tobacco producers gain a larger domestic and export

5 market share.

6 While we recognize that the future of American

7 tobacco production and protection of the public health are

8 now linked, our recommendations today are aimed only at the

9 tobacco production side of the equation that you have been

10 charged to complete.

11 Changes in the cigarette industry have caused

12 widespread and severe disruption in the production of

13 tobacco and corresponding anxiety in the tobacco-producing

14 regions of the nation. While the price support program has

15 made tobacco a more profitable product than most any other

16 farm product, the program is maintaining the price of U.S.

17 tobacco well above the world market price. While U.S.-grown

18 tobacco is a higher quality than any other tobacco, and its

19 prestige adds additional value, there is a limit to how much

20 above the world market price U.S. tobacco can command.

21 Current market conditions indicate that the world

22 market is beginning to reject U.S.-grown tobacco as too

23 expensive, and U.S. cigarette companies are beginning to

24 import more tobacco. The tobacco balance of trade, the

25 value of manufactured and unmanufactured exports less






1 imports fell by 20 percent in 1999. Tobacco leaf export

2 fell 11 percent compared with the previous year.

3 The present quota of 790,400,000 pounds for crop

4 year 2000 is 53 percent lower than crop year '97, and 48

5 percent lower than the nine-year average from 1989 through

6 1997. That average was 1,512,800,000 pounds. This dropping

7 quota has already created major financial problems for

8 thousands of tobacco farmers and has the entire tobacco

9 farming community deathly concerned about its future.

10 The United States government has been an integral

11 partner in creating this condition, where the U.S. tobacco-

12 growing community has become very dependent on high tobacco

13 prices and a level of production that cannot be sustained.

14 The government should help the industry transist to a new,

15 more competitive program by easing the financial disruption.

16 The government has created a displaced worker assistance

17 program for workers who lose their jobs because of federal

18 policy on foreign trade. The economic consequences of

19 current and future government anti-smoking policy are just

20 as real as the economic dislocation resulting from the

21 government's foreign trade policy. The government has no

22 less responsibility to dislocated farmers than it has to

23 dislocated industrial workers.

24 We believe that a buy-out of burley and flue-cured

25 tobacco quotas is an appropriate step for the federal






1 government to take at this time. The benchmark by which

2 tobacco farmers measure a buy-out program is the Leaf Act,

3 proposed by Senator -- Kentucky Senator Wendell Ford in

4 1997. This proposal was to pay from eight to $12 per pound

5 of quota, based on the '94-'96 average basic quota. This

6 would have provided about $16 billion to farmers. The

7 current quota is 45 percent lower than the 1994-'96 average,

8 so to equate to the same general payout would require about

9 20 cents -- $20 per pound, or about $15.8 billion. This is

10 more than four times the nominal value of the phase two

11 tobacco farmer assistance program of $4.49 billion over the

12 ten remaining years of the program.

13 The stability of the phase two program is

14 dependent on the viability of the cigarette companies, a

15 condition that doesn't give tobacco farmers a great deal of

16 comfort. This proposal would put more than four times more

17 money in the farmers' pockets and be backed by the U.S.

18 government. Financing a buy-out should not be an

19 insurmountable object. The federal government has in this

20 past fiscal year spent $668 million to relieve the dire

21 economic conditions of tobacco farmers through the Tobacco

22 Loss Assistance Program. Buy-out of the total burley and

23 flue-cured quota would cost $790,400,000 a year for a period

24 of 20 years. In the area of budget surpluses, financing a

25 buy-out should not represent an insurmountable obstacle.






1 This proposal would have a substantial positive

2 impact on tobacco farm families in the major tobacco-

3 producing states of North Carolina, Kentucky, Virginia,

4 Tennessee, Georgia and South Carolina. We hope you will

5 consider this approach as you delve into this complex and

6 important issue.

7 There are other reforms to the tobacco program we

8 believe are essential to the modernization of tobacco

9 production in the United States. We believe that leasing of

10 quotas should be eliminated. We believe that the right to

11 produce and market tobacco should be held exclusively by

12 active producers, and that these rights should be purchased

13 from non-growing quota holders through the federal buy-out

14 that I've described. We also believe that the federal

15 tobacco supply control program should be reformed, that the

16 method by which marketing rights are computed should be

17 changed, and that the tobacco growers cooperatives be

18 refashioned to better serve the needs of their members.

19 We presented this proposal as a baseline from

20 which we collectively might stimulate through deliberation

21 of this issue. We're certain that maintaining the status

22 quo is an unsustainable course.

23 Details related to this proposal have been shared

24 with the Commission and are attached to my written comments

25 for your further review. We look forward to working with






1 you toward the development of a plan to make the necessary

2 and appropriate changes to the tobacco program and to

3 provide adequate compensation to our tobacco quota holders.

4 We're equally committed to helping facilitate your work on a

5 plan to better preserve the consumption of tobacco

6 products -- better prevent the consumption of tobacco

7 products by our young people, recognizing that these two

8 issues can no longer be decoupled.

9 So thank you, Mr. Kuegel, Mr. Myer and all the

10 committee for having these hearings, for being in Kentucky

11 and your work in North Carolina. We remain available to

12 work with you as you finish your report to the President.

13 Thank you very much.

14 (Applause.)

15 MR. KUEGEL: Are there any questions for the

16 Governor from the Commission? Any questions?

17 (No response.)

18 GOVERNOR PATTON: I guess not. Thank you all very

19 much.

20 (Applause.)

21 MR. KUEGEL: Okay. We have one more registered

22 speaker, Mr. Joe Elliott, a tobacco farmer from Owensboro,

23 Kentucky.



25 MR. ELLIOTT: I thank the Commissioners up there.






1 I'd like to share with you a little bit of history with

2 tobacco.

3 I was born on October the 18th, and I was in the

4 stripping room by November the 1st.

5 (Laughter.)

6 I have been with tobacco -- I'm 61 years old, and

7 I have two sons and a daughter, and we have most -- 60

8 percent of our gross income has been off the farm. What I'd

9 like to relate back to you people is what we are actually

10 doing for the economy. There ain't a stoplight or blacktop

11 road or concrete road that tobacco money hasn't done

12 something for you. Every pound of tobacco off the farm

13 brings us around somewhere $1.80, $1.85 we take home,

14 somewhere in that area. It will make 50 packs of

15 cigarettes. We're not talking -- but out of every 100,000

16 pounds tobacco a tobacco farmer sells, there's $6 million in

17 taxes. We're not a bad bunch of people. There ain't very

18 many companies in the state or anywhere that's making or


19 doing that much for the economy.

20 With the health issues, we need to not -- make

21 sure our kids don't smoke. It should be a free choice. I

22 have been involved in tobacco, I'm a chairman with the Farm

23 Agency Service for over 14 years, Hoppy's a pretty good

24 friend. Anyway, we know each other real well, and Rod

25 Kuegel's my neighbor.






1 I have tried and done as much for tobacco in my

2 community as I can. I support the Future Farmers of

3 America, I have meetings at my farm, I share a lot, the

4 Chamber of Commerce, we have field days, and everything.

5 And it's tobacco people, what I'd like to say to you that,

6 we do a lot of things for the community, work activities and

7 everything, and I'd like to continue raising tobacco on my

8 farm, legal crop, at least to make a living for my two sons,

9 my grandson and my daughter and her son-in-law, which just

10 purchased a 50-acre farm in Hancock County. Without

11 tobacco, it would never happen.

12 Then another thing, when my granddaughter said,

13 Pappaw, I got my braces on my teeth today, and I spent

14 $5,000, it's my daddy's tobacco check. So that's part of

15 life, and I'd like to share that with you and hope y'all can

16 take care of keep us farming in tobacco, and legally keep us

17 out of welfare.

18 Thank you.

19 (Applause.)

20 MR. MYERS: Any questions from Mr. Elliott?

21 (No response.)

22 MR. KUEGEL: Are there any other members of the

23 audience that would wish to address the Commission?

24 Yes, sir? Just have a seat, state your name and

25 address and say what you have on your mind.








2 MR. COOKE: My name is Jerry Cooke. I didn't come

3 in with an agenda. I live -- I live across the river in

4 southern Indiana.

5 I have -- when I was a boy, we raised tobacco. I

6 followed a mule many a day up and down the field plowing

7 tobacco. And when I was doing that, that's what I knew.

8 That's what my family did.

9 I went on to college and I got a degree in

10 agriculture, and I grew, and I learned. And I've changed --

11 I've changed my mind over the years as far as what tobacco

12 is and what it means to me. I've been personally touched,

13 my father died at the age of 49, and -- because the doctor

14 said it was because of his smoking. I have a son 26 years

15 old that will never have the benefit of knowing his

16 grandfather. I have two friends in their 40s who have died

17 from lung cancer from smoking over the last few years, who

18 had teenage children.

19 So I know -- I know that it's a plight for the

20 farmer. But from the standpoint of someone that's been

21 affected from the other side, I understand that side, too.

22 I don't know what -- how much of the taxpayer

23 dollar goes into paying the medical benefits of people that

24 have been affected by tobacco, but the number that I've seen

25 published is in the neighborhood of 400,000 people a year






1 die from the consumption of tobacco. A lot of those have to

2 be people that taxpayers' money is involved in. So it's an

3 issue that touches everyone that pays taxes.

4 As far as the issue with young people go, the

5 Governor addressed it very briefly. So what do you do? I

6 have -- I have friends that have children that smoke now,

7 that are in their teens. And once started, it's hard to

8 stop. So why not set a -- why not set a age limit of 21?

9 Make it against the law, make it a federal law that anyone

10 under the age of 21 should not be allowed to smoke. Why

11 not? You have to be -- you have to be 21 to drink and

12 smoking kills a whole lot more people than drinking does.

13 I just -- I just wanted to express to you that it

14 touches -- it touches people like myself in the deepest,

15 deepest way of losing someone that has consumed tobacco.

16 And whether -- whether it's the nicotine, whether it's an

17 additive that goes into tobacco, I don't know. But if this

18 product were to be put on the market now, it would -- it

19 would go through such scrutiny, it would never be allowed.

20 Now this may not be an area that you're involved in at all,

21 but you have to recruit more people to smoke all the time,

22 and for years it's obvious that the tobacco companies have

23 been directing their advertising towards the youth.

24 So if there is anything that you can do, maybe it

25 would be to make a recommendation as far as setting an age






1 limit, and putting some -- putting some power behind

2 enacting something like that.

3 These are just my feelings. Thank you.

4 MR. KUEGEL: Thank you. Any questions?

5 (Applause.)

6 (No response.)

7 MR. KUEGEL: Anybody else in the audience wish to

8 address the Commission? Last chance.

9 (No response.)

10 MR. KUEGEL: We appreciate you being here today.

11 You can rest assured that all of this testimony will be

12 pondered over by this Commission, studied, analyzed. We'll

13 have a written copy of all of it. Also we'll have a

14 synopsis of what's been done here today. We'll continue to

15 work and try to formulate a path that this Commission can

16 submit back to growers and health groups that we hope that

17 all can support.

18 Doug, the papers in the back of the room for fax

19 numbers, e-mail -- you can e-mail us just like you can

20 testify here today, so please do that. If nobody has

21 anything else, we'll stand adjourned.

22 Thank you.

23 (Whereupon, the forum was concluded at 2:24

24 p.m.)