[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
HEARING TO REVIEW TOBACCO PRODUCTION IN THE UNITED STATES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON SPECIALTY CROPS, RURAL
DEVELOPMENT, AND FOREIGN AGRICULTURE
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
MARCH 26, 2009
__________
Serial No. 111-4
Printed for the use of the Committee on Agriculture
agriculture.house.gov
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COMMITTEE ON AGRICULTURE
COLLIN C. PETERSON, Minnesota, Chairman
TIM HOLDEN, Pennsylvania, FRANK D. LUCAS, Oklahoma, Ranking
Vice Chairman Minority Member
MIKE McINTYRE, North Carolina BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa JERRY MORAN, Kansas
JOE BACA, California TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California SAM GRAVES, Missouri
DAVID SCOTT, Georgia MIKE ROGERS, Alabama
JIM MARSHALL, Georgia STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South RANDY NEUGEBAUER, Texas
Dakota K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas JEFF FORTENBERRY, Nebraska
JIM COSTA, California JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER, BILL CASSIDY, Louisiana
Pennsylvania CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho
______
Professional Staff
Robert L. Larew, Chief of Staff
Andrew W. Baker, Chief Counsel
April Slayton, Communications Director
Nicole Scott, Minority Staff Director
______
Subcommittee on Rural Development, Biotechnology, Specialty Crops, and
Foreign Agriculture
MIKE McINTYRE, North Carolina, Chairman
BOBBY BRIGHT, Alabama K. MICHAEL CONAWAY, Texas, Ranking
JIM MARSHALL, Georgia Minority Member
HENRY CUELLAR, Texas DAVID P. ROE, Tennessee
LARRY KISSELL, North Carolina GLENN THOMPSON, Pennsylvania
WALT MINNICK, Idaho BILL CASSIDY, Louisiana
Aleta Botts, Subcommittee Staff Director
(ii)
C O N T E N T S
----------
Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 5
McIntyre, Hon. Mike, a Representative in Congress from North
Carolina, opening statement.................................... 1
Prepared statement........................................... 3
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, prepared statement.................................. 5
Witnesses
Boyd, Graham, Executive Director, North Carolina Association of
Tobacco Growers, Raleigh, NC; on behalf of Hon. Steven W.
Troxler, Commissioner, North Carolina Department of Agriculture
and Consumer Services, Raleigh, NC............................. 6
Prepared statement........................................... 8
Supplemental material supplied by Mr. Troxler................ 33
Brown, Ph.D., A. Blake, Agricultural and Resource Economics and
Hugh C. Kiger Professor, North Carolina State University,
Raleigh, NC.................................................... 9
Prepared statement........................................... 10
Snell, Ph.D., William M., Extension Professor, Department of
Agricultural Economics, University of Kentucky, Lexington, KY.. 11
Prepared statement........................................... 13
Bunn, Jessie Thomas, President, U.S. Tobacco Cooperative Inc.,
Raleigh, NC.................................................... 15
Prepared statement........................................... 17
Supplemental material........................................ 33
Quarles, Roger, President, Burley Tobacco Growers Cooperative
Association; President, International Tobacco Growers
Association, Georgetown, KY.................................... 18
Prepared statement........................................... 20
HEARING TO REVIEW TOBACCO PRODUCTION IN THE UNITED STATES
----------
THURSDAY, MARCH 26, 2009
House of Representatives,
Subcommittee on Rural Development, Biotechnology,
Specialty Crops, and Foreign Agriculture,
Committee on Agriculture,
Washington, D.C.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 1302 of the Longworth House Office Building, Hon. Mike
McIntyre [Chairman of the Subcommittee] presiding.
Members present: Representatives McIntyre, Bright, Cuellar,
Kissell, Minnick, Conaway, Roe, and Thompson.
Staff present: Aleta Botts, Claiborn Crain, Sharon Rusnak,
Debbie Smith, Kristin Sosanie, Mike Dunlap, Tamara Hinton, and
Pelham Straughn.
OPENING STATEMENT OF HON. MIKE McINTYRE, A REPRESENTATIVE IN
CONGRESS FROM NORTH CAROLINA
The Chairman. Good morning, ladies and gentlemen, and
welcome to today's hearing to review the state of tobacco
production in the United States.
I want to thank all of you for taking the time to come here
to help us as we examine this important topic. I want to
especially thank our witnesses who will be testifying before
us, and others who have traveled despite some weather
conditions that weren't quite conducive for some. I would also
especially like to recognize a long-time friend who came to
support those in testimony today who also is Chairman of the
7th Congressional District Advisory Committee on Agriculture,
Mr. Jimmy Pate. Jimmy, thank you for traveling up here to be
with us today, and for your work on behalf of agriculture in
southeastern North Carolina and across North Carolina.
My name is Mike McIntyre. I know many of the witnesses. We
will be having others coming in. I am pleased to be joined by
our new Ranking Member, Mr. Conaway, who will be speaking in
just a moment. This is the first formal hearing of this
Subcommittee. We did have an economic roundtable discussion the
day after our swearing-in in early January to discuss some of
the ramifications of a possible economic stimulus package, how
it was critical to rural America. I was very pleased with the
results of that in terms of the inclusion of rural needs in
what became the American Recovery and Reinvestment Act.
Today's formal hearing will be an opportunity, now, for us
to look at ways in which tobacco production is being affected
in the United States. We know that each of us represent
agricultural producers and rural communities for whom we care
deeply. I hope that this Committee will be able to evaluate
issues within our jurisdiction that are important to those
producers and communities, and I look forward to working with
Mr. Conaway and others on our Subcommittee in that effort.
Tobacco has been cultivated in North Carolina since
colonial times, well before it became a state. But, it found
its calling as an economic engine in the late 1800s. Since that
time North Carolina has become the nation's largest tobacco-
producing state, producing almost 50 percent of the total
tonnage in the year 2007. The tobacco industry contributes over
$36 billion to the U.S. economy each year, employing over
19,000 individuals nationwide. In my home State of North
Carolina, over 8,600 people are employed by the industry with a
statewide economic impact of nearly $24 billion, so right at
about $23.9 billion, to be more exact.
Those numbers only tell part of the story, however. For
thousands of North Carolina farm families, the annual tobacco
crop has meant the difference in terms of the farm's cash flow,
oftentimes being the support mechanism for all of the other
crops that are grown, especially for smaller farmers, it is
what keeps the family economically surviving. The annual
tobacco crop has meant a difference in terms of the farm's cash
flow, the family's livelihood, and the ability to keep a farm
going through otherwise very difficult times. Raising tobacco
is not easy work by any stretch of the imagination, but farmers
in North Carolina have risen to that challenge year after year
down through the centuries.
Of course, North Carolina is not the only state in which
tobacco production is important. In 2007, 356,000 acres of
tobacco were harvested across the United States, producing
around 389,000 tons. This industry as we know it is going
through a time of transition. During the 108th Congress, I
worked with many of my colleagues in the tobacco-producing
states, Republican and Democrat, to end the last Depression-era
quota system and pass a bill that included over $10 billion in
total compensation for tobacco farmers across the country. This
bill, commonly known as the Buyout Bill, passed without any
additional regulation from the Food and Drug Administration of
tobacco products. An issue that had been discussed many times
is whether the FDA should be allowed to come on the farm, and
continually what we heard everywhere from farmers and
agribusiness and the rural communities was, do not put FDA on
the farm. The tobacco buyout was extremely successful. People
had said, how will you ever get that done, and I was thrilled
because it really was a win-win. It got the government out of
the tobacco business, which many people were concerned about.
It also made sure that the Federal control, the quotas and what
that did in terms of a person's personal property were no
longer controlled by the Federal Government. It bought out the
Federal interest in the control over personal property and real
property. So we were very pleased that the buyout has been
quite a success, and now farmers and free enterprise can decide
whether or not to contract. Some farmers got out of the tobacco
business and have transitioned to other agricultural
commodities, or into retirement, or have gone into other types
of business. For those who stayed in, it obviously has had a
dramatic effect in tobacco production.
Now legislation to allow FDA to regulate tobacco products
is again under consideration. I am deeply concerned about how
this legislation will affect tobacco production in North
Carolina, and nationwide, that is already under pressure from
difficult economic times, the higher U.S. dollar pushing down
exports and increased competition from overseas producers who
do not have to meet our more stringent labor and environmental
regulations.
Because of the importance of tobacco in North Carolina, I
am pleased to welcome three distinguished individuals from our
home state to our witness list today. I know that our State
Commissioner of Agriculture, Steve Troxler, was to be here and
got fogged in at the Raleigh-Durham Airport this morning. But,
I am pleased to have the Executive Director of the North
Carolina Association of Tobacco Growers, Graham Boyd, who will
be speaking in his behalf, and Graham, I know your knowledge is
quite extensive and we welcome you to come here. Dr. Blake
Brown is a Professor in the Department of Agriculture and
Resource Economics at N.C. State, very well known, very well
respected in terms of understanding the economics of
agriculture in general, but especially tobacco in particular.
He is specialized in research on policy and farm management for
tobacco, cotton and peanuts, all of which greatly concern us in
agriculture, but in particular tobacco and peanuts being two of
the specialty crops that this Committee has direct jurisdiction
over. Mr. Tommy Bunn is President of the U.S. Tobacco
Cooperative. The Cooperative is grower owned and grower
governed and markets leaf tobacco and tobacco products in the
domestic and international markets. Tommy has raised tobacco
himself, worked for both the USDA Agricultural Marketing
Service and the North Carolina Department of Agriculture on
tobacco issues. So I want to particularly welcome you
gentlemen. We also will have the opportunity to speak to our
other witnesses as they testify. I just wanted to call
attention, in particular, to our North Carolina friends today.
I want to remind witnesses also after Mr. Conaway speaks
and we begin testimony that we have 5 minutes provided for your
statement. If you can read your statement in 5 minutes, that is
fine. If you can't, please now start marking where you want to
highlight so that you can honor the 5 minute rule. Also in
terms of questions, I will just remind the Subcommittee that we
too are going to be subject to the 5 minute rule and would ask
Members to honor that so that all have a chance to hear the
testimony and to have others answer questions. But have no
fear. Your entire statement no matter how long it is will be
allowed to be entered into the record.
[The prepared statement of Mr. McIntyre follows:]
Prepared Statement of Hon. Mike McIntyre, a Representative in Congress
from North Carolina
Good morning, and welcome to today's hearing to review the state of
tobacco production in the United States. I want to thank all of you for
being here as we examine this important topic, and I want to especially
thank our witnesses who will be testifying before us today.
This is the first hearing of the Subcommittee for the 111th
Congress, and I would like to take this opportunity to welcome my new
Ranking Member, Mr. Mike Conaway of Texas, and indicate to him and my
colleagues my sincere desire to conduct the work of the Subcommittee in
a strong, bipartisan manner. Each of us represents agricultural
producers and rural communities for whom and for which we care deeply.
I hope that we are able to use this Subcommittee to evaluate issues
within our jurisdiction important to those producers and communities,
and I look forward to working with Mr. Conaway and others on that
effort.
Tobacco has been cultivated in North Carolina since well before it
became a state, but it found its calling as an economic engine in the
late 1800s. Since that time, North Carolina has become the nation's
largest tobacco producing state, producing almost 50 percent of the
total tonnage in 2007.
Those numbers only tell part of the story. For thousands of North
Carolina farm families, the annual tobacco crop has meant the
difference in terms of the farm's cash flow, the families' livelihoods,
and the ability to keep a farm going during difficult times. Raising
tobacco is not easy work by any stretch of the imagination, but farmers
in North Carolina rise to the challenge year after year.
Of course, North Carolina is not the only state in which tobacco
production is important. In 2007, 356,000 acres of tobacco were
harvested across the United States, producing around 389,000 tons.
This industry is going through a time of transition. During the
108th Congress, I worked with many of my colleagues in tobacco
producing states to end the last Depression-era quota system and pass a
bill that included over $10 billion in total compensation for tobacco
farmers across the country. The bill passed without any additional
regulation from the Food and Drug Administration (FDA) of tobacco
products, an issue that had been discussed many times in the past.
Now legislation to allow FDA to regulate tobacco products is again
under consideration. I am deeply concerned about how this legislation
will affect tobacco producers in North Carolina and nationwide, already
under pressure from difficult economic times, the higher U.S. dollar
pushing down exports, and increased competition from overseas producers
who do not have to meet our more stringent labor and environmental
regulations.
Because of the importance of tobacco to North Carolina, I am
pleased to welcome three distinguished individuals from North Carolina
to our witness list today.
North Carolina Agriculture Commissioner Steve Troxler was raised in
the Guilford County community of Browns Summit, and has spent his
entire career in agriculture as founder, owner and operator of Troxler
Farms. His family was even named ``Tobacco Farm Family of the Year'' by
the Tobacco Growers Association of North Carolina.
Dr. Blake Brown is a Professor in the Department of Agricultural
and Resource Economics at North Carolina State University. He has
specialized in research on policy and farm management for tobacco,
cotton and peanuts.
Mr. Tommy Bunn is President of U.S. Tobacco Cooperative. The
Cooperative is grower owned and grower governed and markets leaf
tobacco and tobacco products in the domestic and international markets.
Tommy has raised tobacco and worked for both the USDA Agricultural
Marketing Service and the North Carolina Department of Agriculture on
tobacco issues.
Conclusion
I would encourage witnesses to use the 5 minutes provided for their
statements to highlight the most important points in their testimony.
Do not read your testimony unless you can complete it within the
allotted 5 minutes or can read the highlights within the 5 minutes.
Pursuant to Committee rules, testimony by witnesses along with
questions and answers by Members of the witnesses will be stopped at 5
minutes. Your complete written testimony will be submitted in its
entirety in the record.
At this time, I would like to recognize the Ranking Member of the
Subcommittee, Rep. Mike Conaway, for any opening comments that he may
have.
The Chairman. At this time now I would like to recognize
the Ranking Member of the Subcommittee, Representative Mike
Conaway. I guess you would call it Mike and Mike here. And we
welcome Mike to have you here as our new Ranking Member of this
Subcommittee.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS
Mr. Conaway. Well, thank you, Mr. Chairman, and I don't
think you can have too many Mikes in Congress, so I look
forward to joining the Mike caucus. This is our first hearing
so I look forward to 2 long years, or short years, however you
want to do it, of working together on issues that are keen on
rural development and other areas of jurisdiction.
This is my first exposure to tobacco issues. I represent a
district that doesn't grow tobacco. I have a personal history
with it that is not favorable to tobacco use. My father died of
emphysema and my mother-in-law died of lung cancer, both heavy
smokers. My father never once blamed anybody but himself for
his use of tobacco that contributed to his demise. But by the
same token, I am not vengeful. I don't have an ax to grind with
tobacco growers. There will be regulations. Those regulations
ought to make sense. They ought to accomplish the limited goal
in the least intrusive way possible. I am not convinced that
FDA is the right agency to provide whatever new regulations
might be there. They have their plate full, I would argue, with
drugs and food safety, and other areas that they have not done
a particularly spectacular job on, so I am not convinced that
that should be the agency that does this.
I want to spend more time this morning listening and trying
to understand and learn what impacts these potential changes
and the circumstances may have on rural North Carolina, rural
Tennessee, rural Georgia and those parts of the country that do
depend on tobacco as a cash crop. Your testimony will help me
understand how best that whatever we intend or however we
intend to regulate it that it gets done in a fair manner which
the industry can cope with it in the least intrusive, least
expensive manner possible. So thank you, gentlemen, and I look
forward to visiting with you today about your issue.
The Chairman. Thank you so much, Mr. Conaway, and we
welcome additional Members of the Subcommittee who have now
arrived. The Chairman requests that other Members submit their
opening statements for the record.
[The prepared statement of Mr. Peterson follows:]
Prepared Statement of Hon. Collin C. Peterson, a Representative in
Congress from Minnesota
Thank you, Chairman McIntyre.
Today the Subcommittee will look at tobacco production in the
United States. Given the challenges that tobacco farmers face--be it
decreasing exports, increasing competition, or the current state of the
economy, this is an important topic and I thank the Chairman for
calling today's hearing.
Tobacco production makes up a significant part of the southern farm
economy--especially in North Carolina and Kentucky, as is reflected by
the makeup of the distinguished panel of witnesses here today.
Five years ago, Congress eliminated Federal farm price support for
tobacco, and helped farmers transition into a free market system.
Farmers are no longer restricted as to who can produce tobacco, where
they can grow it, or how much can be marketed. But there is also no
limit on how low the price can go.
During the buyout debate, regulation of tobacco products by the
Food and Drug Administration (FDA) was a hot topic of discussion, and
there have been many proposals since then. The most recent legislation
being considered would impose additional FDA regulations on tobacco
products and has the potential to negatively affect farmers, who are
already facing tough economic times.
I appreciate the Subcommittee's work on this issue and look forward
to hearing the witnesses' testimony.
The Chairman. As I stated a moment ago, the witnesses will
have 5 minutes to share their testimony and then the chair
would like to remind Members that they will be recognized for
questioning in order of seniority for Members who were here at
the start of the hearing. After that, the Members who arrived
will be recognized and I will ask the clerks to help me since
you all virtually got here at almost the same time. But for
Members who came after we started the hearing, you will be
recognized in order of your arrival. So we appreciate the
Members' understanding in that regard.
I mentioned earlier the witnesses from North Carolina. I
would also like to welcome to this panel Dr. Will Snell,
Professor, Department of Agricultural Economics from the
University of Kentucky, another great basketball team like
North Carolina. We enjoy the rivalry. And also Mr. Roger
Quarles, producer and President of the Burley Tobacco Growers
Cooperative Association from Georgetown, Kentucky. So welcome
to you as well, gentlemen. We know the great tradition and
history Kentucky has in tobacco production also.
Now we would like to go ahead and start our panel so that
we can continue to move promptly today and honor everyone's
time with other commitments as well. And in lieu of the State
Agriculture Commissioner, Steve Troxler, as we stated earlier,
who is delayed because of weather conditions, Mr. Graham Boyd
will first testify. Mr. Boyd, you may proceed.
STATEMENT OF GRAHAM BOYD, EXECUTIVE DIRECTOR, NORTH CAROLINA
ASSOCIATION OF TOBACCO GROWERS, RALEIGH, NC; ON BEHALF OF HON.
STEVEN W. TROXLER,
COMMISSIONER, NORTH CAROLINA DEPARTMENT OF
AGRICULTURE AND CONSUMER SERVICES, RALEIGH, NC
Mr. Boyd. Good morning. Members of the Committee, thank you
for allowing me to fill in for our Commissioner of Agriculture,
who regrettably could not be with you. I will deliver his
testimony as it was presented for the record.
Our Commissioner grew up on a tobacco farm in Guilford
County, North Carolina. For more than 30 years he was involved
in the production of this crop. He understands very well the
issues of challenge with weather, the steady decline of quotas,
the Federal price support program, the buyout, et cetera. As
North Carolina's Commissioner of Agriculture, he has seen the
tobacco production bottom out following the end of the Federal
price support program and then in recent years make a slight
rebound. North Carolina produced nearly 385 million pounds of
flue-cured tobacco on 171,000 acres last year. We are still the
nation's leading producer of flue-cured tobacco despite the
fact that we now have seen attrition bring us to less than
3,000 tobacco growers. That might seem like a lot, but in 2002
we had over 8,000 tobacco growers.
When it comes to tobacco, our Commissioner has seen a lot
and understands the situation that is facing North Carolina's
tobacco farmers firsthand. Tobacco farmers are under siege.
That is the opinion that is felt. First, Congress this past
year has raised the excise tax on cigarettes by 62 cents per
pack and now many states are lining up to do the same. In North
Carolina, Governor Perdue has recommended in her budget raising
the taxes on the product by $1 per pack.
The consequences for our farmers will be severe. The
increase in the Federal excise tax hasn't yet taken effect but
the impact is already being felt by North Carolina farmers.
Cigarette companies have already begun to reduce their
contracts for volume in 2009, some by as much as 50 percent. If
the state excise tax goes up too, our growers will be hurt even
more and this increase could also lead to many job losses in
the manufacturing sector.
Tobacco manufacturing employs more than 10,000 North
Carolinians and pays an average wage of over $86,000 per year,
and that is more than twice the private industry average of
$39,000 in our state. The last thing our state or any other
needs right now are more lost jobs.
In addition to higher taxes, Congress is considering
regulating tobacco, the purpose of your hearing today, which we
appreciate the opportunity to testify before. Congressman
Waxman's bill would put tobacco under FDA oversight. This is
ill advised. FDA's focus right now should be, and needs to be,
on food safety. Expanding FDA's mission would dilute its
effectiveness in protecting our nation's food supply.
Congressman McIntyre and Indiana Congressman Buyer have
introduced a bill that would create a new agency within the
Department of Health and Human Services to oversee tobacco
products. One of the things that Commissioner Troxler likes
about this bill is that it would not subject farmers to
additional regulations in the way tobacco will be grown, and
that is good.
North Carolina growers increasingly rely on export markets.
In fact, tobacco is our most valuable agricultural export,
valued at more than $1 billion. Additional regulation would put
our growers at a competitive disadvantage in international
markets.
Agriculture is by far North Carolina's largest industry
with a $70.8 billion economic impact. Tobacco manufacturing
represents $24 billion in added value for North Carolina's
economy. On average, a single tobacco plant is worth 71 cents
in revenue for a U.S. farmer. That same plant will yield an
average of $15.74 in state and Federal excise taxes on tobacco
products. This money supports a variety of economic and health
programs. A decrease in tobacco revenues will ultimately hurt
states' ability to carry out programs that benefit many
citizens.
In closing, Commissioner Troxler wanted to say that farmers
must endure many hardships. They have to deal with weather and
manage their input costs and fluctuating commodity prices. As
he has said many times though, the single greatest factor in a
farmer's ability to make a living isn't the weather but
government policy. Commissioner Troxler urges you as a
Committee to make wise policy decisions concerning the future
of our nation's tobacco farmers. Your decisions will ripple
throughout the states, communities both large and small. If you
regulate and tax U.S. tobacco farmers out of business, America
will become reliant on foreign tobacco that is not subject to
the same high standards. The situation will be no different
from the many problems with imported food that our nation has
experienced in recent years. Please choose wisely.
Thank you, and we would appreciate the opportunity to
present some additional information for the record, Mr.
Chairman.
[The prepared statement of Mr. Troxler follows:]
Prepared Statement Hon. Steven W. Troxler, Commissioner, North Carolina
Department of Agriculture and Consumer Services, Raleigh, NC
Good morning, Mr. Chairman and Members of the Committee. Thank you
for inviting me here today to talk about a topic I know very well.
I grew tobacco in Guilford County, North Carolina, for more than 30
years. I dealt with dry weather, wet weather, the steady decline of
quotas, and the end of the Federal price-support system.
As North Carolina's Commissioner of Agriculture, I have seen
tobacco production bottom out following the end of Federal price
supports. And I have seen it rebound.
North Carolina produced nearly 385 million pounds of flue-cured
tobacco on 171,000 acres last year. We are still the nation's leading
producer of flue-cured tobacco, despite the fact that we now have less
than 3,000 tobacco farmers. That might seem like a lot, but in 2002, we
had 8,000 tobacco farmers.
When it comes to tobacco, I have seen a lot. But I have never seen
the situation facing North Carolina's tobacco farmers today.
Tobacco farmers are under siege. First, Congress raised the excise
tax on cigarettes by 62 cents a pack. Now many states are lining up to
do the same. In North Carolina, Governor Perdue has recommended raising
the tax on cigarettes by $1 per pack.
The consequences for our farmers will be severe. The increase in
the Federal excise tax hasn't even taken effect yet, but it has already
impacted North Carolina farmers. Cigarette companies have reduced 2009
contracts with our farmers by as much as 50 percent.
If the state excise tax goes up, too, our growers will be hurt even
more. And, this increase could also lead to job losses in the
manufacturing sector.
Tobacco manufacturing employs more than 10,000 North Carolinians
and pays average wages of more than $86,000 a year. That's more than
twice the state's private industry average of $39,000. The last thing
North Carolina--or any state--needs right now is more lost jobs.
In addition to higher taxes, Congress is considering regulating
tobacco. Congressman Waxman's bill would put tobacco under FDA
oversight. This is ill-advised. FDA's focus right now should be, and
needs to be, on food safety. Expanding FDA's mission would dilute its
effectiveness in protecting our nation's food supply.
Chairman McIntyre and Indiana Congressman Buyer have introduced a
bill that would create a new agency within the Department of Health and
Human Services to oversee tobacco products. One of the things I like
about this bill is that it would not subject farmers to additional
regulations on the way they grow tobacco. That's good.
North Carolina growers increasingly rely on export markets. In
fact, tobacco is our most valuable agricultural export, valued at more
than $1 billion. Additional regulation would put our growers at a
competitive disadvantage in international markets.
Agriculture is by far North Carolina's largest industry, with a
$70.8 billion economic impact. Tobacco manufacturing represents almost
$24 billion in added value for North Carolina's economy.
On average, a single tobacco plant is worth 71 cents in revenue for
a U.S. farmer. That same plant will yield an average of $15.74 in state
and Federal taxes on tobacco products. This money supports a variety of
economic and health programs. A decrease in tobacco revenues will
ultimately hurt states' ability to carry out programs that benefit many
citizens.
In closing, I want to say that farmers must endure many hardships.
They have to deal with the weather and manage their input costs amid
fluctuating commodity prices. As I've said many times though, the
single greatest factor in a farmer's ability to make a living isn't the
weather, but government policy.
I urge you to make wise policy decisions concerning the future of
our nation's tobacco farmers. Your decisions will ripple throughout the
states, in communities both large and small. If you regulate and tax
U.S. tobacco farmers out of business, America will become reliant on
foreign tobacco that is not subject to the same high standards. The
situation will be no different from the many problems with imported
foods that our nation has experienced in recent years.
Please choose wisely. Thank you.
The Chairman. Without objection, you certainly may, and
thank you. You actually finished just under your time so we
appreciate your promptness and your getting right to the heart
of the matter.
We now welcome Dr. Blake Brown. You may proceed.
STATEMENT OF A. BLAKE BROWN, Ph.D., AGRICULTURAL AND RESOURCE
ECONOMICS AND HUGH C. KIGER PROFESSOR, NORTH CAROLINA STATE
UNIVERSITY, RALEIGH, NC
Dr. Brown. I would like to thank Chairman McIntyre and the
Members of this Subcommittee for the opportunity to participate
in this hearing. As noted, I am an agricultural economist
specializing in tobacco policy, but I also lead a team at the
new research campus in North Carolina which focuses on
alternative agriculture for North Carolina farmers.
As noted, in North Carolina, tobacco remains the number one
cash crop in terms of farm production. In 2008, North Carolina
farmers had cash receipts from tobacco of $686 million. Since
the end of the Federal tobacco program, tobacco farmers have
made many transitions. Some have retired or exited farming for
other occupations. Some have successfully transitioned to other
farm enterprises. Most farmers are already diversified. Some
farms have increased their production of tobacco with the
result being that North Carolina produces more flue-cured
tobacco now than was produced in 2004.
While North Carolina produces almost 50 percent of U.S.
tobacco, tobacco is an economically important crop in other
states. In South Carolina in 2007, the value of tobacco
production was $69 million. In Virginia, the value was also $69
million and in Georgia it was $59 million.
Tobacco farmers have faced numerous challenges since the
end of the tobacco program. They had to decide whether or not
they could profitably produce tobacco in the deregulated
environment of lower prices and greater uncertainty. Farms
often had to be restructured with major decisions being made
about the purchase of specialized equipment. Input prices
increased over 30 percent due mainly to increases in curing
fuel and fertilizer prices. Fortunately, tobacco prices
recovered some, which helped cover some of the increased
production costs.
Increases in Federal and state excise taxes on cigarettes
have impacted demand for tobacco. The recent 61 cents-per-pack
increase in excise tax associated with SCHIP is expected to
cause U.S. cigarette consumption to decline approximately six
percent, which will lead to a two to three percent reduction in
demand at the farm level. Current proposals by a number of
states to increase state excise taxes will further decrease
demand. As noted, tobacco companies already seem to be
factoring in these impacts by lowering amounts of tobacco
contracted for with farmers.
Lower U.S. tobacco prices since the end of the program have
improved our competitiveness with foreign production. Since
2005, Brazil, the largest exporter of flue-cured tobacco, has
lowered flue-cured production by almost the same amount that
U.S. flue-cured has increased. While world demand for tobacco
is stagnant, lower U.S. demand means that U.S. tobacco farmers
are increasingly dependent on their ability to compete with
foreign tobacco producers. In 2007, exports of flue-cured
tobacco accounted for over 47 percent of total use of U.S.
flue-cured. U.S. tobacco producers' ability to increase global
market share depends on price and quality. The global market
effects of incorporating harm-reduction attributes into U.S.
tobacco are unknown at this point.
FDA regulation of tobacco products and the accompanying
emphasis on harm reduction will significantly impact burley and
flue-cured tobacco producers. Demand for burley and flue-cured
tobacco will decline primarily due to three factors. First,
U.S. cigarette consumption is expected to decline due to
increased regulation and increased cigarette prices due to the
cost of regulation. Second, harm-reduction technologies will
likely reduce the amount of tobacco in each cigarette,
therefore reducing demand. Third, the emphasis on harm
reduction is shifting demand towards smokeless tobacco
products, which use little burley or flue-cured tobacco.
Alternatively, if higher standards are set for tobacco used in
U.S. cigarettes, imported tobacco could become less competitive
with U.S. tobacco, partially offsetting some of the adverse
effects of regulation.
Finally, given the increased interest in tobacco and its
regulation, one area of need is data. USDA's Economic Research
Service no longer provides analysis of the tobacco sector. The
Foreign Agricultural Service only provides raw export and
import data so that international tobacco production will soon
be extremely difficult to track. Adequate data for tracking and
analysis would seem to be an issue from which all sides
involved would benefit.
In summary, the primary determinants of the fate of U.S.
tobacco farmers may well be FDA regulation of tobacco products
and the ability of U.S. tobacco growers to compete against
foreign tobacco producers.
Again, thank you very much for allowing me to participate
in today's hearing.
[The prepared statement of Dr. Brown follows:]
Prepared Statement of A. Blake Brown, Ph.D., Agricultural and Resource
Economics and Hugh C. Kiger Professor, North Carolina State University,
Raleigh, NC
I would like to thank Chairman McIntyre and the Members of this
Subcommittee for the opportunity to participate in this hearing. My
name is Blake Brown. I am an agricultural economist at North Carolina
State University where I provide economic analysis and educational
programming for tobacco and peanut producers. I also lead a Cooperative
Extension team based at the new NC Research Campus in Kannapolis. This
team focuses on educational programs in value-added and alternative
agriculture and fresh produce safety.
In North Carolina tobacco remains the number one crop in terms of
the value of farm production. In 2008 North Carolina farmers had cash
receipts from tobacco of $686 million. This was surpassed only by hogs,
poultry and the aggregated receipts from all greenhouse and nursery
crops. Tobacco accounted for about seven percent of the value of all
North Carolina farm production. Since the end of the Federal tobacco
program tobacco farmers have made many transitions. Some have retired
or exited farming for other occupations. Some have successfully
transitioned to other farm enterprises. Most farms were already
diversified. Some farms have increased their production of tobacco with
the result being that North Carolina produces more flue-cured tobacco
now than was produced in 2004 at the end of the program.
While North Carolina produces almost 50 percent of U.S. tobacco,
tobacco is an economically important crop in other states. In South
Carolina in 2007 the value of tobacco production was over $69 million.
In Virginia the value was also $69 million and in Georgia the value was
$59 million.
Tobacco farmers have faced numerous challenges since the end of the
tobacco program. They had to decide whether or not they could
profitably produce tobacco in the deregulated environment of lower
prices and greater uncertainty. Farms often had to be restructured with
major decisions being made about the purchase of specialized equipment.
Input prices increased over 30 percent due mainly to increases in
curing fuel and fertilizer prices. Fortunately, tobacco prices
recovered some which helped cover the increased production costs.
Increases in Federal and state excise taxes on cigarettes have
impacted demand for tobacco. The recent $0.61 per pack increase in the
Federal excise tax associated with SCHIP is expected to cause U.S.
cigarette consumption to decline approximately six percent which will
cause a 2-3 percent reduction in demand at the farm level. Current
proposals by a number of states to increase state excise taxes will
further decrease demand. Tobacco companies already seem to be factoring
these impacts into cigarette prices and lowering amounts of tobacco
contracted for from farmers.
Lower U.S. tobacco prices since the end of the program have
improved competiveness with foreign production. Brazil, the largest
exporter of flue-cured tobacco, has lowered flue-cured production from
over 1.5 billion pounds in 2005 to about 1.4 billion pounds in 2008.
This reduction of 130 million pounds in Brazilian production
corresponds to the increase of about 120 million pounds in flue-cured
production in the U.S. While world demand for tobacco is stagnate,
lower U.S. demand means that U.S. tobacco farmers are increasingly
dependent on their ability to compete with foreign tobacco producers.
In 2007 exports of flue-cured tobacco accounted for over 47 percent of
total use of U.S. flue-cured. In a global tobacco market that is not
increasing in size, the ability of U.S. tobacco producers to increase
global market share depends on price and quality. Price will be
impacted by the cost of production, including regulation, in the U.S.
and external factors such as exchange rates. The effects on quality, as
defined by the global market, of incorporating harm reduction
attributes into U.S. tobacco are unknown.
FDA regulation of tobacco products and the accompanying emphasis on
harm reduction will significantly impact burley and flue-cured tobacco
producers. Demand for burley and flue-cured tobacco will decline
primarily due to three factors. First, U.S. cigarette consumption is
expected to decline due to increased regulation and increased cigarette
prices due to the cost of regulation. Second, harm reduction
technologies will likely reduce the amount of tobacco in each
cigarette. Third, the emphasis on harm reduction is shifting demand
toward smokeless tobacco products which use little burley or flue-cured
tobacco. If higher standards are set for tobacco used in U.S.
cigarettes, imported tobacco could become less competitive with U.S.
tobacco partially offsetting some of the adverse effects of regulation.
Finally, given the increased interest in tobacco and its
regulation, one area that is lacking to track and analyze this industry
is data. USDA's Economic Research Service no longer provides data or
analysis of tobacco. The Foreign Agricultural Service only provides raw
export and import data so that international tobacco production will
soon be extremely difficult to track. USDA's Agricultural Marketing
Service no longer reports tobacco prices. Adequate data for tracking
and analysis would seem to be an issue from which all sides involved
would benefit. Again, thank you for allowing me to participate in this
hearing.
The Chairman. Thank you, Dr. Brown.
Dr. Snell.
STATEMENT OF WILLIAM M. SNELL, Ph.D., EXTENSION
PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF
KENTUCKY, LEXINGTON, KY
Dr. Snell. Chairman McIntyre, Members of the Subcommittee,
thank you for the opportunity to participate in this hearing.
My name is Will Snell. I am an agricultural economist at the
University of Kentucky. I work with farm organizations and
growers on economic and policy issues related to both burley
and dark tobaccos.
The last time I had the privilege to testify before this
Committee was just prior to the passage of the tobacco buyout,
which I eventually labeled as the most significant policy event
affecting Kentucky agriculture since the adoption of the
Federal tobacco program back in the 1930s. The majority of our
farmers supported the buyout and would say today it was our
best alternative, but we knew ultimately it would come at a
cost.
As expected, the early post-buyout era resulted in a major
change in the number and location of tobacco farmers. Census
data reveals that we are down to around 8,000 farms still
growing tobacco in Kentucky, which is a 72 percent reduction
since the pre-buyout days. But, it still represents about one
out of every 11 Kentucky farms and about half of all the farms
growing tobacco in the United States. While it was apparent
that the buyout would create challenges, I was confident it
would also create opportunities for some of our growers. It
certainly did occur during the early part of the post-buyout
era as more competitive prices, declining value of the U.S.
dollar and tight world supplies led to calls for U.S. burley
growers to expand production. For the first 4 years after the
buyout, U.S. burley use exceeded production and dark tobacco
production nearly doubled in response to the growing demand for
smokeless tobacco products.
But the tobacco economy has changed dramatically in recent
months. U.S. burley exports are being reduced by a higher value
dollar, global recession and increasing foreign supplies.
Domestically, a multitude of factors including tax increases,
smoking restrictions, imports, shift to smokeless tobacco
products, movement of cigarette production overseas, and
possibly anticipated FDA regulations is reducing the domestic
needs for U.S. burley. Consequently, we have quickly moved from
a period of excess demand for U.S. burley to more balanced
supply and demand or possibly an oversupply situation for
burley. Alternatively, the downturn in dark tobacco contract
volume expected in 2009 is more of an overproduction problem
from last year than a demand issue.
In response to these changing market conditions, U.S.
tobacco purchasers have been reassessing their buying
strategies for 2009, and it is going to result in many growers
experiencing cuts in contract volume this year or total
elimination of the contracts in 2009.
What I am very concerned about are those farmers who, for a
wide variety of reasons, are contemplating either expanding
their production beyond their contract volume for this year; or
in a growing number of cases many farmers are beginning to
think about getting back in the tobacco production business at
a time period when they don't have a sound marketing plan.
While most farmers without a marketing plan have been able to
find a profitable home for their tobacco during the excess
demand period, I am not very confident this marketing strategy
will work in 2009.
Unlike other crops that have safety net measures, tobacco
farmers have no way, currently, to manage price risk other than
through contractual agreements. At this time there is limited
communication within the industry. There is no price reporting,
no Federal grading and minimal public data analysis for not
only tobacco growers, but also for manufacturers and the health
community. Personally, I find it very disturbing that USDA
collects data and provides analysis on hundreds of commodities
but the data and analysis for tobacco, which is our 9th highest
value crop in the United States, has been virtually abandoned
by USDA. As my colleague, Blake Brown, pointed out, the
Economic Research Service decided not to replace their tobacco
analysts. FAS no longer tracks tobacco trade and foreign
production, and AMS eliminated their collection and reporting
of tobacco prices.
So at a time when tobacco farmers will be making some of
their most important, critical, and most expensive investment
decisions about their future, the data needed to perform these
informed decisions is extremely limited and being controlled
primarily by the buying sector. And if any type of regulation
does come about, Federal agencies along with possibly health
groups and tobacco buyers will need access to data analysis
related to tobacco production.
In conclusion, we all know that tobacco growers face a lot
of challenges in a very uncertain future but I still remain
optimistic that low-cost, quality tobacco producers can survive
given emerging opportunities.
I applaud Chairman McIntyre for setting up this hearing.
Some claim that after the buyout the government got out of the
tobacco-growing business, but this is so far from the truth.
You all continue to debate issues such as tobacco taxes, labor
policy, trade agreements, export promotion, policies that
impact interest rates and exchange rates, crop insurance,
tobacco regulation, and tobacco data collection, all issues
that will have an important impact on the future of our
nation's tobacco farmers.
Thank you, Chairman.
[The prepared statement of Dr. Snell follows:]
Prepared Statement of William M. Snell, Ph.D., Extension Professor,
Department of Agricultural Economics, University of Kentucky,
Lexington, KY
Chairman McIntyre and Members of the Committee, thank you for this
opportunity to participate in this hearing. My name is Will Snell. I'm
an agricultural economist from the University of Kentucky where I work
with farm organizations and growers in Kentucky and surrounding states
on economic and policy issues related to burley and dark tobaccos.
The last time that I had the privilege to testify before this
Committee was just prior to the buyout which I labeled as the most
significant policy event affecting Kentucky agriculture since the
passage of the New Deal farm programs back in the 1930s. Historically,
tobacco has been the backbone of our state's agricultural economy. In
1997 the value of tobacco production in Kentucky established a record
high of $947 million, accounting for 25 percent of our total
agricultural sales. Following the buyout, the value of Kentucky's
tobacco crop fell to around $300 million, but have since rebounded to
nearly $400 million in 2008. However, tobacco now accounts for less
than ten percent of our cash receipts amidst lower tobacco production
and prices levels (compared to the pre-buyout period) and successful
diversification efforts. The majority of our farmers supported the
buyout, and would say today that it was our best alternative at the
time, but we knew ultimately it would come at a cost for some of those
who attempted to stay in the industry.
As expected, the early post buyout era resulted in a major change
in the number and location of tobacco farms. The Census data reveals
that we are down to around 8,000 farms left growing tobacco in
Kentucky--a 72 percent reduction since the pre-buyout days, but this
still represents one out of every eleven Kentucky farms and accounts
for \1/2\ of all farms growing tobacco in the United States. Some
exited due to age, others do to better alternatives, but others just
simply could not survive in this new economic environment.
While we knew the buyout would create challenges, I was confident
it would also create opportunities for some of our better growers--and
this certainly did occur during the early post-buyout era as more
competitive grower prices, a declining U.S., dollar, and tight world
supplies of quality burley lead to calls for the remaining burley
farmers to expand production. For the first 4 years after the buyout
U.S. burley use (approximately 300 million pounds) exceeded the amount
supplied by U.S. burley growers (approximately 200 million pounds) as
production was constrained due to labor challenges, a lack of
infrastructure, weather-related problems, and continued long-term
uncertainty of producing a crop that had a very unpredictable future.
Alternatively our dark tobacco production has nearly doubled in
response to growing demand for smokeless tobacco products.
While favorable conditions occurred during the early post-buyout
era, the tobacco economy has changed dramatically in recent months.
Global needs for U.S. burley tobacco are being adversely impacted by an
increasing value of the U.S. dollar, a global economic downturn, and
increasing foreign supplies of lower quality tobacco. Domestically, tax
increases, smoking restrictions, health issues, shifts to smokeless
tobacco products, increasing availability of imports, movement of
cigarette production overseas, and possibly anticipated FDA regulation
are reducing domestic needs for U.S. burley.
Consequently, my analysis indicates that we have quickly moved from
a period of excess demand for U.S. burley to a more balanced supply/
demand scenario or possibly an oversupply situation given these
deteriorating demand conditions for burley. Alternatively, the downturn
in dark tobacco contract volume expected in 2009 is more of an
oversupply issue than a demand issue following a massive excessive
expansion in 2008. So the decline in dark acres this year will enable
the industry to get back in a more favorable supply to use scenario to
take advantage of anticipated growing product demand.
In response to these changing market conditions, U.S. tobacco
buyers have been reassessing their buying strategies during the past
few weeks. Some of the better growers may actually see production
opportunities expand, but most will see their levels reduced, while
others may not be given an opportunity to renew their contracts in
2009.
What I am very concerned about are for those farmers who based upon
a wide variety of factors such as losing their off-farm job, observing
depressed prices for other commodities, or have already spent all their
buyout dollars are contemplating expanding their tobacco production
beyond their contract volume or many others who exited after the buyout
are thinking about getting back into the tobacco production business
tobacco acres without a sound marketing plan. While some farmers
without a marketing plan have been able to find a home (i.e., auctions
or cooperatives) for their tobacco during the recent excess demand
situation, I am not confident that these other marketing outlets can
absorb a significant boost in production in 2009 without some major
price adjustments, especially on lower quality tobacco.
Unlike other crops that might have access to safety net measures of
the farm bill or futures markets, tobacco farmers have no way to manage
price risk other than through contractual agreements, primarily with
powerful multinational tobacco companies. At this time there is limited
communication within the industry, no market news to report prices
received, no Federal grading, and minimal public data and analysis for
not only growers, but also for manufacturers, and the health community.
I find it disturbing that USDA collects data and provides analysis
on hundreds of commodities ranging from lentils to chickpeas, but the
data and analysis for tobacco--the ninth highest valued field crop in
the U.S. has almost been totally eliminated by USDA. The Economic
Research Service (ERS) of USDA decided not to replace their tobacco
analyst. USDA's Foreign Agricultural Service (FAS) no longer tracks
tobacco trade and foreign production and USDA's Agricultural Marketing
Service (AMS) eliminated recording tobacco prices and providing market
news.
Unfortunately in a time when tobacco farmers will be making some of
their most critical and expensive investments decisions about their
future, data needed to make informed decisions are extremely limited
and being controlled primarily by multinational tobacco company and
dealers. And if any type of regulation comes about, Federal agencies,
along with possibly health groups and tobacco buyers will need access
to data and analysis on tobacco production.
So in conclusion, U.S. tobacco growers undoubtedly face a lot of
challenges and a very uncertain future. But I do think low cost quality
burley and dark tobacco producers can not only survive, but do well in
an economic environment that will provide them with opportunities. I
applaud Chairman McIntyre for setting up this hearing. Some claim that
after the buyout, the government got out the tobacco farming business.
But that is so far from the truth. You all continue to have influence
over tobacco taxes, labor policy, trade agreements, export promotion,
tobacco regulations, and USDA's role in collecting and analyzing data--
all issues that have an important impact on the future of our nation's
tobacco farmers.
The Chairman. Thank you, Dr. Snell.
Mr. Bunn.
STATEMENT OF JESSIE THOMAS BUNN, PRESIDENT, U.S. TOBACCO
COOPERATIVE INC., RALEIGH, NC
Mr. Bunn. Chairman McIntyre, I thank you for the
opportunity to address this U.S. House Subcommittee. I am
Jessie Thomas Bunn, President of U.S. Tobacco Cooperative
Incorporated.
Mr. Chairman, I commend you and other cosponsors of H.R.
1261, the Youth Prevention and Tobacco Harm Reduction Act. This
bill will authorize Health and Human Services to realistically
address tobacco harm reduction with scientific-based programs
instead of bureaucratic mandates.
U.S. Tobacco Cooperative has production contracts with
approximately 1,000 member growers for the 2009 flue-cured
crop. Our members are located in five states: Florida, Georgia,
South Carolina, North Carolina, and Virginia. The Cooperative
provides numerous services to the growers including supplying
materials for marketing preparation, operating marketing
centers for purchasing tobacco in all member areas, warehousing
new crop tobacco for processing, processing tobacco for
customers, long-term inventory storage of processed tobacco,
and selling tobacco to international customers and domestic
customers. In 2004, the Cooperative purchased a small
processing facility and a small manufacturing facility in
Timberlake, North Carolina. The manufacturing facility
currently produces cigarettes, small cigars and roll-your-own
product. As you can tell from this digest of services that U.S.
Tobacco Cooperative extends to our member growers, we are an
integral part of approximately 1,000 grower operations. The
size of our members' contracts range from 5,000 pounds,
approximately 2\1/2\ acres, to 500,000 pounds, which would be
250 acres.
Many of our members are father-and-son operations. We are
working to expand our customer base, both foreign and domestic,
which would allow us to offer contracts to more growers. Some
growers were lured away from tobacco production in 2008 by
unusual record-high prices of other commodities. These same
growers were back requesting tobacco contracts in 2009 because
profit margins are so thin on other commodities for 2009. Most
tobacco growers do not have access to enough cropland to create
economies of scale for the production of food, feed and fiber
crops. Many tobacco growers farm less than 100 acres. Tobacco
growers want to, and are dependent on, continuing to grow
tobacco. Growers have little or no alternative use for tobacco
production equipment and facilities.
This year the growers' concerns are directed to pending FDA
legislation that could saddle the industry with financial and
operating constraints that would be impossible to meet. This
Cooperative supports H.R. 1261 because of the bill's rational
approach of tobacco harm reduction. Growers realize and
understand that tobacco production will be regulated by the
government in the future and that tobacco harm reduction will
be pursued. On the other hand, growers realize that H.R. 1256
will provide the authorization for FDA to dictate regulations
for all aspects of the tobacco industry from seed to sale. H.R.
1256 will dictate standards and specifications on the
manufacturer that cannot be met by the U.S. growers that supply
leaf tobacco for manufacturing. The growers are aware that the
scope of H.R. 1256 is broad and will allow onerous regulations
that can be impossible for U.S. growers to meet. Tobacco
production already requires high investments. Extensive
production standards and record-keeping would only harm U.S.
tobacco growers' competitive position in the world market.
H.R. 1256 can require manipulation of nicotine in products
to the extent that growers will have to use Genetically
Modified Organism varieties to meet standards. Commercial
production of GMO varieties in the United States will kill much
of our export market. Many of our tobacco customers will not
use GMO tobacco or buy tobacco from areas where GMO tobacco is
grown, period.
If H.R. 1256 becomes law, growers expect continuing
escalation of add-on regulations from FDA, especially since the
FDA will be funded by user fees. Since current FDA programs are
under-funded, tobacco user fees will provide a windfall of
resources to expand the bureaucracy of FDA. The mandate of H.R.
1256 can damage our growers' ability to service the export
market by imposing standards on production that differ from the
needs of export customers. U.S. grower production that is
destined for an export market should accommodate the needs of
export customers instead of FDA.
Another element of H.R. 1256 that could cause serious
damage to this Cooperative is the classification of
manufacturing. Large or small manufacturer definitions will
classify our small cooperative facility as a large manufacturer
because the definition will include all employees of the
Cooperative as manufacturing employees regardless of their
duties. This concept is irrational. Several manufacturers that
have much larger production volumes than the Cooperative's
Timberlake factory will be considered a small manufacturer. The
FDA manufacturing compliance schedule could close our factory
doors, which will be to the competitive benefit of other
competing small manufacturers. This Cooperative is an integral
grower service organization and should not be punished for
doing more than just manufacturing. The manufacturing segment
should be classified as a separate function from grower
services.
U.S. Tobacco Cooperative takes the position that H.R. 1261
will provide a more productive way of addressing tobacco harm
without jeopardizing the livelihoods of growers. In contrast,
as already stated in this testimony, H.R. 1256 offers
unpredictable authority to control the tobacco industry from
seed to sale while creating unreasonable costs with the
approximate 1,000 grower families that depend on U.S. Tobacco
Cooperative to keep them in business.
There are many stipulations in H.R. 1256 that cannot be
selectively implemented. We will not understand all aspects
until the regulations are published. This is another of many
reasons why our grower Cooperative opposes H.R. 1256.
Mr. Chairman, thank you for the opportunity to provide
testimony to this Subcommittee and for the other Members that
helped sponsor H.R. 1261, and those that will vote in favor of
1261. Thank you very much.
[The prepared statement of Mr. Bunn follows:]
Prepared Statement of Jessie Thomas Bunn, President, U.S. Tobacco
Cooperative Inc., Raleigh, NC
Chairman McIntyre--Thank you for the opportunity to address the
U.S. House Agriculture Subcommittee on Rural Development,
Biotechnology, Specialty Crops, and Foreign Agriculture.
I am Jessie Thomas Bunn, President of U.S. Tobacco Cooperative Inc.
This Cooperative's former name for 62 years was Flue-Cured Tobacco
Cooperative Stabilization Corporation. The name change was made to
reflect the Cooperative's new mission since the 2004 Tobacco Quota
Buyout.
Mr. Chairman, I commend you and other cosponsors of H.R. 1261--The
Youth Prevention and Tobacco Harm Reduction Act. This bill will
authorize Health and Human Services to realistically address tobacco
harm reduction with scientific based programs instead of bureaucratic
mandates.
U.S. Tobacco Cooperative is a grower owned and grower governed
Cooperative. The Board is composed of ten seats elected by growers and
one seat appointed by the Governor of NC.
U.S. Tobacco Cooperative has production contracts with
approximately 1,000 member growers for the 2009 flue-cured crop. Our
members are located in five states; Florida, Georgia, South Carolina,
North Carolina and Virginia. The Cooperative provides numerous services
to the growers including supplying materials for market preparation,
operating marketing centers for purchasing tobacco in all member areas;
warehousing new crop tobacco for processing; processing tobacco for
customers; long term inventory storage of processed tobacco and selling
tobacco to international customers and domestic customers. In 2004 the
Cooperative purchased a small processing facility and a small
manufacturing facility in Timberlake, NC. The manufacturing facility
currently produces cigarettes, small cigars and roll-your-own products.
As you can tell from this digest of services that U.S. Tobacco
Cooperative extends to our member growers we are an integral part of
approximately 1,000 grower operations. The size of our members'
contracts range from 5,000 pound (approx. 2.5 acres) to 500,000 pound
(approx. 250 acres). Many of our members are father and son operations.
We are working to expand our customer base, both foreign and domestic
which could allow us to offer contracts to more growers.
The Cooperative members have made the transition from producing
under a quota system to producing for a market responsive industry.
Most all of today's production is contract based. Some growers were
lured away from tobacco production in 2008 by unusual record high
prices of other commodities. These same growers were back requesting
tobacco contracts for 2009 because profit margins are so thin on other
commodities for 2009. Most tobacco growers do not have access to enough
crop land to create economics of scale for the production of food, feed
and fiber crops. Many tobacco growers farm less than 100 acres. Tobacco
is still the only legal crop that can sustain farm income for thousands
of growers in the tobacco producing area. Tobacco growers want to and
are dependant on continuing to grow tobacco. Growers have little or no
alternative use for tobacco production equipment and facilities.
During the spring tobacco growers are usually concerned with the
challenges of weather, disease and labor issues for the coming season.
This year, the growers' concerns are directed to pending FDA
legislation that could saddle the industry with financial and operating
constraints that would be impossible to meet.
This Cooperative supports H.R. 1261 because of the bill's rational
pursuit of tobacco harm reduction. Growers realize and understand that
tobacco products will be regulated by the U.S. Government in the future
and that tobacco harm reduction will be pursued. On the other hand,
growers realize that H.R. 1256 will provide the authorization for FDA
to dictate regulations for all aspects of the tobacco industry from
seed to sale. H.R. 1256 can dictate standards and specifications on the
manufacturer that can not be met by the U.S. growers that supply leaf
tobacco for manufacturing. The growers are aware that the scope of H.R.
1256 is broad and will allow onerous regulations that can be impossible
for U.S. growers to meet. Tobacco production already requires high
investments. Extensive production standards and record keeping will
harm the U.S. grower's competitive position in the market place.
H.R. 1256 can require manipulation of nicotine in products to the
extent that growers will have to use Genetically Modified Organism
(GMO) varieties to meet standards. Commercial production of GMO
varieties in the U.S. will kill much of our export market. Many of our
tobacco customers will not use GMO tobacco or buy tobacco from areas
where GMO tobacco is grown--period.
H.R. 1256 can burden growers with unnecessary pesticide standards
and record keeping that will again raise the cost of U.S. production
beyond the competitive value of U.S. grower's tobacco. The intent may
not be in H.R. 1256 to regulate growers but this bill will regulate the
crop that U.S. growers supply. We all know that the standards will be
mandated by the manufacturers on the tobacco purchased from U.S.
growers. If H.R. 1256 becomes law, growers expect a continuing
escalation of add on regulations from FDA especially since the FDA will
be funded by user fee. Since current FDA programs are under funded,
tobacco user fee will provide a windfall of resources to expand the
bureaucracy of FDA.
The mandate of H.R. 1256 can damage our grower's ability to service
the export market by imposing standards on production that differ from
the needs of export customers. U.S. growers production that is destined
for an export customer should accommodate the needs of the export
customer instead of FDA.
Another element of H.R. 1256 that could cause serious damage to
this Cooperative is the classification of manufacturing. The large and
small manufacturer category definitions will classify our small
cooperative facility as a large manufacturer because the definition
will include all employees of the Cooperative as manufacturing
employees regardless of their duties. This concept is irrational.
Several manufacturers that have much larger production volume than
the Cooperative's Timberlake factory will be considered small
manufactures. The FDA large manufacturer compliance schedule could
close our factory doors which will be to the competitive benefit of
other competing small manufacturers. This Cooperative is an integrated
grower service organization and should not be punished for doing more
than just manufacturing. The manufacturing segment should be classified
as a separate function from grower services.
U.S. Tobacco Cooperative takes the position that H.R. 1261 will
provide a more productive way of addressing tobacco harm without
jeopardizing the livelihood of growers. In contrast, as already stated
in this testimony, H.R. 1256 offers unpredictable authority to control
the tobacco industry from seed to sale while creating unreasonable cost
for the approximate 1,000 grower families that depend on U.S. Tobacco
Cooperative to keep them in business.
There are many stipulations in H.R. 1256 that can be selectively
implemented. We will not understand all of the impacts until the
regulations are published. This is another of many reasons why our
grower Cooperative opposes H.R. 1256.
Mr. Chairman, thank you for the opportunity to provide testimony to
this Subcommittee.
The Chairman. Thank you, Mr. Bunn.
Mr. Quarles.
STATEMENT OF ROGER QUARLES, PRESIDENT, BURLEY
TOBACCO GROWERS COOPERATIVE ASSOCIATION;
PRESIDENT, INTERNATIONAL TOBACCO GROWERS
ASSOCIATION, GEORGETOWN, KY
Mr. Quarles. Good morning. I am Roger Quarles, a lifelong
tobacco grower in Scott County, Kentucky. I am the President of
the Burley Tobacco Growers Cooperative Association as well as
President of the International Tobacco Growers Association. The
burley co-op represents all growers in five states while ITGA
has 22 member countries representing 85 percent of the world's
tobacco production.
I want to thank this Committee for the opportunity for
burley growers to address today's issues, and allow comments on
our evolving industry as changes occur resulting from Federal
and state cigarette tax increases along with the looming
Federal regulations towards our manufacturer buyers.
Our burley sales opportunities have shrunk from 300 million
pounds in 2004 to approximately 200 million pounds in 2008.
There appears an additional ten to 15 percent reduction in
sales opportunities for 2009 based on notifications to the
growers recently. Our number of growers has adjusted since 2004
to the most efficient producers, or those that had very few
income alternatives either on or off the farm. Burley tobacco
remains the cash crop of choice for the majority of Kentucky
farms.
There are indications that 10 to 25 million pounds of
burley may be produced off contract in 2009. It is certainly
unclear whether all these pounds can be sold at a profit to our
growers either through the auction, dealers, pin hookers or our
co-op associations.
Domestic use of our burley continues to shrink from cheaper
imported leaf, successful smoking cessation programs, and,
particularly, increased taxes on the state and Federal level.
You will recall Congress will allow a 200 percent increase in
the Federal excise tax April 1.
I am pleased to report our burley co-op is now transforming
very quickly from its former role as USDA agent to a marketing
cooperative. We purchased approximately four percent of the
2008 crop. We have concentrated on selling this leaf,
particularly in the Asian region and particularly in China.
Other countries in Southeast Asia have numerous independent
manufacturers that need an American blend product to compete
with the dominant international manufacturers. We are also
approaching manufacturers in Europe. Their burley production is
quickly eroding and will probably cease to exist due to
reductions in E.U. subsides for tobacco farmers.
The viability of American manufacturers that use U.S.
burley is vitally important to our farmers. Our co-op and other
leaf dealers cannot replace their purchases at this time, and
it is unlikely to do so entirely. It is clear burley farmers'
future will rely on export opportunities to global
manufacturers. We, as growers, are concerned with any imposed
manufacturer regulations that may affect our crop yields or
consumer acceptance of manufactured products containing burley.
We are particularly concerned about any regulations that
may affect our export leaf markets. It would be unwieldy to
produce leaf crops that would be dictated to measures that are
different between foreign manufacturers as opposed to domestic
manufacturers. We must immediately recognize that often U.S.
regulations are also exported to our global buyers through
treaties and international groups such as the World Health
Organization or the World Bank. The Framework Convention of
Tobacco Control has already been ratified by 160 countries.
Thankfully, the United States has not ratified this Draconian
treaty as it appears to violate First Amendment rights. Tobacco
growers throughout the world would be affected by any
regulations imposed on our growers and products consumed in
America. It is imperative that all imported leaf and consumer
products be treated equally to domestic products.
Our support has always been conditioned on the acceptance
of pure science to determine changes in consumer products, and,
especially, the allowed introduction of proven safer products
that differ from existing brands.
The Waxman bill has a number of areas that we think can be
improved with constructive improvements. These include, but are
not limited to, ensuring that tobacco producers as well as
manufacturers are encouraged and given incentives for
developing leaf and products that are lower in risk, ensuring
that products that are scientifically established to be lower
in risk are made available to consumers of tobacco and nicotine
products are labeled, marked and regulated based on the
relative risk.
We fully expect grower involvement and a seat at any board
that has authority to impose regulations changing any aspect of
our markets, including the entire spectrum of leaf production
through the end consumer. These Federal regulations were never
anticipated to be the pathway to elimination of tobacco
consumption, but rather a legitimate effort to mitigate its
known harmful effects. Further hearings or perhaps a summit
should be held allowing all stakeholders to be heard. This
would fill President Obama's promise to America of an open and
transparent process in government. Burley Co-op would certainly
be willing to participate in such a plan.
Thank you for your time.
[The prepared statement of Mr. Quarles follows:]
Prepared Statement of Roger Quarles, President, Burley Tobacco Growers
Cooperative Association; President, International Tobacco Growers
Association, Georgetown, KY
Good morning.
I am Roger Quarles a lifelong tobacco grower in Scott Co. Kentucky.
I am the President of the Burley Tobacco Growers Cooperative
Association as well as President of the International Tobacco Growers
Assn. The Burley Co-op represents all growers in 5states with the
majority in Kentucky. ITGA has 22 member countries representing 85% of
the world tobacco production.
I want to thank this Committee for the opportunity for Burley
Growers to address today's issues and allow comments on our evolving
industry as changes occur resulting from Federal and state cigarette
tax increases along with looming Federal Regulations towards our
manufacturer buyers.
Our Burley sales opportunities have shrunk from 300 million pounds
in 2004 to approximately 200 million pounds in 2008. There appears
additional 10-15% reduction in sales opportunities for 2009 based on
notifications from buying interests to growers recently. The number of
growers has adjusted since 2004 to the most efficient producers or
those that have very few income alternatives--either on or off the
farm. Burley Tobacco remains the cash crop of choice for the majority
of Kentucky Farms.
There are indications that 10-25 million pounds of Burley will be
produced without a prior sales agreement in 2009. It is certainly
unclear whether all these pounds can be sold on the open market--
through auctions, dealers, pin hookers or our Co-op Assn. at a profit
to those growers.
Domestic use of our Burley continues to shrink from cheaper
imported leaf, successful smoking cessation programs and particularly
increased taxes as states and now the Federal Government try to solve
their economic crises from consumers of tobacco products. You will
recall Congress will allow a 200% increase in the Federal Excise tax on
April 1st.
Our Economic experts such as Dr. Will Snell tell us over 80% of
U.S. Burley is now exported with Switzerland and Netherlands the
largest importers. It is obvious Phillip Morris International is the
recipient in Switzerland while the Netherlands is the port of further
distribution to other countries. I am pleased to report our Burley Co-
op is quickly transforming from our former role as a USDA agent to a
marketing Co-op. We purchased approximately 45% of the 2008 crop.
We have concentrated selling this leaf in the Asian region--
particularly China. Other countries in South East Asia have numerous
Independent manufacturers that need an American blend product to
compete with the dominant international manufacturers. We are
approaching manufacturers in Europe--particularly Eastern Europe to
sell Burley as its own Burley production is disappearing due to
reductions from European Union agriculture subsidies for tobacco
farmers.
The viability of American manufactures that use U.S. Burley is
vitally important to our farmers. Our Co-op and other leaf dealers
cannot replace their sales opportunities at this time and it is
unlikely to ever do so entirely.
It is clear our future will rely on export opportunities to global
manufacturers. We as growers are concerned with any imposed
manufacturers regulations that may affect our crop yields or consumer
acceptance of manufactured products containing Burley.
One issue effecting current Tobacco policy in the U.S. is the
availability of data since the tobacco buyout of 2004. No data is being
collected by government about where tobacco is being produced and how
much. It is also important to find out which tobacco is being placed
into which grades for future insurance needs. We recommend this
Committee explore the possibility of some new Tobacco Data Collection
that could be useful to our industry.
We are particularly concerned about any regulations that may affect
our Export Leaf Markets. It would be unwieldy to produce leaf crops
that would be dictated to measures that are different between foreign
manufacturers as opposed to domestic manufacturers. We must immediately
recognize that often U.S. Regulations are also often exported to our
Global buyers through treaties and or international Group's such as the
World Health Organization, or World Bank. The Framework Convention of
Tobacco Control has already been ratified by 160 countries. Thankfully
the U.S. has not ratified this Draconian treaty as it appears to
violate 1st amendment rights. Tobacco growers through out the world
will be affected by any regulations imposed on our growers and products
consumed in America. It is imperative all imported leaf and consumer
products be treated equally to domestic products.
The Burley Co-op agreed over 10 years ago with the Core Principles
agreements achieved by AHEAD. We agreed to support Regulations that may
improve or protect the health of consumers. We have never wavered in
our support of the AHEAD coalition even after the tobacco buyout
legislation was passed.
Our support has always been conditioned on the acceptance of pure
science to determine changes in consumer products and especially the
allowed introduction of proven ``safer'' products, if you will, that
allow products that differ from existing brands.
The Waxman bill has a number of areas where we think there can be
constructive improvements. These include but are not limited to:
Ensuring that tobacco producers (as well as manufacturers of
both tobacco and other nicotine products) are encouraged and
given incentives for developing leaf and products that are
lower in risk.
Ensuring that products that are scientifically established
to be lower in risk are made available to consumers of tobacco
and nicotine products and that all tobacco and nicotine
products are labeled, marketed and regulated based on the risks
and relative risks of those products.
Ensuring that the any FDA Scientific Advisory Committee (in
the Waxman legislation) has voting representation of someone
who is knowledgeable in tobacco production as well in the
science of plant technology.
Ensuring that any FDA Scientific Advisory Committee has
voting representation of someone who understands issues
pertaining to labeling and marketing (including First Amendment
protections).
Ensuring that there is better integration between FDA (or
whatever agency is created) the USDA, EPA, FTC, CDC, DHS, ATF
and other agencies that results in a more coordinated and
unified effort.
We also fully expect grower involvement and a seat at any Board
that has authority to impose Regulations changing any aspect of our
markets including the entire spectrum of leaf production through the
end consumer. These Federal Regulations were never anticipated to be
the pathway to elimination of tobacco consumption but rather a
legitimate effort to mitigate its known harmful effects.
Further hearings or perhaps a ``Summit'' should be held allowing
all stakeholders to be heard. This would fulfill President Obama's
promise to America of an open and transparent process in government.
The Burley Co-op would certainly be willing to participate is such a
plan.
Thank you for your time.
The Chairman. Thank you very much and thanks to all of our
members of the panel today, and thanks for your timely
testimony.
Mr. Boyd, you mentioned the risk of additional regulations
from government agencies affecting the way farmers raise
tobacco. I know you were sharing Mr. Troxler's testimony, but
to the extent of your experience in working with farmers
statewide in North Carolina, could you elaborate on the risks
and what it would mean to individual producers when you talk
about additional regulations being a concern under the Waxman
bill?
Mr. Boyd. Mr. Chairman, tobacco, not unlike every other
cultivar under practice now, regardless of your commodities, is
pretty extensively regulated with regards--the Commissioner
could give you an exact accounting for what the Department
jurisdiction is. But, between the United States Department of
Agriculture and the states departments of agriculture--I am
referencing issues such as pesticide application and
environmental rules and so forth--the number of agencies that
are already present on the farm are extensive with regard to
compliance. The concern is that giving FDA broad and full
authority, sweeping authority that would empower its
jurisdictive authority over the farm would bring inspectors in
to an environment where they might not be acclimated or trained
with regard to understanding agricultural farm practices the
way that a staff member from one of the Department of
Agriculture agencies would. We know with any regulation comes
price or cost, both in terms of enforcement and punitive
measures. So those would be certainly some areas that we have
expressed concern towards, and that is our reason for
applauding your cosponsorship effort on making sure that it is
done through an agency whose purpose would not be, let us say,
to eliminate tobacco production in this country. Because as we
view it, it is in direct conflict with the mission of charge of
the FDA and we have experience there which is the references
that the Commissioner has made with regards in our state, for
example, jalapeno peppers, tomatoes, peanut butter, as you are
well aware, broccoli. There are a number of these, and this
distinguished panel represents these many states that produce
these commodities. You understand what the impact has been to
your farmers when hysteria or a scare has resulted. Those are
the kind of burdensome regulatory impacts that either farmers
couldn't comply, or could not afford to meet certain standards.
At the end of the day, in the Waxman language, FDA still can't
say tobacco is a safe product.
The Chairman. Because of the limited time, let me pick up
on that. You mentioned pesticide. I know this Subcommittee does
have direct jurisdiction over the pesticide issue.
Mr. Bunn, I believe in your testimony at page four at the
bottom you say, ``H.R. 1256 can burden growers with unnecessary
pesticide standards.'' Can you expound upon exactly what you
mean in regards to the pesticide problem?
Mr. Bunn. Any kind of elaborate, extensive reporting
requirements that causes a farmer to be unable to meet those,
such as record-keeping that he is unable to do, unless he goes
and hires an additional person just to keep records, we feel
that this will be damaging. If there are standards placed out
there that are different than what our export customer wants,
then that should be taken into consideration, because an export
customer may have a standard that is different than what the
FDA has, and if that tobacco is destined for that company, we
need to be able to satisfy that particular purchaser.
The Chairman. And, also in your testimony on page five, you
refer to the classification of the Cooperative in regards to
manufacturing and state that you are concerned that, ``The
large and small manufacturer category definitions will classify
our small cooperative facility as a large manufacturer because
the definition will include all employees of the Cooperative as
manufacturing employees regardless of their duties,'' and then
you say the concept is irrational. You conclude that particular
segment of your testimony by saying at the top of page six,
``The manufacturing segment should be classified as a separate
function from grower services.'' Tell us about how many
employees you have in the manufacturing segment?
Mr. Bunn. We have less than 100 employees in the
manufacturing segment. We have well over 500 employees during
the season that furnish services to the grower. So it is our
interpretation of the way that H.R. 1256 is written they could
very well say that our manufacturing numbers are over 500.
The Chairman. All right, when in fact grower services are--
--
Mr. Bunn. Are the predominant----
The Chairman.--the 500 figure?
Mr. Bunn. That is right.
The Chairman. And less than 100 is the manufacturing?
Mr. Bunn. Right, and as far as the size of manufacturing,
we have less than \1/2\ of a percent of the marketplace, and
the 6th largest manufacturing facility in this country would be
classified as a small manufacturer.
The Chairman. Thank you, sir.
Mr. Conaway.
Mr. Conaway. Thank you, Mr. Chairman. I don't have any
particularly in-depth questions other than, you look at--your
testimony was about how increased taxes reduces tobacco demand
and usage. We are going to continue to apparently fund SCHIP
with increased tobacco taxes. I think you mentioned, Mr. Boyd,
that North Carolina is proposing additional taxes. Even the
title of the Chairman's bill talks about the reduction of harm
or whatever, and I would assume that would be less tobacco
usage. Where are the economics and are there alternative crops
that these growers have an option of using to replace the
revenue stream from tobacco growing and selling? In other
words, is there someplace else for them to go that they can
make as much money in that as they do with tobacco, Dr. Brown
or Dr. Snell?
Dr. Brown. Sure. Our farmers are already extremely
diversified in North Carolina. In fact, we are the third most
diversified state in the country in terms of agriculture. So
all of these farmers have other commodities that they are
raising. As I mentioned, one of the programs I work with is a
program in value-added and alternative agriculture at our new
research campus. It is very, very, very difficult to find crops
that are as stable and have the same profit margins as tobacco,
and most of these farmers are working with other things. We
focus on fresh produce, for example, at our new research
campus. But with most of our newer commodities and newer
alternatives, there are much higher levels of risk, and of
course, there is a steep learning curve. Our tobacco has
concentrated in the I-95 corridor in the eastern part of the
state and we have a low-cost production area there, and even
though that is a very, very agriculturally intense area, in
fact, it was rated as one of the most profitable areas to farm
in the United States back in 2005, tobacco still continues to
be the most profitable commodity for those farmers and the cash
crop of choice for those farmers in that area.
Mr. Conaway. I have some familiarity with cotton farming
and there is a crossover point, a number of acres you can grow
cotton on and really make money at. I don't have a sense of
where that is. A tobacco-only farm, where is the break-even in
acres planted where you can feed a family and make a living on
a tobacco-only farm?
Dr. Brown. Well, we don't have very many tobacco-only
farms. Most of our farms grow a wide range of crops, as I
mentioned.
Mr. Conaway. But is it 10 acres----
Dr. Brown. No, it would be more like at least 100 acres in
flue-cured tobacco. When you look at the mechanization that has
taken place in flue-cured tobacco, the breaking-even points--as
in cotton, the breaking-even point is around 1,000 acres. You
need one cotton harvester to harvest 1,000 acres so you kind of
look at it in 1,000 acre units. In tobacco, it is closer to 100
acre units because that is essentially what you need for the
very specialized equipment that you have to use to harvest. And
of course, with the labor issues that we are seeing now, there
are numerous economies of scale in terms of trying to bring
labor into the farm, which has also increased the scale of the
farm that is required in order to make it economical. So it is
really not a small farm enterprise in flue-cured tobacco
anymore. It is a middle-sized farm. It still sustains a lot of
mid-sized farms, which is really a disappearing segment in U.S.
agriculture.
Mr. Conaway. Dr. Snell, is there anything you want to----
Dr. Snell. Yes, I will make some comments on behalf of
burley. Our farmers tend to be a lot smaller than flue-cured
farmers. We are also seeing a lot of diversification in
Kentucky. We have been very fortunate that half of our tobacco
settlement dollars have gone towards agricultural economic
diversification. But at the same time, as I mentioned in my
testimony, we have lost 72 percent of our tobacco farms since
the buyout. There are still more farms growing tobacco than
producing any other crop in the Commonwealth of Kentucky. Our
farmers tend to be diversified into cattle production. Some
have experimented successfully with some vegetables and fruit
production. But predominantly our best diversification within
tobacco is an off-farm job, and that is the concern we have
right now with the loss of jobs in rural communities that a lot
of our farmers that grew a few acres of tobacco but depend more
upon an off-farm job. Either the spouse or the farmer
themselves are being laid off and that is the reason why, as
Mr. Quarles pointed out, that a lot of our farmers are trying
to get back into the tobacco production business, but
unfortunately it is not at the right time.
Mr. Conaway. Thank you, Mr. Chairman. I yield back.
The Chairman. Thank you very much, Mr. Conaway.
Mr. Kissell.
Mr. Kissell. Thank you, Mr. Chairman.
I am especially happy to welcome the guests here today but
especially the gentleman from North Carolina, and being from
North Carolina myself, this is a pleasure to be able to have
fellow North Carolinians here, and especially Dr. Brown. I am
going to put in a plug for the North Carolina research campus.
The work that you guys do there can benefit agriculture for
this nation, for the world. Seven universities coming together
to advance nutrition and other causes of agriculture, what a
wonderful idea, what a wonderful facility and how wonderful it
is to be in my district.
Mr. Bunn, you talked about that with the harm reduction and
taxation, the change in product mix to smokeless tobacco and
then with more farmers wanting to get back into tobacco this
year, do you think we are looking at a situation of vastly
overproducing this year?
Mr. Bunn. No, I don't think so because most of the tobacco
production is done so under contract, and there may be a few
farmers that decide to go out and grow tobacco speculatively,
but that is a great risk and most of the farmers have some
sense of where they are going to sell tobacco. There may be
some out there, but that is for people that have the personal
financing to do so.
Mr. Kissell. And Mr. Boyd, it was mentioned in Mr.
Troxler's remarks that the number of farmer families in North
Carolina dropped from 8,000 to 3,000 in the past few years even
though the productivity has stayed high and the production is
good. Do you see that reduction continuing? I know there are a
lot of unknowns out there but what rate of decline is taking
place there?
Mr. Boyd. Congressman, some of that attrition was by
design. It was the purpose, as the Chairman made reference to,
in the design and the need for the tobacco buyout was so that
people could in fact exit the business. So that is not
necessarily, well, is it not an exciting number. It was a trend
that was predicted to occur and, in fact, was a function and
need for the buyout. As it has occurred, the farmers that
remain, the fewer that are there now are larger in scope of
operation, and that is in reference to Dr. Brown's commentary
that it now takes more and more acres in order to see a
diminished margin of return in order to be successful with the
amount of volume of tobacco-specific assets. And it really is
driven by demand, and the concern you have now is what about
the next generation of young farmers, and that is the real
challenge. So, if economically this segment of the agricultural
industry is enticing, then it will invite those young people to
enter into that vocation, but it is very capital intensive on a
per-acre basis commodity to produce. And then a lot of them are
feeling some of the societal pressure with regards to the
eroding view towards tobacco. Largely, we have been insulated
from that on the farm because we don't get into a health
debate. That is a manufacturers' battlefront, if you will. But,
I think there is complexity there even in a state such as North
Carolina.
Mr. Kissell. Thank you. One last question, and I really
don't direct this to anyone so anybody who wants to jump in,
imports. How much of a threat are they to our market right now?
I read in the testimonies that it seems to be the quality is
not there so it is not too threatening. I am just curious about
how much of a threat it might be.
Dr. Snell. I will make a comment on behalf of burley. We
used to have about 500 million pounds of total burley use in
the United States between imported and foreign tobacco, and
about 400 million, that used to be domestic. Now, we are down
to about 50 million pounds being domestic burley, and probably
imported tobacco is still over \2/3\ of total burley use by the
manufacturers, so it is a serious problem, and some of the
issues related to regulation sparked the curiosity of tobacco
farmers perhaps. If you talk about regulation, our farmers just
want to make sure that everybody is playing on the same level
field. That may create some opportunities, as Dr. Brown
mentioned in his testimony, to maybe constrain the level of
imported tobacco coming into this nation.
Mr. Bunn. Congressman Kissell, if I might comment at this
point, importation often follows the value of the dollar and
the value of the dollar is very low. That makes offshore
tobacco much more attractive and competitive, but as the dollar
value increases--well, let me say, as far as exporting tobacco,
it is reversed. As long as the value of the dollar is low, we
can compete very well. When it turns back around, the import
tobacco can certainly be a major problem, but at this point in
time the quality of our tobacco still reigns as far as being
some of the best in the world.
Mr. Boyd. Congressman, one other aspect to that. It would
be in regard to black market and illegitimate product. That is
an important consideration for this Committee to give thought
to. When we over-regulate and overprice with regard to the cost
of the procurement side of the tobacco, at the end of the day
if adults who are going to choose to use a legal product still
choose to do so. In the wake of this burdensome impact, what is
left behind are going to be the tobacco farmer, the tobacco
farm economy that evaporates with no chance for recourse. With
regard to health concerns, that is still going to be there
because people are going to smoke something, and so will they
be smoking something that is less safe, and even maybe to your
concern circumvents the tax collection value that our systems
of government at every level have become so dependent on.
The Chairman. Thank you. Thank you, Mr. Boyd. Thank you,
Mr. Kissell.
Mr. Thompson.
Mr. Thompson. Thank you, Mr. Chairman. I thank the
panelists for their testimony this morning.
Dr. Snell, in your testimony you had mentioned about, you
just referenced quickly about emerging opportunities. I was
just curious if you can elaborate on that? What opportunities
do you see out there as emerging into the future?
Dr. Snell. In my testimony, I pointed out I work with both
burley and dark tobacco producers, and the situation in dark
tobacco is very much different than the cigarette-style
tobaccos because smokeless tobacco consumption for a variety of
reasons has been increasing about four or five percent annually
for about 20 years. We are pulling back in dark tobacco
production this year, but as I mentioned, it is mainly because
we almost doubled production over the past 2 or 3 years. Demand
is still increasing but we just oversupplied the market last
year. There has been a lot of debate about the potential
reduced health issues related to smokeless tobacco products,
relative to cigarette production. So, that market is still very
upbeat on the demand side and we have seen in Kentucky a
growing percentage of our tobacco being produced is dark
tobacco rather than burley. In fact, in the State of Tennessee,
the value of dark tobacco production now exceeds the value of
burley production. As far as burley, obviously this is an
industry where the future is in the international markets, and
Mr. Quarles addressed some of his trips to some international
markets. There are a lot of markets overseas that have
traditionally been a flue-cure-type tobacco product, but as
they introduced burley tobacco, especially U.S. burley tobacco
into their blends, we have seen some increases in the American
blended cigarette in those markets. A lot of that depends upon
income levels of those countries, and as incomes improve that
they tend to buy up the value of their tobacco products that
they consume. So again, the emerging opportunities for burley
tobacco will be in the international marketplace and not the
domestic market.
Mr. Thompson. Thank you. I don't know if any of the other
panelists have any insight or any other thoughts on emerging
opportunities?
Mr. Quarles. The only thing I would like to add to those
comments is that as Dr. Snell has indicated and we have known
for some time, that 80 percent of our burley is being exported.
The primary importing countries are Switzerland, which is
obviously Phillip Morris International, and the Netherlands,
which is a port that distributes to other countries throughout
the world. We have always felt, on the burley side, that there
could be opportunities if the regulations are done properly,
but our main concern is that all products should be treated
equally. We want all imported tobacco to go back to some sort
of inspection form. Typically some of these imported tobaccos
are going to what they call value cigarettes, the cheap
cigarettes, the cigarettes that sell for a very low price. They
contain no American tobacco whatsoever. It is entirely imported
Oriental and burley, and consequently, we as American tobacco
growers, we really don't have much sympathy with those types of
products. We would rather have every cigarette consumed in
America to be American-grown tobacco, particularly because we
follow all the regulations that the EPA imposes on us on
pesticides and other chemicals that we use, and those same
regulations are not imposed upon imported tobacco.
Mr. Thompson. Thank you. Mr. Chairman, I yield back the
rest of my time.
The Chairman. Thank you, Mr. Thompson.
Mr. Bright.
Mr. Bright. Mr. Chairman, thank you very much for having
this hearing today, and gentlemen, thank you for being here and
your informative testimony. Just a couple of quick questions
and I guess I will direct my first question, it is a two part
question, to Dr. Brown.
Dr. Brown, you mentioned in your testimony that if higher
standards are set for U.S. tobacco products, imported tobacco
may be less competitive. My number one concern would be, does
this refer to the quality of the tobacco or quality standards
in your testimony?
Dr. Brown. I think it could refer to several things. It
could refer, one, to pesticides, it could refer to quality. It
depends on what standards are defined in any FDA regulation,
what the requirements of companies are.
Mr. Bright. And that is a real key and important question
that we always have to ask and to understand. Could you go into
more detail on what standards you might be referring to and why
U.S. producers are able to meet those higher standards?
Dr. Brown. I am not sure what those would be at the moment.
I think that would be a matter that would just have to be
examined, and would be one that could use some attention
whenever they go to FDA, but I don't have any particular ones
in mind.
Mr. Bright. Dr. Snell, my second and last question is
directed to you, and you mentioned labor challenges and a lack
of infrastructure as being just a couple of constraints faced
by producers immediately following the buyout and currently.
Could you provide additional details on these labor and
infrastructure constraints?
Dr. Snell. Burley tobacco is very labor intensive like most
tobaccos but it is even more so than flue-cured tobacco, and we
cannot--even in this day and era of high unemployment rates, we
cannot find local labor. They are not willing to work, and as a
result, our farmers have become more and more dependent upon
migrant laborers, and have a lot of interest in the H-2A
program and some of the administrative changes that have taken
place in recent times. Infrastructure, we have a lot of
dilapidated infrastructure out there. Farmers are very
reluctant to put a lot of large financial outlays for an
industry that has a very uncertain future. And as Mr. Boyd
pointed out, one of the biggest challenges we have is certainly
getting young people that have an interest in growing tobacco.
The average age of a tobacco farmer is approaching 60 years of
age, so----
Mr. Bright. Sixty?
Dr. Snell. It is around 60, and that is certainly a
challenge for the buying industry to keep interest in growing
the crop, and again, the situation is, we are not replacing a
lot of our infrastructure and that is certainly a long-term
challenge for the industry.
Mr. Bright. How concerned, Doctor, are you about the down
economy pushing some producers in Kentucky back into the
tobacco production crop industry?
Dr. Snell. I am very concerned. I have an opportunity in my
position to travel the state as well as Ohio and Tennessee, and
again, the fact that a lot of our farmers after the buyout
became more and more dependent upon off-farm income. As those
jobs have been reduced or individuals have had layoffs in their
family, they look out, they have some infrastructure still
left. They see other commodity prices are coming down. They
have already spent their buyout dollars. They have heard that
even though people in the past have grown tobacco without a
contract and been able to sell it that they think there may be
a market for that tobacco in 2009. I think that tobacco will
move, but it will move at a considerably lower price. I have a
big concern that the economy is contributing to potential
oversupply of burley tobacco.
Mr. Bright. Thank you very much. I yield back my time, Mr.
Chairman.
The Chairman. Thank you, Mr. Bright.
Mr. Roe.
Mr. Roe. Thank you, Mr. Chairman. It is really a pleasure
to be here and where everybody on the panel sounds like I do.
It is nice to be here for that. I will tell you that, as Dr.
Snell did, it was a burley tobacco patch that convinced me
organic chemistry was not that hard, and I grew up on a farm
that my cousin still raises 100,000 to 250,000 pounds a year in
Stewart County, Tennessee. One of the things that you all
brought up--and in Tennessee, as you well know, we just added a
61 cents increase in the price of a pack of cigarettes, and
then the Federal Government added another 60 cents here just
recently. What the governor has done there is to try to
encourage farmers to begin to look at switchgrass and
hydroponics and other areas, and that is obviously something
that our agricultural community is looking at. One of the
things you said, and it applies to all manufacturing, and Mr.
Boyd, you may have touched on this too, is a set of
requirements put on our producers whether they are in the auto
industry or other industry is that EPA and OSHA and all of that
doesn't apply to foreign producers and it puts us at a definite
disadvantage. If you all could comment on that, and then the
other thing that our farmers don't want is somebody from the
Federal Government tromping around all over their farm telling
them what to do, another unfunded mandate. I was the Mayor of
Johnson City before I got here, and it was difficult dealing
with all the Federal unfunded mandates. Instead of looking at
it from a health reason, but as a punitive reason, that it is
just going to be another unfunded mandate for farmers. Could
you all comment on that?
Mr. Boyd. Congressman, I would certainly concur with your
perspective on it, and that is our testimony here. I hope the
Committee doesn't portray that we have a staunch anti-opinion
here. But, the issue, as we understand it, is that there are
two alternatives or there are two versions under consideration,
one that your Chairman is a cosponsor of. One of your other
colleagues from California has a bill and we all know, I mean,
he has had an agenda to push for FDA well over a decade. And I
read both bills numerous times, and one thing that surprises me
in the Waxman bill is that it doesn't conclude exactly what the
jurisdictive authority with any specificity will be, but it
certainly knows exactly what it is going to cost. So, that is
confusing a little bit out here. I am just giving you one
citizen's viewpoint there, if I can take off the hat from the
association and say, ``How do you know what it is going to cost
but you are not sure exactly what it is you are going to do.''
The alternative version here doesn't speak to that detail. It
speaks more in terms of what are our goals and what do we want
to try to accomplish with regard to the information. The
extended education and any protection that an agency might be
able to afford those adults who choose to use the product; and
at the same time being steadfast and not be punitive to those
people who are involved in the commerce of tobacco. Congressman
McIntyre's bill that he and Congressman Buyer are cosponsors
of, and many other names on it as well, is explicit about that,
that it protects traditional farm practices.
So our concern is the actual production of agriculture, and
as Dr. Brown pointed out, in North Carolina, not unlike
Tennessee, our farms are very diversified and tobacco farmers
farm a host of other commodities. We have about 82 that we
produce. So our concern would be that you would find it either
too burdensome to comply, or too expensive to comply, and
beyond that, why is it necessary at the farm level and how
would it be enforced. The FDA is in the news media on a
regular, daily basis with criticism with regard to falling
short of its purpose and charge right now. Even in North
Carolina recent headline accounts of syringes being made in
Angier, North Carolina, that the FDA knew about for 3 years and
people were dying specifically as a result of that and nothing
was done. So, these are our concerns and our confusion.
Mr. Roe. Thank you all and thank you, Mr. Chairman. I yield
back my time.
The Chairman. Thank you very much. I believe that covers
those who are present that were here. We had a couple other
Members come in and had to step back out for various reasons.
The panel has done an excellent job. Rather than going down the
list again, if there are any follow-up questions that anybody
would like to have? I know our witnesses have traveled a long
way, I want to make sure nobody misses any additional
opportunity. I would like to just ask a couple points of
clarification.
Dr. Brown, you mentioned in your testimony, at the very
end, about data tracking and your concern about there being
adequate data tracking and analysis, that it would seem to be
an issue that all sides would benefit from. How is that data
being tracked now, given the current circumstances and the lack
of other formal data tracking that you mentioned? How is the
data being kept as we speak?
Dr. Brown. Well, as an economist who gets asked to do a lot
of analysis, I can tell you it is kind of difficult. A lot of
times we have to make more than just educated guesses because
of the lack of data now. International data on foreign
production, about the only place that we could find that prior
to this year was at one of the international leaf dealer's
websites where they issued a report. They have stopped issuing
that report now. The Foreign Agricultural Service used to track
that data and have attache reports where it came in and they
would report the international production of tobacco in other
countries. They no longer do that. Very, very few are the
places where you can find that. The only thing that FAS
provides now is just the raw import and export data, which you
have to go in and dig up yourself. Economic Research Service
used to provide excellent analysis of some of this data and
pulled it together, which made our jobs much easier when we
were asked to report to policymakers and farm groups. They no
longer provide any analysis of that. About the only USDA agency
that is really doing any significant reporting of data is the
National Agricultural Statistics Service, which continues to
record crop production and acreage harvested. Beyond that, we
have hardly any data to rely on in terms of analysis, and so in
terms of tracking this crop, very soon it will be very
difficult to track it, particularly internationally.
The Chairman. Do you have recommendations, specifically,
that you would like to state or to submit regarding about what
would be the best means that we could improve the data
tracking? I realize that some of these agencies are not going
to welcome the idea of being told to do it again but
nevertheless, just from your professional opinion.
Dr. Brown. No, I understand. Thank you. I think in terms of
the Foreign Agricultural Service, they are collecting
international data on other crops, so they are working with
agricultural attache offices and agricultural embassies around
the world. It doesn't seem to me like it would be too onerous
to ask that they also get some data on tobacco as well, since
that is an important crop. In particular, if FDA regulation
goes forward, this data will be important to a lot more than
just the tobacco community. It will be important to a lot of
folks to know what is going on in other countries like Brazil
or large agricultural regions.
I would say on the other end of the spectrum here in
Washington to have the Economic Research Service provide some
of the same services in terms of tobacco that they do for
cotton, peanuts, or other commodities that I work with would be
very, very helpful to have as an analyst. Again to provide this
data, and again, many of the things that Tom Capehart was
providing before for us are things that are going to be asked
not only by the tobacco community, but also in terms of the FDA
regulation.
The Chairman. Thank you, Dr. Brown.
Dr. Brown. Thank you.
The Chairman. Mr. Bunn, if you can just bullet point the
types of regulations that you think would come out of FDA
legislation that, as you have stated, would be impossible for
growers to meet?
Mr. Bunn. It is hard to understand all of it because we
don't know what the regulations will say now but we can
speculate. I would like to get back to you with a list of those
for the record.
The Chairman. I think that would be helpful, because as we
talk about the concerns of FDA on the farm and another
bureaucrat coming out and bringing bureaucracy to the farm, and
the insult that is obviously to growers, their being the
experts on farming rather than a bureaucrat coming out and
trying to regulate. We know the concern that could cause, and
it would helpful for this Subcommittee and also in our efforts
to present that to the rest of Congress. So if you would submit
that within the next 10 days?
Mr. Bunn. Yes, I will.
The Chairman. That would be very helpful.
Does any other panel Member have any follow-up questions? I
will open it up. I think everyone has gone in order of
seniority so now we will open it up. Does anybody have a
particular question? Yes, Mr. Roe.
Mr. Roe. Thank you, Mr. Chairman, just a brief question for
Mr. Quarles.
I know when I grew up, you would go work on your place and
then you would go help somebody else with theirs. Now, labor is
a huge problem on the tobacco farm. Could you just comment on
that and how the immigration, how that is going, because that
is a huge issue, at least in Tennessee.
Mr. Quarles. Yes, sir. Tobacco, as Dr. Snell indicated, as
we all know, as you well know, is very labor intensive. Burley
tobacco production has changed very little in the last 200
years. We still use by and large the old tobacco knife and
spear to spear it on the wooden sticks. We have not moved to
mechanization not nearly as much as the flue-cured crop has.
There are concerns with the current H-2A program. We have had
some good progress in relaxing the requirements recently, but
now we find out that the President is going to go back and
strike some of that and raise the wage rate back to where it
was previously. But there is adequate labor as long as you use
the migrant labor, and that also extends to other agriculture
crops throughout Kentucky or in any state, I suspect. Any type
of vegetable production is obviously dominated by migrant
labor. Our horse industry is dominated by migrant labor just as
the construction trades, laying brick, putting roofs on houses,
that is all dominated by migrant labor. You could just go on
and on about the need for adequate migrant labor to come into
each of our states. We appreciate any efforts that this
Committee could have in keeping those regulations more near to
the need of the farmers rather than to the needs of the people
that don't have the interest of farmers at heart.
Mr. Roe. Thank you, Mr. Quarles. Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Roe. Anyone else? If not, I
understand we are going to have a series of votes that is going
to be called momentarily. We have been blessed that we got you
all done and you don't have to sit here and wait on us to go to
vote. We wanted to honor your time. Thank you for the timely,
important information. If anyone else has any additional
comments they would like to submit to the record, please do so
within the next 10 days. We thank everyone for their attendance
and pray God's blessings upon your travel.
Thank you very much. The meeting is now adjourned.
[Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Supplemental Material Submitted by Hon. Steven W. Troxler,
Commissioner, North Carolina Department of Agriculture and Consumer
Services
Overall All States' Average Cigarette tax: $1.21 per pack
Including $1.00 per pack Federal excise tax beginning 4-1-2009
(currently .39 per pack)
The highest combined state-local tax rate is now $4.25 in New York
City, with Chicago, IL second at $3.66 per pack. Other high state-local
rates include Evanston, IL at $3.48 and Anchorage, AK at $3.324 per
pack.
This is not including any local or city tax rates.
If you take the United States 2008 average flue-cured yield of 2239
lbs. acre in 2008
Gross farm gate revenue per acre in 2008 is 2,239 lbs. $1.756 =
$3,931.68 per acre to the farmer
A pound of tobacco makes 500 cigarettes, so the Federal and average
State cigarette tax combined per acre amount to (2,239 lbs. 70% yield
after processing = 1,567 usable pounds per acre after processing) 1,567
lbs 500 cigarette per pound of tobacco = 783,500 cigarettes per acre
which if you divide by 20 cigarettes per pack = 39,175 packs per acre
which would be taxed at $2.21 per pack beginning April 1, 2009 with the
increase of the SCHIP tax increase = $86,576.75 per acre for the
Federal and State Government at the average state tax rate.
If you were in New York City it would be $4.25 State & City +
Federal Tax of $1.00 per pack to total $5.25 combined tax 39,175 packs
per acre $5.25 = $205,668.75 per acre for Cigarette excise tax.
Government per acre w/o Master Settlement Payments $86,576.75
Farmer per acre $3,931.68
The government gets 2,202% more per acre than the actual producer
who goes out and takes risk to grow the tobacco crop.
$3,931.68 per acre / Value per plant 5,500 = .71 cents per plant to
the farmer
$86,576.75 / 5,500 plants per = $15.74 to the government per plant
Supplemental Material Submitted by Jessie Thomas Bunn, President, U.S.
Tobacco Cooperative Inc.
Growers should not be forced to meet punitive and aberrant
FDA standards. Growers have developed good management and
cultural practices over time from experience and from research
based knowledge. Growers will not be able to meet unreasonable
and unfavorable standards on production because new standards
that require growers to change good cultural practices could
adversely affect yield and quality of the grower's production.
FDA required standards could leave growers without know-how,
proven cultural practices and existing research-based knowledge
for producing leaf tobacco.
Testing for FDA standard compliance is impossible for
growers at the farm level. Growers are neither equipped to test
for FDA standards nor able to abandon non-compliant crops
because of the high production cost.
FDA standards that require growers to change equipment used
in the production, curing or marketing of leaf tobacco would be
impossible to meet. Most growers do not have the economic
option to risk recapitalizing high cost equipment for mandated
changes in cultural practices.
FDA pesticide standards that require changes in pesticide
use will dramatically affect leaf tobacco production.
Alternative pesticides may not be available because of the
limited number of pesticides with EPA approval for use on
tobacco. Developing new pesticides requires years of research
and time for EPA approval.