ince False Friends went to press in late 1999, the trends discussed in the report that are harming U.S. tobacco growers have continued. The cigarette companies have further reduced their direct purchases of U.S. tobacco leaf, which has prompted major new reductions to the already diminished burley and flue-cured quotas. The cigarette companies have continued to push direct contracting with U.S. growers; and the companies’ have further expanded their overseas production capacity.

Ongoing Declines in U.S. Cigarette Company Tobacco Leaf Purchases

Fall 1999. Flue-cured and burley tobacco growers meet with cigarette companies to try to figure out ways to avoid major reductions in the U.S. tobacco price support program’s tobacco-growing quota for the year 2000 caused by the large inventories of unsold U.S. tobacco leaf and the expected reductions in the U.S. cigarette companies’ purchase intentions. Philip Morris offers to buy some of the stockpiled flue-cured and burley leaf if given a 50-percent discount. Such heavily discounted sales would significantly increase the fees that U.S. growers and the cigarette companies pay to finance the tobacco price support program and the cooperatives that manage the surplus inventories. No discounted sales are made.

December 1, 1999. U.S. cigarette companies announce that they intend to purchase 286 million pounds of flue-cured tobacco in the 2000 marketing year for use in American-made cigarettes -- down 41 million pounds or 12.5 percent from their 1999 purchase intentions and down more than 190 million pounds or 40 percent from what the 476.3 million tons they actually purchased in 1998 (final purchase figures for 1999 are not yet available).

December 10, 1999. Burley cooperatives vote unanimously not to sell any burley inventory to cigarette companies at a sharp discount. But flue-cured growers, the cigarette companies, and USDA announce an arrangement whereby the companies will purchase 80 million pounds of stockpiled flue-cured pool tobacco at a 40 to 50 percent discount -- while minimizing the increases in the fees paid by the companies and growers to finance the tobacco price support program and the flue-cured cooperatives -- thereby reducing the expected cut in flue-cured quota for 2000 from 30 percent or more to about 18 percent.

December 15, 1999. USDA announces flue-cured quota for the 2000 growing year of 543 million pounds, down more than 123 million pounds, or 18.5 percent, from the 1999 flue-cured quota (666.2 million pounds), and down more than 430 million pounds or 44 percent from the 1997 quota (973.8 million pounds). Quota program support fees required from growers are increased by 150 percent. Executives with the Flue-Cured Tobacco Cooperative Stabilization Corporation subsequently warn that further quota cuts are likely for 2001, as well.

January 15, 2000. The U.S. cigarette companies announce that they intend to purchase only 242.5 million tons of burley tobacco in the 2000 marketing year for use in American-made cigarettes -- more than 16.6 percent less than their purchase intentions for the 1999 marketing year (291 million pounds), which is still in progress, and more than a third less tobacco than the companies actually purchased in 1998 (367.3 million pounds).

February 1, 2000. USDA announces that the year 2000 growing season quota for burley tobacco will be 247.4 million pounds, a drop of more than 205 million pounds or 45 percent from the 1999 burley quota (452.9 million pounds) -- and a drop of more than 457 million pounds or 65 percent from the 1997 quota (704.5 million pounds).

Other Changes to U.S. Quota System

February 1, 2000. USDA announces that Kentucky burley growers have voted to permit cross-county sales of burley-growing quota rights in their state -- which is likely to produce significant shifts in where Kentucky burley is grown and accelerate the consolidation of U.S. tobacco growing into a smaller number of larger farms (as occurred in Tennessee when it allowed cross-county quota sales). Such changes could take tobacco farming away from those Kentucky counties with high poverty rates, low education levels, and scarce alternative income opportunities that rely most heavily on tobacco for income.

Cigarette Company Direct Contracting Efforts

December 2, 1999. R.J. Reynolds announces that it is recruiting U.S. flue-cured tobacco farmers to enter into direct contracts to grow special tobacco leaf with low-levels of nitrosamines, a known cancer-causing compound. This adds a new twist to Philip Morris’s ongoing efforts (opposed by most growers) to switch from buying U.S. leaf through the traditional auction system to buying it through direct contracts with selected U.S. growers.

December 22, 1999. U.S. cigarette companies and leaf dealers at Tobacco Leadership Group meeting say that they plan to switch as quickly as possible to buying only low-nitrosamine flue-cured tobacco from U.S. growers, which will require growers to purchase expensive new curing equipment.

February 1, 2000. Philip Morris announces that it is initiating a "pilot partnering program" of direct contracting with a "limited number" of U.S. burley tobacco growers.

March 1, 2000. Philip Morris and the Flue-Cured Tobacco Stabilization Cooperative create a $85 million fund to help growers equip their curing barns to produce low-nitrosamine leaf. The Cooperative hopes that the fund will enable all flue-cured farmers to produce low-nitrosamine leaf, thereby eliminating the need for any direct contracting for that purpose.

Continuing Assistance to Foreign Tobacco Growers

February 2000. The industry journal Tobacco Reporter describes expanded investments by U.S. leaf dealers Standard Commercial and Dimon in China and Vietnam, respectively, to help develop and modernize those countries’ tobacco leaf production, both for domestic use and export.

Continuing Cigarette Company Shifts from U.S. to Foreign Production

February 16, 2000. . Philip Morris announces that it will increase its cigarette production in Russia by 65 percent in 2000 (following a 70 percent 1998 to 1999 increase) and that it plans to stop importing any cigarettes into Russia by the end of 2001. Philip Morris had announced previously that all Marlboros sold in Russia would be locally made starting in 2000.

March 13, 2000. . Philip Morris announces that it will open a $340 million plant in the Central Asian Republic of Kazakhstan in May, and it is completing a $170 million expansion of its plant in southern Russia.

Grower Lawsuit Against U.S. Cigarette Companies

February 17, 2000. Over 4,000 U.S. tobacco growers and quota holders file a class action lawsuit on behalf of all U.S. growers and quota holders seeking $69 billion in damages from the major U.S. cigarette companies for wrongfully conspiring to undermine the U.S. tobacco support program and reduce the value of U.S. tobacco quota through the settlement of the state tobacco lawsuits, the substitution of foreign for U.S. tobacco leaf, and other acts constituting antitrust violations, fraudulent acts, and breaches of fiduciary duties owed to the growers. The lawsuit also names 14 state attorneys generals as co-conspirators. [Nine days earlier, U.S. cigarette distributors filed a class action lawsuit against the cigarette companies for illegal price fixing and related anti-trust violations.]

U.S. Grower & Cigarette Company Incomes

December 19, 1999. Tobacco economist Blake Brown from North Carolina University calculates that the Phase II payments from the cigarette companies (which total roughly $400 million per year for twelve years) will not come close to compensating tobacco growers or quota holders for the loses they have suffered because of the companies reduced purchases of U.S. tobacco in recent years.

January 14, 2000. Cigarette companies raise their cigarette prices by another 13 cents per pack, which will bring them another $2.5 billion or more per year in increased revenues.

March 13 & 14, 2000. Philip Morris announces that in 1999 it more than doubled the pay to its President and Chief Executive Officer, Geoffrey Bible, paying him salary and bonuses of more than $21 million. Other Philip Morris executives received similar pay increases. R.J. Reynolds Tobacco announces that it more than doubled the pay of its Chairman and CEO, Andrew Schindler, in 1999, paying him more than $5.4 million.

Miscellaneous

February 2000. New American Journal of Industrial Medicine study finds that the shift from small family-owned farms to larger tobacco farms is causing an increase in green tobacco sickness (a form of nicotine poisoning) among tobacco workers.

March 19, 2000. New U.S. trade agreement with China reported to include major cuts to China’s steep tariffs on imported U.S. leaf and American-made cigarettes, which would likely become the rates China charges all foreign tobacco imports.