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Health Groups Support Tobacco Buyout Legislation Consistent with Recommendations of President's Commission

Joint Statement of the American Cancer Society, American Heart Association and the Campaign for Tobacco-Free Kids
September 26, 2002

Washington, DC — The American Cancer Society, American Heart Association and the Campaign for Tobacco-Free Kids commend the Members of the House Agriculture Committee, Subcommittee on Specialty Crops and Foreign Agriculture Programs for holding today's hearing on legislation addressing the needs of tobacco farmers and tobacco farming communities in this country. The public health community recognizes the importance of tackling these issues.

Over the past several years, consensus has been reached among the major tobacco farming organizations and the leaders in public health that strong action is necessary to assist tobacco farmers facing an uncertain economic future and that the U.S. Food and Drug Administration (FDA) should be provided effective oversight of manufactured tobacco products.

The public health community is prepared to support tobacco buyout legislation that comports with the recommendations of the President's Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production while Protecting Public Health. The Commission consisted of an equal number of tobacco farmer and public health representatives, as well as two economic development experts. Well aware of the crisis that has engulfed U.S. tobacco farmers and their communities, the members of the President's Commission unanimously endorsed their final report and recommendations without qualification. The Commission found that the health and safety of the American people and the economic health of tobacco farming communities are unavoidably linked and concluded they would benefit mutually from implementation of the Commission's recommendations.

The President's Commission report encompasses clear recommendations for providing the opportunity for growers and quota holders to discontinue tobacco production while providing economic development tools that can be accessed by tobacco farming communities hard hit by the decrease in tobacco sales and price supports.

The Commission's recommendations to help tobacco farmers and communities include:

  • The adoption of a Tobacco Equity Reduction Program (TERP) that replaces the current quota system with production permits that would be held only by active tobacco growers. Unlike quotas, the permits would not be marketable assets, which would help ensure that the new system does not foster the same economic dependence on tobacco as the current one.

  • Quota owners and growers would be compensated for the loss of their quota assets. Small farmers and quota owners, the bulk of those who will benefit, will receive all of their payment in the first year.

  • The establishment of a Center for Tobacco-Dependent Communities to provide assistance to communities making a transition from tobacco-based economies. The Center would provide technical assistance and education on supplemental crops, economic diversification in rural communities, new technologies, alternative uses for tobacco that do not harm public health and other topics.

To address public health challenges, the Commission made the following recommendations:

  • Congress should grant the FDA the authority to regulate the manufacture, sale, marketing, distribution and labeling of tobacco products. This authority should be comparable to the FDA's authority over other products, but it is not intended to prohibit the use of tobacco products by adults.

  • States should do more to fund comprehensive tobacco prevention and cessation programs, and those that meet minimum funding recommendations of the U.S. Centers for Disease Control and Prevention should be eligible for additional federal assistance.

  • Funding for smoking cessation should be included in basic Medicaid and Medicare coverage.

A summary of the Commission recommendations is attached.

In keeping with the principles of the President's Commission, the public health community supports H.R. 5035, legislation introduced by Rep. Fletcher that provides for fair and equitable compensation to tobacco farmers. This legislation would replace the current tobacco program with a new system of licensing that seeks to give farmers and their communities both long-term and short-term stability. Importantly, it also includes incentives for some farmers to stop growing tobacco.

We must oppose, however, H.R. 3940, legislation introduced by Rep. McIntyre. While Rep. McIntyre's bill provides a framework for discussion, it falls short of what farm leaders say they need and what public health leaders say they can support. H.R. 3940 would eliminate the tobacco price support program. That likely would be the death knell for the family tobacco farm and would result in an undeserved financial windfall and transfer of wealth from farmers to the tobacco manufacturers in terms of reduced prices for leaf tobacco. While we recognize that the program needs to be restructured, we also know that eliminating the program altogether would destroy many small family farms.

H.R. 3940 also includes language to grant the FDA authority over tobacco that every major public health organization has previously stated that it will oppose. The public health community is prepared to support legislation that provides for fair and equitable compensation to tobacco farmers, but we will aggressively oppose any effort to link such legislation to FDA legislation that does not meet minimum standards to protect the public health.

The public health community is prepared to work with the Members of this Committee and other Members of Congress to develop legislation that will truly assist tobacco farmers and their communities, and we appreciate the opportunity to submit testimony for the record of this hearing.

Recommendations Of The President's Commission On Tobacco Farming And Public Health


The President's Commission on Improving Economic Opportunity in Communities

Dependent on Tobacco Production while Protecting Public Health

The President's Commission on U.S. tobacco farming and public health recommends that: (1) the federal government compensate U.S. tobacco farmers for their tobacco-growing quotas as part of a strategic plan to completely revamp the quota system in the federal tobacco program; (2) a new economic development center be created to provide assistance for farmers and their communities during their economic transition from dependence on tobacco; and (3) steps be taken to improve the public health including granting the U.S. Food and Drug Administration effective authority to regulate tobacco.

The Recommendations of the President's Commission

To assist tobacco farmers and their communities during this period of economic transition, the Commission recommends:

  1. adoption of a Tobacco Equity Reduction Program (TERP) to eliminate the tobacco program's quota system and provide reasonable compensation to existing quota owners and growers for their corresponding economic losses;

  2. a major restructuring of the federal tobacco program to address changing economic and public health realities; and

  3. establishment of a Center for Tobacco-Dependent Communities to provide technical assistance, education, and other guidance and support to help tobacco farmers and the country's 568 tobacco-farming counties to develop alternative sources of income.

Recognizing that tobacco farmers and tobacco-farming communities currently suffer – along with all other Americans and U.S. communities – from numerous public health challenges, including extensive harms caused by smoking and other forms of tobacco use, the Commission also recommends:

  1. providing the U.S. Food and Drug Administration with effective and meaningful authority over manufactured tobacco products and their marketing that parallels its authority over other manufactured products (without creating any new FDA authority over tobacco farming);

  2. offering new grants to the states to enhance their existing tobacco-prevention or public-health efforts; and,

  3. providing smokers who wish to quit with assistance through the Medicaid and Medicare programs.

Implementing this package of recommendations would not only resolve the economic crisis facing U.S. tobacco farmers and their communities but also help to minimize the pediatric epidemic of smoking and other forms of tobacco consumption that affect all Americans.

The Nuts & Bolts of TERP and the Related Tobacco-Program Reforms

TERP replaces the marketing quota system with a production permit system to get tobacco production into the hands of active growers. Quotas would be eliminated and quota owners and growers compensated appropriately for the loss of their quota assets based on their actual economic value. Growers who choose to continue farming tobacco would receive less compensation than those who do not continue. If the TERP is implemented, half of all active tobacco growers are expected to stop growing tobacco.

Based on the economic value of existing quota, the Commission recommends that all quota owners be compensated at $8 per pound. Active tobacco growers – including those who do not own but only lease quota -- would receive $4 per pound for every pound of tobacco they agree to permanently stop producing, with those continuing to grow receiving only $2 per pound.

Under the new production-permit system:

  • The tobacco-farming permits would be issued annually only to active tobacco growers, including new growers who meet requirements related to experience and adequate means of production (labor, equipment and so forth).

  • Unlike current tobacco quota, the new permits would not be or become marketable assets because they could not be bought, sold, leased, or rented. Accordingly, the permits would not be able to create the kind of economic dependence on tobacco farming that the quota system has created.

  • The amount of tobacco grown under the production permits would be based on demand for tobacco and existing inventories, and would ensure that tobacco production in the United States does not expand substantially or displace any other crop farming by moving into new geographic areas.

  • Price supports for tobacco – which have operated since 1982 at no net cost to the taxpayer (other than administrative costs) – would continue at the same no-net cost basis.

The recommended tobacco-program reforms would also ensure that imported foreign-grown leaf would be subject to the same quality standards as American-grown tobacco. The Commission also calls for establishment of a Tobacco Grower Advisory Board to advise USDA, EPA, FDA, the U.S. Trade Representative's Office and related federal departments and agencies that issue rules and regulations governing tobacco production and product control.

Funding The Commission's Recommendations.

To fund its recommendations, the President's Commission calls for a 17-cent increase in the federal excise tax on all packs of cigarettes sold in this country. Revenues from the tax increase would be deposited in a self-liquidating trust fund in the U.S. Treasury and earmarked over a ten-year period as follows:

  • First five years: All of the funds used to compensate quota owners and growers for the loss of their quota assets and to create and sustain the new Center for Tobacco-Dependent Communities. The compensation would be spread over the five years in equal payments, except that people owning 1,000 pounds or less of quota and who elect to stop growing tobacco may choose to receive their payment in one lump sum during the first year of the program.

  • Second five-years: Continued funding for the Center for Tobacco-Dependent Communities and all remaining funds to support state tobacco prevention and cessation programs and other public health efforts and full coverage for tobacco cessation programs under Medicaid and Medicare.

After the second five-year period, all revenue from the 17-cent-per-pack increase to the federal excise tax on cigarettes would go to general revenues. Based on existing U.S. cigarette pack sales and expected annual declines of roughly two-percent per year, on average, the recommended excise tax will raise an average of about $3.4 billion annually. While the tax increase will help to reduce the amount of smoking in the United States, especially among youths, it will reduce the overall, global demand for American-grown burley and flue-cured tobacco by only about one percent.