\M TOBACCO PROGRAM
Y 4. AG 8/1:103-87
Tobacco Progran/ Serial No. 103-87*...
HEARING
BEFORE THE
SUBCOMMITTEE OX SPECIALTY CROPS
AND NATURAL RESOURCES
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JUNE 11, 1994, GREENSBORO, NC
Serial No. 103-^7
*- ,• 1 i^ ''.
^Pf? 4 ©95
Printed for the use of the Committee on Agriculture
U.S. GOVERNMENT PRINTING OFFICE
87-351 WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office. Washington, DC 20402
ISBN 0-16-046693-8
\\) TOBACCO PROGRAM
4. AG 8/1; 103-87
bacco Prograni Serial No. 103-87» . . .
HEARING
BEFORE THE
SUBCOMMITTEE ON SPECIALTY CROPS
AND NATURAL RESOURCES
OF THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JUNE 11, 1994, GREENSBORO, NC
Serial No. 103-87
^Pl? 4 1935
Printed for the use of the Committee on Agriculture
U.S. GOVERNMENT PRINTING OFFICE
87-351 WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046693-8
COMMITTEE ON AGRICULTURE
E (KIKA) DE
GEORGE E. BROWN, Jr., CaUfomia,
Vice Chairman
CHARLIE ROSE, North Carolina
DAN GLICKMAN, Kansas
CHARLES W. STENHOLM, Texas
HAROLD L. VOLKMER, Missouri
TIMOTITY J. PENNY, Minnesota
TIM JOHNSON, South Dakota
BILL SARPALIUS, Texas
JILL L. LONG, Indiana
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
CALVIN M. DOOLEY, CaUfomia
EVA M. CLAYTON, North Carolina
DAVID MINGE, Minnesota
EARL F. HILLIARD, Alabama
JAY INSLEE, Washington
THOMAS J. BARLOW III, Kentucky
EARL POMEROY, North Dakota
TIM HOLDEN, Pennsylvania
CYNTHIA A. McKINNEY, Georgia
SCOTTY BAESLER, Kentucky
KAREN L. THURMAN, Florida
SANFORD D. BISHOP, Jr., Georgia
BENNIE G. THOMPSON, Mississippi
SAM FARR, California
PAT WILLIAMS, Montana
BLANCHE M. LAMBERT, Arkansas
LA GARZA, Texas, Chairman
PAT ROBERTS, Kansas,
Ranking Minority Member
BILL EMERSON, Missouri
STEVE GUNDERSON, Wisconsin
TOM LEWIS, Florida
ROBERT F. (BOB) SMITH, Oregon
LARRY COMBEST, Texas
WAYNE ALLARD, Colorado
BILL BARRETT, Nebraska
JIM NUSSLE, Iowa
JOHN A. BOEHNER, Ohio
THOMAS W. EWING, Illinois
JOHN T. DOOLITTLE, CaUfomia
JACK KINGSTON, Georgia
BOB GOODLATTE, Virginia
JAY DICKEY, Arkansas
RICHARD W. POMBO, CaUfomia
CHARLES T. CANADY, Florida
NICK SMITH, Michigan
TERRY EVERETT, Alabama
FRANK D. LUCAS, Oklahoma
Professional Staff
DiANNE Powell, Staff Director
Vernie Hubert, Chief Counsel and Legislative Director
Gary R. Mitchell, Minority Staff Director
James A. Davis, Press Secretary
Subcommittee on Specialty Crops and Natural Resources
CHARLIE ROSE,
SCOTTY BAESLER, Kentucky,
Vice Chairman
SANFORD D. BISHOP, Jr., Georgia
GEORGE E. BROWN, Jr., CaUfomia
GARY A. CONDIT, CaUfomia
EVA M. CLAYTON, North Carolina
KAREN L. THURMAN, Florida
DAVID MINGE, Minnesota
JAY INSLEE, Washington
EARL POMEROY, North Dakota
CHARLES W. STENHOLM, Texas
COLLIN C. PETERSON, Minnesota
SAM FARR, California
HAROLD L. VOLKMER, Missouri
(Vacancy)
North Carolina, Chairman
TOM LEWIS, Florida,
Ranking Minority Member
BILL EMERSON, Missouri
JOHN T. DOOLITTLE, CaUfomia
JACK KINGSTON, Georgia
BOB GOODLATTE, Virginia
JAY DICKEY, Arkansas
RICHARD W. POMBO, CaUfomia
TERRY EVERETT, Alabama
(II)
CONTENTS
Page
Baesler, Hon. Scotty, a Representative in Congress from the State of Ken-
tucky, opening statement 4
Kingston, Hon. Jack, a Representative in Congress from the State of Georgia,
opening statement 5
Rose, Hon. Charlie, a Representative in Congress from the State of North
Carolina, opening statement 1
Witnesses
Drew, Thomas K., farmer, Goldsboro, North Carolina 32
Halstead, Robert, producer 25
Kerr, John, North Carolina State Senator 6
Prepared material 38
Komegay, Bob, county commissioner, Duplin County, North Carolina 9
Prepared statement 41
Lancaster, Hon. H. Martin, a Representative in Congress from the State
of North Carolina 2
Prepared statement 35
McLawhom, Charles, North Carolina State Representative 8
McLawhom, Sam, North Carolina Board of Agriculture 30
Moore, Richard, North Carolina State Representative 33
Parrish, Tom, vice president, corporate affairs, Monk-Austin, International,
Inc 13
Prepared statement 50
Price, Atlas, farmer 15
Rouse, Dean, producer 21
West, Jerry, producer 23
Wooten, Larry, North Carolina Farm Bvu-eau 31
Submitted Material
Grahm, James, commissioner. North Carolina Board of Agriculture 57
(III)
TOBACCO PROGRAM
SATURDAY, JUNE 11, 1994
House of Representatives,
Subcommittee on Specialty Crops
AND Natural Resources,
Committee on Agriculture,
Goldshoro, NC.
The subcommittee met, pursuant to call, at 9:05 a.m., in the
Main Auditorium, Wayne Community College, Goldsboro, North
Carolina, Hon. Charlie Rose (chairman of the subcommittee) pre-
siding.
Present: Representatives Baesler and Kingston.
Also Present: Representative Lancaster.
OPENING STATEMENT OF HON. CHARLIE ROSE, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF NORTH
CAROLINA
Mr. Rose. The Specialty Crops and Natural Resources Sub-
committee of the House Agriculture Committee will please come to
order.
We are here today at the Main Auditorium of the Wayne Com-
munity College in Goldsboro, North Carolina, at the request of our
friend and colleague, Congressman Martin Lancaster. This public
field hearing is to discuss the tobacco program and to give people
from this area an opportunity to make pertinent questions about
the way the program is working and the problems that it is having
or any other matters of concern to them regarding the tobacco pro-
gram.
I am going to recognize all the. Members of Congress on this
panel, for an opening statement, and I would like before I recognize
Martin Lancaster, can I ask the Honorable John Kerr, North Caro-
lina State Senator from Goldsboro, and the Honorable Charles
McLawhom, North Carolina State Representative from Winterville,
North Carolina, and the Honorable Bob Komegay, County Commis-
sioner from Duplin County to please come and take their seats on
the panel, if they are here.
Thank you all very much for being here, and at this time I will
recognize Congressman Lancaster either to give his opening state-
ment or to give his testimony at this time, whichever he prefers.
(1)
OPENING STATEMENT OF HON. H. MARTIN LANCASTER, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF
NORTH CAROLINA
Mr. Lancaster. Mr. Chairman, I would request unanimous con-
sent that my prepared statement, which has been previously sub-
mitted to the staff, be included in the record at this point, but I
would like simply to make a few personal comments instead of sim-
ply reading that statement.
Mr. Rose. So ordered.
Mr. Lancaster. First of all, Mr. Chairman, I want to thank you
for bringing your subcommittee to eastern North Carolina to hear
from the people who are most affected by policies that impact to-
bacco that may be considered in Washington. It is, for me, a very
special honor to have you and my colleagues here.
As many of you know, Charlie Rose has been the person in
Washington for many years who speaks for the tobacco farmer in
a way that has gained significant respect and attention from our
colleagues in Washington. And to have him and his subcommittee
here, I think, is a great honor for us and certainly a privilege for
us to be heard by him and his colleagues on the committee.
As many of you know, Congressman Rose is now considering,
should a vacancy occur, running for Speaker of the House. And I
think that it is a measure of the kind of respect that Charlie has
gained in Washington that he is very seriously considering this
race and very seriously being considered by Members of Congress
to fill this important post.
It would be unique, indeed, if we had a person. Speaker of the
House, who has the kind of background and interest in tobacco that
Charlie Rose does. So I know you all share, from that applause, the
special pleasure that we all feel from the North Carolina delegation
at his interest in this important post.
I am also pleased to have with us this morning a friend and col-
league from Kentucky, Scotty Baesler. Scotty is one of the two
Members of Congress that grew up on a tobacco farm, myself on
the Democratic side being the other one, and I think we all need
to know that today, while Scotty is here in this meeting, hearing
from you, his wife is setting out tobacco in Kentucky.
I was going to ask you to give her a round of applause, but you
did it even without my asking. I don't know if Alice would be set-
ting out tobacco if I were in Kentucky today, Scotty. You have a
good wife, I will tell you. But Scotty has come to Congress and has
made a great Member of Congress and certainly, as an active to-
bacco farmer today and serving in Congress, he brings a special
perspective to the problems that you face that are unique, and has
been a very, very effective voice for tobacco farmers.
He happens to be a hurley man, but realizes we are all in this
together and has done everything that he could to help the tobacco
program in general.
To illustrate that tobacco is not a partisan issue but in fact has
friends on both sides of the aisle, I am very pleased also to have
my friend from Georgia, Jack Kingston, who is a Republican Mem-
ber of Congress and a Republican Member of this subcommittee.
Jack is a new Member of Congress but comes from tobacco country
in Georgia, and he, likewise, has been a real friend and has worked
hard with us in trying to tell the tobacco story in Washington. I
am very pleased that he is here.
His wife and children are actually driving back to Georgia today
and it was very convenient for him to stop here in Goldsboro to
participate in this hearing.
So I do sincerely appreciate my colleagues being here. Congress-
woman Eva Clajrton had hoped that she would be here. Unfortu-
nately, her staff, unbeknownst to her, obligated her to speak this
morning in Durham. She tried all week to get out of that obliga-
tion; and, in fact, yesterday afternoon thought she had worked
something out, but in the end was not able to.
But, likewise, she is a Member of this subcommittee and also a
real friend of tobacco farmers and we know she wanted to be here.
And she is represented by staff, Dianne Jenkins, and I know that
those of you who may be from her district may wish to speak with
her before you leave today.
I also want to thank Joan Rose and the members of the sub-
committee staff and the members of my staff for all of the hard
work they did in putting the hearing together and making the ar-
rangements for the hearing. These things do not just happen. It re-
quires a great deal of work, and I sincerely appreciate their help.
I also want to thank the witnesses, not only this panel who is
before us but the others who will testify. We tried in our putting
together these panels to get people we thought would be articulate
spokespeople for tobacco, who would represent tobacco farmers, to-
bacco warehousemen, tobacco leaf processors and buyers, who
would bring to this hearing today the unique perspective of eastern
North Carolina, because that is what a field hearing is for, to go
in the field where the people are affected by Federal policies and
hear from them.
They are all outstanding leaders in the field of tobacco and peo-
ple who will, I believe, bring the kind of testimony that this sub-
committee needs to hear.
This has been, certainly for me, in the 16 years I have been in
an elected service position in North Carolina and in Washington,
the roughest year I can ever recall, especially when it comes to a
commodity that is near and dear to my heart. As those of you in
this room know, my daddy was a tobacco farmer and tobacco
warehouser, and because of that, and because of the fact that most
of my family still makes their living either directly or indirectly
from tobacco, it has been a personally wrenching year for me to
have to deal with the unrelenting attacks on tobacco that have oc-
curred this year in Washington.
However, you folks are in this with us. You have shared that
pain as well, and I know that those of you who came this morning,
came because of your own personal concern about your future and
your children's future. We do have, friends in Washington, and of
course the folks who have come here today are the leaders of those
friends, but there are fewer and fewer of them. And that is why
it is important to have people like Charlie Rose speaking for us in
Washington, because of the respect and the seniority that he brings
to his remarks on our behalf. I hope that this hearing will in fact
give us additional tools that we might use in fighting the fight for
you in Washington.
Before I yield back my time to the Chairman and allow others
to make their comments, let me also tell you of an opportunity that
I hope each of you will take advantage of two weeks from today.
Another great friend of tobacco in Congress is Congressman L.F.
Payne from Danville. L.F. is the only Member of the important
Ways and Means Committee from tobacco country. He has an in-
credible load on his shoulders to represent our interests in the
most important committee in fashioning health care reform and in
the committee that will determine what amount, if any, tobacco
will be taxed to pay for health care.
L.F. will be here for a Dutch breakfast for tobacco farmers and
their friends at King's Barbecue, in Kinston, two weeks from today
at eight o'clock. We do, however, need to know if you are coming.
So if you will let us know, we really would like to have you come,
not only to show your support for L.F. and his efforts, but also to
hear from him the special perspective that only he can bring, be-
cause he is daily in the meetings with that important committee
and in private conversation with the new Chairman of that com-
mittee, Sam Gibbons of Florida, and we hope that with your sup-
port and with your encouragement, L.F. can hang in there with us.
If you will give my office a call, if you happen to live in Wayne
County, that number is in the phone book, 736-1844. But if you
live outside of Wayne County, we have an 800 number. If you will
just call us and let us know that you are coming, that number is
1-800-443-6847; 443-6847. I hope you will join us, again two
weeks from today, for a special breakfast with L.F. Payne.
Thank you again, Mr. Chairman, for coming and thank you, my
colleagues, for also being here as well.
Mr. Rose. Thank you, Martin.
[The prepared statement of Mr. Lancaster appears at the conclu-
sion of the hearing:]
Mr. Rose. Members of Congress who maintain an interest like
you do in the Tobacco Pricing Program are becoming fewer and
fewer, and the base of your knowledge about tobacco which has
been put together over many, many years of working in the Con-
gress. And knowing the various people there is an invaluable asset
to the people of this congressional district, and we hope they real-
ize that, and I believe that they do.
Before we recognize our first panel, I would like to give our col-
league from Kentucky, Congressman Baesler, an opportunity to
make any opening comment he would care to.
OPENING STATEMENT OF HON. SCOTTY BAESLER, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF KEN-
TUCKY
Mr. Baesler. Thank you very much, Mr. Chairman. I just enjoy
being here. I represent central Kentucky, which is the number one
hurley producing tobacco in the country. I do, as Martin pointed
out, we do raise a lot of tobacco, my wife and I, personally, so I
am very committed to this program and appreciate having an op-
portunity to come down at Martin's request to be able to take part
and learn more about what is happening here.
I think our interests are the same. We are all concerned about
the repeated attacks from Washington on our crops today. We are
all concerned at the apparent unfairness of picking out one indus-
try to pay for the health care of the country. We are all concerned
by the attempts of folks to do away with an industry that means
$6 billion a year nationwide. And we talk about it and we some-
times think about us as the farmers or us as the people who sell
to farmers. It is also the small grocery stores throughout the coun-
try. The number one seller they are going to have is cigarettes. We
need to be concerned about them.
I appreciate Martin's leadership in talking about the taxes, be-
cause we have been in many meetings where we try to make sure
there are no taxes. Whether that happens or not, I do not know.
I am looking afford to hearing what you folks have to say. Whether
we come from Kentucky or North Carolina or Virginia, we are all
in this together.
So thank you for inviting me, Mr. Chairman, and particularly
Martin, and I look toward to working with you to continue to pro-
tect what all of us know is the number one crop for rural Kentucky,
I know, and I am hoping to work with you to make sure we pre-
serve that.
Mr. Rose. Thank you.
Our colleague, Jack Kingston, from Savannah. Recognize him for
any opening remarks he would like to make.
OPENING STATEMENT OF HON. JACK KINGSTON, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA
Mr. Kingston. Thank you, Mr. Chairman.
I want to thank you and Congressman Lancaster for having this
important hearing, and we do want you all to know that they are
two of the key players in Washington on this issue. Both of them
have been leaders and have a tremendous amount of respect on
both sides of the aisle, which in Washington is extremely impor-
tant. And I think it is also important to have people who are ex-
perts to the degree that they can see the other side's argument and
also see what is wrong with the argument.
What I have found as a newcomer to Washington is so many of
the things you hear, when you get inside and study it, you find out
they ignored half the things relevant to a study and they just de-
cided what they were going to conclude before they made the study.
And that is not the way we should take on this scientific task, but
apparently the folks in Washington decided that is the way to do
it.
I am also glad to be in Wayne County. I represent Wayne Coun-
ty, Georgia, and it is also tobacco territory. And I want you to
know, probably like Wayne County, North Carolina, tobacco is tied
to the school board, tied to the local automobile dealership, tied to
the John Deere dealership, and the community bank, and every-
thing else.
And people do not realize that the tobacco farmer is not alone.
He might be on the front lines of the war right now, but the battle
is a big one and it affects all of us.
And, finally, I would like to say that speaking on behalf of the
constituents, what folks are telling us is that, yes, this is the to-
bacco industry, but you cannot divide it from the freedom industry.
And folks back home are getting tired of the Federal Government
telling them what they can and cannot do. And I think we have to
emphasize that.
So, Mr. Chairman, I thank you and Mr. Lancaster.
Mr. Rose. Thank you very much, all of you.
The first panel have taken their seats. Our first witness is the
Honorable John Hosea Kerr, North Carolina State Senate, Golds-
boro. North Carolina.
STATEMENT OF JOHN KERR, NORTH CAROLINA STATE
SENATOR
Mr. Kerr. Thank you, Mr. Chairman, distinguished Members of
the subcommittee. Welcome to Wayne County, the home of Martin
Lancaster and Charlie Whitley, who are fighting for tobacco.
I have been studying my presentation. I would like to add, for
the record, Mr. Chairman, two exhibits. And the one that I would
really like to stress is what my leader, Martin Lancaster, put in
the Roll Call, where he has articulated the arguments better than
anybody I have ever read as to what is happening.
This 75 percent tax increase in tobacco is awful. They say it will
bring in $10 billion, but I doubt that very seriously because I think
we will tax a legal industry out of existence. We also will have at
least a 16 percent reduction in the consumption of cigarettes and
manufacturing of cigarettes, which will result in, one, a loss of as-
sets and allotments, and quotas will be reducea by at least $200
million loss of value. Also, our farm income will be reduced by $200
million, and all that will percolate through the economy.
There is no legal crop known to man that can come close to giv-
ing the per acre revenue to our farmers. We talk about diversifica-
tion. We are diversifying, but there is no legal crop that can replace
tobacco that will survive in dry weather, that can be irrigated, and
it is something that we need, I think, to preserve.
We are now paying a tremendous amount of tax. I think tobacco
excise taxes are $47 per person for everybody in this country; $12
billion a year. More than alcohol or as much as alcohol. We have
a lot of farmers producing tobacco. We also have about three times
more people owning allotments, small widows, people paying the
tax, tax to their counties from their rent that they get, and this is
what will happen with this tax that is being discussed.
We are one of the few States that are still producing tobacco, but
tobacco was here, I believe, when Columbus came to this country,
and I think tobacco will probably be here forever. But some people
are trying to put it out of business by a regressive excise or sales
tax.
Also, we will lose manufacturing jobs, and these are the good
jobs: $40,000 a year jobs, $50,000. Sixty percent of these people are
female; 25 percent of them are minority. We are losing everything.
This county itself lost over 2,000 jobs to Mexico. After a while, we
will be riding around this country eating at fast food places, suing
each other, and I guess doping it up. It looks like that is all that
will be left because the good jobs are leaving, and here this is a
good section of our economy, the manufacturing jobs.
I would say in Raleigh, in 1991, we held the tax down on the to-
bacco. I lead that fight. And we added a couple of pennies. We have
5 cents in North Carolina. I think it is the second lowest in the
country. In 1993, the General Assembly passed a law that would
prohibit governments from outlawing smoking in public places. I
think that showed the legislative intent in North Carolina.
We have recently had two bills introduced this session, in retalia-
tion to what other States are doing about suing tobacco companies
for their medicare reimbursements. I do not think Congress meant
that when you put reimbursement in the statute. But one of these
proposed bills would allow our Attorney General, and these bills
are pending now, to sue these States for the unemployment insur-
ance that North Carolina might have to pay because of all the
manufacturing and farm jobs that we will lose. This is a very inter-
esting piece of legislation.
Also, this week Senator Sands introduced a bill that would kind
of get back at Florida and California. North Carolina would look
at the health problems with the citrus moving through North Caro-
lina, and perhaps Kentucky, to markets, and whether that should
be taxed. And these are bills, I think, that will open up the debate
and raise the level of debate.
I think what I would like to testify about is, not so much with
these experts, because I own about 6,000 pounds, I don't get very
much, but we have some people that really know about tobacco
here, so I would like to talk about what my people are telling me.
They think it is ridiculous. They think it is unfair.
I think that America used to be a land of the free and home of
the brave, and now they are thinking it is the land of regulation
and home of — I am not going to say too much more about that, but
we have a lot of other things that are killing a lot more people:
automobiles, gasoline, alcohol, drugs. If we were serious about the
problems of this country, we would stop the drugs coming in. We
could tell Colombia that they would stop the drugs in six months
or something is going to happen.
People have the perception that alcohol is protected by the big
guys; that drugs are protected, illegal drugs, are protected by the
big players. Ajnd the people think that the role of Government
should not be to destroy a legal product by the use of regulation
and taxation; that that is a wrong use of the power of taxation, to
curtail personal freedom. It is social engineering through taxation
and regulation. And I have fought against this. I think taxes have
to be in relation to what the whole value of that commodity is to
the country.
And I would like to just end up and say that we support your
efforts. We have not had a Speaker of the House in this State in
the Congress since, I believe it was Nathaniel Macon, who rep-
resented Wayne County in — ^Warren County, excuse me, in the
1820's, and I think, Congressman Rose, it would be a good time for
North Carolina. It has been 150 years since we have had a Speaker
of the House.
I would also like to end on another personal note. My grand-
father had the pleasure of representing the second district in Con-
gress and he was the author of the Kerr-Smith Tobacco Act in
1936. It was first declared unconstitutional. It was reenacted, and
this Act started the stabilization and the allotment program. I
think that has been very good. It has preserved the small farms,
8
and we want to preserve the small farms for the black and the
small farmers.
Tobacco has sent more people to college and preserved the small
farmer, and without tobacco you can believe that farm ownership
will end up in the hands of the very few. And I know that is one
of the things that this program has done, when tobacco was selling
for 5 or 8 cents a pound in 1936. And it has given a stability to
the market.
So, Mr. Chairman, I have a personal interest, and I believe we
also have some family ties between our families, and perhaps that
is why you and my Congressman are continuing this fight, and I
certainly will try to assist you in any way I can. I appreciate the
opportunity to make these remarks, and thank you for coming to
Goldsboro.
Mr. Rose. Thank you, Senator.
[The information appears at the conclusion of the hearing:]
Mr. Rose. We will ask if you all can stay until all the representa-
tives have spoken, we may have some questions for the panel.
Our next witness is the Honorable Charles McLawhom, member
of the North Carolina House of Representatives. Representative
McLawhom.
STATEMENT OF CHARLES McLAWHORN, NORTH CAROLINA
STATE REPRESENTATIVE
Mr. McLawhorn. Thank you, Mr. Chairman and Members, I ap-
preciate this opportunity.
My name is Charles L. McLawhorn, and I represent the Ninth
House District in the North Carolina General Assembly. This dis-
trict contains two colleges, two nursing schools, a medical school,
which is the pride of eastern North Carolina, and a hospital that
offers state-of-the-art medical services to the entire region that ex-
tends into four congressional districts.
But this same district also contains some of the most productive
farmland in America, and I speak for the thousands of people in
this district who depend on the tobacco crops to support their fami-
lies.
Tobacco farming is how my family earned its living for five gen-
erations. It furnished our groceries, it educated our children, and
paid for our medical care. And although I have retired from grow-
ing tobacco, we continue to depend on renting this allotment to to-
bacco farmers every year as a supplementary source of income.
Although North Carolina still leads the Nation in the production
of tobacco, I am one of the few members of the General Assembly
with a farming background. As far as I knew, Martin Lancaster is
the only Member of Congress who grew up on a tobacco farm. I
learned this morning Mr. Baesler. But one of the very few. So I en-
courage all of you to consider carefully what Congressman Lan-
caster has to say, not because of the nature of his constituency but
because of his personal experience, his intellect, and his solid per-
spective on the human cost of the proposed excise tax.
To the extent this excise tax influences individual choice, it is
true consumption will be discouraged. However, to me it is utterly
repulsive to employ a tax to prohibit or limit the choice of the indi-
vidual, particularly one of limited means, to use tobacco. Already,
tobacco is by far the most heavily taxed commodity in the market-
place. It is well-known that this consumer tax is disproportionately
paid by lower and middle-income tsixpayers, whose expenditures for
consumer products and the daily needs of life already consume a
large portion of their income.
The current Federal excise tax on a pack of cigarettes is 24 cents.
State excise taxes on cigarettes range from two-and-a-half cents to
51 cents per pack. The average State tax per pack is 26.7 cents.
The Federation of Tax Administrators, which is a national associa-
tion of State revenue officers, has estimated that the revenue loss
in North Carolina alone will be nearly $37 million over a five-year
period if the proposed tax is approved. From the viewpoint of State
and local government, this Federal excise tax will have a devastat-
ing effect in every jurisdiction.
Historically, tobacco has been a labor-intensive crop. For genera-
tions, entire families have learned the value of hard work in the
hot sun — black and white, young and old, rich and poor. In 200
years, tobacco has evolved from the position of a proud economic
cornerstone of the founding fathers to a whipping post of angry po-
litical activists.
In eastern North Carolina, many of us are still tied to that same
post. The proposed excise tax is arbitrary and capricious and cal-
culated to punish thousands of farm and manufacturing workers in
order to reward the millions of Americans who choose not to use
tobacco products. This is neither logical nor just.
It is not logical because tobacco is too heavily taxed in proportion
to all other goods produced in this country. It is not just because
it is regressive and it selectively applies to consumers who use a
product which is not illegal.
When the founding fathers met in Philadelphia to write the Con-
stitution that now binds us together, tobacco was the jewel in the
crown of American agriculture. It is true that the world is very dif-
ferent now, but the principles of good sense, compromise, and eq-
uity are nowhere to be found in this dog-eat-dog world of politicians
who continue to support ridiculous appropriations and are afraid to
support any tax that affects a large number of people — all for the
sake of reelection.
I ask you to stand up for the young American farmers who risk
everything on the production of a crop that is recognized through-
out the world as the best of its kind. I ask you to think about the
widow who depends on her small allotment check and who has lit-
tle else except the satisfaction of raising children who learned to
work hard for what they have. I ask you to search your conscience
and consult with your principles of fairness, and I thank you.
Mr. Rose. Thank you very much. Representative McLawhom.
Our third witness on this panel is the Honorable Bob Kornegay,
County Commissioner of Duplin County.
STATEMENT OF BOB KORNEGAY, COUNTY COMMISSIONER
Mr. Kornegay. Mr. Chairman, distinguished Members of the
committee, thank you for coming to eastern North Carolina. I am
here today as a member of the panel that will focus on the impact
of tobacco at the local level, and I will direct my comments to what
10
effect a significant tax would have on a local economy and local
government.
Mr. Chairman, I represent a rural area of northern Duplin Coun-
ty as a county commissioner. As a graduate of the College of Agri-
culture and Life Sciences at North Carolina State University, and
during my youth, I have always had a keen interest in two areas,
agriculture and Government.
I believe that our Grovemment, with as little intervention and red
tape as possible, should foster a strong and competitive farm econ-
omy. In my home county of Duplin, great strides have been made
in diversification, and we have benefitted from that effort. In 1993,
Duplin County had over a quarter of a billion dollars in gross farm
sales between swine and poultry. If you took all crops such as hay,
soybeans, sorghum, grains, com, cotton, and tobacco, your field
crops, we had a total gross income of $51.4 million. Of that $51.4
million, tobacco accounted for 68 percent of the total gross income
from field crops, or $35 million. This makes Duplin County the
twelfth largest tobacco producing county in the State. Tobacco has
a three to four multiplier effect on the local economy, so you can
see this crop is vital to Duplin County.
Some, who are not fully aware of tobacco's financial impact,
though, may miss some facts by just looking at these numbers.
Let's take a look behind some of these numbers and see what im-
pact a tax might have on this commodity and county.
Mr. Chairman, some of what I am about to say is speculative. It
is done so, though, after talking with local businesses, farmers and
citizens concerning the possibility of a significant tax which is
being considered by Congress.
In Duplin County, there are 1,540 farms that have tobacco allot-
ments. According to sources in the farm community, there are ap-
proximately 400 or fewer actual farmers farming tobacco today.
What that means is that there are approximately 1,000 farms that
receive rental income from their tobacco allotment. Mr. Chairman,
many of these rental incomes provide supplemental income that
make the difference between a simple life-style and poverty.
Rural counties such as Duplin have more elderly citizens, be-
cause many of our young citizens, the leaders of the future, leave
to go to urban areas. Because of this, rural counties face a higher
burden in payments to citizens with little or no income other than
social security. Clearly, in Duplin County, a significant reduction
in tobacco production would increase the cost to the county in so-
cial welfare payments.
Furthermore, many farmers grow field crops to better utilize
their facilities and land. Corn and soybeans do not make a lot of
money for farmers in Duplin County. If you took tobacco out of the
picture, many of these farmers would cease tending field crops be-
cause the money is just not there to justify continuing. Many farm-
ers who have depended on tobacco to pay for their farm equipment
would just simply have to give up because there is no way to make
the income from other field crops. Bankruptcy would become one
of the undesirable options available.
In addition, farm property is more valuable with a tobacco allot-
ment. If the number of acres in the program were reduced, that
would directly affect revenue to the county. Essentially, Mr. Chair-
11
man, we would have to raise our tax rates because Congress tar-
geted a specific commodity for excess taxation.
I understand that the U.S. Department of Agriculture has re-
cently estimated that there would be a 37 percent decrease in
quotas if the Congress enacted a 75 cent per pack tax. Mr. Chair-
man, if in fact that resulted in a 37 percent reduction in sales, it
would equal about $12 million in direct gross farm sale income to
farmers in Duplin County. In addition, when you figure the multi-
plier effect, you are tallang about a $36 to $48 million reduction
in economic activity.
Farm supply stores would see a reduction in sales of seed and
fertilizers, clothing stores would see a reduction in sales, and sig-
nificant pressures would be placed on our small businesses.
I am proud of the fact that Duplin County is prudent in its nian-
agement of tax revenues that we are responsible for administering.
It is difficult to carefully conserve resources and to do the progres-
sive things that are essential to bring progress. But we are making
progress. Building new schools and establishing new rural water
systems are helping to raise the quality of living in the county.
Mr. Chairman, in my county, a 1 cent increase in the ad valorem
tax generates $118,756. We have a total budget of $26 million, and
of that, $10 million was in property tax revenues. Other funds are
from sales taxes that are collected by the State and returned. If a
prohibitive tax is levied on tobacco, it is most likely that our sales
of tobacco products will be reduced, therefore, reducing our reve-
nue. It is likely a significant reduction in tobacco acreage grown
will occur and will reduce by $36 to $48 million spent in the local
economy.
In addition, some may be facing the loss of lease income because
of the tremendous reduction in acreage that will certainly affect
their income and place many at the poverty line. In essence, Mr.
Chairman, the proposals I am hearing from Washington on how to
finance the Federal health care plan will be devastating to Duplin
County financially and socially.
The citizens of southeastern North Carolina are hard working,
honest, decent people. To wreck their economy by trying to tax a
commodity out of existence is something that I just cannot under-
stand. I want to personally appeal to the Members of this commit-
tee and to other Members of Congress to very carefully look at
what you are about to do.
The figures of a $1.50, $2.00, 75 cents are all very frightening to
me as a citizen and farmer, but even more so as a county govern-
ment leader. The dramatic adverse effects of such an unsound pol-
icy will place my county in a very difficult financial position. Your
diligence and hard work to protect our heritage and way of life are
greatly appreciated.
Mr. Chairman, I have attached two short pages of additional
facts to copies of my testimony to be placed in the record. Again,
thank you for coming to listen and learn about our feelings on this
important issue. Thank you.
Mr. Rose. Thank you very much, Mr. Commissioner, for an ex-
cellent statement.
[The prepared statement of Mr. Komegay appears at the conclu-
sion of the hearing.]
12
And before we open the floor to questions of the panel, Mr.
Kornegay, in your last, next to last page of your statement, you
talk about wrecking the economy by taxing a commodity out of ex-
istence.
I think this is a good point for me to interject something that we
all learned yesterday in Washington; really, to hear it said officially
for the first time.
Many of us have thought, as you have expressed it here, that the
intent of the large cigarette tax was to tax a commodity out of ex-
istence. The President of the United States has rather
straightforwardly said that the tobacco tax is to be used to help pay
for the health care program.
Yesterday morning, 18 Democratic Congressmen, Congressman
Lancaster, Congressman Baesler, and myself, met for probably an
hour with Congressman Sam Gibbons, the new Acting Chairman of
the House Ways and Means Committee, and he told us that he had
put a 60 cent tobacco tax increase in his Chairman's draft, or
Chairman's mark of the bill, and that he had spread that out over
a number of years, and he wanted to know our reaction to it, and
we all unanimously told him it was not a good idea; that we could
not support that. I believe most all of us at this table certainly told
him that.
And then he said something that we had never really had said
publicly before, and he said, well, I am getting an awful lot of pres-
sure from the antismoking Members of Congress to raise this tax
to wipe out this industry.
Now, that is something unique. That is the first time the Chair-
man of the Ways and Means Committee has admitted publicly that
those who are seeking a higher tax are trying to wipe out the to-
bacco industry.
And so I would very respectfully call on my President, President
Clinton, to give us his assurances that he is not interested in tax-
ing tobacco in a way that will wipe out an industry, but in a way
that will be fair and equitable so that the tobacco industry could
pay a fair and equitable portion of the cost of health care. And we
believe in that very strongly.
And it remains to be seen what the final result will be, and I
plan to respectfully make such a request to the White House when
I get back to Washington. We just need a reassurance from our
President that his tax is what he has said it is and that is an effort
to help pay for the health care bill. If it is not that, the American
people need to know that. We need to know that. And something
else needs to be found as a source of taxation for the health care
program.
You do not raise taxes on a product that you have taxed out of
existence. So you are fooling the American people if you say we are
going to raise the money from cigarette taxes if you are going to
ruin the industry, run it out of business, you are not going to have
any taxes, so, then, what else are you going to tax to actually raise
the money?
I have talked too much. My colleagues, I will start with Mr.
Baesler, any questions of this panel?
Mr. Baesler. No, sir.
Mr. Rose. Mr. Kingston?
13
Mr. Kingston. No. I would just like to know the speech writers
for our panelists. They all had good presentations.
Mr. Rose. Mr. Lancaster?
Mr. Lancaster. No questions. I thank them as well for excellent
testimony. Thank you for coming.
Mr. Rose. Thank you all very much.
Our next panel, second panel, is Mr. Tom Parrish, Vice President
of Corporate Affairs, Monk-Austin International, Inc.; Honorable
Atlas Price, Seven Springs, North Carolina; Mr. T.C. Elks, Green-
ville, North Carolina.
If you all are here, if you will please come take your seats, we
will appreciate it.
Mr. Tom Parrish, we are happy to have you. We will call on you
now to give us your statement.
STATEMENT OF TOM PARRISH, VICE PRESIDENT, CORPORATE
AFFAIRS, MONK-AUSTIN INTERNATIONAL, INC.
Mr. Parrish. Mr. Chairman and Members of the subcommittee,
I thank you for inviting me to participate this morning in this
hearing on the matter of tobacco policy.
My employer, Monk-Austin International is an international leaf
dealer which sources flue cured and hurley tobacco from 15 tobacco
producing countries and sells to tobacco product manufacturers
around the world. We have offices and factories in Farmville and
Kinston, North Carolina, Lake City, South Carolina, and Green-
ville, Tennessee. Our global scope provides us with a valuable first-
hand international perspective on the U.S. tobacco situation.
We are convinced that our future growth is tied directly to the
increasing market for tobacco products in countries outside the
United States. Therefore, we must focus our corporate attention on
effectively supplying the needs of our customers here at home and
abroad. In my written statement, I make some comments on the
Tobacco Program and the challenges a lot of the growers are facing
at this point, and, I think, the decisions that they will have to
make, but I was asked to confine my comments to five minutes and
to specifically address the Interagency Task Force on Tobacco Ex-
ports and on the prohibition of Federal monies to promote tobacco
exports.
The Interagency Task Force on U.S. Tobacco Exports, cochaired
by the U.S. Trade Representative and the Secretary of Health and
Human Services, published a notice and request for public com-
ment in the Federal Register on May 2. As I understand it, the
task force is reviewing U.S. trade policy regarding U.S. tobacco ex-
ports for the purpose of making recommendations to the adminis-
tration for resolving perceived conflicts with U.S. health policy.
It appears to me that the antismoking lobby is merely using the
Department of Health and Human Services in an attempt to dic-
tate U.S. export policy with respect to tobacco and tobacco prod-
ucts. This manner of setting trade policy is both unprecedented
and, I think, misguided.
Furthermore, in the context of trade, the health issue is irrele-
vant, since many countries already grow tobacco and manufacture
tobacco products. More importantly, the export of U.S. tobacco has
87-351 0-95-2
14
an enormous positive economic impact on the U.S. tobacco industry
and the U.S. economy.
As I mentioned, my written statement has a lot of facts and fig-
ures and I know that when you are Hstening to those things it is
kind of hard to take them all in. But I do want to mention a few
facts, we are dealing with facts here, that well-illustrate the direct
contribution made by the U.S. tobacco industry and its exports.
In 1993, the United States exported leaf tobacco and tobacco
products valued at $5.6 billion. Even though the company I work
for is a large company, we are still real impressed with dollar fig-
ures that are measured in the billions. In 1993, U.S. tobacco trade
contributed more than $4 billion to the Nation's balance of trade.
In 1992, tobacco trade generated a surplus of $4.9 billion. By com-
parison, the total U.S. trade produced that year a deficit of $84.5
billion.
And on the matter of employment, in 1992, tobacco exports sup-
ported almost 300,000 jobs in the United States, which generated
approximately $7 billion in compensation and $2 billion in tax reve-
nue.
The export of tobacco is one of the few U.S. industries that pro-
duces a trade surplus with the principal trade regions of East Asia,
Europe, and the Middle East. I think these facts illustrate the
magnitude of the impact that tobacco exports have on all facets of
the U.S. economy, ranging from local employment to reducing the
U.S. trade deficit.
Earlier, Senator Kerr referred to an article that Representative
Lancaster had written for the Roll Call that was published on May
23. I, too, think it is an excellent statement of the situation. I
would like to read just one paragraph from Congressman Lan-
caster's article.
It says that "the export of tobacco products has long been one of
the few bright spots among U.S. export categories, ranking sixth
among only 31 positive trade balance categories. During 1992, to-
bacco exports totaled $4.85 billion. It is ironic that the U.S. Trade
Representative is involved in a task force that could substantially
increase our trade deficit with foreign nations."
I think you hit the nail right on the head.
The parties who will suffer from a curtailment of U.S. tobacco ex-
ports for health reasons will be American growers and exporters;
therefore, we strongly oppose any actions designed to restrict or
ban tobacco exports.
I would like to make a few comments about several things which
have been passed to prohibit the use of Federal monies to promote
tobacco exports:
The agricultural appropriations bill passed last term prohibits
the use of market promotion programs and cooperator foreign mar-
ket development funds to promote tobacco and prohibits the USDA
from paying salaries of personnel to promote tobacco exports. It is
our position that the U.S. Government should continue treating the
U.S. tobacco export trade as a very important part of the total U.S.
trading economy. Any effort to inhibit U.S. tobacco exports osten-
sibly to protect the health of citizens in other countries is mis-
guided.
15
Supplies of tobacco are readily available from many other coun-
tries that are successfully competing in the international market.
These competing countries will quickly fill gaps resulting from a
failure on our part to promote the export of U.S. tobacco. The Unit-
ed States Grovernment should pursue a nondiscriminatory export
policy which gives equal emphasis to promoting exports of all legal
U.S. commodities and manufactured goods.
It seems the position of the Federal Grovemment is that promot-
ing tobacco exports is tantamount to promoting smoking. We con-
tend this is not the case. There is a big difference between the two.
Penalizing U.S. growers by eliminating tobacco export promotion
programs will in no way affect the use of tobacco products in other
countries.
Elimination of export promotion programs for tobacco will do ir-
reparable harm to American efforts to penetrate the emerging mar-
kets in the former Soviet bloc nations and elsewhere.
The importance of market openings in recent years should not be
overlooked. U.S. growers and exporters have benefitted by the
opening of markets in Japan, Thailand, and Taiwan, and others.
We are disturbed by a recent article by Hobart Rowen which ap-
peared in The Washington Post on Thursday, June 9. Mr. Rowen
stated that, and I quote, "According to congressional sources, the
Clinton administration has decided — but has not yet announced —
that it won't pursue Section 301 punitive trade actions against our
trading partners who restrict access to their cigarette markets."
It is unfair and unwise to single out tobacco for exclusion from
market promotion programs in view of the tremendous contribution
that the industry makes to our economy and to our Government.
Again, the parties who suffer by a failure to promote U.S. tobacco
exports will be American tobacco growers, manufacturers, and ex-
porters.
We at Monk-Austin are committed to doing our part to ensure a
positive future for the U.S. tobacco trade, and we look forward to
working with this subcommittee and all other segments of the U.S.
tobacco industry to make necessary changes. Thank you.
Mr. Rose. Thank you very much, Tom Parrish.
[The prepared statement of Mr. Parrish appears at the conclu-
sion of the hearing.]
Mr. Rose. The Honorable Atlas Price, Seven Springs, North
Carolina.
STATEMENT OF ATLAS PRICE
Mr. Price. Thank you. Mr. Chairman, Members of the commit-
tee, I sincerely appreciate the opportunity to speak to you today as
a member of the tobacco community, and I want to begin by thank-
ing you for taking time out of your hectic schedule to hear first-
hand the concerns of tobacco farmers and warehouse operators.
I have been involved with tobacco since high school and for many
years I have been associated with the Carolina Tobacco Warehouse
in Goldsboro.
Mr. Chairman, quite frankly, tobacco means money for Goldsboro
and eastern North Carolina. Wayne County is the center of the
largest producing area in the Nation. In 1993, Wa3me County had
1,693 farms involved in tobacco. The six adjoining counties had the
16
following: Duplin, 1,540; Green, 945; Johnston, 2,478; Lenior,
1,276; Sampson, 1,550; and Wilson county, 1,356.
Mr. Chairman, that totals almost 11,000 farms, which represents
30 percent of all the farms involved in tobacco in the State of North
Carolina and it is 25 percent of the total base acreage of flue-cured
tobacco allotments in the entire State. So in essence, Mr. Chair-
man, if you drew a circle with a 50-mile radius of the site of this
hearing this morning, you would encompass 25 percent of all of the
tobacco, flue-cured tobacco grown in the State and 30 percent of the
farms.
Obviously, the goal of any tobacco warehouseman is to attract
farmers to designate your warehouse to sell his or her tobacco.
Within the 50-mile radius that I have described, Mr. Chairman, is
where businessmen such as myself and my associates on the Golds-
boro tobacco market must compete. There is a limited amount of
tobacco grown. When the farmer makes his decision to market with
a specific warehouse, that is when a warehouseman lives or dies.
The more tobacco that comes to a market, the more help we have
to hire to move the product through the system. I estimate that the
Goldsboro tobacco market provides approximately — and Mr. Chair-
man, I would like to make a correction for the record here — ap-
proximately, it says 200 and that should be 500 to 600 seasonal po-
sitions which fosters economic growth in our community. And of
course, the proceeds from the tobacco sales provide us with millions
of dollars of profit for our farmers who pay for their local farm sup-
ply dealers for seed and fertilizer. What remains is the profit that
our farmers use to pay their mortgage, buy their trucks and cars,
and feed, clothe, and educate their families.
This brings me to a subject of great concern and that is the mis-
guided desire of many Members of Congress to excessively tax to-
bacco.
As the Members of the committee are aware, a large increase in
the Federal cigarette excise tax has been mentioned frequently as
an option for financing new health care spending. As a tobacco
warehouseman, I am gravely concerned that increased taxes will
reduce demand and therefore reduce income for warehouses. That
will in turn require fewer employees, less payroll taxes will be
paid, and the net result will be a reduction in taxable proceeds to
both State and local governments as well as the Federal Govern-
ment.
In addition to being involved with tobacco warehouse business,
I have served as an elected official, county commissioner, in Wayne
County. I know that budgets are tight and the net effect of an un-
reasonable tax on tobacco would be bad for local and State govern-
ment.
It is estimated by the Federation of Tax Administrators, who
were responding to an inquiry from the Treasury Department, that
local and State governments would lose $4.2 billion in tax revenues
if a 75 cent a pack tax were implemented.
Mr. Chairman, it is slight of hand for the Federal Government
to take actions to address their problems and at the same time
cripple the States and small communities throughout the Nation.
The Federation of Tax Administrators' report concludes by noting
that States are concerned that the magnitude of the proposed Fed-
17
eral increase will have a substantial crowding effect; it is so large
relative to the price of cigarettes that it will make it difficult for
States to increase their tax rates.
In North Carolina alone, Mr. Chairman, which is considered a
low tax State when it comes to tobacco, it would cost the State
nearly a quarter of a billion dollars over the next five years.
In closing, I want to ask that the Members of the committee con-
tinue to work diligently on behalf of the tobacco farmers and to-
bacco industry. I am proud to work in tobacco. It is and has been
for more than 200 years an honorable and decent way for North
Carolina citizens to earn a living. I am hopeful that as the debate
continues that the Members of the committee will continue to edu-
cate their colleagues about the nature of the tobacco economy and
the good things it has brought to our community. State, and region.
Your efforts to eliminate or reduce the proposed tax is appre-
ciated and if the warehousemen of this area can be of assistance
to you and Members of your committee in educating your col-
leagues about this issue, please call on us.
That is it, Mr. Chairman, and thank you, sir.
Mr. Rose. Thank you, sir, very much.
Any questions from the panel? Mr. Baesler.
Mr. Baesler. Yes. If I can, Mr. Chairman, I won't take too much
time but somebody just struck a chord with me here.
Mr. Parrish, in your stated remarks I agree pretty much with
what you said, but in your written remarks, I have got some ques-
tions. You suggest in your written remarks that the producer is
going to have to think about lowering the price in order to be com-
petitive in the world. Is that correct?
Mr. Parrish. That is correct.
Mr. Baesler. Do you have any price in mind that you think we
are going to have to reduce considering the fact, particularly in the
hurley world we reduced almost 30 something cents in 1985. Do
you have any price in mind you think we are going to have to re-
duce to?
What concerns me very candidly is I personally believe that the
imports are the number one threat that we have, not the tax, al-
though that is a problem. And in your written remarks you talked
a great deal about the fact that unless the producers, both flue-
cured and hurley, would agree to lower the price, we are going to
see a decreasing portion of the world market come to us.
What bothers me about that is that from 1990 we have seen an
increase of — I am speaking mostly of hurley, some of flue-cured.
Exports may be increased to 30 million pounds from 1990 to 1993
on a three year average. But we have seen imports increase almost
240 pounds, hurley alone.
I am having a problem here because I think from the company's
perspective and from the exporter's perspective what you are sug-
gesting to the producers whom I represent is that unless we either
have less leased cost or lower production cost, we are going to have
to recognize we are going to have to take a whole lot less for our
product.
Maybe I am missing something, but I don't know how it is going
to happen to the producer. Maybe the folks here in the flue-cured
18
can figure out how to cut 30 or 40 cents out of their production.
I know I can't. I doubt if this fellow can.
You speak here of the lease price, to cut the lease price. Let me
give you a few statistics. I happen to have a survey of 4,000 hurley
farmers talking about leasing. Most of them would agree that they
would lower the price to, in our respect, to $1.82, or 70 percent of
them said they wouldn't mind keeping a constant price to keep a
constant quota. But what we are not seeing here is the commit-
ment on the part of the companies to be able to keep a constant
quota. You are an exporter more than an importer so you are not
the one I should be talking to about a lot of this.
Mr. Parrish. We export and import.
Mr. Baesler. You talk about lease. In your written remarks, you
said we have got to lower the lease costs, the lease has been in-
flated. For your information, our people, concerning lease — I will
give you a little statistical information about why the lease bothers
me. Forty to 30 percent of my people say they want to keep the
current leasing program. Four percent only say do away with the
current program which means obviously that lease is a major por-
tion of tobacco production.
Reducing the allowable lease from 30 to 15,000 pounds in our
section to 17 percent, the only point I want to make is producers
aren't going to buy this lease — this idea we are going to save pro-
duction by doing something with lease programs.
What is your suggestion here? The idea to say we are going to
have to lower our prices sounds wonderful, but I can't figure out
where we are going to make it up.
Mr. Parrish. Okay. As I said, we are convinced that the growth
is in the international marketplace. In other words, in countries
outside the United States consumption is growing, not declining as
it is here. And if you agree with that premise, what we are trying
to do is figure out how to sell tobacco to those people to fill their
needs.
I will tell you that we have the majority of our business, the ma-
jority of our revenues are derived from the sale of U.S. tobacco and
the majority of our assets are here in this country. So we are com-
mitted to a continued strong U.S. tobacco situation. But to sell to-
bacco to manufacturers overseas, price is of increasing importance
to them. And there are a lot of things that go into the price of U.S.
tobacco and I tried to reference a number of those.
Yes, the lease rates, the marketing costs, there are assessments,
there are administrative costs and compliance costs. All of these
things go to making U.S. tobacco the most expensive tobacco in the
world. There is no one sector of the industry that can reduce or
bear the whole reduction in cost that I think is necessary to be
more competitive. We are all called upon, as I state in my remarks,
that is Government, growers, warehousemen, and dealers, we all
need to work to reduce our costs.
This week we were speaking with one of our major European
customers and they pointed out to us that with the increased no
net cost assessment, and of course with the budget deficit assess-
ment, that their planned purchases this year will cost $600,000
more than they did last year. And they maintain that they are will-
ing to pay for tobacco — seed and the labor that goes into it and the
19
fertilizer — they are willing to pay a premium price for U.S. tobacco.
But they do balk at having to pay what they consider to be ex-
penses for which they receive no value.
And I think that on the real high lease rates, on the high assess-
ments, they just don't see that they are getting any value for that.
And as one of them candidly said to us about the budget deficit as-
sessment, "Why should we have to contribute to reducing your
budget by paying this fee on every pound of tobacco that we buy?
We are already paying a fee on every pound of tobacco we buy to
make sure that there is no cost of this program to the U.S. Govern-
ment." It is hard for us to answer those questions.
So I don't know what the perfect price would be to make U.S. to-
bacco more competitive, but it has got to be lower than what it is.
I do know this, that customers worldwide are willing to pay a pre-
mium price for what they consider is a premium product, and that
is U.S. tobacco. But we all have to address ways in which we can
cut back costs so that the sum total will be enough to bring price
back to something that is more competitive.
I know in our company we are doing a lot of things, a lot of
things that hurt, to cut back on our expenses. We are trying to in-
crease our throughputs so we can be more efficient, and all of these
things will work together to lower the cost of U.S. tobacco to make
it more competitive.
Mr. Baesler. I reckon my concern, and I am sure you know this,
we did the buyout way back there. The price dropped 30 cents. We
gave up $90 million we accumulated. Now we find ourselves back
in the same circumstance with a very high pool level which con-
cerned me considerably when buyers said, ironically, that they are
going to send 240 million pounds of hurley to the pool but they im-
ported 240 million pounds to replace it. That makes me suspicious
and not too happy representing the producer.
But what you have said you don't — and I think you are truthful
about that you cannot come up with what you think the price is
going to be. Our people will not take 30 cents less. They will have
a big revolt if somebody tells them they have to take $1.50 less. I
don't know about these folks, but we are paying $1.00, $1.10 trying
to pay the minimum without the lease cost.
So I am real concerned about your comments because I don't see
the export market increasing as much as I see the domestic market
decreasing. What is happening is the domestic market is going like
this, zoom, right now from our perspective and we are a little wor-
ried. I am more worried about your importing problem more than
I am the tax. So I hope we are going to get out from all of this
sometime this year.
Mr. Parrish. Our company neither grows tobacco nor manufac-
turers a product. We try to put the grower and manufacturer to-
gether and price is of increasing importance to the customers that
we deal with. I am just trying to relay that message.
Mr. Baesler. Thank you.
Mr. Rose. All right. Thank you. Any other questions for the
panel?
Mr. Lancaster. I have a question for Mr. Parrish. Do we have
enough information yet with the ending of the use of the Market
20
Promotion Program to see what its impact is going to have on ex-
ports?
Mr. Parrish. It might be a little early to assess that impact be-
cause the former Soviet bloc countries are only beginning to open
and they are not opening as quickly as we had thought. They are
strapped for cash and therefore they can barely afford to buy any
kind of tobacco from any source.
So I think it is a little early to really feel the impact of cutting
back or to prohibit use of those programs, but I think those mar-
kets will open and that they will be big markets.
The former Soviet bloc accounts for 700 billion pieces a year and
in several of those countries people just plain can't get enough ciga-
rettes. So there is a tremendous, tremendous demand, but their
economies are in such disarray at this point that they are not able
to look at U.S. tobacco. But I think they will sometime in the fu-
ture and that is the reason it would be nice to have those programs
available when we need them.
Mr. Lancaster. Thank you very much again for your testimony.
Mr. Rose. Thank you all for your testimony and we will excuse
you now.
The next panel, Mr. Dean Rouse, producer, Seven Springs; Jerry
West, producer from Fremont; Mr. Robert Halstead, producer from
Ayden.
While these witnesses are taking their seat, I would like to con-
tinue reading from here, this is an actual copy of the final rules
and regulations with regard to the domestic content law that we
put in the budget that was passed last year.
It was published on Wednesday, June 1, 1994. I don't know if
there are any particular — let's see what it says here.
Those provisions generally require domestic manufacturers of
cigarettes to pay certain additional assessments that make certain
tobacco purchases differ if for any calendar year, beginning with
the 1994 calendar year, domestic tobacco constitutes less than 75
percent of the total tobacco used by the manufacturer to produce
cigarettes in the United States.
Now, there is a member of the Department of Agriculture here
that I would like for him to stand up so you can see, Doug Richard-
son. Doug, thank you for being here.
Congressman Charlie Hatcher has been nominated to be the per-
son in charge of the tobacco and peanuts, I believe, tobacco and
peanuts within the Department of Agriculture. It is a senior posi-
tion and he has to be confirmed by the Senate.
But while he is awaiting that, we are very lucky that Doug Rich-
ardson was in that position. I knew Doug when we both started to-
gether in the early 1970s. He is now the acting head of this depart-
ment in Washington, but when I first came to Congress in 1972,
he was in charge of the county ASCS office in Cumberland County,
my hometown.
This is not going to stand GATT, it appears, but what we have
put in its place, what will be put in its place is an Article 28 proce-
dure that it will establish an import quota for the amount of to-
bacco that can be brought into this country, just like there is an
import quota for sugar coming into this country, dairy products
21
coming into this country, and peanut products coming into this
country.
There is a little hole in the peanut one right now that we are
trying to fill but the others are — it is GATT legal to have the Arti-
cle 28 program when the imports threaten the Domestic Price Con-
trol Program.
So that is in place. It applies to 1994, and we know it is a fairly
rough piece of law. The lawyers at USDA have now told us that
they do not think it will withstand a GATT challenge. That chal-
lenge is ongoing right now. Rufus Yerxa, who is the Deputy U.S.
Treasury Representative, has worked with our committee, our sub-
committee. All the tobacco Members of Congress and the White
House and Senator Ford from Kentucky — Senator Ford is really
the person we have to thank for shaking this thing loose at the
White House to get the White House to tell Agriculture to go ahead
and put in place some kind of an import quota system under the
authority of Article 28.
I thought you would like to know that. The man that got our do-
mestic content regulations out is Doug. If Doug hadn't been as for-
tified as he is, people could have made these regulations drag on
and drag on and drag on for years. But they were done within the
first five months of 1994, and Doug, we are grateful to you for help-
ing shepherd that.
Our last panel is as announced and our first witness is a pro-
ducer from Seven Springs, Mr. Dean Rouse.
STATEMENT OF DEAN ROUSE, PRODUCER
Mr. Rouse. Thank you, Mr. Chairman, and distinguished Mem-
bers of the subcommittee. I appreciate the opportunity to address
the issue today of the environmental tobacco smoke commonly re-
ferred to as secondhand smoke and ETS.
The tobacco industry has been a target for condemnation and rid-
icule since the late 1500s. However, not since the beginning of
widespread public smoking, documented in the 16th Century, has
there been such political attempts to prohibit use of tobacco prod-
ucts or control citizen's personal life-styles by regulations. Floods of
campaigns are raging throughout our great country to regulate or
prohibit any tobacco usage by a free, democratic society. These
campaigns include unrealistic tax increases on all tobacco products,
and a good example is the 10,417 percent proposed increase on
smokeless tobacco in the Clinton health plan.
In addition, the Food and Drug Administration wants to control
tobacco products because of nicotine in tobacco. Ironically, nicotine
can be found in such common vegetables as tomatoes, potatoes,
eggplant, cauliflower, broccoli, and peppers. One hundred grams of
nicotine, the normal amount contained in a dish of eggplant par-
mesan, would be the equivalent to 30 hours in a room filled with
smoke. Yet, FDA Commissioner, Dr. David Kessler, in a letter to
Scott Ballin of the Coalition on Smoking or Health dated February
25 accused cigarette manufacturers of spiking their products with
nicotine and the need to regulate such products by the FDA. If this
be the case, will they need to regulate french fries also, or is this
just another gimmick to attack the tobacco family? Proof that no
22
nicotine manipulation has occurred may be found in the temporal
tar and nicotine data from the 1950s to the 1990s.
It is sad but it is true how the citizens of this great country are
being led down the primrose path by small groups with personal
agenda, just because they do not do something someone else is
doing. Our rights guaranteed by the Constitution of this Nation are
being eroded every day.
While these antitobacco campaigns continue in torrents, none are
more severe and damaging than the Environmental Protection
Agency's classification of environmental tobacco smoke, ETS, as a
Class A carcinogen. Ms. Carol Browner, EPA Administrator, has
stood behind the EPA ETS risk assessment study labeling second-
hand smoke as a Class A carcinogen. The EPA has established a
set of rules and guidelines based solely on questionable scientific
merit. Of the 30 published studies on lung cancer associated with
exposure to ETS used by the EPA, 54 of them originally reported
risk estimates that did not reach overall statistical significance.
The six studies that did report a relationship were done in a for-
eign country and contained several flaws, including a failure to
adequately account for diet and other life-styles. Only 11 U.S.
spousal smoking studies were used in EPA's meta-analysis, none of
which reported as published an overall statistically scientific asso-
ciation.
EPA did not include the results of one of the largest and most
recent studies on lung cancer in nonsmokers conducted by the Na-
tional Cancer Institute, which reported no increased risk from ex-
posure to ETS. Ms. Browner's predecessor, Mr. William Reilly, stat-
ed in a Safeguarding the Future report prepared by a panel con-
vened by the EPA that science should never be adjusted to fit pol-
icy. Yet a perception exists that EPA lacks adequate safeguards to
prevent this from occurring.
The present position of Ms. Browner and EPA undermines the
responsibility of other Government agencies like the Occupational
Safety and Health Administration, which has jurisdiction over
worker health and safety, and clearly misleads the public opinion
and sentiment towards the true scientific facts pertaining to ETS.
Because of the ETS risk assessment report and continual media at-
tacks by outspoken congressional leaders like Congressman Henry
Waxman, we are seeing a ripple effect of smoking bans throughout
the country based solely on the ETS study.
Furthermore, the continued pressure of the antitobacco industry
has penetrated the core of programs like the USDA's Foreign Agri-
cultural Service's Market Promotion Program, commonly known as
MPP, which Congress recently reduced from $200 million in 1992
to $147 million in 1993. And of these funds, tobacco's share of these
funds were completely eliminated.
Tobacco is also being denied access to other export assistance
programs through GSM 102 and 103 Credit Program and intel-
ligence reports on our global competitors. This program, imple-
mented by Tobacco Associates, has helped to open markets for
American tobacco. Clearly, the future for our tobacco lies in exports
and the reduction of the USDA financial support is critical to to-
bacco production in the U.S.
23
As a seventh generation tobacco grower, I am concerned about
my future in the tobacco industry and the future of my neighbor.
We are under attack by our own Government agencies and leader-
ship to increase tobacco taxes, regulate tobacco through the FDA,
and prohibit tobacco usage in public. It is an insult to the American
farmer, the tobacco industry, and the 50 million plus smokers who
use our products and contribute so much to our economy that we
would be singled out with the ultimate goal of prohibition clearly
evident.
Mr. Chairman and Members of the panel, I have two rec-
ommendations for your consideration. We need your help in getting
the true scientific facts as they pertain to the ETS to the Members
of Congress and Senate. We would ask that your subcommittee pro-
vide a complete report to both the House and Senate Members for
their reference on ETS. And we strongly need your help in restor-
ing tobacco programs like the USDA Market Promotion Funds for
tobacco growers.
Since the formation of our Nation, revenue from tobacco has
touched almost every aspect of human life: religion, educations, ag-
ricultural advancement, politics, and arts. Tobacco revenue has
helped build schools, paid for road construction, building of local
hospitals, community centers, and I could go on and on. In many
areas where tobacco is produced, the entire community prosperity
is related to the success of the tobacco crop.
Right now we are all very much aware of all the awareness cam-
paigns that are done every year by various organizations, by var-
ious companies and whatever. I am pleased to announce to you
that on Thursday, June 8, there was the first tobacco symbol ever
placed on a public vehicle in Lenior County in Kinston by the Sher-
iff's Department. They have placed this symbol in support of to-
bacco and the way of life that it provides for the people in North
Carolina on their car. Fifty symbols were given to them, and I
would like to recognize Sheriff Billy Smith with leadership and
support in taking this stand, and want to encourage other tobacco
leaders and the other leaders in North Carolina and throughout
the United States to join in this effort.
My challenge to you today is simply to be proud of our heritage,
to be strong in our convictions, and unite as a tobacco family to
challenge the initiatives of the social engineers that want to tear
down every fabric that have made this country great.
Thank you very much.
Mr. Rose. Thank you very much.
Mr. Jerry West, producer from Fremont.
STATEMENT OF JERRY WEST, PRODUCER
Mr. West. Mr. Chairman, and distinguished committee men,
welcome to Wayne County. And thank you for the opportunity to
address the Members of this subcommittee on the Tobacco Price
Support Program, its importance to tobacco farmers, and the possi-
bilities of diversification to enable farmers to sustain the possible
decline in tobacco production.
Since its implementation, the Tobacco Price Support Program
has maintained stability of both price and supply in the production
of tobacco. Because of the success of the Tobacco Program, farmers
24
have been able to maintain adequate incomes to their families. To-
bacco has been the very life's blood for many families since the be-
ginning of this great country, and continues to be for many of us.
Thomas Jefferson once said, "I like the dreams of the future bet-
ter than the history of the past." But because of the unfair tax
threats and attacks by antismoking zealots, the future holds a
great deal of uncertainty for tobacco farmers. If there are any
bright spots in the future, they must certainly be found in the ex-
port market. Tobacco will be grown and consumed throughout the
world with growth being found in the developing countries. So why
not grow and manufacture it here in the United States, with U.S.
farmers and U.S. workers?
Some growers have concerns about adjustments that will be nec-
essary to compete in a world market. And may I point out that
these concerns are real. However, I feel the consequences of not
competing will be far greater than the consequences of competing.
Earlier in the year, Surgeon General Elders stated that tobacco
farmers must diversify to other crops, but upon being questioned
as to what other crops she had in mind, she failed to give a direct,
reasonable answer. She has suggested that some drugs such as
marijuana should be legalized. Perhaps eastern North Carolina
farmers should consider diversification into that crop.
Tobacco farmers are probably already the most diversified farm-
ers in the country. Not only do we produce tobacco, we also grow
a variety of vegetables — cotton, corn, soybeans, wheat, oats,
canola — and a large variety of livestock. A change to other crops
would come very slowly because of markets, demand, and availabil-
ity of land.
Some of the crops we produce now are not profitable and increas-
ing the production of the others would result in the demise of prof-
its for them. If it were not for tobacco, farmers would have to dou-
ble or triple their land base, therefore displacing at least one-half
of their fellow farmers. We are not being unreasonable or reluctant
to change. However, because of obvious reasons, we must remain
adamant to the fact that tobacco cannot be replaced without severe
consequences.
On a recent trip to Raleigh, North Carolina, Secretary Espy stat-
ed that this administration will be committed to the Tobacco Pro-
gram. So, Mr. Chairman, I ask that we all be committed to the To-
bacco Program, to do whatever is necessary to maintain current or
increased levels of production, to protect jobs on all levels, and to
treat this legal, revenue-producing crop with just cause.
Tobacco farmers are willing to do their fair share, but the propos-
als that are currently being considered are completely unfounded.
I feel that it is only fair that tobacco farmers be allowed to con-
tinue to produce tobacco for domestic and export markets. How-
ever, I feel that we should take advantage of any arising opportuni-
ties of both diversification and increased production of currently
produced crops.
Gentlemen, I ask today that when you leave here that you will
take notice of this well-cultivated crop on the north side of this in-
stitution. I think it speaks for itself that we here in North Carolina
have pride in tobacco. We have this pride because it supports such
things as this beautiful institution, which I am a proud graduate
25
of, the magnificent hospital right down the road, and many, many
more things.
I am proud to be a fifth generation tobacco farmer. And I ask you
for your help and cooperation in allowing my sons to continue that
tradition.
Thank you.
Mr. Rose. Thank you very much.
Mr. Robert Halstead, producer from Ayden.
STATEMENT OF ROBERT HALSTEAD, PRODUCER
Mr. Halstead. Thank you, Mr. Chairman and committee Mem-
bers. I am a producer from Pitt County. We are the largest flue-
cured producing county. And I am going to give — my remarks are
going to be from the producers in my area and other producers in
the county. I don't have any written statements to furnish you. My
remarks will be brief.
The producers of flue-cured tobacco of Pitt County have a real
concern about fairness. We sit around the country store a lot in the
mornings. We talk about, you know, fairness. Farmers and produc-
ers love to be able to pay their equal payment, share. We want to
pay our part. But do not ask us to pay for a health care plan that
supposedly some people say tobacco causes the most of our health
care problems.
I don't know about anybody else, but I don't think the doctors in
Pitt County are any different than they are an3rwhere else. We all
have to visit doctors, physicians once in a while. A report in last
Saturday's Daily Reflector from Greenville says if you eat more
than 12 hot dogs a month, you are subject to having a brain tumor,
especially in children.
Same questions: What about eggs? Cholesterol. What about pork?
High blood pressure. What about beef? What about alcohol? I have
never seen a wreck caused by someone smoking a cigarette. Any-
thing that we as humans use and use in excess will harm our bod-
ies, tobacco included.
Another concern that I have, and I am glad, Mr. Chairman, that
you brought this up because we sit around and we discuss it. We
just can't understand taxing a product to pay for a health care pro-
gram in hopes that we can do away with this product, putting a
large Federal excise tax on tobacco to pay for most of the health
care plan. Then on the other hand, think about it, if you get the
tax and tobacco goes out, where will you get the money to continue
this health care plan?
So I want to leave with you from the producers all around, all
we ask, be fair. We will help pay our part.
Thank you.
Mr. Rose. Thank you very much.
I thank all the members of the panel. I would observe that Jerry
West is the outgoing president of the North Carolina Tobacco
Growers Association. We thank you for your comments.
Mr. Lancaster. Indeed Mr. West, thank you very much.
Mr. Rose. Questions, Mr. Baesler?
Mr. Baesler. I would like to ask — ^you are all producers and I
would like to ask you something you heard in the previous testi-
26
mony concerning — from the gentleman talking about being able to
compete in a foreign market, we would have to lower our prices.
I don't know what your average expected this year is for flue-
cured. I know what it is for hurley. I would like to ask each one
of you three questions: First, understanding that would you sup-
port leaving — would you support reducing the price in order to be
more competitive in export and, if so, how much? Mr. Rouse?
You heard the previous testimony that I am talking about, this
crucial issue both in hurley and in flue-cured.
Mr. Rouse. Yes, sir, I heard it. Congressman, I don't see how we,
at the current time, how we can reduce the price. I have heard this
theory before, that if you reduce the price on the markets that it
will be more competitive on the world market, but at the same
time, somebody has got to take a loss and where is that loss going
to occur? In the lease or in the — at the present time, we can't take
anything less. If we do, it is going to dramatically affect our way
of life.
Mr. Baesler. Do the rest of you agree with that? Mr. West?
Mr. West. Yes, sir, I do. The one thing that bothers me is if price
wasn't a factor and if it wasn't important, then we wouldn't have
the problem with imports that we have got today.
You know, I have not got all of the answers and I can't tell you
how much, if any, decrease in price support would help our situa-
tion, but at the same time I am afraid if we keep traveling down
the same road we are traveling, it is going to lead to our demise,
so I think — Mr. Baesler, I don't think this is a question that any
one particular person can answer. But I think we have got to be
ever mindful of working together with Congressman Rose and Con-
gressman Lancaster and you people to monitor the situation and
to stay — always stay aware of what is going on and be willing to
listen to ideas and suggestions in the event that we see that we
must make that change.
Mr. Baesler. Mr. Halstead.
Mr. Halstead. Yes, I will agree. But the producer cannot take
all of this production price. It has got to be an effort of all bases —
chemicals, fertilizers — all of us have got to do our part.
Mr. Baesler. You can still carry over what you didn't sell this
year to next year. One of our questions we ask is — particularly, we
find next year our allotment is going to be like 60 million pounds
because of the carryover, and the question we ask them is that we
are allowed to carry over all the poundage that we do not sell the
previous year.
Would you support gradually limiting the amounts you could
carry over of the basic quota to 20 percent the first year, 15 percent
the second year, and 10 percent the third year?
To tell how our people feel, about 50-50 say they would or they
wouldn't. In the flue-cured country, how important is the carryover
issue?
Mr. Rouse. Congressman, there again, Mr. West, I think he indi-
cated there has to be a united effort on behalf of everyone to make
that decision and I don't feel that me personally can justify answer-
ing that without more facts and looking at it more closely.
Mr. Baesler. I didn't expect you to answer for all the flue-cured
growers in the world.
27
Mr. Rouse. Yes, sir. I meant me personally.
Mr. Baesler. Mr. West.
Mr. West. Congressman, I feel like the answer to that problem
is to get production in line with quotas or poundage. I feel like we
are operating on a scale that was set 20 years ago or so and we
are able to produce more pounds of tobacco per acre now than we
were then. So I think that the problem should be addressed by get-
ting the allotments more in line with true production.
Mr. Baesler. Mr. Halstead?
Mr. Halstead. I agree. There is some work, supposedly, already
some talk in ASCS about getting some adjustments made because
we have some farms that do have a mighty load of poundage and
we should get that poundage up to where or what we can produce
today on an average year and this will take care of a lot of the car-
ryover problem.
Mr. Baesler. I have one more question and then I have to go
home.
On the lease program, are either of you in favor of any changes
in the lease program, and if so, what? I don't know exactly what
yours is. I think it is probably similar to ours.
Mr. West. Yes, sir.
Mr. Baesler. I will start with Mr. Halstead.
Mr. Halstead. I am scared to suggest changing anything. I
think the lease program we have now is doing fine and it is work-
ing for us.
Mr. Baesler. What are your limitations on your lease?
Mr. Halstead. You have to produce it on the farm.
Mr. Baesler. You have got a different situation than we do. You
have to rent the farm, so to speak. We lease the poundage off the
farm. It comes to us.
Thank you all very much. I am sorry, Mr. Chairman.
Mr. Rose. Mr. Kingston.
Mr. Kingston. Mr. Rouse, you said tomatoes, potatoes, and egg-
plants all have nicotine in them. Now, if that is the case, why
aren't people addicted to them if the nicotine is in there?
Mr. Rouse. I don't know why they are not addicted to them. I
guess it is because of the lower amounts in them, but when they
use them on a regular basis, I agree with you, there should be
some addiction there.
Mr. Kingston. If you have any access to any information like
that, it would be, I think, useful for us, because I think what you
are really saying here is do we need to regulate french fries and
so forth.
I think that is where we need to get people to realize, that to-
bacco is the product of today that the social engineers are after, but
tomorrow it will be french fries and then it will be hot dogs and
then it will be whatever. And, you know, this is social engineering.
These are the people who want your 16 year olds to have condoms
in their pockets and not cigarettes, and so that is what we are talk-
ing about here.
But another question on nicotine, in foreign-produced cigarettes,
they do not have the regulations that domestic cigarettes have in
terms of content, correct?
Mr. Rouse, That is correct.
28
Mr. Kingston. So it would make sense that they would make
their cigarettes more addictive, because if it is true that the higher
nicotine you have in it, then you are going to buy the French ciga-
rette versus the American imported cigarette, and if you were liv-
ing in Paris, you are going to buy the cigarette that satisfies your
addiction more, correct?
Mr. Rouse. I agree.
Mr. Kingston. Have we ever studied the nicotine content in for-
eign cigarette versus the domestically produced cigarette and the
consumption because of that nicotine level? Because if we did, I
think that in terms of the allegations that American producers are
messing with the nicotine levels, there would be a track record to
say how does a American cigarette do in Paris compared to a
French cigarette. And, you know, maybe that is something we
should look into. And if you have any comment on that?
Mr. Rouse. Well, on the first one, yes, sir, we would be glad to
provide you with that information. The information I had provided
to this panel today was based solely on some research that we have
done in the last three weeks and we compiled it. We would be glad
to provide you with our resources and how we got it.
Mr. Kingston. I would think that the committee who would say
that the American tobacco companies would put higher nicotine
levels would be remiss in their duties if they weren't also looking
at what foreign countries who are less regulated are doing with
their nicotine.
Mr. West, you talked about farmers doing something else. As I
have talked to people about the situation with tobacco and they
say, well, they ought to just start producing soybeans and you kind
of give them a lesson in economics and they understand, but let's
say that the Tobacco Program was eliminated completely, what
would be the second choice crop? And what I tell folks is the second
choice crop is to move to the city and learn a new trade completely,
but is there anything out there that is a close second choice eco-
nomically?
Mr. West. Congressman, I am also a cotton producer. And I
guess if I had to pick anything as a second choice, it would be cot-
ton. But as I said in my statement, we would have to increase our
land basis to such an extent that it would certainly drive half of
us out of business or more. It is just not — there is just nothing
available at this time.
Mr. Kingston. In the State legislature, I served on the Ways and
Means Committee and an acre of tobacco we always said produced
about $2,000 in tax revenues on a State and local level. An acre
of soybeans is more like $200.
Do you have any numbers like that?
Mr. West. I think right now on an acre of tobacco. State and
Federal taxes is something like $65,000. Each time I load my truck,
and this is another point I would like to make, each time I load
my truck to go to market, I am carrying a quarter of a million dol-
lars in State and Federal taxes. So it looks to me like that instead
of condemning us, the Government would send Brinks trucks out
there to my farm to carry this tobacco to market.
Mr. Kingston. Do you have any number in comparison for cotton
or for corn or soybeans?
29
Mr. West. My computer won't go that low, I will be honest with
you, and I am not — I am being quite honest. It just — it compares
no way to tobacco.
Mr. Kingston. Okay. Thank you.
Mr. Rose. I thank the panel very much. We will excuse you now
and we will have a few questions from the floor.
Before we do that, I want to ask Sam McLaughlin to come up
and if he will briefly read the statement of the Commissioner of
Agriculture, James Graham.
All of the additional people who are going to make a comment
need to fill out a witness card and print carefully your name and
address so we can have that made a part of the record.
There are a couple of points I was going to make. Cotton is heav-
ily subsidized. There is no subsidy in tobacco. Wheat and corn are
heavily subsidized. If a grain dealer buys his com for $2 and
change a bushel, the Government pays him roughly another $1.
So our friends from the Midwest who have trouble joining hands
with us in agriculture need to remember that the day of reckoning
is going to come for them on all agriculture subsidies. We are not
asking for a subsidy. We are asking merely for permission to keep
the program going.
I would like to just share with you a couple of points in the Fed-
eral Register from the rulemaking on domestic content. Now, I tell
you this was a rather drastic step that we took last year to get the
attention of everybody with regard to imports and it is not a long-
term solution. We are facing something else.
I agree with what the witnesses have said as they expressed
their concerns about the future. You can hear how Mr. Baesler re-
acts to that because of the situation in Kentucky. But we need to
figure out a way to sit down with our tobacco manufacturers and
cigarette manufacturers and our leaf dealer friends and determine
a way to guarantee the farmer a steady quota right on out for an-
other 10 years at least.
But let me, in this Executive Order, in this rulemaking, effect
date January 1, 1994, it says: This rule is issued in conformance
with Executive Order so-and-so. The final rule has been deter-
mined to be economically significant, therefore a final regulatory
impact analysis has been conducted. A copy of the final regulatory
impact statement may be obtained from Dr. Robert Miller in ASCS.
You all may remember his initial report. We have explained the
problem to him since then. And he has made some changes. It ap-
pears such as this:
The increase in the use of domestic tobacco is expected to draw
down current loan stocks of hurley and flue-cured tobacco by 159
million pounds in marketing year 1994. Consequently, the CCC
loan outlays for tobacco for the 1994 marketing year is estimated
to be about $320 million less. These actions should in subsequent
years reduce the amount of no net cost Tobacco Program assess-
ments made by producers and purchasers of domestic hurley and
flue-cured tobacco. Additionally, with the domestic market assess-
ment in place, about 1,000 farms may remain in operation over the
next six years that would otherwise go out of business. That doesn't
sound like bad news to me.
30
And then it says, if manufacturers shift cigarette production to
foreign-based operations and there is a reduction of U.S. unmanu-
factured exports, a matter of 10,300 jobs could be lost. However,
the largest domestic manufacturer of cigarettes has testified before
this subcommittee that it will not shift any cigarette production
overseas as a result of the domestic marketing assessment.
The impact statement indicated little effect on the consumer
prices of cigarettes because tobacco accounts for only 3 percent of
the retail cost of cigarettes, okay.
Mr. Sam McLawhom is a senior member of the North Carolina
Board of Agriculture. And he is here today to read us the state-
ment from James Graham, our commissioner, who would have been
here except for a schedule conflict.
Mr. McLawhom.
STATEMENT OF SAM McLAWHORN, SENIOR MEMBER, NORTH
CAROLINA BOARD OF AGRICULTURE
Mr. McLawhorn. Mr. Chairman, Members of the panel, distin-
guished Members of the panel, it is a great honor for me to be here
to speak before you and represent the Commissioner of Agriculture
of the great State of North Carolina, the Honorable James A. Gra-
ham. He is at his grandson's graduation.
Grentlemen, I have not prepared a statement. What I have to say
to you comes directly from my heart. I do not have a speech writer.
I am 70 years old. I am a sixth generation of tobacco farmers in
eastern North Carolina here. My ancestors all before me were to-
bacco farmers. They were before the Civil War and after, up till the
present day. Now, I'm handling the tobacco situation there.
I say to you tobacco has played a more important role in the his-
tory of this great Nation than any farm product you can find any-
place in the country. From the time Paul Revere made that famous
ride from Concord to the Old North Church to hang the lantern up
there, up to the present date, it has built many more churches, hos-
pitals, businesses and lives.
Tobacco has played an important role in all the battles that this
country ever fought. That includes the other day when we went
over to Normandy and we looked at that this week on television.
The great educators have used tobacco products. Thomas Jefferson
was a farmer in Virginia. He grew tobacco.
The educational end, all the decisions that were made in great
wars were made in a room with the people using tobacco. There
was tobacco smoke in that room. They planned great battles and
such — ^the Normandy invasion, the war in the Pacific, and the other
battles. Tobacco has played a part in everything in this country. It
has meant everjdhing. It is the economy of the South. Without to-
bacco, the economy would be bad, would be terrible in this country
here.
Now, in my opinion, you can go to any prison in the United
States and walk that prison and 98 to 99 percent of the prisoners
are there because of drugs and alcohol. The crimes they committed
were done under the influence of drugs and alcohol. But you find
me the first one in a prison that is there because he smoked a pack
of cigarettes.
31
I have been smoking ever since I was about 10 years old. In fact,
I used to swipe a pack from my dad. I still smoke king-size Ches-
terfields. I can't smoke them in here because of the blamed sign
there on the door that says no smoking. I tell you what, that is
wrong. The tobacco industry is being treated — well, I will go ahead
and say it — like a bastard child, to tell you the truth.
Now, you fellows are doing a great job up in Washington, and I
am tickled to death with the tobacco program as we have known
it for the last few years and to date. I am satisfied with it, because
I remember back when I was a little boy, I went to the warehouse
with my father and we brought back loads of tobacco we could not
even get a bid on. It was just as fine as ever been grown in this
country. And the tobacco industry, under the present setup, is
doing great. Doing good.
Now, as far as I am concerned, I am going to put my trust and
my faith in you gentlemen, like you all, there in Washington. Do
the best you can is all I can ask of you. We were doing all right
till that woman broke out in the White House one day and said
something about a $2 a pack tax on cigarettes and that kind of tore
up the situation.
Now, I am going to tell you there are two things that tobacco will
do to you; if we lose this tobacco program and we lose the tobacco,
it is going to cause two things. We are going to lose our economy
in this country and we are going to lose some of the best Democrats
that were ever born in the United States right here in the South.
I was born a Democrat and I am going to be buried as a Democrat.
Mr. Rose. Well, Sam, I want to interrupt you here and caution
you that we really cannot take any partisan statements here, but
we are glad to have your comments, and thank you very much. And
Mr. Graham's statement will be made a part of the record.
[The prepared statement of Mr. Graham appears at the conclu-
sion of the hearing:]
Mr. McLawhorn. Let me say one other word.
Mr. Rose. The gentleman is recognized for one minute.
Mr. McLawhorn. Senator Sam Irving said, I read it sometime,
that the Constitution should be taken just like Mountain Whiskey,
undiluted and untaxed, and I am saying that North Carolina to-
bacco should be taken just like the produce and the citrus out of
Florida and California, taken undiluted and untaxed. Thank you.
Mr. Rose. Thank you, sir, very much.
We would request that you fill out a witness card, such as you
have in your hand, and at this time we are going to take the micro-
phone and we have a few people that wanted to make a very brief
comment for the record. And I would call on our friends to come
forward and identify yourself for the record and make a brief com-
ment.
STATEMENT OF LARRY WOOTEN, NORTH CAROLINA FARM
BUREAU
Mr. WoOTEN. Mr. Chairman and Members of the committee, my
name is Larry Wooten and I am on the staff of the North Carolina
Farm Bureau. I appreciate your presence here today. Your pres-
ence here indicates the interest that you have in tobacco, and I can
32
assure you that tobacco is of primary importance to every individ-
ual in this audience this morning.
I think one thing we may have overlooked, I would like to pub-
licly thank the entire North Carolina congressional delegation, and
the congressional delegation from the other southeastern States
where tobacco is grown, for your unwavering support of this most
important crop, and for your unwavering efforts in our fight
against this excessive tobacco excise tax. While I am sure none of
us endorse any increase, we appreciate your efforts and your will-
ingness to fight to hold this excise tax as low as possible.
I think, as Congressman Rose mentioned a few minutes ago, one
issue that is of paramount importance to our growers is the stabil-
ity of our quota over the next 4, 5, or even 10 years, and I would
like to report to you this morning. Congressman, that we are pres-
ently contacting our growing leaders in our counties and getting
their input as to what reasonable and acceptable quota level should
be for the long term, and we look forward to working with you in
this effort.
Finally, I would like to ask the Members of the committee for
your continued assistance in helping us restore funding for the Ox-
ford Tobacco Research Station in Oxford, North Carolina. The re-
search that goes on in this research facility in Oxford is of immense
importance to the entire tobacco industry, the manufacturers as
well as the growers. Much of the germ plasm of our tobacco vari-
eties is housed here and much of the research that goes on in the
storage of tobacco is of particular importance to our stabilization
corporation.
Thank you, very much.
Mr. Rose. Thank you very much, Larry Wooten, and for the work
that the Farm Bureau does, especially in its tobacco committee and
its board of directors and the people that you have here who are
part of the Farm Bureau organization.
You brought up a very important point and I am going to ask
Congressman Lancaster to comment on something you just said.
Mr. Lancaster. Larry, I am very pleased to tell you that this
week Congressman Bill Hefner of North Carolina has been able to
work out with Dick Durbin, who chairs the House Agriculture Ap-
propriations Subcommittee, and, unfortunately, is a real enemy of
tobacco, a way that the research facility at Osdord can be salvaged.
It will be offered by Congressman Hefner as an amendment to the
appropriations bill, I understand, when it comes before the full
committee of appropriations, and it is, in fact, we believe, a very
good compromise.
It is not what we wanted, but it is going to keep that important
research facility going.
Mr. Wooten. Thank you very much. That is good news.
Mr. Rose. Are there other people who wish to make a very brief
statement to USDA?
If so, come forward and identify yourself, but we must insist that
it be just a very few minutes, and we would ask that the subject
matter be limited to tobacco, please.
33
STATEMENT OF THOMAS K. DREW
Mr. Drew. Good afternoon, gentlemen. My name is Thomas K.
Drew. I am a farmer from Goldsboro, Wayne County. In the spirit
of George Washington Carver, and recognizing tobacco as the high-
est complex protein found in a plant food, and that we have only
begun to grow the tobacco that needs to be grown, as a farmer pro-
ducing tobacco for protein rather than nicotine, will I be bound by
the quota allotment system and will my product be taxed more
than Florida citrus or California tomatoes?
Mr. Rose. My understanding is that if you want to grow tobacco
for protein, and, Doug, you correct me if I am wrong, you can grow
all the tobacco you want, you just do not get support price unless
it is grown under the quota. Is that correct, Doug?
Mr. Richardson. You cannot market it. That is where you get
in trouble.
Mr. Rose. The witness has stated that you cannot market it.
Mr. Richardson. But, in all honesty, I am not sure.
Mr. Rose. We will have to check. He says in all honesty he is
not sure. I will check on that for you.
If you have one other statement or question you would like to
make, go ahead.
Mr. Drew. There are two questions. Will it be limited by the al-
lotment system, which had really created the situation where now
that allotment has established stabilized production but desta-
bilized any future development of a product?
And then the other question is, they are taxing tobacco, either
smoking, dipping or chewing tobacco, but I am not sure chewing to-
bacco gets taxed. Will this product, being a tobacco product, be
taxed as well?
Mr. Rose. Well, I would say to you, if you have a product that
is made out of tobacco for protein use in it, and you contact us on
this subcommittee, we would be happy to see you got the kind of
protection that you ask for.
Mr. Drew. This is something I heard 25 years ago; that they had
developed a hog feed out of tobacco that the hogs preferred over the
regular feed, and one thing you want to get a lean hog, it seems
it to me, would be the preferred feed. And I understand that all the
research, I hear, is either coming out of California, Florida, or
somewhere else, and here we are a tobacco producing State and I
hear no research of that sort coming from our learning institutions.
Mr. Rose. All right. Thank you very much.
Any other comments?
STATEMENT OF RICHARD MOORE, STATE REPRESENTATIVE
FOR THE STATE OF NORTH CAROUNA
Mr. Moore. Gentleman, good morning. I am Richard Moore. I
currently represent six counties in the North Carolina House. It is
my hope that I will join you two in Washington next January as
the Democratic nominee currently for the Second District of North
Carolina.
First of all, I would like to thank you for the job that you are
doing. I think many of us here in this room know the odds that we
are up against. I was glad to hear some good news, as a native of
Oxford and the sixth generation of my family to farm and live in
34
Granville County. I am glad to hear the research station will be
kept open.
It is my hope that more hearings like this can be had in this area
and it would be great if we could actually get a Californian to show
their face at one of these hearings. Thank you.
Mr. Rose. Thank you very much.
If you will sign one of our cards we will put that also in the
record, and we probably need to go over near Oxford and do this
also, Mr. Moore, so you let us know.
Thank you all very much.
Any other comments by the panel? If not, this hearing is ad-
journed.
[Whereupon, at 11:10 a.m., the subcommittee was adjourned.]
35
statement of
Congressman H. Martin Lancaster
before the
House Subcommittee on Speciedty
Crops and Natural Resoiirces
Mr. Chairman, I thank you for convening this important field hearing of the
House Subcommittee on Specialty Crops and Natural Resources to discuss
current federal proposals as they relate to tobacco. As you know, the Clinton
Administration and several anti-tobacco zealots in Congress have repeatedly and
unmercifully attacked tobacco throughout the 103rd session of Congress.
Unfortunately the zealots have the upper hand in framing the debate. Today, we
add a new element to the debate as we will hear fi-om three panels of North
Carolina witnesses who have first hand knowledge of the Impact that many of the
suggested federal actions relating to tobacco would have here in North Carolina.
Tobacco has played a proud role in North Carolina's history since before
Christopher Columbus set foot In the "new world". It is said that when Columbus
did arrive, native Americans were involved in the production of tobacco and used
tobacco in many of the same ways as we do today. More than a century later,
tobacco production was so profitable in the colony of Jamestown that it was used
interchangeably with money.
36
Severed of the vehicles In the parking lot this morning have a bumper sticker
which reads "Tobacco Pays My pills". We ought to make two more bumper
stickers: 'Tobacco pays North Carolina's bills" and 'Tobacco pays the bills of the
United States of America. It has paid for the education of many North
Carolinians. Two of the finest private universities in the nation. Duke and Wake
Forest, were built with tobacco money. Tobacco money supports the North
Carolina Symphony and many other philanthropic efforts. Of course, let us not
overlook the $5.7 billion in federal revenue generated by tobacco excise taxes.
Having grown up on a tobacco farm and having rented a tobacco allotment from
my father to pay my way through college, I have much respect and admiration for
the farmers in the audience today. Most work from dawn until dusk during the
coldest days of winter and the hottest days of summer to support their families.
Tobacco doesn't provide an extravagant lifestyle, but it provides enough income
for many families to survive on the farms.
Some in Congress have suggested that tobacco farmers should diversify. Mr.
Chairman, North Carolina farmers are already among the most diversified farmers
In the world. Many are currently engaged In the production of cotton, com.
wheat, soybeans, vegetables and livestock. Further diversification may be
possible, but I know of no legal crop with can be produced on the 80 or so acres
of cropland on the average farm which will sustain a farm family.
Mr. Chairman, I look forward to the testimony we will hear today and look forward
to returning to Washington so we can share the thoughts of these witnesses with
37
our other colleagues. We have a real battle on our hands. Fifteen or twenty years
ago, tobacco could count on the votes of the entire House delegation from
Maryland, the entire delegation from Virginia, and most of the Members of
Florida. These states were stalwart defenders of tobacco. Now, most of Florida
votes against tobacco, most of Maryland votes against us, Tennessee splits Its
vote. Even in Virginia, the home of a huge Philip Morris plant, we can no longer
count on the whole House delegation.
I recite the sobering facts not to discourage our audience, but simply lay out the
poUtlcal realities tobacco faces In Washington, 1 can assure everyone that 1 am
not discouraged and will go back to the Nation's Capitol re-lnvlgorated by the
citizens at today's hearing. Tobacco's opponents may hope that I will tire of
speaking out for my people. Their hope If folly. Rest assured, 1 vrfll continue to
speak out for tobacco, for eastern North Carolina day and night, at every hearing,
and during every debate.
38
)^<L(l.K
North Carolina Taxpayers United'
Fact Sheet
Clinton Proposal to Raise Cigarette Taxes
The Clinton Administration has proposed a 313 percent increase in the Federal Excise
Tax (FET) on a pack of cigarettes from 24 cents to nearly a dollar. They say the additional tax
revenues will be used to help pay for the Clinton Health Care Plan.
Such a tax is unfair; it falls heaviest on those least able to pay; it will sacrifice jobs and
eliminate billions of dollars in workers' paychecks; and it singles out one consumer product to
bear an undue burden. But most of all it won't produce the tax revenues that have been
projected.
The FET on tobacco, if enacted, will burden manufacturers, farmers, distributors,
retailers, and the more than 50 million Americans who choose to smoke. The FET will provide
great satisfaction to the anti-tobacco zealots who would like nothing better than to destroy the
tobacco industry. But this misguided tax will hurt all Americans. As Chief Justice John
Marshall wrote nearly two centuries ago, "The power to tax involves the power to destroy. "
The respected accounting firm. Price Waterhouse, analyzed the effects of a $1 a pack
FET. Here is what they found:
• 388,000 jobs would be lost;
• $11 billion in paychecks would disappear;
• 2.3 million American jobs would be negatively impacted.
What Happens When the Projected FET Revenues don't Materialize?
A 75-cent FET increase is estimated to reduce cigarette sales by 12 percent. When
projected FET revenues decline, and they surely will, other taxes will have to be imposed to
make up the shortfall. Why mislead the American people into thinking that revenues will be
produced when in fact they won't?
And what about the effect of a 75-cent FET on state excise tax revenues? All 50 states
impose excise taxes on cigarettes to support education, social and other programs. A huge
Increase in the FET will substantially reduce state tax revenues. A report to the U.S.
Department of Treasury by the Federation of Tax Administrators indicates that a 75-cent
increase in the FET will reduce state excise revenues by 14 percent or $875 million. How will
they make up that decline? The obvious answer is to raise other taxes to make up the shortfall.
39
Tax Fairness?
We don't believe the government should raise any taxes. Americans are already
overburdened. But if taxes to support health care are levied, they should, in fairness, be
shouldered equally by all, and not borne by 50 million people who choose to use tobacco
products.
Consider the fact that more than 136,000 small family farmers in 16 states rely on their
tobacco crop for a substantial part of their income. They too will bear an unfair burden if this
regressive and punitive tax is allowed to pass.
Hurt, too, are convenience stores and other retail outlets which derive a substantial
percentage of their sales revenue from cigarettes.
The Critical Question
A January 26th, Toronto Globe and Mail story points out that a consumer revolt against
high excise taxes has resulted in contraband sales, now accounting for three-fourths of the
Canadian tobacco market. In effect, otherwise law-abiding citizens are forced into buying
smuggled cigarettes because sky-high excise taxes place the product out of reach.
It is important to ask our elected officials why we are getting ready to raise taxes on
cigarettes to an unreasonable level when our neighbors in Canada have tried it, found it doesn't
work and are getting ready to repeal them.
The proposed FET increase is unfair, won't produce expected tax revenue, and will result
in lost jobs and income for hundreds of thousands of workers. Our government is about to make
a colossal blunder. You don 't have to be a smoker to see this as a misguided policy thai won 't
work.
If your senators or representative in congress supports the FET increase, you should ask
them to explain why.
* North Carolina Taxpayers United (NCTU) is a citizen-supported group based in
Raleigh, North Carolina dedicated to tax equity and fairness.
North Carolina Taxpayers United (NCTU)
3901 Barrett Drive, Suite 100
Raleigh, North Carolina 27609
Tel. (919) 571-1441
40
CAU
CAPITOL
HILL
VOL 39, NO 86
MONDAY. MAY 23. 1994
$250
In Defense of Tobacco Growers
North Carolina Rep. Martin Lancaster on Why Tobacco Farmers and Smoi<ers Shouldn't
Be Turned Into Criminals Just Because of the Way 'They Choose to Live Their Lives'
B\ Rfp. Marlin Lancaster
When you cnict a terrain supermarket in
Nunhwesi Washinpion. yuu are greeted by a
wamiMj; Mgn polled nn the door nght nexi to
ihe one ihal k-IK yon [h;\\ shoplillers will be
|)fUNeciiietl
rhi> one telN you ihal some products in
ihe store toniain saccharm and repeats the
saccharin warning label "LUe of (his proJ-
Tobacco has played a
significant role in the
history of America, a
role I am reminded of
each time I see the
tobacco leaves that
adorn many of the
columns in the Capitol.
iici may be lia/aidoiis lo your heallh I his
[iruducl Loniains sacchann which has Iven
iletcritiined lo tause cuicer in laboraiory am -
mals."
Ihcreari- nihereiil dangers thai can he as-
so,.iaieil ujili ilie excessive use ol' ini>Ni
|iri)diKis in Ihal store Ii is appropnaie ili.n
we be aware of the risks ot excessive use oi
any product, \^'helher ihe product conianis
saccharin, lal. su}:ar artilicial preservanvcs
;ind coloring, idcohul, or iodjcco
tluwever. all Americans have a nght lo
i.lu'vjse and lo make llieir own decisions
•iboul ilie risks the> lake and how ihey use a
parucuUrprodu^L
Bui when 11 comes to tobacco, there seems
tu be a concerted ellort to deny 10 ihnse in
tlic industry the right to do business, whether
they are larmers, agribusiness owners, work-
ers, or manufacturers
Tobacco ha:> played a significant role m
the history of Amenca. a role I am reminded
of each time 1 see the tobacco leaves that
adorn many of the columns in the Capitol
When Cfinstopher Columbus arrived on this
continent, he found native Americans usmg
tobacco in many of the same ways it is used
today.
About a century later, tobacco production
became so profitable in the colony of
Jamestown that cured tobacco leaves were
used interchangeably with nwney After the
use of tobacco became popular ihrought the
world, generations of harworicing farm fami-
lies depended on tobacco to support them-
selves.
[dependence on tobacco production is a
fact of life that continues on many farms in
the Southeast The typical Nonh Carolina
farm consists of about 100 acres of cropland,
if tobacco is grown on the farm, federal re-
strictions on tobacco pioductiuii hniii
acreage to 15 percent or ie.s ot tf>e available
cropland With virtually year-round, back-
breaking work, a lobacco farmer and his or
her employees can generate income suffi-
cient to sustain their lamilies
It would be next to impossible for many of
these families to burvive on their fanns if lo-
bacco revenues were lost Some Members of
Congfi-ss h.ive suggested otherwise, tecoiii
mending ihal larmeis diversify inlo other
crops, using a portion of the proposed puni-
live tax on tobacco products to help them
conven to the production of some other
commodity.
This notion has been rejected by mosi or-
ganizations of tobacco growers, They real-
vic, just as I do, that at best, such funds
would provide only a short-term paiLKe.i
Rep Martin Lancaster (D-NC) is a memtwr of
the Small Business Committee.
"Dependence on lobacco production is a
in the Southeast," writes Rep. Lancaster,
With such small acreage, these farms can
never support a family growing any other le-
gal crop
The fanners I represent are already among
the most diversified of all farmers They pro-
duce a variety of field crops, including cot-
ton, wheat, com. soybeans, cucumbers, pep-
pers, and sweet potatoes Unfonunately. an
acre of any of diese aops generaies less than
one-third of the profit realized from an acre
of tobacco.
Research has been ongoing for years to
identify another crop that could sustain
farmers in the Southeast, but to date, no legal
crop that I am aware of has been identified
that generates revenues sufficient to sustain
must l;unily ifflfiers with stnall acreages-
The same is true for ihe manufacturing
sector Workers m cigarette inanutaciuring
phinis iue the highest paid indiisuial workers
in Amenca They average %22 50 per hour,
or $4l).()()0 a year without ovenime
Thesejobsareall iniheSouih The work
force IS f)0 percent women and 25 percent
Atritaii-Amenciui There arc no Lotiip;u;>ble
jobs available tor iIksc people — perhaps no
jobs at all — if these planii shutdown.
Anti-tobacco groups are obviously not
concerned about the econonnc impact of
their numerous suggestions More than
25U.0tX) US woricer^ would be displaced as a
result of the Administration's proposed 75-
cenl increase m the cigarette excise tax and
the 10.417 percent increase in the tax on
some smokeless lobacco products
By singling out tobacco products for a con-
fiscatory tax. the Administration hits con-
Phou} by Laura Panenon
fact of life that continues on many farms
. Above, tobacco Tields in [hjrham, N.C.
vinced many nonsmoker^ that health care re-
form can be achieved without any taxes other
than taxes ihey propose on tobacco products
As one economist stated, accepung such
an assumption is equivalent to "building on
quicksand." Revenues resultuig from a large
increase in the tobacco tax will ultimately
dwindle.
The Interagency Task Force on US To-
bacco Exports, co-chaired by the US Trade
Representative and the Secretary of Health
and Human Services, is considenng estab-
Anti-tobacco groups are
obviously not concerned
about the economic
impact of their
suggestions. More than
250,000 US workers
would be displaced
as a result of the
A dm in is tra tion 's
proposed tobacco
tax increases.
lishing trade policies thai account for heallh
concerns expressed by HHS relating to the
useof tobacco.
The simple formation of such a task force
will likely result in artificial trade barriers
being placed on US exports of lobacco in an
effort 10 test the US's fortitude (0 enforce in-
temationid trade agreements
The export of tobacco products has long
been one of the few bnght spots among US
export caiegones. ranking sixth among only
31 positive trade balance caiegones Dunng
I'M):, tobacco exports tot. lied $4 S5 billion
It IS ironic that the USTR is involved in a
lask force that could substantially increase
our trade deficit with foreign nations
The Department of lab*"!! is pursuing reg-
ulatory efforts that will likely be consistent
with the provisions of H R 3434. the
Smoke-Free Environment Act of 1993.
which attempts 10 improve the air qu;ilit> in
all buildings by banning smoking in ever>
building regularly entered by ten or inoie
people ai least once a week, exempting only
residential portions of buildings If success-
ful, the result will likely be an almost com-
plete smoking biin.
Investigations of so-called "sick build-
ings" by private compiinies anti by ihc Na-
tional Institute for Occupational Safety .ind
Health suggest thai ihe major cause 01 em-
ployee complaints is not any single pollut;ini
but inadequate ventilation that allows a num-
ber of indoor pollutants lo accumulate
Some of my colleagues on the Energy and
Comnwrce subcommniee on health and the
envitonmenl are also working in concert
with the Food and Drug Administration in
the hope of finding a justification for chi^si-
fying tobacco products as drugs
Originally. FDA Commissioner David
Kessler alleged that new evidence was
available that indicated lobacco companies
were spiking the levels of nicotine in tobac-
co. The allegations are supposedly based on
"new" infomiaiion ihai cigarette companies
are able to control nicoiine levels in ciga-
rettes .
Kessler's "new" evidence is centered
around 33 of ihe more than 26.000 patents
held by the cigarette manufacturers Tliese
33 patents could be used to alter rucoune lev-
els. Kessler had no evidertce that any of the
patents are being used and. in fact, a subse-
quent heanng revealed that none of the
patents had ever been used to increase ruco-
Dne levels in cigarettes.
Clearly the fact that low-tar and low-nico-
tine tvands have been in the marketplace for
many years suggests that nicotine in finished
cigarettes is less than that which occurs natu-
rally in the cured lobacco leaf.
Both Congress and (he Labor Department
are responding to the anti-smoking zealots
and are seriously considering measures that
would prohibit smoking almost everywhere
but in private homes. The Inleragncy Task
Force appears to be on a course to damage
the iracte balance by reducing tobacco ex-
ports. The FDA, with the help and encour-
agement of some of my colleagues, is threat-
ening to regulate lobacco as a "drug."
Though 1 am not a chemist itisbmtally
obvious tome ihat a tremendous difference
exists between those who use legal lobacco
products and those whose only concern is
how to obtain theirnexi fix of an illegal drug
Our prisons are not currently overflowing
because of cigarette addicts who steal, rob.
injure, and kill in order 10 obtain their next
fix.
Tobacco growers arc law-abiding citizens
who take umbrage at being associaiul with
the likes of the Colombian drug cartels.
Through regulatory and legislative actions.
the Administration and some Members ol
Congress would now turn tobacco growers
and smokers into criminals just because Ihey
choose to live their lives in a manner other
ihan the way some in the government think
they should.
Such efforts are wrong; this is not the way
we do things in this country I and many of
my colleagues will oppose such efforts
41
Remarks by Robert B. Kornegay
County Commissioner
Duplin County, North Carolina
June 11, 1994
Mr. Chairman, distinguished members of the Committee, thank you for
coming to Eastern North Carolina. I am here today as a member of this
panel that will focus on the impact of tobacco at the local level and I will
direct my comments to what effect a significant tax would have on the local
economy and local government.
Mr. Chairman, I represent a rural area of northern Duplin County as a
County Commissioner. As a graduate of the College of Agriculture and Life
Sciences at N C State University and during my youth, I have always had a
keen interest in two areas, agriculture and government.
I believe that our government, with as iitte intervention and red tape
as possible, should foster a strong and competitive farm economy. In my
home county of Duplin, great strides have been made in diversification and
42
we have benefitted from that effort. In 1993 Duplin County had over a
quarter of a billion dollars in gross farm sales between swine and poultry.
If you took all crops such as hay, soybeans, sorghum, grains, corn, cotton
and tobacco, your field crops, we had a total gross income of 51.4 million
dollars. Of that 51.4 million dollars, tobacco accounted for 68% of the total
gross income from field crops, or 35 million dollars. This makes Duplin
Cbunty the 12th largest tobacco producing county in the State. Tobacco
has a 3 to 4 multiplier effect on the local economy so you can see that this
crop is vital to Duplin County
Some, who are not fully aware of tobacco's financial impact though
may miss some facts by just looking at these numbers. Let's take a look
behind some of these numbers and see what impact a tax might have on
this commodity and the County.
Mr. Chairman, some of what I am to say is speculative. It is done so
though after talking with local businesses, farmers and citizens concerning
the possibility of a significant tax which is being considered by Congress.
43
In Duplin County there are 1,540 farms that have tobacco allotments,
according to sources in the farm community, there are approximately 400
or fewer actual farmers farming tobacco today. What that means is that
there are approximately 1,000 farms that receive rental income from their
tobacco allotment. Mr. Chairman, many of these rental Incomes provide the
supplemental Income that make the difference between a simple life style
and poverty.
Rural counties such as Duplin County have more elderly citizens
because many of our young citizens, the leaders of the future, leave to go
to urban areas. Because of this, rural counties face a higher burden in
payments to citizens with little or no income other than Social Security.
Clearly, in Duplin County, a significant reduction in tobacco production
would increase the cost to the county in social welfare payments.
Furthermore, many farmer's grow field crops to better utilize their
facilities and land. Corn and soybeans don't make a lot of money for
farmers in Duplin County, if you took tobacco out of the picture, many of
I
44
these same farmers would cease tending field crops because the money is
just not there to justify continuing. Many farmers, who have depended on
tobacco to pay for their farm equipment would just simply have to give up
because there is no other way to make the income from other field crops.
Bankruptcy would become one of the undesirable options available.
In addition, farm property is more valuable with a tobacco allotment.
If the number of acres in the program were reduced that would directly
effect revenue to the county. Essentially, Mr. Chairman, we would have to
raise our tax rates because Congress targeted a specific commodity for
excessive taxation.
I understand that USDA has recently estimated that there would be a
37% decrease in quotas if the Congress enacted a 75 cent per pack tax. Mr.
Chairman, if in fact that resulted in a 37 percent reduction in sales it would
equal about $ 12 million dollars in direct gross farm income to the farmer
in Duplin County. In addition, when you figure in the multiplier effect you
are talking about a 36 to 48 million dollar reduction in economic activity.
45
Farm supply stores would see a reduction in sales of seed and fertilizers,
clothing stores would see a reduction in sales, and significant pressures
would be placed on our small businesses.
I am proud of the fact that Duplin County is prudent in its management
of the tax revenues that we are responsible for administering. It is difficult
to carefully conserve resources and do the progressive things that are
essential to bring progress. But we are making progress. Building new
schools and establishing new rural water systems are helping to raise the
quality of living in my county.
Mr. Chairman, in my county a 1 cent increase In the Ad Valorem tax
generates 118,756 dollars. We have a total budget of 26 million and of that
10 million was in property tax revenues. Other funds are from sales taxes
that are collected by the state and returned. If a prohibitive tax is levied on
tobacco, it is most likely that our sales of tobacco products will be reduced
there for reducing our revenue, it is likely that a significant reduction In
tobacco acreage grown will occur which will reduce by 36 to 48 million
46
dollars spent in the local economy. In addition, some may be facing the lose
of lease income because of the tremendous reduction in acreage and that
will certainly effect their income and may place many at the poverty line.
In essence Mr. Chairman, the proposals I am hearing from Washington on
how to finance a federal health care plan will be devastating to Duplin
County financially and socially.
The citizens of southeastern North Carolina are hard working, honest
decent people. To wreck their economy by trying to tax a commodity out
of existence is something that I just cannot understand. I want to
personally appeal to the members of this Committee and to other members
of Congress to very carefully look at what you are about to do. The figures
of a dollar and fifty cents, two dollars, seventy five cents are all very
frightening to me as a citizen and farmer, but even more so as a County
Government leader. The dramatic adverse affects of such an unsound
policy will place my county in a very difficult financial position. Your
diligence and hard work to protect our heritage and way of life are deeply
47
appreciated.
Mr. Chairman, I have attached two short pages of additional facts to
copies of my testimony to be placed in the record. Again, thank you for
coming to listen and learn about our feelings on this important issue.
48
Tebaeeo Boonomio 8i«tiatio»
In 1993, 20,580,511 pounds of tobacco were sold In Duplin County
with total sales representing $34,986,868. Although Duplin County
acreages of corn, cotton, soybeans, and wheat each exceeded the
county's tobacco acreage, tobacco generated more total sales
dollars than these four commodities combined. (1993 Fam Income
Estimates, NC Cooperative Extension Service)
Tobacco revenue has the multiplier effect of 3-4 times in a local
economy. (Chaae Econometrics, 1983)
In 1993, 1,540 Duplin County farms had tobacco allotments. In
1993, Duplin County ranked I2th in flue-cured tobacco production
among North Carolina counties. (June 1993 NCDA NC Tobacco Report)
North Carolina
North Carolina is the largest flue-cured tobacco producing state,
followed by south Carolina, Georgia, Virginia, and Florida. (1994
Tobacco Growers* Information Committee Leaflet)
In 1990, North Carolina had approximately 18,000 tobacco farms.
(Price Waterhouse Accounting Firm, 1990)
In 1990, more than 280,000 people (9% of the state's workforce),
were employed in North Carolina due to tobacco. (Price Waterhouse
Accounting Firm, 1990)
In 1990, tobacco accounted for 281,368 North Carolina jobs
generating $5,715,666,000 in income. (Price Waterhouse Accounting
Firm, 1990)
In 1990, total tobacco tax revenues (both state and local) in North
Carolina amounted to $700,687,000. (Price Waterhouse Accounting
Pirn, 1990)
In 1990, the total economic value of the tobabco industry to North
Carolina was $7,545,553,000. (Price Waterhouse Accounting Firm,
1990)
In 1992, North Carolina produced $5.2 billion worth of agricultural
commodities. Tobacco represented 20.3% of the total North Carolina
agricultural commodity production value at $1.06 billion. Broilers
were second at 16. 5t and hogs were third at 14.1%. (1993 NC
Agribusiness Council, Inc. Leaflet)
49
united States
The 1993 United States tobacco crop valu* (all types) wa* $2.9
billion. The flue-cured tobacco value portion was $1.7 billion
while the burley tobacco value portion was $1.2 billion. (1994
riuc-Cured Tobacco Cooperative Stabilization Corporation Leaflet)
The Tobacco Merchants Association comnissioned Wharton Econometrics
Forecasting Associates to study the impact of the tobacco industry
on the US econony. They found the following. The tobacco industry
is directly and indirectly responsible for 2.3 percent of all jobs
in the country. The number of jobs grew from 2.48 million to 2.64
million during the period 1985 to 1990. For every $1,000 worth of
goods and services produced by Americans in 1990, more than $26
were generated by tobacco. Tobacco's contribution to the Gross
National Product in 1990 was $143.6 billion, up nearly 50 percent
from the 1985 contribution of $97.1 billion. California led the
country in tobacco-related employment in 1990 with 310,550 jobs,
compensation of $8.97 billion, and taxes paid of $5.78 billion.
{August 1992 Flue-Cured Tobacco Cooperative Stabilization
Corporation Newsletter)
In 1993, the tobacco industry produced a net positive contribution
of $4.0 billion to the nation's trade balance. (1994 Flue-Cured
Tobacco Cooperative Stabilization Corporation Leaflet)
The current federal excise tax on a pack of cigarettes is 24 cents.
Individual states add their own taxes ranging from 2.5 cents per
pac)c in Virginia to 51 cents in Massachusetts. These taxes
combined amount to $43,000 per acre of tobacco grown in the United
States. That amounts to $12 billion per year in cigarette excise
taxes. (1994 Flue-Cured Tobacco Cooperative Stabilization
Corporation Leaflet)
Information compiled by:
Curtis D. Fountain
Agricultural Extension Agent
Duplin County Cooperative Extension Center
June 8, 1994
50
statement by
Thomas C. Parrish
Vice President of Corporate Affairs
IVIonk-Austin, International, Inc.
to the
House Agriculture Subcommittee on Specialty Crops and Natural Resources
Field Hearing --- Goldsboro, NC — June 11, 1994
Mr. Chairman and members of the Subcommittee, I am Tom Parrish of Monk-Austin
international and I appreciate your invitation to participate in this hearing pertaining to the
tobacco program.
Monk-Austin International, Inc., is an international leaf dealer which sources flue cured
and burley tobacco from fifteen tobacco producing countries and sells to tobacco product
manufacturers around the world. Our global scope provides us with a valuable first hand
international perspective of the U.S. tobacco situation.
We are convinced that our future growth is tied directly to the increasing market for
tobacco products in countries outside the United States. Therefore, we must focus our
corporate attention on effectively supplying the needs of our customers here at home
and abroad.
During the past decade, we have watched other countries around the world expand their
tobacco production while our output here in the United States has declined.
Since 1980, worldwide flue cured production has grown by almost 120% — production is
up 303% in China, 83% in Brazil, and 71% in Zimbabwe. Production is also up in India,
the Philippines, Argentina and Italy. During those 13 years, U.S. output of flue cured
dropped 18.5% while our share of world production fell from 20% to 7.4%.
Since 1980, worldwide burley production has grown nearly 73% — production has
expanded 521% in Malawi, nearly 335% in Brazil, and 240% in China. Production is also
up in the Philippines, Argentina, Thailand and Mexico. During those 13 years, U.S.
output of burley declined 13.3%. In 1980, 44% of the world's burley tobacco was
produced in the United States. Last year, the U.S. share was 29%.
Monk-Austin International., Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
51
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 11, 1994 - Page 2
Clearly, the geography of tobacco production is shifting dramatically. Not only has the
geography shifted, but since 1990, total world tobacco production has expanded 21%
while consumption has grown only 12%. The result: Annual production surpluses that
have left us with excessive inventories of leaf tobacco worldwide.
Exports of U.S. leaf tobacco fell 20% last year, mainly as a result of the world oversuppiy.
Excess inventories depressed prices and heightened worldwide competition in the world
market. Most of the U.S. export decline comes from reduced sales to all of our traditional
markets in Europe and Asia. If you compare last year's U.S. exports to 1992 levels, you
will find sales to Germany were down 44%; to Turkey, down 17%; to the Netherlands,
down 24%; and to the United Kingdom, down 14%.
Shrinking consumption is nol the problem in all of these markets. The problem is that our
traditional customers are looking elsewhere for tobacco. Why?
In general, U.S. tobacco producers are at a competitive disadvantage in the world market
for three reasons: (1) Farm level prices in other producing countries are generally lower
than in the United States — and are falling; (2) The quality of foreign leaf is improving;
and (3) Quality itself is no longer as critical to cigarette blends as it was in the past.
Our traditional customers in Europe and Asia are battling national and regional economic
recessions. As shrewd businessmen, they look for ways to keep their cost down. In
addition to adjusting inventories, many also turn to lower priced leaf markets to meet their
buying needs.
We can understand and sympathize with the frustration felt by U.S. tobacco growers at
the dramatic increase in imports of foreign tobacco in recent years. However, it is an
unfortunate fact that rising imports are a symptom of the problem and not the problem
itself. U.S. tobacco is not immune to economic or market realities. The dramatic growth
and consumption of generic cigarettes, not only in the United States but elsewhere in the
world, has created strong pressures on manufacturers to lower cost inputs. U.S. tobacco
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
52
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 1 1, 1994 - Page 3
remains the highest priced in the world, and is, therefore, at a significant disadvantage
when it comes to satisfying this new demand for a lower priced cigarette.
Tom Capehart and Verner Grise articulated the challenge to American growers very well
during their presentation in March to the Tobacco Marketing Cost Study Committee.
They said: "The challenge to the American tobacco grower is clear. A number of nations
are producing competitively priced quality leaf while the demand for very high quality leaf
is decreasing. . New markets for leaf and cigarettes will develop in the coming decades,
but demand will be for cheap, low quality tobacco. The coming decade will see greater
emphasis on price. Unless U.S. farmers address tfte price issue, our share of world leaf
trade will continue to shrink."
It appears to us that some leaders in the U.S. tobacco growing community are willing to
tie their future to a declining domestic market. Any short term benefit gained from
reducing imports will be offset in the long run by weakening our competitve position in
the world market. Although import restrictions may stablizie flue cured and burley quotas
for the next year or two, in the long run, they have set in motion what may prove to be
irreversible losses on the export side. As an international merchant, we think that the
expanding global market is where there are real opportunities for future long term growth.
If you think our perspective is credible, let's examine the U.S. situation from the
standpoint of a foreign purchaser of U.S. tobacco. Many traditional purchasers of U.S.
tobacco are still willing to pay a premium for U.S. tobacco. However, when they are
asked to pay a price that is based on an artificial price support and which carries
additional cost and adds no value to the product, they often balk. They ask us why they
should pay for excessive quota lease rates, very high marketing cost, high assessments,
and what they perceive to be unnecessary and unreasonable administrative costs of
compliance with government regulations when they can find acceptable substitutes
elsewhere. We all — government, growers, warehousemen and dealers — need to
work toward reducing the cost of U.S. leaf.
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
53
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 1 1, 1994 - Page 4
Will we be able to adapt to this new reality? Clearly, any adjustments made in the quality
and price of U.S. leaf tobacco must be producer decisions. The challenge is tremendous
but the opportunities for growth are also tremendous.
I have been asked to comment on the activities of the Inter-Agency Task Force on
Tobacco Exports and the prohibition of federal monies to promote tobacco exports.
INTER-AGENCY TASK FORCE ON TOBACCO EXPORTS
The Inter-Agency Task Force on U.S. Tobacco Exports, co-chaired by the U.S. Trade
Representative and the Secretary of Health and Human Services published a notice and
request for public comment in the Federal Register on May 2nd (Federal Register / Vol.
59, No. 83 / Monday, May 2nd, 1994 / Notices). As I understand it, the Task Force is
reviewing U.S. trade policy regarding U.S. tobacco exports for the purpose of making
recommendations to the Administration for resolving perceived conflicts with U.S. health
policies.
The anti-smoking lobby is using the Department of Health and Human Services in an
attempt to dictate U.S. export policy with respect to tobacco and tobacco products. This
manner of setting trade policy is both unprecedented and misguided. Furthermore, in the
context of trade, the health issue is irrelevant since many countries already grow tobacco
and manufacture tobacco products.
More importantly, the export of U.S. tobacco has an enormous positive economic impact
on the U.S. tobacco industry and the U.S. economy. The following is a partial listing of
numerous facts which well illustrate the direct contribution made by U.S. tobacco
exports:
• In 1993, the United States exported leaf tobacco and tobacco products valued at
$5.6 billion.
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
54
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 11, 1994 - Page 5
• U.S. tobacco trade contributed more than $4 billion to the nation's balance of trade in
1993.
• Exports of manufactured tobacco products in 1993 totaled $4.2 billion — 92.3% of
which was earned by cigarette exports. Tobacco products contributed $3.6 billion to
the nation's trade balance in 1993.
• In 1992, tobacco net trade generated a surplus of $4.9 billion. By comparison, total
U.S. net trade produced a deficit of $84.5 billion in 1992.
• The value of total U.S. tobacco exports increased 129.2% between 1980 and 1993.
• During the period 1980-1993, tobacco made a cumulative contribution of $43.8 billion
to the U.S. trade balance — $10.6 billion from leaf tobacco and $33.1 billion from
manufactured products.
• In 1992, tobacco exports supported 299,255 jobs in the United States, generating
approximately $7.1 billion in total compensation and $2.0 billion in tax revenue.
• The direct impact of the tobacco export industry on the U.S. economy in 1992 was
114,163 jobs that generated approximately $2.4 billion in compensation and $656
million in taxes. This employment represents an increase of more than 27,000 jobs
created directly by the tobacco export industry since 1987.
• The indirect impact of the tobacco export industry on the U.S. economy in 1992 was
1 85,092 jobs that generated approximately $4.7 billion in compensation and $1 .3
billion in tax revenues. This employment represents an increase of approximately
40,000 jobs created indirectly by the tobacco export industry since 1987.
• The cumulative six-year (1987-92) impact of tobacco exports on the U.S. economy:
$36.9 billion in compensation for American workers generating $10.2 billion in
federal, state and local tax revenues.
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
55
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 11, 1994 - Page 6
• The $7.1 billion in compensation earned by those employed directly or indirectly by
the tobacco export industry was more than any state paid out in unemployment
benefits in 1992 and was even larger than the total unemployment benefit
disbursements of California and New York combined.
• The export of tobacco is one of the few U.S. industries that produces a trade surplus
: with the principal trade regions of East Asia, Europe and the Middle East.
These facts illustrate the magnitude of the impact that tobacco exports have on all facets
of the U.S. economy ranging from local employmer^to reducing the U.S. trade deficit.
As Representative Lancaster recently stated in the Roll Call (Vol. 39, No. 86) on May
23rd, "The export of tobacco products has long been one of the few bright spots among
U.S. export categories, ranking sixth among only 31 positive trade balance categories.
During 1992, tobacco exports totaled $4.85 billion. It is ironic that the U.S. Trade
Representative is involved in a task force that could substantially increase our trade
deficit with foreign nations."
The parties who will suffer from a curtailment of U.S. tobacco exports for health reasons
will be American growers and exporters. Therefore, we strongly oppose any actions
designed to restrict or ban tobacco exports.
PROHIBITION OF USING FEDERAL FUNDS TO PROMOTE TOBACCO EXPORTS
The Agricultural Appropriations Bill passed last term prohibits tobacco from using Market
Promotion Program and Cooperator Foreign Market Development funds and prohibits
USDA from paying salaries of personnel promoting tobacco exports.
It is our position that the U.S. government should continue treating the U.S. tobacco
export trade as a very important part of the total U.S. trading economy. Any effort to
inhibit U.S. tobacco exports ostensibly to protect the health of citizens in other countries
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
56
Thomas C. Parrish to House Ag Subcommittee on Specialty Crops and Natural Resources - June 11, 1994 - Page 7
is misguided. Supplies of tobacco are readily available from many other countries that
are successfully competing in the international market. These competing countries will
quickly fill gaps resulting from a failure to promote the export of U.S. tobacco.
The United States government should pursue a non-discriminatory export policy which
gives equal emphasis to promoting exports of all legal U.S. commodities and
manufactured goods. It seems the position of the federal government is that promoting
tobacco exports is tantamount to promoting smoking. We contend this is not the case.
There is a big difference between the two. Penalizing U.S. growers by eliminating
tobacco export promotion programs will in no way affect the use of tobacco products in
other countries. Elimination of export promotion programs for tobacco will do irreparable
harm to American efforts to penetrate emerging markets in the former Soviet Bloc
nations and elsewhere.
The importance of market openings in recent years should not be overlooked. U.S.
growers and exporters have benefited by the opening of markets in Japan, Thailand,
Taiwan and others. We are disturbed by a recent article by Hobart Rowen which
appeared in the Washington Post on Thursday, June 9th. Mr. Rowen stated that,
"According to congressional sources, the Clinton administration has decided — but has
not yet announced — that it won't pursue 'Section 301' punitive trade actions against our
trading partners" who restrict access to their cigarette markets.
It is unfair and unwise to single out tobacco for exclusion from market promotion
programs in view of the tremendous contribution the industry makes to our economy and
government. Again, the parties who suffer by a change in the market opening policy will
be American tobacco growers, manufacturers and exporters.
The challenge is clear; We must all have the courage to accept and implement
significant change. We are committed to doing our part of assure a positive future for the
U.S. tobacco trade. We look fonward to working with this Subcommittee and all the other
segments of the U.S. tobacco industry to make necessary changes.
Monk-Austin International, Inc., 1200 West Marlboro Road, P.O. Box 166, Farmville, NC 27828
57
^^^^A '^^ "^^^^7
d
Statement of North Carolina Commissioner of Agriculture, James A. Graham for
the House Agriculture Subcommittee Hearing in Goldsboro on June 11, 1994.
I would like to thank Congressmen Rose and Lancaster for scheduling this hearing
in Goldsboro. It provides an opportunity for our producers to express themselves
on current tobacco issues. I also thank them for accepting my statement on behalf
of our North Carolina tobacco industry.
As you well know - tobacco has been a mainstay of our economy in North Carolina
since colonial days. When I became Commissioner of Agriculture in 1964 tobacco
made up almost 50% of our total farm income. Although the percentage is now
down to approximately 20% of farm income, it has brought in over $1 billion in
every year since 1990.
Last year was not a terribly good year for tobacco growers. Average prices were
down by over $4.50 per hundred and a«mr 200 million pounds went under loan.
Higher stabilization stocks coupled with lower buying intentions resulted in a 10%
cut in quota for 1994. The cut would have been much larger except for legislation
limiting it to 10%.
This year has seen ever increasing attacks on tobacco. A day seldom passes that
some group does not present some new "Finding" in the evils of tobacco. The
threat of major increases in federal excise taxes is still present. Many states have
increased their taxes in the past year.
With the present climate there are many demands to "Fix" our tobacco program.
My message to you is rather simple - our tobacco program has served us well and I
do not recommend any drastic changes. I would hate to see us over react to
what I hope are temporary problems in marketing our tobacco.
I fully realize that quota cuts are serious for our growers. Over the years these
cuts have enabled our supplies to balance with demand.
I also would be very slow to recommend any major change in the price support
structure. Our tobacco continues to be the highest quality in the world. We must
do a better job of selling it to potential customers all over the world.
In summary I feel that our current problems are a result of a combination of
factors. Among them are excise taxes, imports, world surplus supplies of cheap
tobacco, declining domestic consumption, smoking bans in public places, and the
constant barrage of anti-tobacco information. I submit that without the tobacco
program we would have a complete chaos. Let's fine tune as needed but be slow
to make major overhauls.
o
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