Statement by

J. Walter Sinclair, Esq.
Chair, Advocacy Coordinating Committee
Member, Board of Directors

on behalf of the American Heart Association

Before the Committee on Agriculture
United Sates Senate

on the Agricultural Components of the Proposed Tobacco Settlement

September 11, 1997

My name is Walt Sinclair from Twin Falls, Idaho. I am an attorney by trade and I am a volunteer member of the board of directors of the American Heart Association, serve on its Administrative Cabinet, chair its Advocacy Coordinating Committee, co-chair its 19 person Tobacco Settlement Review Subcommittee and served as an AHA volunteer member of the Koop-Kessler Tobacco Advisory Committee. Today, Mr. Chairman, and members of the committee, I welcome the opportunity to present testimony on behalf of the American Heart Association on the agricultural components of the proposed tobacco settlement; and for that matter, the agricultural components even without a tobacco settlement.

The AHA, as a non-profit organization, represents the interests of over 4.6 million volunteers nationwide who give their time and energies to assist in reducing cardiovascular diseases and stroke, this nation s number one and three causes of premature death respectively. The AHA represents the interests of the general public, as well as patients, physicians and researchers. Despite our efforts, and the efforts of our partners in tobacco-control, tobacco use continues to be the number one preventable cause of premature death and disease in the United States.

Realities of tobacco growth

Today, domestic tobacco farming is on the decline. I do not believe that the traditional image of the family tobacco farm that once pervaded much of the southern U.S. and dominated the region s economy is any longer accurate. It is increasingly apparent that the nation s tobacco farmers have lost ground while the U.S. tobacco industry has continued to thrive. While the tobacco farmers share of the value of tobacco products has plummeted from 16 percent of every dollar s worth of tobacco products sold in 1957 to a mere 3 percent in 1991, the share garnered by manufacturers and distributors has increased to nearly 70 percent.

In 1969, U.S. manufactured cigarettes contained 90 percent American-grown tobacco. By the 1990 s, that figure dropped to as little as 60 percent. The number of tobacco farms in the U.S. has dropped dramatically, from 512,000 in 1954 to 124,000 in 1992. Overall, the contribution of the tobacco industry to the North Carolina economy dropped from 11.3 percent in 1960 to 7.8 percent in 1993. With respect to North Carolina farm cash receipts, the contribution of tobacco dropped from 47 percent in 1959 to 19 percent in 1993.

In recent years, tobacco-growing regions have become much more diversified. From 1972-94, tobacco s share of farm receipts in North Carolina (the nation s number one tobacco producing state) fell from 37 percent to just 16 percent. Tobacco s share of farm receipts exceeds 10 percent in only two other states.

According to a backgrounder on the 1995 Farm Bill published by the USDA s Economic Research Service, "Production of U.S. tobacco is likely to decline by the end of the 1990 s. Accelerated anti-smoking activity, together with an increasing number of smoking restrictions and prohibitions and proposals to increase cigarette taxes, is weakening demand. A shift worldwide to cheaper cigarettes and technological advances that permit production of an acceptable-quality cigarette with cheaper leaf are holding down demand for U.S.-grown leaf."

A September 1994 poll of Kentucky farmers conducted by the Lexington (KY) Herald Leader found that only seven percent of respondents believed that cigarette companies consider the interests of farmers when making decisions.

As reported in that article in the Lexington Herald Leader, American farmers face the possibility of a future in which tobacco is grown overseas, bought overseas by U.S. companies, shipped to U.S.-owned factories overseas, made into cigarettes and sold overseas. The only money coming back to the U.S. in that scenario would go into the pockets of the shareholders of tobacco companies.

U.S. companies have made it clear that they are committed to buying, manufacturing and marketing tobacco overseas. Philip Morris has committed hundreds of millions on joint venture tobacco operations in Eastern Europe and the former Soviet Union. R.J. Reynolds has dozens of overseas factories that now have the capacity to produce tens of billions of cigarettes each year.

The threat of foreign competition does not affect only tobacco growers. For example, just a few years back, Philip Morris cut a total of 14,000 domestic manufacturing jobs.

While a 1994 deal with cigarette manufacturers resulted in company purchases of nearly all tobacco reserves, and largely as a result, the USDA increased quotas for flue-cured and burley tobacco from 1995-97, it is clear that the buyout was simply another short-term fix.

Communications build between growers and health groups

I would like to take this opportunity to brief you on a paradigm shift occurring slowly but surely between the public health and tobacco-growing communities.

In September 1996, representatives of the tobacco-growing and tobacco-control communities, including the American Heart Association, came together to discuss issues of mutual interest. The meeting, held in Roanoke, VA, was entitled, "Tobacco and Health Symposium: Both Sides of the Coin." It was the first time that these groups met in such a public forum to discuss their views on a variety of issues affecting the growth of tobacco and the public health consequences which result.

In March of this year, the Southern Tobacco Communities Project, housed in the University of Virginia, sponsored The Southern Tobacco Communities Roundtable, featuring representatives from the six leading tobacco-growing states, who convened to explore concerns of tobacco growing communities and to develop ways to strengthen those communities. The gathering included representatives of growers, agricultural advocacy groups, community development groups and community health leaders. The forum provided for "diverse interests to work together to explore concerns and options and develop strategies for economic diversification that works."

According to the group s purpose statement, "The growing, processing, manufacturing, and marketing of tobacco is changing dramatically. For a variety of reasons, including reduction in domestic use of tobacco products due to health and other considerations, competition from international growers facilitated by support from manufacturers, and increasing mechanization of tobacco production, forced changes are occurring within the South s tobacco growing communities...Even in [the] growers best-case scenario from their own perspective, where American tobacco continues to be in demand as the premium tobacco in the world, fewer growers will likely be working than is now the case. This change could be devastating to tobacco-growing families and their communities, particularly in areas where poverty and unemployment is already high...Strategies must be developed to help these families and communities cope with these pending changes in ways that protect the value and heritage that are so important to them."

Just two weeks ago, the Project coordinated a farm tour in southern Virginia s Halifax County, which included visits to a number of tobacco farms, an equipment dealer and a tobacco warehouse. Representatives of the American Heart Association, other health groups, the U.S. Department of Agriculture (USDA) and the U.S. Department of Health and Human Services participated in, from what I am told, an eye-opening experience.

Growers polled

According to a January 1997 survey of tobacco growers and tobacco allotment owners conducted by the Bowman Gray School of Medicine at Wake Forest University and the Center for Sustainable Systems in Berea, Kentucky, over 70 percent of respondents have taken steps to learn about on-farm alternatives to tobacco . Fully 66 percent have discovered on-farm alternatives that were profitable. However, there are major barriers to supplementation. Between 64 and 79 percent of those surveyed listed the following as barriers: few processing plants connecting farmers to consumers; lack of capital for new business ventures; no places to sell new products; few low-interest loans or grants for new business ventures. Finally, in subsequent polling of the general public, 66 percent believed the government should actively help farmers find other ways to make a living. We agree.

At the time of the release of the data, a representative of the Center for Sustainable Systems was quoted as saying, "We don t want farmers to be stuck in the tobacco trap. We have to be realistic and face the truth - tobacco is not safe for people s health, and it s not a secure foundation for the economic health of farmers and their families and communities. Tobacco farmers have told us they re willing and eager to try other crops - but we need policies in place to help them do that."

Settlement should address tobacco-growing issues

The AHA recognizes that the production of tobacco plays a significant role in the economic maintenance of many American families living in states that grow a large quantity of tobacco. We urge Congress and the Executive Branch to actively work to provide tobacco-producing communities viable economic options for diversification, as well as ensuring assistance for economic development. Opportunities must be provided to tobacco growing communities and tobacco farmers which provide for their future economic stability and productivity independent of tobacco production.

The Community Farm Alliance, headquartered in Frankfurt, Kentucky, concurs, stating that, "family-scale farming and people working together lays a foundation for community life. Family-scale farming has eroded so significantly that we need to create a new system of agriculture that keeps people on the land. We believe that American society is best served by family-scale agriculture, and that corporate control of agriculture endangers our land, food and communities."

Unfortunately, the tobacco settlement fails to address this issue. While this issue was raised during the time of the settlement negotiations by the American Heart Association and others, the proposed settlement does not directly address tobacco-farming issues. Legislation developed by Congress to implement the goals of the settlement should earmark funds for economic development in tobacco-growing regions.

Utilization of Tax Policy

In addition, the settlement agreement should not preclude the use of tax policy to raise the funds necessary to ensure assistance for economic development which would further decrease consumption of tobacco products, particularly among our nation s youth. Independent studies of past tax increases show that for every 10 percent increase in the price of cigarettes, overall smoking rates fall approximately four percent. Aggressive enactment of federal and state tobacco excise taxes must be maintained. The AHA recommends that a portion of tobacco excise taxes include "set-asides" to help provide economic stability for tobacco farmers as they transition out of tobacco crops and into other agricultural ventures. Just three cents set-aside from a tobacco tax to American farmers would return an estimated $400 million dollars a year to tobacco states, to assist their farmers in diversification and economic development. Interestingly, almost half of those asked by the Bowman Gray survey also favored an increase in the federal tax on cigarettes with a percentage of the revenues earmarked to help farmers get out of the tobacco business.

Economic development plans proposed

Funds would be well spent, with or without a settlement agreement, for facilitating the growth of alternative crops and improving access to markets for other crops, rather than helping to support the growth of tobacco in a declining market. The American Heart Association believes such funds could be used, in part, to finance state and federal policymakers examination of opportunities for supporting economic diversification in tobacco dependent communities, with a bulk of the funds going directly towards building alternative infrastructures for food, livestock, collection and distribution processes.

However, it is not our place to recommend the details of the expenditure of these funds. Such plans must take regional differences into account. For example, according to the USDA, over 50 percent of farms with tobacco in Kentucky have less than three acres related to the crop, compared with just under 30 percent in North Carolina. In Kentucky, the largest number of farms (40 percent) plant one to three acres, while in North Carolina the largest number of farms (39 percent) plant 10 or more acres of tobacco. The AHA concurs with the Koop/Kessler recommendation of the formation of a blue-ribbon panel, heavily represented by individuals from tobacco growing regions, to suggest short and long term strategies for reducing the dependence of tobacco growing states on tobacco.

Beginning before the announcement of the proposed settlement, a number of groups and individuals representing tobacco-growing regions and constituencies have floated ideas for such diversification/supplementation. Senators Ford and McConnell have proposed a "Tobacco Community Revitalization Fund" which would include funding for potential lost income, job development, rural and agricultural development, compensation for lower land values and penalties assessed on tobacco companies which renege on purchasing intentions.

Last month, the Flue-Cured Tobacco Cooperative Stabilization Corporation proposed that the settlement agreement include funds for quota retirement, grants to farmers for new or existing agricultural enterprises, rural and community development, and federal tobacco program costs, including crop insurance.

Another organization, the Rural Advancement Foundation International (RAFI-USA), is currently setting up a pilot reinvestment fund to support farmers efforts in demonstrating and trying new on-farm enterprises. Funds could be used for new marketing, handling or processing operations as a means for leveraging additional support from lending, rural development, church or industry sources. Its guidelines encourage development of alternative enterprises that "help lead to long-term income stability and reduced dependency on tobacco income."

Concluding comments

The time is now for those affected parties to come forward to aggressively pursue opportunities for breaking their dependence on the growth of tobacco. We are not talking about eliminating tobacco as a crop, but rather, giving power back to the farmers by offering them viable economic alternatives.

The American Heart Association stands ready, and would be honored to help facilitate continued discussions with this Committee on this critical issue.