The tobacco industry is in the midst of landmark policy action. On June 20, 1997, the "Tobacco Agreement" was signed. This was the culmination of lengthy negotiations among various state Attorneys General, health group private lawyers, and tobacco companies. A few of the points in the agreement included:

Tobacco Companies:

• Exempt from "class action" or other multiple plaintiff lawsuits;
• Not exempt from individual lawsuits ($5 billion per year limit);
• Discontinue existing lawsuits against FDA, EPA and FTC;
• Pay funds to fully enforce FDA rules and state tobacco control measures;
• Pay $50 billion over 25 years to fund health care as punishment for past actions;
• New warning labels and cigarettes must be called "nicotine delivery devices";
• Very restricted advertising;
• Disclose ingredients; and,
• Disband Tobacco Institute and Council for Tobacco Research.

Public:

• Industry funding of state enforcement of barring sales to minors;
• Smoking banned in most workplaces;
• More restricted purchasing of tobacco products;
• State/local entities may have more restrictive anti-tobacco laws;
• $500 million annual industry funding for deterring youth use;
• Former smokers health related cost payments;
• Smoking cessation treatment payments;
• Cigarette price increases (about 75 cents/pack) to fund settlement; and,
• Advertising to public prohibited or strongly limited.

Sales:

• No vending machine sales/limited mail orders;
• New warning labels;
• License(s) to sell tobacco;
• Fines for selling without license or violations of laws;
• Proof of age for all sales;
• No minor sales;
• Tobacco products sold only behind counter; and,
• Advertising restrictions.

Government:

• Can order changes in cigarette ingredients;
• FDA can ban nicotine by 2009 -- would require Congressional action;
• Fines up to $10 million per violation for companies regarding disclosure/health restrictions;
• Encourage policies for "safer" products; and,
• Issue rules such as barring workplace smokers.

Farm-Level Tobacco Industry:

• None

The overall agreement is reported to cost the tobacco companies $368.5 billion over 25 years. Recently, President Clinton has considered an additional $50 billion to offset company tax credits. Others have been discussing the possibility of additional cigarette tax increases. Before this settlement is finalized, many details must still be decided. The President must sign this resolution and it must receive Congressional approval. Congress decides any detail changes and how the monies are divided. This process will be very important to the settlement.

Regardless of details, the industry/users will pay substantial sums, companies will radically change business procedures including cost reductions, tobacco will be much more highly regulated, and this should drastically reduce consumption over the next few years. It is very difficult to estimate the impact this agreement will have on usage and, thus, production. This is because of the many possibilities being discussed about price/tax increases, widely varying research figures for the price elasticity of cigarette demand, and the potential for more regulatory measures. From some of the more popular estimates, it would seem that a near-term consumer-level domestic reduction in the range of 20 to 30 percent might be possible. Many estimates are for as much as 30 percent overall -- the goal is 30 percent reduction in youth smoking. If smoking declines too much, then the states and interested parties do not receive all of the $368.5 billion.

Farmers are also asking about the possibility of 2009 and the potential for no nicotine -- what is the need for tobacco at that time; could cigarettes (nicotine delivery devices) not then contain any plant (say, cabbage)? A more realistic concern might the simpler and earlier process of reducing cigarettes to some very low nicotine level and a minute amount of tobacco.

As shown above, the tobacco producers or farm groups were not included in the negotiations or agreement. Some members of Congress, White House aides, health groups, and other decision makers have expressed a strong interest in ear-marking some of the settlement funds for producers. Farmers/farm groups are also asking for compensation. If this were to happen, it would likely be this one-time opportunity.

This would mean that farmers/farm groups must decide quickly on this issue. On the surface this may not appear to be a complex decision but the detail could be most difficult. What would be the purpose of this fund? Certainly to compensate producers for lost equity and future income flow. Some other typical questions might be:

• How much money should be asked for - who should administer this fund?
• Would there continue to be a government supported tobacco program?
• Would smaller farmers receive more than larger producers?
• Should one type of tobacco receive more than another type?
• Would the quota owner receive more/less than the grower?
• Should producers of non-program tobacco types receive any/as much compensation?
• Should the affected local communities/ supporting businesses share?

These are just an example of some general questions that come to mind. If the tobacco producers are to be involved in this settlement, they have a monumental task ahead of them and it must be accomplished soon. The U.S. tobacco industry, including producers will be radically different in the future.

THE CLEMSON UNIVERSITY COOPERATIVE EXTENSION SERVICE OFFERS ITS PROGRAMS TO PEOPLE OF ALL AGES, REGARDLESS OF RACE, COLOR, SEX, RELIGION, NATIONAL ORIGIN, OR HANDICAP AND IS AN EQUAL OPPORTUNITY EMPLOYER.
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updated 9/11/97