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The Tobacco Toll |
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  Sunday . Sep 7 |
False Friends Executive Summary American Heart
Association About the Report Report Sponsors American Heart Association, American Cancer Society, Campaign for Tobacco-Free Kids Supporters of the Report The following organizations support this report: American Association for Respiratory Care, American College of Chest Physicians, American College of Preventive Medicine, American Heart Association Mid-Atlantic Affiliates (MD, DC, VA, NC, SC), American Lung Association, General Board of Church and Society of the United Methodist Church, Interreligious Coalition on Smoking OR Health, National Association of Local Boards of Health, National Hispanic Medical Association, Presbyterian Church USA, Summit Health (a coalition of over 50 organizations and associations whose primary focus is health issues concerning African American and other racial and ethnic communities). The Author Eric Lindblom, the author of the report, is the Manager for Policy Research at the Campaign for Tobacco-Free Kids. He has previously worked as a lawyer, congressional aide, and U.S. government official, and is a graduate of Harvard Law School and Yale College. Acknowledgments This report grew out of the idea of Scott Ballin, a consultant on tobacco control issues, who also provided advice, information, editing, and other assistance in the preparation of the report. A preliminary draft was written by Ross Hammond and Mary Purcell, who also did some of the initial research. Tom Capehart, a senior economist and tobacco analyst at the U.S. Department of Agriculture’s Economic Research Service, provided technical assistance and guidance in gathering and understanding the tobacco-related data available from USDA and other government agencies. Arnella Trent, a tobacco analyst at USDA’s Foreign Agricultural Service, provided similar help pertaining to foreign trade aspects of cigarette and tobacco production. William Snell, a University of Kentucky agricultural economist specializing in tobacco economics and policy, also helped with several research questions. Comments on drafts of the report were provided by Rich Hamburg of the American Heart Association and by Seth Winick and Carter Steger of the American Cancer Society. Marianne Bell, Liz Freund, Andrea Bautista, and Tim Filler also provided research and production assistance. To request additional copies of the report, contact the Campaign for Tobacco-Free Kids at 202-296-5469 or growers@tobaccofreekids.org. The report and its Executive Summary also can be downloaded from the Campaign’s Web site. False Friends
American Heart Association False Friends Executive Summary Tobacco farming has played an important role in this nation’s history, dating back more than 200 years. Today tobacco growers face an uncertain future after years of declining tobacco leaf purchases and declining profitabilitytrends that have already led to a dramatic decrease in the number of small, family-owned tobacco farms. The purpose of this report is to analyze these trends and the actions that have led to the current state of affairs. There are four central conclusions: 1.The American tobacco grower is facing increasingly hard times. In the 1950s there were more than 500,000 small family tobacco farms. Today there are fewer than 85,000, with a drop of more than 100,000 just since 1980. Purchases of U.S.-grown tobacco leaf are down, farming costs are up, prices are not keeping up with inflation, and grower profits have shrunk steadily. 2.The reduced purchases of U.S.-grown tobacco leaf have little to do with the gradual smoking declines in the United States. Instead, they are tied almost entirely to the decisions of the U.S. cigarette companies to manufacture more of their products overseas and to use more foreign-grown tobacco in the cigarettes that they make both here and abroad. Since 1980, the U.S. share of worldwide tobacco exports has been cut almost in half. Although American manufacturers are now selling more cigarettes than ever before, from 1997 to 1999 the U.S. cigarette companies reduced their purchases of American tobacco leaf for domestic cigarette manufacturing by roughly 35 percent. 3.While the interests of the American tobacco farmer and the American tobacco manufacturer were once the same, this is no longer true. The U.S. cigarette companies have chosen to maximize their profits by relying on less-expensive foreign labor and cheap foreign-grown tobacco while sacrificing the economic well-being of the American tobacco farmer. 4.If current trends continue, the worldwide sales and profits of the major American tobacco manufacturers will grow steadily, and family-owned tobacco farms in the United States will continue to disappear. Those that remain will face a difficult and uncertain future. Accordingly, U.S. tobacco growers have begun to explore new options and strategies and create new alliances with the public health community. The U.S. Cigarette Companies’ Move Overseas In recent years, the major U.S. cigarette companies have dramatically increased their overall sales, revenues, and profits by expanding foreign markets for their cigarettes. But the good times for the manufacturers have not translated into good times for America’s farmers. This increased global demand for “American-blend” cigarettes could have significantly increased the overall demand for U.S. tobacco leaf and American-made cigarettes. Instead, the American cigarette companies have followed a different course: *Rather than relying primarily on exporting American-made cigarettes to supply their growing foreign markets, the companies have shifted to foreign manufacturing, which uses less U.S. tobacco leaf. *To increase the amount and quality of American-style leaf available, the U.S. tobacco companies and the U.S.-based leaf dealers have turned to foreign sources and have provided direct financial, technical, and material assistance to foreign growers. *The cigarette companies have increased the amount of foreign tobacco in their American-made cigarettes, with parallel reductions in the amount of U.S. tobacco leaf they buy. Cigarette Companies Buy Less U.S. Tobacco As a direct consequence of these American cigarette company decisions, the major cigarette companies now manufacture cigarettes in more than 100 foreign countries. Since 1995, Philip Morris, R.J. Reynolds, and British American Tobacco have purchased or renovated manufacturing plants in Switzerland, Hungary, Tanzania, Poland, Cambodia, Mexico, Romania, Russia, Bulgaria, Ukraine, and China. Accordingly, exports of American-made cigarettes now account for significantly less than one-fourth of all U.S. company brands sold overseas and have declined about 30 percent since 1996. By itself, this drop in cigarette exports has reduced the annual amount of U.S. tobacco leaf used in cigarette manufacturing by about 10 percent in just the past three years. Nearly 90 percent of all American-style cigarette tobacco (flue-cured and burley) is now grown by foreign farmers in at least 78 countries. And, in the past 20 years the U.S. share of global leaf exports has been cut in half, to less than 11 percent. Without this decline, annual U.S. tobacco exports would be about three times higher than current U.S. tobacco leaf export levels. Since the U.S. cigarette companies began switching to foreign tobacco, the amount of U.S. leaf in each American-made cigarette has declined by more than 40 percent. In fact, the American cigarette companies currently manufacture more cigarettes per year in the United States than they did in the early 1970s, but use about a third less U.S. tobacco leaf in the process. As Cigarette Company Profits Rise, U.S. Tobacco Grower Losses Increase Because of increased foreign sales and domestic price hikes, the U.S. cigarette companies’ revenues and profits have soared since the 1980s. For example, Philip Morris’s annual cigarette revenues have more than quadrupled, totaling $42.7 billion in 1998, and its profits from cigarettes have roughly tripled, to $6.5 billion (even after deducting $3.4 billion to cover costs associated with the state tobacco settlements). At the same time, U.S. tobacco growers’ sales, revenues, and profits have stagnated or declined. Not only are tobacco manufacturers using less American tobacco, the growers are receiving a smaller and smaller piece of the pie. U.S. growers used to receive roughly seven cents of every dollar spent on cigarettes in the United States, but they now receive only two cents or less. Since 1980 the prices charged for cigarettes in the United States by the cigarette companies have increased by more than 270 percent, roughly three times the rate of inflation. But American flue-cured and burley prices have increased by only 19 and 14 percent, respectively, far less than the inflation rate. At the same time, inflation-adjusted farming costs have gone up by nearly 200 percent. Because of declining purchases, the companies’ reduced purchase intentions for the future, and stagnant tobacco leaf export levels, the maximum amount of tobacco U.S. growers are allowed to produce under the industry and grower-financed tobacco price-support program has also declined considerably. From 1997 to 1999, the basic quota for U.S. flue-cured tobacco growers decreased by more than 31 percent. At the same time, the basic quota for U.S. burley tobacco growers declined by more than 35 percent. Both declines include the largest one-year drops in history between 1998 and 1999. The expected reductions in the U.S. cigarette companies’ purchase intentions for both flue-cured and burley tobacco in 2000 would further reduce the quotas. Cigarette Company Actions, Not Smoking Declines, Threaten U.S. Growers The cigarette companies blame U.S. smoking declines for their reduced purchases of U.S. tobacco leaf (and for their decisions to close U.S. cigarette factories and lay off workers). But that is not the case. From 1997 to 1998, cigarette consumption by U.S. smokers dropped by only about 3 percent, and industry analysts expect that the cigarette companies’ recent price hikes, totaling more than 80 cents per pack, will cause a decline in U.S. consumption of about 6 to 10 percent from 1998 to 1999. Because U.S. cigarette tobacco is also used in cigarettes smoked outside the United States, these declines will reduce the overall demand for U.S. cigarette tobacco by only about 4 to 5 percenta small fraction of the more than 30 percent reduction in U.S. cigarette companies’ domestic leaf purchases over the same period. This disparity is not surprising, given that declines in American consumption have virtually no impact on the number of cigarettes the U.S. companies make in the United States for export overseas. Nor does U.S. consumption influence the number of cigarettes the U.S. companies manufacture overseas for their foreign markets or the amount of foreign-grown tobacco the manufacturers use in their products. In coming years, these factors will continue to play a more significant role in the overall demand for U.S. tobacco leaf than the expected 1 or 2 percent per year change in U.S. smoking levels. Other Grower Problems On the Horizon To date, the major influences on the problems facing the American tobacco farmer have been the decisions of the U.S. cigarette companies to grow, process, and manufacture more of their products overseas. Other factors also may contribute to the plight of farmers in the future. In 1999, R.J. Reynolds (RJR) sold all of its international cigarette factories and operations to Japan Tobacco, including all rights to sell RJR brands overseas. RJR is obligated to sell some American-made cigarettes to Japan Tobacco for international sales over the next three years to the extent they are desired. However, it is not clear whether Japan Tobacco will rely on RJR’s U.S. production or begin manufacturing more cigarettes in its own factories overseas. It is also unclear whether Japan Tobacco will use as much American tobacco in its foreign manufacturing of RJR brands. The North American Free Trade Agreement (NAFTA) will soon eliminate all tariffs and fees placed on cigarettes or tobacco crossing the border from Mexico into the United States. Some growers believe that the U.S. cigarette companies will take advantage of this by importing more Mexican tobacco to substitute for U.S. leaf and might begin producing cigarettes in Mexico (with less U.S. leaf than American-made cigarettes) for sale in the United States. China has the capacity to produce massive amounts of low-cost, high-quality cigarette tobacco for export and could soon begin to dominate the global markets. U.S. cigarette companies and leaf dealers already have been helping Chinese tobacco growers to improve the quality of their crops, and China’s admission into the World Trade Organization (WTO) could accelerate this process. India, which is already a member of the WTO and a significant exporter of cigarette tobacco, poses a similar threat. The U.S. companies already are active there and are proposing new leaf-improvement initiatives. A recent study found that modest government incentives and investments could quickly increase India’s production of high-quality flue-cured and burley tobaccos by 600 percent. The U.S. cigarette companies and U.S.-based international leaf dealers, among others, are calling for major changes to the American price-support program in order to reduce U.S. tobacco prices. Significant price reductions would increase the global demand for U.S. tobacco leaf (and save the cigarette companies billions of dollars) but also would put many small tobacco growers out of business. They would be able to sell more tobacco, but increased sales would not make up for their revenue losses from price reductions. Philip Morris, the largest buyer of U.S. tobacco leaf, is trying to persuade some U.S. growers to abandon the current tobacco auction system and enter into direct contracts with the company. Growers fear that such direct contracting would favor larger tobacco farms over smaller ones, make the growers more dependent, put more power and control into the hands of Philip Morris, and ultimately lead to the elimination of the U.S. tobacco price support program. The result would most likely be a much larger and centralized American tobacco-growing industry, controlled by the cigarette companies. Preparing for an Uncertain Future The many negative trendsmostly engineered by the U.S. cigarette companiessuggest a difficult future for both the American tobacco growers and their communities. Relief and resources for economic transition might have been forthcoming had 1998 tobacco legislationthe McCain billpassed the U.S. Congress. This bill would have directed more than $28 billion to help U.S. tobacco growers and cigarette factory workers, their families, and communities adjust to the ongoing decline of U.S. cigarette manufacturing and the reduced purchase of American tobacco. Although the U.S. tobacco manufacturers did not take a position on the farmer provisions in the bill, they vigorously opposed the McCain legislation. Following the McCain bill’s demise, the cigarette companies settled the lawsuits brought against them by the state attorneys general. The settlement did not include any payments to help growers or their communities or offer any other transitional assistance, but subsequently the cigarette companies agreed to provide $5.1 billion (over the next 12 years) to a state-based fund to help tobacco growers and quota holders adjust to declining tobacco production. In addition, some states are directing a portion of their settlement payments to provide various forms of assistance to growers. These efforts do not address the fundamental problems facing U.S. tobacco growers. They serve as a financial Band-Aid rather than supply any effective strategy to help U.S. growers and their communities move to a more independent, secure, and successful future. Accordingly, many U.S. growers and their allies have begun to explore new options and strategies. Some of the possibilities that have been raised include: *Developing state and regional plans to encourage and assist growers to make successful transitions to alternative and supplementary crops. *Establishing a fund to buy out growers and quota holders who want to leave tobacco farming. *Creating economic development plans to ensure that tobacco-growing states and communities have both agricultural and off-farm opportunities to ensure their future economic viability. *Developing alternative, nonharmful uses for tobacco plants, such as bio-engineered medical products. *Encouraging the use of U.S. over foreign tobacco by requiring that manufacturers list the percentages of each in cigarettes and other tobacco products that are made or sold in the United States. *Developing and enforcing stronger rules concerning pesticides and other harmful chemicals and additives in tobacco leaf and tobacco products imported into the United States that match the standards for domestic tobacco. *Creating environmental, labor, and health and safety requirements for tobacco imported into the United States comparable to domestic standards. This report does not evaluate or endorse any of these options, but it is clear that many U.S. tobacco growers and tobacco-dependent communities have little chance for a successful future unless there is broad debate and action concerning these and other transitional strategies. However, it is likely that many of the proposals to assist U.S. growers and their communities would face considerable opposition from the cigarette companies. The Growing Alliance Between U.S. Growers and the Public Health Community Recognizing the sharp conflicts between their own long-term interests and those of the U.S. cigarette companies, many growers have been seeking out new allies, including public health organizations and advocates. In March 1998, a coalition of more than 40 agricultural, grower, religious, and public health organizations (including the sponsors of this report) released the Core Principles, which outlined shared goals pertaining both to reducing smoking among youth and to assisting U.S. growers and their communities. Among other goals, these Core Principles express support for disclosing the domestic leaf content in tobacco products, Food and Drug Administration authority over manufactured tobacco products, the continuance of a U.S. tobacco price support program, and the allocation of new tobacco tax revenues to both advance public health goals and assist tobacco growers and their communities. (See Appendix II for the Core Principles and a list of endorsing organizations and individuals.) Today, growers and public health organizations are actively working together in the tobacco states to direct tobacco settlement funds both to reduce tobacco use and to provide transitional aid to growers and tobacco-dependent communities. The difficulties facing U.S. tobacco growers are great, and their traditional allies, the U.S. cigarette companies, have gone from friend to virtual foe. This betrayal of growers’ interests has changed the American tobacco industry and threatens to end family tobacco farms in this country unless new strategies and alliances are developed quickly.
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