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The Environmental Working Group report cited in the following 
article is at: http://www.ewg.org/farm/tobaccobuyout.php
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Bill to Aid Tobacco Farmers Hinges
On a Windfall for Landowners

By Vanessa O'Connell 
The Wall Street Journal
August 31, 2004
http://online.wsj.com/article/0,,SB109391426988405339,00.html?mod=DFT

When Congress after Labor Day takes up landmark legislation that would
give the Food and Drug Administration regulatory control over
cigarettes, the linchpin of a potential deal is a plan to aid struggling
tobacco farmers.

But the negotiations could stumble on one element of the plan: Much of
the aid is going to millionaires, country clubs and city dwellers far
removed from leaf, field or barn. They would become beneficiaries
because they hold a tobacco quota, or allotment, that is attached to the
land they own and permits a specified amount of tobacco production each
year. With minor exceptions, farmers who lack a quota can't sell tobacco
without risking penalties.

A product of a Depression-era subsidy program, the tobacco quota was
designed to help stabilize a shaky industry by keeping the annual supply
of tobacco leaf in line with demand. Since then, quotas have been handed
down with land through families, even after the families moved off the
farms and sharecroppers worked the fields for a slice of profit. Today,
the majority of quota holders aren't themselves tobacco farmers.

Now they're in line for a windfall if a federal plan to rescue tobacco
growers through a $12 billion "tobacco buyout" becomes law. An estimated
40% of the funds would go to nonfarming quota holders under a plan that
pays them a set amount for each pound of tobacco their allotment allows
them to grow.

One such beneficiary is Mary M. Hamilton. The former alumni director for
the elite private Brearley School in Manhattan, and her brother, T.A.
Morgan Jr., a retired journalist, inherited a quota along with a
1,850-acre North Carolina property. They could receive a total of about
$90,000 or more, paid over as many as 10 years.

The buyout plan stems from an unlikely alliance of tobacco-state
politicians and antismoking advocates formed to push legislation that
would give the FDA control over cigarettes. Antismoking advocates and
some lawmakers have fought for years for FDA oversight of cigarettes,
hoping to create strict new rules for lower-tar, reduced-risk and
sweet-flavored cigarettes. The ingredients and makeup of cigarettes
aren't currently regulated at the federal level.

Philip Morris USA, the leading cigarette maker and a unit of Altria
Group Inc., supports the FDA legislation as spelled out in the Senate
bill, but most other tobacco companies strongly oppose it. Smaller
cigarette makers say the Senate bill's proposed curbs on advertising
would allow Philip Morris to retain its lead while hobbling their own
marketing efforts. Supporters of the FDA formed an alliance with U.S.
tobacco-state senators to combine new regulation of tobacco with the $12
billion buyout plan.

The quota system has fostered a sort of secondary market with mixed
results for farmers. Those who don't farm the land lease the quota to
those who do. Clifton J. Capps Jr., a grower in Vance County, N.C., says
he pays 35 cents to 40 cents a pound, or roughly $3,850 to $4,400 a
year, to lease the quota Mrs. Hamilton and her brother own. Mr. Capps,
who supplies the leaf processor Universal Corp., wanted to generate more
economies of scale than possible under his own small quota allotment.

The secondary market allowed farmers to put together larger acreage, but
it also added to their costs. Mr. Capps, who leases 10 tobacco quotas,
says, "It's getting more difficult to make a profit." About 10,000
farmers own no quotas at all. Under the buyout plan, tobacco production
probably would still be restricted to keep prices up but growers would
no longer have to pay leasing fees.

The buyout's potential windfall for those who don't farm is beginning to
draw sharp criticism from opponents of the legislation. An estimated 80%
to 85% of the people who would get payments through the buyout are quota
owners who don't qualify as growers. "Basically, quota holders make out
like bandits," says Richard Wiles, senior vice president at the
Environmental Working Group, a Washington watchdog organization.

In Kentucky, Virginia, North Carolina, and Wisconsin, beneficiaries
include country clubs, churches, colleges, universities and high schools
that bought or were bequeathed land in tobacco-growing counties, giving
them tobacco quotas.

McFarland School District in Wisconsin owns a tobacco quota tied to a
parcel of land it bought for future development a few years back.
According to school officials, it receives about $2,700 in rent a year
from a farmer who leases the land, including about $780 for the school's
tobacco allotment

Beverly Hills, Calif., pornography entrepreneurs Larry Flynt and his
brother, Jimmy, together with their 86-year-old father, own land in
Magoffin County, Ky., with a quota to grow about 600 pounds of burley
tobacco in 2003, according to the Environmental Working Group. Grandsons
of a Kentucky tobacco farmer, they left the area without becoming
growers themselves.

"We got out of the tobacco business and into the porn business," says
Jimmy Flynt, president of Hustler Entertainment, the video division of
LFP Inc., the pornography publishing empire founded by brother Larry,
the creator of Hustler magazine. "We walked away from that blood, sweat
and tears."

The offspring of James Stillman Rockefeller, who died earlier this
month, also would benefit handsomely from the buyout if enacted.
According to the Environmental Working Group, the late Mr. Rockefeller
owned the right to grow about 16,000 pounds of burley tobacco and about
9,000 pounds of flue cured tobacco. Those rights now pass to his heirs.

Land in North Carolina is likely to be bequeathed to a charity, but for
now, the family's plan is to hold on to its Kentucky farm and its
tobacco-quota rights, according to son Andrew Rockefeller of Greenwich,
Conn.

Quota owners were the subject of contentious debate on the Senate floor
in July. Sen. Richard J. Durbin, a Democrat from Illinois, characterized
quota owners as "the closest thing to being given some title or royalty
that you can imagine -- because those folks are then entitled to grow
tobacco and have special treatment under the law." According to his
spokeswoman, Sen. Durbin voted in favor of the buyout because he favored
FDA legislation. "It's a sweetheart deal for some of these groups but
this is the best we've been able to get and [supporters of FDA
regulation] have worked on it for so long," she says.

"I would like to have the benefits go to the farmers," protested Sen.
Don Nickles, a Republican from Oklahoma, who voted against the buyout.
He said the tobacco allotments are "a government benefit basically which
we have given and which has benefited a few."

Other quotas have become political hot potatoes. The 2002 Farm Bill
dramatically changed U. S. policy toward domestic production and
marketing of peanuts, paying peanut quota holders 55 cents per pound for
each pound of quota held. The top 10% of peanut subsidy recipients in
2002 collected 62% of the payments, according to the Environmental
Working Group. Top recipients included John Hancock Mutual Life
Insurance Co., now known as John Hancock Financial Services Inc. and a
unit of Manulife Financial Corp. Stephen Burgay, a spokesman for John
Hancock, says it collected $2.2 million for the buyout of the peanut
quotas.

But the tobacco buyout is far richer. The Senate plan, for instance,
would pay tobacco growers $4 per pound for each pound of tobacco grown,
while quota holders would receive $8 per pound for each pound of quota
held. Those who qualify as growers and quota owners get both payments,
or $12 a pound. The payments would be spread over a number of years.

The Senate version of the buyout would be financed by cigarette makers,
who would pass the costs on to smokers. The House version of the bill
has no FDA provision, and it charges its $9.6 billion buyout to the U.S.
Treasury rather than to the cigarette makers.

The Senate approach may be an easier political sell since taxpayer funds
aren't involved. But it isn't embraced by most of the cigarette
companies. Reynolds American Inc. says the tobacco buyout would "devour"
cigarette manufacturer earnings. Its own estimated obligation if the
buyout were enacted is "a shade over $400 million annually," says Tommy
Payne, the executive vice president of external relations. That
represents nearly half of the roughly $875 million to $925 million in
operating income Reynolds currently projects for 2004.

The bill is on its way to conference committee after passing the Senate
in July. The notion that there should be a federal quota buyout has been
around since the late 1990s, but it is only now that it has gained
enough support in the Senate to have any realistic chance of
congressional passage.

Though support for the buyout now seems stronger than ever, the plan
could still fall apart. For one thing, the tobacco legislation is
attached to a giant, unrelated corporate-tax bill for which the House
and Senate versions are substantially different. Both parties want to
pass this tax bill, because in its absence there are punitive tariffs on
exports. But it's not certain whether the corporate tax bill will make
it out of the conference, or be derailed.

Backers of the tobacco legislation in recent weeks have been pulling out
the stops to urge lawmakers to act. "The Tobacco Buyout: It May Be Now
or Never," says a recent Philip Morris USA advertisement running in
Virginia, Florida, North Carolina, Ohio and other states. The ad, which
ran in more than 40 newspapers in late August, urges readers to contact
their legislators and encourage the package giving the FDA new powers.
"Tobacco growers need relief now," it says. A coalition of tobacco
farmers and antismoking groups has teamed up to run a similar series of
advertisements.
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