October 11, 1997

Senator Urges Buyout for Tobacco Farmers

Agriculture: Lugar says $15billion industry payment would come on top of
$368.5billion proposed settlement.

From Bloomberg News

WASHINGTONThe chairman of the Senate Agriculture Committee is proposing
that the tobacco industry pay farmers $15 billion to stop growing tobacco
as part of the national tobacco settlement.

Sen. Richard Lugar (RInd.) said Friday that tobacco price supports and
federal growing quotas should be phased out within four years, with farmers
given financial incentives to shift to other crops or to reduce their
tobacco acreage.

President Clinton and tobacco state lawmakers from both parties have
insisted on help for the farmers, and some form of Lugar's proposal is
almost certain to be part of national tobacco legislation.

The estimated $15billion cost would come on top of the $368.5 billion in
the original proposed settlement.

"This legislation will get government out of the business of encouraging
tobacco production," Lugar said in a letter this week to other senators.
"However, it will provide a fair and generous transition for tobacco
growers."

The federal government currently issues quotas to farmers limiting the
amount of tobacco they may grow and sell each year, and then setting a
minimum price for tobacco.

Lugar's plan would pay farmers either a lump sum or three annual payments
to surrender their quota and would end mandated price supports.

The tobacco settlement, if enacted into law, is expected to reduce demand
for tobacco in the U.S., dropping the price of tobaccoand potentially
harming a potent political constituency for lawmakers from tobaccogrowing
states.

Tobacco state lawmakers, including Lugar, Sen Jesse Helms (RN.C.) and
Mitch McConnell (RKy.), said almost immediately after the settlement was
announced that they would seek to ensure that tobacco growers are
compensated for any loss of business or for the cost of switching crops.

Tobacco is currently the sixthlargest U.S. crop, generating more than $2.5
billion a year for growers in 16 states, according to the Agriculture
Department. North Carolina is the largest tobaccogrowing state, followed
by Kentucky, South Carolina, Tennessee and Virginia, according to the USDA.

Currently, the U.S. issues quotas allowing farmers to grow 1.7 billion
pounds of tobacco, according to the USDA. These quotas are combined with a
price support program guaranteeing farmers a set price for their tobacco.
Tobacco companies and tobacco buyers are free to purchase as much tobacco
as they want but must pay a minimum price for what they purchase.

Lugar's joint elimination of quotas and price supports is designed to
ensure that as U.S. smoking rates decline and demand for tobacco decreases
as the settlement is implemented, farmers have an incentive to switch
crops. The decline in production would presumably offset the drop in
demand, easing the price decline for farmers who wish to continue growing
tobacco.