Court Favors Tobacco Growers

Source from:  By MICHAEL YODER, Staff Intelligencer Journal Aug 22, 2007 08/23/2007

$11 million to be paid over three years Lancaster County tobacco growers will be receiving millions of dollars from tobacco companies over the next few years thanks to the North Carolina court system. Pennsylvania Attorney General Tom Corbett announced Tuesday that the North Carolina Business Court recently ruled that Philip Morris USA, R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. must make payments through 2010 totaling $11 million to Pennsylvania farmers and $13 million to Maryland farmers. Lauren Bozart, assistant press secretary for Corbett, said the companies are anticipated to appeal the decision, but the ruling is a windfall for Lancaster County farmers. "As most of the recipients are from Lancaster County, this ruling will have a substantial impact on them," Bozart said. The tobacco payments come from the 1999 Master Settlement Agreement, a $206 billion settlement created to compensate states for tobacco-related health care costs. Within MSA was a trust called Phase II funds. Phase II funds were intended to compensate tobacco growers for a decreased demand for crops after tobacco companies raised the price of products to cover the cost of MSA. The agreement, between tobacco companies and growers in 14 states, called for farmers to receive $5.15 billion from a trust fund over 12 years, beginning in 1999. In December 2004, the companies argued before a lower court that the Fair and Equitable Tobacco Reform Act, signed in October 2004 by President Bush, relieved them of obligations to the trust for 2004 because it was signed in that year. The legislation included a deal in which tobacco companies would pay $10.1 billion dollars over 10 years to holders of tobacco quotas, beginning in 2005. The buyout payments were meant to replace Phase II payments. Tobacco quotas were created by the federal government in the 1930s and prescribed the amount of certain types of tobacco farmers could grow. However, Pennsylvania and Maryland do not participate in the quota system, and the tobacco companies argued those states were not entitled to the money through FETRA. North Carolina Business Court Judge Ben Tennille, the presiding judge in the case, cited a letter from a chief executive officer at Philip Morris in which the trust fund was discussed and said "it provides states, growers and quota holders with an economic safety net for the future." Tennille ruled the safety net for tobacco growers in Maryland and Pennsylvania was removed when the companies decided to withhold payments to the two states without tobacco quotas. Jeff Graybill, agronomy educator at the Penn State Cooperative Extension of Lancaster County, said the court ruling could affect 50 to 60 growers in Lancaster, specifically growers of burly tobacco used in cigarettes. Graybill said 90 percent of tobacco grown in Pennsylvania comes from Lancaster County, and as much as 7,000 acres of tobacco were planted in the county 20 years ago. Today he said there are about 4,000 acres of tobacco. Growing tobacco is a labor-intensive process, Graybill said, and it is mostly conducted in the Amish and Mennonite farming communities. Tobacco has again become a valuable cash crop, Graybill said, especially for small-operation dairy farmers who have taken a hit economically in the last few years. Right now, contract prices for tobacco are about $1.70 per pound, Graybill said, well above the $1 a pound price it fetched five years ago. Graybill said tobacco growers can use the crop to maximize their economic return with only a few acres planted. He said the prices are similar to returns of local vegetable crops. "Tobacco has really helped" farmers, Graybill said. "Everyone can't grow pumpkins and tomatoes in the county and get a good price." Enditem