U.S. Senate Passes Bill to Regulate Tobacco, Buyout Farmers

Source from:  Bloomberg News 07/19/2004

The U.S. Senate agreed to sweeping changes for the cigarette industry, granting the Food and Drug Administration the power to regulate tobacco, and approving a $12 billion industry-financed buyout for farmers. "This amendment sets forth a fair and balanced approach to FDA regulation,'' Senator Edward M. Kennedy, a Massachusetts Democrat, said in a statement. The bipartisan compromise "also provides financial relief for hard-pressed tobacco farmers.'' U.S. tobacco companies such as Altria Group Inc.'s Philip Morris and importers like British American Tobacco Plc will pay $12 billion over 10 years to a government trust that will buy out the tobacco farm quota system. The amendment also gives the FDA the power to regulate cigarette ingredients, require more elaborate labeling on packaging and restrict advertising. "Right now the FDA requires Philip Morris to print the ingredients of its Kraft Macaroni 'n Cheese but not the contents of its cigarettes, even though cigarettes cause one third of all cancer deaths and 90 percent of all lung cancer deaths,'' said Senator Mike DeWine, an Ohio Republican. DeWine married his bill in what he called a "shotgun wedding'' with a plan by Senator Mitch McConnell, a Kentucky Republican, to buyout tobacco farmers through a scaled pricing scheme over the next six years. The measure passed 78-15 as one of several amendments to a corporate tax-overhaul bill. Tobacco Farming The tobacco leaf quotas are part of a system the U.S. Agriculture Department uses to guarantee the amount and price of tobacco a farmer will grow in a year. The amendment today will end the practice and effectively establish an open market for leaf growers for the first time in about 66 years. The Senate chose to place the burden of the farmer buyout on cigarette companies and makers of other tobacco products after the House of Representatives defeated a measure last week that charged a $10 billion buyout to U.S. taxpayers. Tobacco farming has declined since a 1964 Surgeon General's report which first reported the health hazards of smoking. The number of farms growing tobacco dropped by 40 percent from 93,000 in 1997 to 56,000 in 2000, according to the annual agriculture census. Market Share The other main aspect of the amendment is the FDA's power to regulate the sales and marketing of tobacco products. Altria, which makes the best-selling Marlboro, was the only company to support the amendment. "We are very strong supporters of FDA regulation of tobacco,'' said Mark Berlind, a lobbyist for Altria. British American Tobaccos Brown & Williamson group and RJ Reynolds, which makes Camel cigarettes, opposed the measure saying advertising restrictions would limit their ability to gain market share from Philip Morris, which sells one of every two cigarettes in the U.S. Philip Morris's better-known brands require less advertising, competitors said. Retailers typically give the most- prominent counter displays to best-selling brands, a practice that would help Marlboro, which accounts for 39 percent of U.S. sales, if advertising were limited at outlets such as convenience stores, according to Brown & Williamson. "This amendment fails to make U.S. tobacco farmers more competitive and would be financially disastrous for tobacco manufacturers, their employees, their business partners and adult smokers, many of whom are lower- and middle-income wage earners,'' Tommy Payne, executive vice president of external relations for RJ Reynolds, said in an e-mailed statement. FDA regulation of tobacco "will make the smaller companies smaller and the bigger companies bigger,'' said Saxby Chambliss, a Georgia Republican. 'Harmful Substances' The measure will now go into conference with members of the House, which didn't attach FDA regulation to their buyout legislation. Once the differences are worked out, the measure will be submitted to President George W. Bush to sign into law. A similar bill introduced in 2002 by Senators DeWine and Kennedy failed to win Senate approval. The earlier legislation failed in October after Kennedy rejected a proposal from Senator Judd Gregg, a New Hampshire Republican, that Kennedy and health groups said limited the FDA's authority to remove "harmful substances'' from cigarettes. Tobacco use kills more than 400,000 people in the U.S. each year, according to the non-profit American Lung Association, which supports the legislation. This time around, the FDA would have "the authority to remove especially hazardous ingredients to make smoking for those who can't quit or those who don't want to quit less toxic,'' Kennedy said. The measure would also effectively eliminate cigarette vending machines by requiring face-to-face sales and would limit advertising to youth, would require detailed information on product ingredients and would create a federal law preventing cigarette sales to children under the age of 18. Opponents say the compromise is weak because it leaves the question of whether nicotine levels in cigarettes could be reduced to zero in the hands of Congress. Some members of Congress said they feared the FDA would be compelled to ban nicotine as a drug if given regulatory control over it under the 1938 Food, Drug and Cosmetic Act. Enditem