June 4, 2003 | By: Laura Skillman

A preliminary agreement in a price-fixing lawsuit farmers filed in 2000 against tobacco companies won’t mean an extremely large cash settlement to farmers. But it does provide for additional compensation for a depressed industry and the potential for other benefits.

In addition to the settlement payment, the agreement sets a minimum level of tobacco the companies will buy annually along with a minimum domestic content level. It also continues to elevate the buyout issue, said Will Snell, University of Kentucky College of Agriculture tobacco economist.

The suit claimed the companies conspired to depress tobacco prices and dismantle the federal price support program. In the agreement, the tobacco companies do not admit guilt. One company declined to accept the agreement and a trial is set for 2004. Final approval of the agreement is set for Sept. 2003 in federal court in North Carolina.

The $211.8 million settlement includes $200 million for growers and quota holders, $5 million to lobby Congress for a buyout, $3 million for tobacco research and Extension programs at land-grant universities, $2 million to monitor purchase guarantees and $1.8 million for administrative costs.

All burley and flue-cured tobacco growers and quota owners from 1996 to 2000 will be eligible for cash payments. A notice likely will be sent sometime in June with a claim form to follow, Snell said.

“Payment levels on a per pound basis are unknown at this point,” Snell said. “The average burley and flue-cured quota during this time period was more than one billion pounds, which could make the average payment in the 15 to 20 cents per pound range based on one’s average quota during that timeframe.”

The annual purchase commitment of 405 million pounds for the next 10 years is below recent purchase levels, he said. During the decade of the 1990s total burley and flue-cured purchases have generally been in the 500 million to one billion pound range. For this year, buying intentions for both types total 468 million pounds.

“It’s significant that it does make a commitment on purchases,” Snell said. “There is no question they have been trending downward and could fall below that minimum level if the agreement hadn’t been reached.”

The purchase level will be adjusted based on any changes in future cigarette production levels of the settling manufacturers, he said.

As part of the agreement, Philip Morris agreed to have at least 70 percent of the products it sells in the United States to be made with U.S. flue-cured tobacco, with 65 percent being U.S. burley, Snell said. Other companies agreed to lower levels.

In addition to the agreement, buyout discussions and proposals continue in Congress. There are still issues to be worked out on how the $5 million set in the agreement for lobbying Congress can be utilized, he said. Philip Morris has agreed to provide the $5 million and also agreed to help fund a buyout of quotas.                                   

To date, various members of Congress have introduced more than one proposal.

As buyout discussions continue, Snell is working as an intermediary between farm groups, health advocates and tobacco companies to try and get them to agree on a specific plan. Three issues that remain as sticking points are Food and Drug Administration oversight, funding the buyout and whether some type of production control program will remain in place, he said.

“Farm leadership realizes that the number of legislative weeks left in this session is winding down quickly.  Thus, the farm groups are working furiously to get something moving in Congress during this opportune political environment in Washington D.C.  But unless something begins to move soon our opportunity for a buyout will likely fade away,” Snell said.



Will Snell, 859-257-7288