Congress made history with a vote on tobacco in June. But it wasn’t the kind of history that growers wanted to be part of.
By big margins, both the House and the Senate voted to give the federal Food and Drug Administration (FDA) regulatory authority over the tobacco industry, a power no federal agency had ever had.
How will this legislation affect growers in the short term? Probably not much, say most observers. FDA regulation is going to require a great deal of preparation at the agency, including the creation of a new FDA office to administer all the new responsibilities. Little is likely to happen in time to affect the 2009 tobacco crop.
But as regulation takes effect, demand for U.S. tobacco will almost certainly decline, says Blake Brown, North Carolina Extension agricultural economist.
There are three reasons:
• Increased regulation, and increased cigarette prices caused by that regulation, will lead to lower U.S. cigarette consumption.
• Harm reduction technologies will likely reduce the amount of tobacco in each cigarette.
• The emphasis on harm reduction typically shifts demand toward smokeless tobacco products, and they historically have used little burley or flue-cured tobacco.
But all this is very difficult to express in reliable numbers. “We don’t know how to quantify the effects of regulation,” says Brown. “Much depends on how stringent the regulations are written and how quickly they are put into force.”
For the next year, it will be impossible to separate any effects that FDA regulation might have on the tobacco market from those of the $.62-per-pack increase in the federal excise tax on cigarettes that went into effect in April to fund the S-CHIP program.
There might be one positive effect for American growers associated with FDA regulation, says Brown. “Imported tobacco could become less competitive with U.S. tobacco if higher standards are set for tobacco used in U.S. cigarettes, and this might partially offset some of the adverse effects of regulation.”
But on the other hand, the effect of FDA regulation on leaf exports could be negative. J.T. “Tommy” Bunn, president of U.S. Tobacco Cooperative, the flue-cured grower’s cooperative in Raleigh, N.C., says under the new bill, FDA could conceivably impose standards on exports that differ from the needs of export customers.
“The FDA mandate could damage our growers’ ability to service the export market,” says Bunn. “U.S. production that is destined for export should accommodate the needs of the export customer instead of those of the FDA.”
FDA regulation and the SCHIP tax will have more of an impact on flue-cured than burley, says Will Snell, Kentucky Extension agricultural economist.
“The story with burley is that these days 75 percent to 80 percent is exported,” says Snell. “That reduces the effect of any domestic policy change compared to flue-cured.”
The tobacco regulation office at FDA will be financed through a user fee paid by tobacco companies based on their share of the market, and Bunn says his members fear the fee could be excessive.
“Growers expect a continuing escalation of add-on regulations from FDA, especially since the FDA will be funded by the user fee,” Bunn says. “Since current FDA programs are under-funded, the tobacco user fee will provide a windfall of resources to expand the bureaucracy of FDA.”
Senator Saxby Chambliss (Rep.-Ga.) complained after the vote that the industry is “already highly regulated, from farmer to manufacturer. This bill saddles the already overburdened FDA with even more oversight duties and does nothing to reduce the rate of smoking among Americans — cigarettes already on the shelves will remain on the market.”
From an historical perspective, federal regulation represents just one more step in the decline of the prestige of tobacco.
Billy Yeargin, author of North Carolina Tobacco: A History, says that when he learned the legislation had passed, “My initial reaction was that it is a sign of the times.
“What stands out when you look at tobacco history is just how drastically the attitude towards tobacco in this country has evolved. How far have we come? Remember that in the Colonial Era, tobacco was so important to the economies of the mid Atlantic states that they actually used it as their currency.
“It certainly hasn’t been that long since tobacco leaders had a very free hand in advancing the commodity, knowing that its economic impact of the commodity assured a hands-off treatment by government. Now, the strength of tobacco is vastly diluted. We have embarked on a trip down a river of no return, and the situation won’t get better. We have been made smaller and certainly not any stronger, and the federal government can now simply do as it pleases with regard to this crop.”
And all this could get even worse if manufacturers find it more appealing to purchase leaf offshore, he says.
But Yeargin sees another possible benefit from regulation. “Congress has essentially put on itself the onus of answering any criticism about tobacco in this country,” he says. “It has now taken that weight off the tobacco community, and it will probably be a lot more effective at deflecting unfounded accusations about tobacco than the industry has been.”
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