BY PAUL BARTON
The Cincinnati Enquirer
WASHINGTON -- If Congress pushes tobacco companies too close to the financial edge with a settlement bill, the result could be disastrous for tobacco farmers as well, a growing number of observers say. Sen. Wendell Ford, D-Ky., is warning that Congress might record a "hollow victory" against tobacco companies this year by enacting a bill that drives them into bankruptcy.
That would leave no one left to fund a $28 billion Ford-designed program to help tobacco farmers cope with reduced demand and make the transition to a new lifestyle.
For that matter, it would also mean no funding for any of the other ideas and programs that President Clinton and members of Congress are counting on the industry to bankroll.
While Mr. Ford was among those who voted recently in the Senate Commerce Committee for the bill developed by Sen. John McCain, R-Ariz., he did so with some unease, his office said.
The McCain bill is now seen as the leading tobacco bill in Congress. Mr. Ford was worried that the amount of money the bill proposed to extract from the industry -- at least $516 billion over 25 years -- was beginning to reach the piling on level.
Others are raising the question as well.
"I don't know where the breaking point is but it seems they (Congress) are searching for it," said Blake Brown, agricultural economist at North Carolina State University.
He added, "Obviously, if you go beyond the point of reason, nobody collects the money and that includes the farmers."
Tobacco companies contend the point of reason has already been crossed, but others say the dollar figure that represents a breaking point for the industry is still an open question.
"I don't have any way of gauging that, and I am not sure anybody else does," said Kim Wallace, an analyst at Lehman Brothers.
Regardless, tobacco industry officials contend that they and farmers will become increasingly close allies as the tobacco issue winds through Congress this year.
"I think a bonding process has begun," said Scott Williams, an industry spokesman at the Bozell Sawyer Miller Group, a public relations firm in Washington.
"They both share an interest in surviving and they are both threatened by the legislation in a substantial way."
Mr. Williams went last week to a meeting of tobacco industry officials and representatives of farmers in Charlotte, N.C.
"We need the growers' support to stop the legislation that is moving through Congress," he said of the McCain bill.
Even if the bill doesn't bankrupt them, industry officials see other potential developments that should worry farmers, especially the export restrictions that lawmakers are contemplating.
The McCain bill would likely make companies more dependent on foreign tobacco growers to meet their export demands, Mr. Williams said.
Mr. Brown, the North Carolina State economist, said contemplated export restrictions could lead to a 30 percent to 40 percent reduction in demand for tobacco crops when combined with the cigarette price increases called for by the bill.
"We are talking about increases in cigarette prices that are unprecedented," he said.
The McCain bill calls for a $1.10-per-pack increase.
But the industry contends the effect could be much higher -- up to $5 per pack in added tax increases.
That would lead to the creation of a black market, something else that American tobacco farmers should worry about.
That would create even more incentives for foreign tobacco products to come into the country.
"Mexico has a substantial cigarette industry. You would certainly be concerned about that," Mr. Brown added.
Ohio Gov. George Voinovich, chairman of the National Governors' Association (NGA), said the Congressional Budget Office (CBO) is now projecting that the McCain bill will lead to such a dramatic reduction in cigarette consumption it will at most produce $230 billion to $300 billion.
NGA staff members were recently briefed on the issue by CBO. Mr. Voinovich, when asked how tough Congress should be on the industry, said, "I would push it just as hard as I could, just short of bankruptcy and short of creating a black market for cigarettes."
