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Philip Morris Proposes Industry Funded Tobacco Buyout

posted on March 19, 2004

Thanks to landmark legal settlements and a shrinking market, the tobacco industry is in a time of transition. To ease that transition for tobacco farmers and quota holders, various buyout proposals have been floated in Congress. But to date, no agreement has been reached, due mainly to disputes over regulation of the industry and the cost of a buyout to taxpayers.

This week, a new buyout plan was unveiled ... not by lawmakers, but by the nation's biggest tobacco player.

Philip Morris Proposes Industry Funded Tobacco Buyout In what appears to be an attempt to get the ball rolling, the Altria (ALL-tree-uh) Group, owners of Philip Morris USA and Kraft Foods, has suggested a possible solution to the problem. This week, Steve Parrish Senior VP of Corporate Affairs, proposed that funding for a tobacco quota buyout be done through an assessment on tobacco companies based on market share.

Steven Parrish, Senior Vice President, Corporate Affairs, Altria Group, Inc.: "We believe that way is for there to be an assessment on the manufacture of cigarettes sold in this country no matter where they are manufactured. That assessment should be based on market share. So, for example, since Philip Morris USA has about half the market share, they would pay about half the cost of the buyout."

Altria Group officials believe the only way this plan will succeed is if the industry-funded transition payments are coupled with the regulation of tobacco by the Food and Drug Administration.

RJ Reynolds, the nation's second largest producer of tobacco products, is not sold on buyouts in general. When reached this week, they had no comment on Parrish's proposal pending a closer look. Altria Group officials later commented that other tobacco manufacturers appear to be more interested in keeping the status quo than reducing the harm caused by smoking.

On the other side of the equation, some tobacco producers are interested in the Altria Group proposal. The Burley Tobacco Growers Association has been in favor of a buyout for several years. Daniel McKinney, CEO of the group, stated he heard about the proposal several months ago but had yet to be presented with any specifics. Of particular interest to McKinney, and his constituents, are how payments would be calculated and what would happen to farmers after the buyout was completed.

For their part, House members are working on a tobacco buyout plan that is expected to involve transition payments of between $9 and $10 billion dollars.

Tags: industry news smoking tobacco