Archived Issues

Philip Morris’ continued commitment to U.S. tobacco

February 22, 2005—The tobacco quota buyout will dramatically change tobacco farming in the United States. After years of waiting and hoping, last year brought success instead of disappointment. And it brought uncertainty. With the tobacco program gone, many growers are faced with hard decisions—will they continue growing tobacco? Will they expand their operation? Who will buy their crop and how much will they pay?

Amid all this uncertainty, one thing remains certain—Philip Morris USA’s commitment to American tobacco. Last year about 80 percent of the tobacco we purchased was grown by U.S. farmers. The quality of American tobacco has helped our company succeed through the years, and that’s why a stable supply of tobacco grown in the United States is important to Philip Morris USA. To demonstrate our commitment to U.S. growers, we have already started offering contracts for the 2005 crop year—which we hope will remove some of the uncertainty many growers have felt about how tobacco will be bought and sold now that the buyout is a reality.

Another uncertainty among growers has been the fate of payments into the Grower Settlement Trust. The trust was created expressly for the benefit of growers and quota holders of flue-cured and burley tobacco by Philip Morris USA and other cigarette manufacturers. The terms of the trust were specifically negotiated and approved by elected leadership from the tobacco-growing states and provided for payments to growers known widely as Phase II payments.

The effect of the buyout on the trust was always clear. When the trust was created in 1999, it clearly provided that payments would end if a buyout of this magnitude funded by tobacco companies involved in the trust was enacted.

Last year, as the likelihood of a buyout improved, the tobacco companies involved in the trust joined elected officials from the tobacco-growing states to adopt an amendment to the trust agreement. This amendment was not written by the tobacco companies acting alone. It was co-authored and approved by officials from the tobacco-growing states. The amendment was intended to clarify the rights of all parties should a tobacco quota buyout be approved. The language of the amendment is clear—the companies are no longer obligated to make payments into the trust and are entitled to a refund of all undistributed payments made in 2004, which is the year the buyout was enacted.

Recently, a North Carolina judge agreed, saying the companies were justified in requesting a refund of their 2004 payments. In his decision, the judge pointed out that “all farmers get a huge financial benefit from the buyout. The smallest farmers will get tens of thousands of dollars and the largest farmers and quota holders, millions.” In fact, total payments made to quota holders and growers will be more than three times the remaining amount that would have been paid into the trust.

We congratulate growers for securing the buyout and we believe it will benefit the long-term interests of tobacco growers in the United States. Philip Morris USA is expected to fund nearly half of the $10 billion that will be awarded to growers and quota holders. That’s in addition to the more than $1 billion in payments made by Philip Morris USA to the Grower Trust for the benefit of growers from 1999 through 2003.

While the quota buyout is a turning point for growers, it’s also a turning point for Philip Morris USA—we’re adapting too, moving from the old system to this new system.

Change always brings uncertainty. It’s inevitable. But like the age-old traditions of planting and harvesting tobacco, two things remain certain. Tobacco grown in the United States is the highest quality in the world, and Philip Morris USA is committed to the quality growers who produce it.

Henry Long

Vice President, Leaf

Philip Morris USA