CBSN

Tobacco Farmers At The Crossroads

Damage inside an operating room at Kona Community Hospital on the Big Island in Kealakekua, Hawaii, is shown Sunday, Oct 15, 2006, after a strong earthquake shook the state. There were no reports of fatalities, but the state Civil Defense had several reports of minor injuries.
AP/Honolulu Advertiser, G. Yamamoto
Whether or not Big Tobacco ever pays the billions in punitive damages ordered by a Florida jury, Maryland's tobacco farmers are lamenting the end of an era.

For nearly 400 years, reports CBS News Correspondent Lee Cowan, tobacco has been dependable and profitable.

"Look around this field," says Maryland State Senator and tobacco farmer Tom Middleton. "To me—and beauty is in the eye of the beholder—I don't think there's a prettier crop in the field than tobacco."

Brown & Williamson Tobacco Corp.
DAMAGES: $17.59 billion
  • Headquarters: Louisville, Ky.
  • Parent: British American Tobacco PLC, London
  • Market share: 13 percent
  • Major brands: Kent, Lucky Strike, Kool, Carlton, GPC
  • Employees: 6,000
  • Now many consider it despicable: an unfashionable crop feeding an unpopular industry. Maryland's governor, Paris Glendening, for one, says "I love the farmers, but I hate the tobacco industry."

    So for the next ten years, Maryland is taking the unprecedented step of offering to pay tobacco farmers not to grow the crop that their families have harvested for generations.

    The money will come out of a $4 billion dollar settlement Maryland already reached with the tobacco companies. Farmers are supposed to use it to buy time to look for other crops to grow instead.

    But to everyone's surprise, 90 percent of Maryland's tobacco farmers said they're interested in cashing in—twice as many as expected.

    "For those farmers, like myself, that sadly realize that tobacco production is doomed, this gives us some hope," said Middleton.

    Lorillard Tobacco Co.
    DAMAGES: $16.25 billion
  • Headquarters: Greensboro, N.C.
  • Parent: Loews Corp., New York
  • Net worth: $921 million
    Market share: 10 percent
  • Major brands: Newport, Kent, True, Maverick, Old Gold.

  • Employees: 3,336
  • "Tobacco has been part of my life ever since I can remember, and it's going to be a certain loss, I guess, when we stop raising it—if we stop raising it," said Allen Swann, another tobacco farmer. He has already turned over most of his tobacco fields to other crops.

    But tobacco is what pays the bills, and he's worried he'll have nothing to fall back on if the state money runs out.

    "You could get a payment for a year, two years, three years. Then that money could dry out. And you would be left without a crop and without a payment," Swann said.

    The governor promises that won't happen.

    "I will make sure that we pay for that no matter what, because we cannot leave those farmers caught in the middle," Glendening vows.

    Still, farmers face tough prospects. Eventually, the buy-out program will end, and farmers will have to rely solely on their new crops. There is still nothing, the farmers say, that made money like tobacco.

    Throughout the tobacco industry, questions of survival are paramount after Friday's Florida decision.

    And while many expect Big Tobacco to win a reduction of the whopping $145 billion verdict on appeal, CBS News Correspondent Anthony Mason reports the series of recent lawsuits is having an effect on tobacco sellers.

    Over the next 25 years, the tobacco companies will have to pay off the $257 billion settlement agreed to with 46 states in 1998.

    To do that they've already started raising prices, but that's helped flatten sales in the U.S. Suddenly, the industry is desperately trying to change its image.

    "I think there has been an impact on the industry. And I think the industry is changing their ways," said Maureen Depp of State Street Research.

    Phillip Morris, at last acknowledging the dangers of tobacco, has recently spent tens of millions to discourage teenagers from smoking. For the industry, the about-face was a matter of it's own survival.

    "I think ultimately the tobacco industry will survive," said Depp. "It may have a different form years from now than we know it today. There may be more restrictions. It's very difficult to determine sitting here today exactly what it will be. But I think the industry will survive."

    Philip Morris Inc.
    DAMAGES:
    $73.96 billion

  • Headquarters:
  • New York
  • Parent:
  • Philip Morris Cos. Inc.
  • Tobacco revenues:
  • $19.6 billion
  • Market share:
  • 50 percent
  • Major brands:
  • Marlboro, Benson & Hedges, Virginia Slims, Merit, Basic
  • Employees:
  • 13,000
    For one thing, the industry has a good shot at success in appeals court.

    It's lawyers have argued the billions in damages would bankrupt them, and Florida law prohibits a jury from doing that to a firm.

    And they can join the growing chorus against very large damage awards by juries. The U.S. Chamber of Commerce, for one, called the Florida decision "an obscene symptom of a court system that is out of control."

    "Trial lawyers have subverted the legal system for their own financial gain," said Bruce Josten, Chamber executive vice president. "Legitimate, but politically out-of-favor, businesses have been attacked by attorneys driven by the prospect of absurd punitive damage awards."

    R.J. Reynolds Tobacco Co.
    DAMAGES: $36.28 billion
  • Headquarters: Winston-Salem, N.C.
  • Parent: R.J. Reynolds Tobacco Holdings Inc.
  • Tobacco revenues: $7.56 billion
  • Market share: 24 percent.
  • Major brands: Winston, Salem, Camel, Doral, Vantage.
  • Employees: 7,900
  • The industry can also renew mistrial motions deferred by the judge during trial and ask the judge to apply Florida's four-year statute of limitations to void smoker Frank Amodeo's $5.8 million compensatory award.

    In addition, many state attorneys general don't want the industry to fold. If the states are to get the billions of dollars promised in the settlement—and some states have already planned budget expenditures in anticipation of that money—they need the tobacco industry to not only survive, but to prosper.

    "We think there's an overwhelming probability that the punitive damage award will be set aside," said analyst Marc Cohen of Goldman Sachs. "No tobacco company has ever really paid any money to any smoker in any individual personal injury lawsuit. So any damage that is going to come is to be seen down the road."

    However, shares of tobacco companies were down Friday following the ruling.

    Philip Morris share prices were dow75 cents to $24.25, while shares of RJR were down $1 to $26.125, both on the New York Stock Exchange. Loews Corp., parent of Lorillard Tobacco, was down 31.25 cents at $63.188 a share also on the NYSE. British American Tobacco Industries, parent of Brown & Williamson Tobacco, was down 43.75 cents at $12.313 on the American Stock Exchange.

    Liggett Group Inc.
    DAMAGES: $790 million
  • Headquarters: Durham, N.C.
  • Parent: Vector Group Ltd., Miami
  • Tobacco revenues: $423 million
  • Market share: 1 percent
  • Major brands: Eve, Pyramid, Eagle

  • Employees: 500
  • R.J. Reynolds Tobacco Co. has an estimated net worth of $7.1 billion. Philip Morris Inc.'s is $6.4 billion, Lorillard Tobacco Co.'s $921 million, Brown & Williamson Tobacco Corp's is $894 million and the Liggett Group's is $34 million.

    Also ordered to pay damages Friday were two industry sponsored research and advocacy groups that closed in 1998 as part of the national tobacco settlement. The Council for Tobacco Research, formerly of New York, was told to pay $1.4 million, and the Tobacco Institute, once headquartered in Washington, was fined $278,339.