Oral History Interview with Albert G. Clay

[Begin Tape #1, Side #1]

KLEE: The following is an unrehearsed interview by John Klee for the Kentucky Oral History Commission. I'm speaking with Mr. Albert Clay this morning of . The interview is being conducted at Mr. Clay's warehouse here in , in his offices. Could you tell me a little bit about your background and how you came into the tobacco business?

CLAY: Well I guess we'll start with my graduating from and then went on to where I got my M.B.A. [Master's in Business Administration]. Prior to that, my father and my grandfather before him had been involved in the tobacco business. Right after college, I came back and went into the auction warehouse business in and purchased one of the warehouses here. And in 1969 . . . well, I guess earlier than that, on completion of my graduate work in 1939, formed what is now called the Burley Auction Warehouse Association which is a great organization, comprising membership of ninety tobacco warehouse . . . ninety percent of all tobacco warehouses in the eight-state burley belt.

KLEE: Did this happen soon, right after college?

CLAY: After . . . the year after I finished college.

KLEE: Now, when you came out of college, that was right in the transition time for the tobacco business. That's when the government programs were starting to kick in. Were there . . . was there no organization for the warehousemen?

CLAY: There was no organization for the warehouses. We were told by the Department of Agriculture in and the Tobacco Grading Service that unless we did something in burley similar to what they had done in flue-cured that we would possibly lose the auction system. So I took the initiative at that time to try to develop an organization similar to the one they had in . . . in the Bright Belt Warehouse Association. At that time, , of course, was the center of the auction system. They even opened their market one day earlier than all the rest of the markets in the state. It was very difficult to get at that particular time to cooperate because they were more or less in control of the entire system. We had no marketing committee or sales committee. But we were successful in organizing, and that year the Burley Auction Warehouse Association which I remained president of, I presume, for twenty-five years. And then . . . and now . . . I was chairman for a good number of years and now I'm chairman emeritus, whatever that means. [chuckles]

KLEE: Tell me how that leadership role fell to you. Was it just . . .

CLAY: Well, primarily I presume it was because at , and the leaders in . . . Mr. John Buckley, Mr. [inaudible] who were very prominent in the auction warehouse business in , felt that would not be able because of the opposition from other markets, to . . . to organize such an organization. And they . . . they realized the necessity of it, because otherwise the auction system might be further . . . further regulated by the federal government, which they did not want. So I guess they picked me to probably initiate it and that's how I became involved.

KLEE: They thought it would come . . . it would go over better with other warehousemen . . .

CLAY: They knew that they could not do it in . There was too much opposition to it. So I mete with them and agreed to take on the responsibility. I was quite young and we had markets like and Maysville which were second to , who felt very strongly that there needed to be some organization that represented the entire industry rather than .

KLEE: Sure. This . . . the burley business, the tobacco business, is a strange kind of mixture between government . . . you know, of course, the grading system and the Secretary of Agriculture does certain things. This burley association was a necessity as this program, I guess, got into gear.

CLAY: Well, it was a necessity because Mr. Gage at that time, who was the head of the Tobacco Inspection Act . . . Tobacco Inspection Service, just sent us a message in burley that unless we more or less cleaned up our act and conformed to better marketing methods, that they were going to have to clamp down and maybe put us under a federal marketing committee. The flue-cured had gone through this two years prior to that, so Governor [inaudible], who was then governor of North Carolina, Fred Royster who was . . . had the same capacity that I basically assumed was president of the Bright Belt Warehouse Association . . . I invited both of them up to a meeting in Lexington and invited every . . . representative of every warehouse in the state of Kentucky to that meeting, and that's . . . that's when we formed the organization.

KLEE: So you had a general meeting of all the warehousers?

CLAY: Had a general meeting of all the warehousemen.

KLEE: Was that in `39 then?

CLAY: That's in 1939.

KLEE: And agreement was pretty . . .

CLAY: I think the articles of incorporation were drawn after that meeting. We . . . we elected officers and went into business at that time.

KLEE: Who . . . was . . . was there a prominent attorney at the time that helped . . .

CLAY: My brother, William Clay, who represented I presume the government. When he went to law school at Yale and was on the trial. Matter of fact, he was one of the chief attorneys in the trial of the anti-trust suit that was brought against the companies. Was tried in . And he worked for [inaudible] who was then attorney general, and he had some knowledge because of that. He was practicing law in Mt. Sterling, so naturally I fell upon him to advise us on how to organize and draw up the .

KLEE: Now that was at that time . . .

CLAY: That was at that time . . .

KLEE: . . . [inaudible] any . . . when the anti-trust . . .

CLAY: The anti-trust suit was prior to that.

KLEE: Right.

CLAY: Um, hmm.

KLEE: Okay. So what does . . . how does the burley association then work with . . . you set guidelines I guess for its members?

CLAY: Well, the Burley Auction Warehouse Association . . . the by-laws set up fair trade practices, created a sales committee that operated to set opening dates, selling hours .

KLEE: Now that's a state sales committee . . .

CLAY: No, this is the eight-belt sales committee. You have to realize the difference between flue-cured marketing . . . there's been so many changes since the act of 1938 which set up price supports and so forth and so on, and the ninety percent parity rule. The marketing system was not regulated by the federal government. The flue-cured felt that the need for public relations and to clean up their marketing system to create an association which we called the Bright Belt Warehouse Association. We patterned out organization and by-laws primarily after theirs, although they were only two or three years old. After that, and many years after that, because of the competitions that were arising on leasing, the sales of leases, some of the . . . preventing some of the warehouses operating without any regulation, they felt, in Washington and so did flue-cured, to set up a federal marketing committee which is under the supervision of the Secretary of Agriculture. Because we have had, and did have from the beginning, although the membership of that sales committee has changed, and because the companies refused at one time to serve on it because of anti-trust laws . . . our sales committee was an industry committee composed of warehousemen and growers and companies at one time, and were not regulated by federal law. Although we did ask the federal authorities to enforce whatever regulations we set up, which they had done. We've been able to maintain that committee without being a federally marketing committee. Flue-cured did go to a federal marketing committee and they had, I think, a thirty-eight man committee that does pri-, primarily the things that we do, but we have maintained our independence.

KLEE: What are some of those kinds of regulations?

CLAY: Well, primarily is . . . is . . . the opening of the market, the sales hours to cut down congestion. Sometimes, in emergencies, to . . . for the sales committee to meet and declare holidays. Set up fair trade practices on when tobacco is weighed and delivered to the warehouse. Nesting provisions. All provisions that . . . because farmers serve on that, that would be to the benefit of both the grower and the warehousemen and the companies.

KLEE: For the uninitiated, nesting refers to people putting things in their tobacco?

CLAY: Well, of course, this . . . this is a federal . . . under the Tobacco Inspection Act, it is illegal for a farmer or warehouseman as his agent, to nest tobacco. And this also can be construed in some states as illegal.

KLEE: Let me . . . I've got several areas I'm gonna talk about, but let me just kind of go through a little . . . let you look back over the history as . . . as you've worked with tobacco, and ask a few questions. For example, the types of tobacco over the years. The tobacco that you see on the floor. Has that changed very much, and how has it changed?

CLAY: Well, we've gone through a period of rather drastic change from the beginning of the auction system. Number one, tobacco of course, and burley was always sold being hand-tied. It was graded in . . . early in the [inaudible] and many grades on the stalk, from the . . . what they called bottom leaves or flyings and separate and maybe have six or seven grades. And of course that's changed now to practically three grades. Another change, of course, we went through the transition of how to package the tobacco. And that has gone on over the last ten years to where it's now changed from hand-tied primarily to baled tobacco. They went through a period of trying sheets like they do in flue-cured which didn't work out, and now there's an effort on the part of the trade, both companies and warehousemen, to get one package, and eliminate completely the . . . the sheets, which have almost eliminated themselves, but eliminate hand-tied and have one unified package.

KLEE: I see. What about the amount of tobacco that's come into the warehouse. That . . . that's not varied too much over the years?

CLAY: Well at the time when we had acreage instead of poundage, and we had some rather large crops. I recall some crops in the area of seven hundred million and, of course, now tobacco is stripped much earlier because of the bales than it was when we hand-tied. But there was a great deal of congestion, waiting on the part of the growers, trying to get the tobacco sold prior to the Christmas holidays because it just so happened that when you had a large crop, why the companies fulfilled their requirements, and then after Christmas the price would go down, so the farmers were anxious to sell as soon as possible. With that size of crop and . . . and the number of hours that we sold per day in order to keep the redryers not being too congested, naturally there was . . . there was a tremendous load on the warehouses and the farmers could not get all the tobacco they wanted sold prior to the Christmas holidays. So that required further regulations and . . . on the part of the sales committee to regulate those hours so you could have an orderly marketing system.

KLEE: And that . . . the sales committee, what? They stretched out the season a little bit?

CLAY: Well, we tried to open earlier than they did before, depending on the crop being matured. Cut down the number of selling hours. Course that required some farmers making arrangements to register their tobacco for delivery which was unpopular. Course now that [clears throat] . . . excuse me . . . that the crop has become smaller because of demand, and we're raising now for five hundred million [inaudible] seven hundred million . . . even though there's a smaller amount of tobacco grown, they can strip it so fast with the bales . . .

KLEE: That's true.

CLAY: . . . we still have the same problem of congestion and getting the tobacco sold prior to the Christmas holidays.

KLEE: That was . . . that brings the other question to mind. The selling season used to last a lot longer, didn't it? I think the . . .

CLAY: Well, the companies . . .

KLEE: [inaudible]

CLAY: . . . always preferred to open the burley market after the first of the year. Now they did that for two or three reasons. Num-, number one, it gave them time from the flue-cured season to the burley season to adjust their . . . their organization, financial [inaudible] more or less because of the money they had to pay out. But it took . . . it put a handicap on the burley growers because they needed their money prior to Christmas. And so, as a result, the sales committee asked the committee to serve on their committee and they did for awhile and then their lawyers advised them not to. So at the present time, we have what we call the advisory committee to the sales committee that makes recommendations, and they serve on that. But they do not have a vote on the sales committee.

KLEE: But the company had almost . . . take that concession because the farmers wanted that tobacco sold?

CLAY: Well it's pretty much, I think, because of the stress on the tobacco program and losing it. You're seeing in the last five years, more cooperation between growers, warehousemen, and companies in order to save the tobacco program through the no-net cost, the Tobacco Reform Act, and so forth and so on. They realize that it was to the benefit of the companies to have domestic tobacco grown in an amount that would satisfy their needs. And of course the problem that you'll probably get into later is the . . . the use of off-shore tobacco which has really caused most of our problems as far as price and overproduction.

KLEE: The companies, the buyers, have they changed drastically over the years? Who does . . . did the most business? What kind . . . tell me a little bit about that.

CLAY: Yes. You don't have as many buyers following the auction sale as you did ten or fifteen years ago, and it continues to decline. The reason for that is that . . .

KLEE: You're talking about now, like at your market here, what? You had ten buyers?

CLAY: We usually had maybe eight buyers and now you get down to six.

KLEE: Oh, I see.

CLAY: The reason for that is that some of the companies, the major companies, the top four or five companies, their business has declined to the point . . . like Liggett & Myers Tobacco Company who . . . now has practically put all of their business in the hands of dealers. They do not have any buyers of their own. American . . . American Tobacco Company is . . . started three or four years ago doing the same thing. They took some of their buyers off of some of the markets completely where they did not particularly like that type of tobacco, and now they have given their orders to dealers to cover, maybe not on those commodities, they're off completely, but on other markets where they've had regular buyers. They've replaced them with dealers. So I think in . . . in all cases, in both burley and flue-cured, you have certainly a smaller number of buyers than you had eight or nine years and less competition.

KLEE: Can you give me a few more of the old-time names that you might not hear anymore? Some of the companies that come to mind?

CLAY: Well, in . . . in the domestic companies, of course, Lorillard Tobacco Company has almost, in the last ten years, not had their own buyers. They've had their own supervisors, but they . . . they put their orders out to dealers. Philip Morris went from their own buyers . . . I mean from Universal, which . . . leaf and then burley which is their subsidiary, Southwestern Tobacco Company . . . they bought all the tobacco for Philip Morris, both the flue-cured and burley. And Philip Morris switched over five or six years ago and had their own buyers. They found that was not economical, so now they've gone back to Southwestern and Universal, and probably place some orders with other . . . other dealers.

KLEE: Right. Talk . . . while we're talking about buying, what about our export market? Have you seen it . . . and of course, I know you only do this second-hand through the buyers and . . . but you're probably aware of what kind of market that's been . . .

CLAY: Well, I've been involved in the export business. You see, I'm not only . . . have been in the warehouse business, but I've been in the processing business and also buyer. And I've bought tobacco and at the present time, I've sold my warehouse interest, and my interest now is in Clay Tobacco Company which I buy tobacco on the market for processing and selling to the company dealer on order or speculation.

KLEE: Oh, I see. So you're . . . you're one of those people that they might ask to buy?

CLAY: Well, as I say, I wear several hats. I raise tobacco. I was primarily in the auction business and then went in to the processing and redrying business here in Mt. Sterling with Clay Tobacco Company, and then after selling my auction warehouse business, I went back into the dealer business, which I'm actually now considered a tobacco dealer.

KLEE: Okay. Is the . . . is the processing business still going on now?

CLAY: The processing business is going on, and it's changed quite rapidly. When we had bundles, why I had, for instance, two super-dryers here in where I redried primarily for tobacco that went under government loan. When the government switched because of the market trend from bundled tobacco and being redried into what they call strip operations, making strips, my equipment was obsolete, so therefore I sold that company to Miller Tobacco Company and of course they still put up some bundles for . . . for foreign buyers, but . . . and . . . and redried leaves, but we . . . most of the processing plants that are now dealer processing plants are in strip operations completely. All of the government tobacco grown under loan is put up in strips rather than . . . than . . . than in . . . in drying in the full leaf.

KLEE: Oh, I see. You . . . you . . .

CLAY: In other words, they blend . . . they blend the . . . they make a blend just like the companies do for use in cigarettes.

KLEE: Yeah. It . . . it's . . . the stem's taken out . . .

CLAY: The stem's taken out and they will put maybe five grades together. It used to be that they would only put one grade up, a B3 up. Now they'll put a B3 up, with a B4, and some other 3-grade, something like that.

KLEE: Let me take you back to that . . . I . . . I . . . as you know, as you said, I wasn't aware of those other . . . those other hats. But back to that foreign business question: who have been our foreign customers and how has that varied over the years?

CLAY: Well, course the records indicate and statistics that you have from the U.S.D.A. [United States Department of Agriculture], the export of burley tobacco climbed considerably after the war because I think that the . . . during the war, the . . . the blended cigarettes because of the soldiers in and abroad, they acquired a taste for it over there, Europeans. So as a result from that, there was not much burley grown at that time in foreign countries other than maybe some in and . And so they started buying American export tobacco. It picked up considerably and went up gradually from maybe up to maybe fifteen percent of our market, which helped us a great deal. And most of that were in the top grades, the highest priced grades, because they wanted to increase their blend and their quality. Then another transition started taking place as far as price is concerned, although we in the United States, I think, have held onto our quality in burley because of our land and our ingenuity and . . . and soil practices and so forth and so on. However, the tobacco that was raised in the . . . outside of the United States, burley tobacco, became larger in use primarily because the companies found out that they could buy cheaper, much cheaper . . . maybe a third or less. And as a result of that, they reduced their purchases of domestic tobacco, tobacco and bought off-shore tobacco. And that's one of the problems that was created of our loss in production and the necessity in later years of making changes and reducing our price supports to compete abroad.

KLEE: Now, there was . . . that . . . when the companies started going overseas, of course, cost was a . . . was a factor. It was . . . there were a few short years there for the . . . for the burley farmers too, as far as crop years, weren't there?

CLAY: Well, yes. The . . . the main factor in . . . in . . . the size of the crop depends upon two things: number one is the allotment that the farm receives by history, whether it be when we had acreage or whether we had poundage. But the main factor, more than anything else, is weather.

KLEE: Sure.

CLAY: And sometimes we would have an exceedingly large crop and a large amount would go under loan and as you know, all of the . . . prior to the last two years after they passed the tobacco reform act, why the quotas were set on a formula basis. And that formula basis [inaudible] because they would use what they thought were the right percentages on what the export market would be, what the best [inaudible] would be in the United States, but that would change. And then the quality of that crop, the companies would not like it. Like the `83 crop, which they considered very bad. But actually the . . . the problem that the use of off-shore tobacco created because we were reducing, in the United States, because of the health issue, from the time that the health issue appeared back, I guess, in 1939 or `40 . . . or 1969.

KLEE: Yeah, right. In the 60's.

CLAY: The use of tobacco in cigarettes started declining at about one to two percent a year. And prior to that, it had been going up at around five to six percent. So if that issue had not . . . had not . . . occurred, we would be growing a lot more tobacco now than we were prior to the health issue. So it was kind of a double whammy. The health issue came, so our production or consumption started declining, plus you had the competition from off-shore, so . . . Competition from off-shore, and as a result of that, we started accumulating large surpluses in our main organization, both the flue-cured and burley. And that's what caused the no-net cost because we were about to lose our program from congress because it was being discussed as a subsidy although it wasn't a subsidy. The . . . it really didn't cost them . . . burley didn't cost the . . . the government or the taxpayers any money. But as a result of . . . of the accumulation, and a large . . . the prices and the large amount of money involved and the pressure of congress, we had to do something. So all forces joined together and . . . and got the no-net cost legislation passed which was a mandate at that time to hold the program together and then we still accumulated, and we still had to charge the growers a large no-net cost, and it . . . the companies were paying part of that no-net cost. So then the issue came up again in congress so it do-or-die, and we had to adopt the Tobacco Reform Act, which is now in effect and hopefully has stabilized the program and the program will, depending on other . . . other forces, as far as taxation, the health issue, would hold the allotments or the amount of tobacco that is now being grown can continue to be grown at a fair price where the farmer can make it.

KLEE: Was there a period there, say in the 70's, where we were just too secure? That we didn't see what was happening on different sides? I . . . the reason I ask that question, I know that, you know, we were sending people overseas to show them how to grow tobacco, and . . .

CLAY: Well, you know, there's a lot of factors. For instance, I know . . . I guess fifteen or twenty years ago, when we were really concerned about the companies using off-shore tobacco, my association sent me to Greece because we understood that the Greek government was . . . was raising and subsidizing a large amount of burley tobacco that actually wasn't going . . . coming to the United States, and they had a law in Greece when I got over there to find out that it was against the law to use any tobacco in their cigarettes other than Greek tobacco. And we were one of their largest buyers of Oriental tobacco from . So it was a one-way street as far as trade was concerned. And in my meetings with the tobacco monopoly which they have in Greece, I . . . and then there was . . . in Turkey there, I found much to my chagrin that they asked me if I knew Ira Massie and Dr. . . . I think Debow . . .

KLEE: [William D.] Valleau . . .

CLAY: . . . at the , and I said yes, I know them very well. And they said, well, you know they had been to and they were ones that were very helpful in showing us not only how to grow the tobacco, but to bring the seed over there. So that was true that the . . . the University of Kentucky and other . . . University of Tennessee . . . were helping other countries grow tobacco that eventually would . . . would be in competition to us.

[End Tape #1, Side #1]

[Begin Tape #1, Side #2]

KLEE: This is side two of a tape with Mr. Albert Clay. We were kind of going back and going over this kind of history. Let me just kind of take it by decade. I guess the 1940's was kind of a really energetic time for the tobacco business because of the war and new mar-, new markets opening up. Was . . . what . . . the 50's, is that when they introduced the filter tips?

CLAY: Yes, the filter tip was introduced primarily because of the health reason, and of course the tobacco act of 1938 gave tobacco probably an advantage over all other commodities because it was a separate part of the congressional action on parity, and we were given the right to support at ninety percent of parity. And that's probably why our prices became too high and non-competitive. But I think the growers realized and certainly the companies realized that we had to do something, and that's when I think we went to congress and . . . and asked that they reduce the parity from . . . at 1938 . . . for the 1939 crop. It came up to about eighty percent of parity. Something in that nature. And then, I think we went back again. I think it was in 1960 and asked congress to support the tobacco in 1961 at the `59 rates, which was unusual for the grower organization, the Farm Bureau and the warehouses to say, look, we realize there's a problem, we've been riding high here, but we don't want to be too greedy, and therefore we asked congress to change the law, which they did. And then we cooperated in the recent changes in the no-net cost and the . . . also the tax . . . the Tobacco Reform Act.

KLEE: Now I believe it was around `70 when they went from the tobacco acreage to the poundage. Was . . .

CLAY: The reason . . . the reason for that was that farmers were getting good prices for the tobacco. There was a large demand for the companies because the cigarette consumption had been going up for some time, and there really wasn't any way for the federal government to . . . to really adequately check on a farmer, on his acreage. And there were a lot of hidden acreages, and they tried to do it by airplane and so forth, but the farmer would come in and make thirty-five hundred pounds to the acre, and there was no way that . . . they tried to measure it but they just didn't . . . did not have adequate supervision. So the . . . the need for going to the poundage was for a better control of production. Flue-cured went to acreage and poundage together, and as you know, burley remained with just poundage. So it's . . . it's worked pretty well on controlling . . .

KLEE: Were you actively involved in this decade? Course there's been tremendous changes. We bale tobacco now, and course you mentioned the no-net cost and the . . . what came to be called the Reynolds Plan, what the legislation's called, but the new tobacco program. Were . . . were you active in any of that?

CLAY: Yes, I guess I was probably the most active of anyone because I was sort of in between the companies and the Farm Bureau in the meetings that we held and organized at the which I'm connected with.

KLEE: You . . . you're on the board?

CLAY: I'm now on the board nineteen years. Have been chairman, and now vice chairman of the board. And had worked prior to that time very closely with the College of Agriculture with all the deans and the . . . being . . . my position, of course, with . . . with the Burley Auction Warehouse Association and after the health issue hit, we formed . . . I say we, it was a group of . . . of companies and grower and warehouse representatives that formed what is now called the Tobacco Institute. At that time, it was called the National Tobacco . . . Council for Tobacco and Health. And I was a charter member of that, and the only one living today, matter of fact. [chuckle] I've been the only one living for the last eight years, but we took full-page ads throughout the entire and forming what they call the National Tobacco and Health Institute, and which is still in existence as a matter of fact. And I served on that for about twenty years.

KLEE: That's the Research Institute . . .

CLAY: That's the research part of it. And then, from there, I guess I had a great deal to do because the tobacco industry itself had no spokesman in Washington, so to speak, and forming what now is the institute and I called all the presidents of all the tobacco companies together and they were really gun-shy of the . . . of the . . . the law, of course. Of . . . they had originally been accused of violating the anti-trust laws and they were . . . they were afraid [inaudible] lawyers to attend such a meeting. But things became so desperate that they did accept my invitation, all but one company. I think it was American Tobacco Company, because their lawyers advised them not to. It was from that meeting that they created and formed what is now the Tobacco Institute in Washington, which is . . . represents the entire tobacco manufacturing industry.

KLEE: Which the . . . course the anti-tobacco forces realized that's the institute that some people see as being very powerful and . . .

CLAY: Well, it's the lobbying group. Naturally, any industry has a lobbying group, and they've been very effective in fighting anti-tobacco legislation, anti-tax legislation, and protecting their interests, as well as the growers. Now, an offshoot of that is called the National Tobacco Council, which I was vice president of up until last year because it was suggested that my predecessor . . . my . . . the one that took my place, Ben Crain, go on that National Tobacco Council. But I was vice president of that for, I guess, from its inception.

KLEE: I guess the point I was gonna make is, it must be a pretty effective lobbying group if it has so many enemies. People saying that, you know . . .

CLAY: Yes, and . . .

KLEE: . . . the anti-tobacco forces . . .

CLAY: Yes, and of course too, they're faced, as you well know, with tremendous amount of economic coercion, of litigations, excessive taxation, smoking restrictions, you know, from every state by passing laws. I was president of the Tobacco Tax Council for five years, and that was the only national organization before the institute that ever fought any taxation on the state level. And now we have merged that into the Tobacco Institute and it's a part of the overall organization.

KLEE: What was the time frame in there? When was this taking place?

CLAY: Well, I became . . . I became president of the Tobacco Tax Council after I came back from the service. I guess it was in 1942. And I served as president for three years. It was based in . And we operated only as a grower and warehouse operation, an organization without the companies being members, in fighting grass-roots taxation from the state level, up until about five years ago when it merged with the Tobacco Institute.

KLEE: Then the Tobacco Institute? When was . . . when were those meetings and that activities taking place?

CLAY: Well, of course, in 1969 I presume, is when the first Reader's Digest article came out attacking tobacco and health. After that, there was a series of meetings in that . . . I was a charter member of the National Tobacco Research Council. That was probably in 1970, and then in 1973, I believe, around that time, the Tobacco Institute felt, well we formed two or three organizations. [chuckle] We had the Tobacco and Health Information Committee, that Mr. Bowman Gray and I created that name and that was for the purpose of an independent organization to go out and argue the other side of the issue, in light of the freedom of trade and so forth and so on. And from that time, I think, in 1974, when actually the surgeon general became involved in tobacco and health, that the institute had . . . the first president was Ambassador Allen, who was a career ambassador. He was president of the institute for three years. Then he really did not have the expertise of what's needed in as far as political doors and so forth, so at the recommendation of Congressman John Watts and I, the institute hired Mr. Earle Clements, our former governor and senator. And Mr. Clements, of course, with his experience did a tremendous job of . . . of steering the tobacco institute in the direction of proper lobbying and presenting their case in the manner that has been very successful.

KLEE: Let me ask you about some of those . . . you mentioned some of them. What kinds of people have been supportive of the tobacco program? What . . . I guess, you know, you have to really go to the national level . . .

CLAY: Yeah.

KLEE: . . . what kinds of people have you-all depended on? What kinds of people, over the years, have you called if there was a challenge or something?

CLAY: Well, in . . . in the political arena, we considered John Watts, Congressman John Watts from the Sixth District as being our Mr. Tobacco in congress. And he pretty much led our charge and protected out interests. I would have to say that Mr. John Berry, Sr., who was president of the Burley Cooperative Association . . . Mr. Berry was very instrumental, I think, and his leadership not only at the Kentucky level with the cooperative association and the Commodity Credit Corporation, but also politically with Mr. Watts. Prior to him, there was Mr. John Willy Jones, who was a great stalwart who represented the burley farmer and the burley interests. So then from there, you go on . . . members I can recall. All of the presidents of the Kentucky Farm Bureau, Ray Mackey in particular . . . Ray, since he's been president, has . . . has furnished a great amount of leadership as far as the meetings were concerned and coming about with the no-net cost and also the . . . the Tobacco Reform Act. And his perceptions and leadership and convincing the farmers that this was in their best interests was a tremendous help.

KLEE: I know this is kind of a loaded question. What about our present people? Do they . . . are they on the level with some of these people you talked about in the past, or are they not that knowledgeable or . . .

CLAY: Well . . . I think we're . . . we're talking about a different era and a different situation.

KLEE: Sure.

CLAY: Things . . . of course, Mr. is still living. He's still interested. He's not active, as far as the general counsel, I think maybe his son is general counsel now, John Berry, Jr.

KLEE: Right.

CLAY: But Joe McDaniels, as president, has certainly been very active. And his counterparts in . I think it's been a more or less a joint effort. We have many organizations. We have the Council for Burley Tobacco. We have the Tobacco Information Growers Committee in . And we have, of course, the . And I think there's been a real effort on the part of everybody in the past six years because they realized it was critical to saving the program that they work together and compromise, and I think that's what . . . the salvation, not only in burley but in flue-cured, and the compromises have been made, too, by the companies.

KLEE: Sure. Let me ask you. People don't . . . that don't understand or don't know, why is it so important to save this program? What does, what does it do for the different areas [inaudible] . . .

CLAY: Well, all you have to do is look at the . . . the statistics. Of course, tobacco has always been and maybe does not hold that position now, the number one agricultural crop in the state of . And, of course, that creates not only income from the farmers to the merchant, which turns over in the banks many, many times, but it provides a lot of employment, seasonal employment both in the tobacco warehouses and on the farm, and in factory.

KLEE: Redryers.

CLAY: So it's been a . . . one of our strongest, you might say, economic methods of . . . of raising money for a rural state.

KLEE: Sure.

CLAY: And that's why it's . . . I think the emphasis has been on that, both in the legislature and in the .

KLEE: Because of your relationship with the , how has that . . . how have you seen that, over the years, develop as far as its role in the promotion of tobacco and helping the farmers?

CLAY: Well, I been through . . . let's see. I guess three or four deans at the , and they've always, of course, taken the lead in the area of research. Bill Natcher, one of our esteemed congressmen, was responsible for getting the designated, and this was during the Tobacco and Health days of the National Tobacco Institute at the university. And we got some funding for that from , and course that has been carried on, and then we got . . . I say we, the industry, cooperated. Tom Harris was one of the leading forces during that period of the legislature. I think he was the Commissioner of Agriculture when they passed the law giving the University of Kentucky a cent and a half of the . . . of the three cents that . . . tax on cigarettes for our Tobacco and Health Institute. We went through some troublesome times and troublesome days in that institute. I was on that board, but I think that everyone now agrees that we're on the right direction at the Tobacco and Health Institute, and we're trying to find out what is it, if anything, that is injurious to health in the tobacco weed itself. If there is, they can remove it, and so we're making great progress, I think, in that area.

KLEE: One of the . . . one of the misconceptions I think some people have is the tobacco program is like a giant monster, and they all work together, each little aspect of it, and they're, you know, I guess against the anti-smoking forces.

CLAY: Yeah.

KLEE: As you get to know things better, though, you know that there's all kinds of subdivisions, and you mentioned really dozens of organizations. Over the years, have they not cooperated very well? I'm talking about the warehousemen and the co-op and the Farm Bureau and all these different groups?

CLAY: Yes, and I think that was a need for forming the warehouse association. I don't think the relationship at that time . . . prior to that time . . . was very good between the growers and the warehousemen. Or the Farm Bureau and the warehousemen. I think that was a need for forming the association. I think, also, with the dealer organization and they representing the companies, they had certain things that they felt that were needed in the system. The growers felt otherwise because they felt that maybe they were being discriminated against on prices and the companies buying off-shore tobacco. So I think things have improved because of necessity and because of threats of losing our program, and therefore, people were willing to sit down and talk, where they weren't willing to do that before.

KLEE: There's more examples of organizations now that are comprised of other organizations, like the Council for Burley Tobacco and . . .

CLAY: Well, I think that we're all in the same boat. If they developed a leak, one of them, they all went down together. And I think that the leaders of these various organizations, particularly Farm Bureau and I mentioned this to Mr. Mackey, I think that Ray had enough foresight and enough intelligence to realize that this was a problem for everyone. No one was trying to really take advantage of the other ones, and the tobacco program was going to be . . . if it were saved . . . it would be good, as good for the growers as it would for the warehouses and the companies themselves. And I think in the long run, when we went through all these meetings and almost lost it by one vote, indicated that if it had not been for the unification and the ability to sit down and talk, we wouldn't have made. It was as simple as that.

KLEE: In these fifty years that you've been associated with tobacco in various ways, is this . . . is this time period unique? I mean, have there been similar challenges in the past or is this really . . .

CLAY: Not as serious as this one is because, I think, of the health issue. The health issue presented many, many problems, not only from the standpoint of . . . of reducing the amount of tobacco that a farmer could raise, and the price that he could get, which is continuing on and every day, right now, we're faced with restricting advertising. In other words, there's a bill in the congress now that says that if the company advertises, which they did take them off the air, but if they advertise now, they can't use that as a tax deduction. And they've got fifty sponsors of that bill. There's another bill, of course, to increase the excise tax another sixteen cents, which will take its toll on consumption. And then you've got . . . you've got the everlasting worry that tobacco is becoming more and more unacceptable socially, as far as . . . as far as smoking is concerned.

KLEE: Which has a tremendous impact [inaudible] . . .

CLAY: Oh, well, every time you lose two percent in consumption, it's gonna reflect back on what the farmer can raise. So these things are going to continue and the readjustment has not completely been made.

KLEE: You say that you've been involved with dealing in tobacco now. Is that a place where the farmer and dealers like yourself maybe will take heart as far as . . . I was thinking about the foreign market in particular. Is there a foreign market out there waiting [inaudible].

CLAY: Well, there's a foreign market for the finished product. If not . . . had not been, I think, for the salesmanship of the companies throughout the world, of their product of American just like recently in Japan, they're now making inroads in Japan which they hadn't before of the restrictions. But if you travel in , which I have to do quite often, you can see the popularity of the American cigarette over there, and the companies, if they use American tobacco in the cigarette, and then export the final product, that's good for our growers.

KLEE: I see.

CLAY: And one thing that I think's positive that came out of the tobacco reform act . . . and it was a compromise . . . in reducing the support price, going to the companies being allowed to put in their say-so about what the allotment should be because they have to give to the U.S. government, prior to the secretary setting the quota, their utilization and their prediction on what they will utilize in their particular products. And the result of all of these things, they have agreed, of course. Two . . . two of the companies have outwardly come out, Philip Morris and Reynolds, and others I . . . I happen to know that, although they don't make such statements, that they're not going to use any off-shore tobacco. I think this has completely accomplished what we have never been able to accomplish: the companies buying off-shore tobacco as replacement for our burley, and that's very, very positive.

KLEE: As far as your . . . your view of the present situation, then, you say that the adjustments have totally been made yet, but that there are some bright spots?

CLAY: Well, the bright spots . . . I'll . . . I'll . . . I'll focus on burley more than anything else . . . is that under the tax reform act, I mean the Tobacco Reform Act, we got rid of our `83 crop completely. The only thing we have now in . . . in our inventories are crops of, I think, `86 and `87 . . . or `85 and `86 or `7, which are very small. And that will not cost the taxpayers any money because in order to meet the market price and the companies have agreed under the Tobacco Reform Act to take those tobaccos out at the price after the no-net cost assessment is made to the grower. So we should not have any more surplus problems. What it depends upon is whether our disappearance or consumption of the product at home or abroad will help us maintain the present quotas that we now have, and hopefully, after those surpluses are worked off, then the farmers will enjoy, maybe, an increase in their . . . in their production if the market and the consumption doesn't continue to fall.

KLEE: What has been the impact in the last decade, let's say, to people in the tobacco business? For example, you mentioned that some companies don't sent out as many buyers. Have there been people dropped out of the warehouse business? What about farmers?

CLAY: Well, I think that all have . . . have depleted in number. I think the farmers because the tenant farmer cannot afford to raise two or three acres of tobacco and make a living on it. He's either got to moonlight, so therefore, the reduction in pounds that has occurred over the last five or six years has taken its toll on . . . on the number of people that are involved in raising tobacco. By the same token, the less tobacco that's grown, there's less profit for the warehousemen, certainly. And the companies have reduced their sets of buyers, in the last two years, by about six sets a year. We're now down to fifty-two sets of buyers. So that means that they have to take one set of buyers in some markets and serve three markets. So that readjustment is still taking place, and probably will continue because the companies found out that they . . . because their consumption or their disappearance or their . . . their product is going down, they're going to have to make adjustments in . . . in their costs. And they do that by maybe cutting down the number of sets of buyers that they buy . . . that they use, both in flue-cured and burley. So that . . . that hasn't completely come to a stop.

KLEE: You've been fighting tobacco battles for many years, and I'm sure you've had occasion, particularly in . . . in recent years, what do you . . . when . . . when someone finds out you're associated with tobacco and gives you a certain look or whatever, what . . . or . . . or says we ought to eliminate advertising or some of those things, what kinds of response do you make? What . . . what is the most . . . you know, what comes to mind?

CLAY: Well, probably I haven't been placed in that position as I was when I was active and president of the association. But my perception would be that it would be the same defense that the companies are taking now, that it's a freedom of choice. Most of the . . . the findings of the association of tobacco and health at statistical. Anything you do to excess is harmful. It could be that . . . certainly use of tobacco to excess would be harmful. But I think under our constitution, and under our way of life in the , that it's a matter of constitutionality of freedom of choice, of whether a person wants to smoke or whether he doesn't want to smoke. As far as the advertising is concerned, I don't really think that when the companies were forced by law to take their advertising off of television, they saved a lot of money because they were spending a tre-, a tremendous amount of money for advertising. The sales of their product then dropped because of the advertising. Now they're talking about taking advertising . . . completely banning all advertising. The only thing that would hurt, probably, would be of bringing out a new brand. If a company wanted to bring out a new brand, they would find it very difficult to advertise it and so forth and so on. But that . . . that does not appear to have that great an impact on the consumption of the product.

KLEE: Do . . . do you think people forget about . . . for example, in that tens of thousands of farmers and the small businesses and so forth depend on tobacco farming?

CLAY: I don't think they think that much about it, and of course the . . . unfortunately the newspapers in have not been very friendly toward it because you'll see some of the worst articles concerning tobacco in our own paper. We have been able to maintain in our legislature a very low cigarette tax. I think 's probably the lowest, and we're next. So I think the legislature, because of the rural nature of their constituency, understands that.

KLEE: Sure.

CLAY: I don't know whether the rest of the people in the state of . . . we're becoming more industrialized, of course, than we once were. But when you go into these rural areas, particularly in eastern , you realize what tobacco has meant to those families up there, as far as a way of life, and their standard of living. And they couldn't have done it otherwise, because they didn't have any industry. They didn't have any other work.

KLEE: Thank you very much.

[End Tape #1, Side #2]

[End of Interview]