Folks, the federal tobacco program no longer exists. Despite this direct statement, some quota holders and possibly a few growers who have been turning over more rocks than soil still believe they can rent their tobacco pounds in 2005.
“The program is over,” said Moot Truluck, director of the U.S. Department of Agriculture and Farm Service Agency's Tobacco Division in Washington, D.C. “You think I'm being redundant when I say that, but I still get calls from attorneys representing clients who ask, ‘Can we go ahead and rent our tobacco?’ I keep getting these questions all the time. It's over folks. The federal government part of it is over.”
Truluck explained the Tobacco Transition Payment Program during the annual Raleigh, N.C., meeting of Tobacco Associates Inc., based in Washington, D.C. He told the room full of growers and industry leaders that if they have any questions about the buyout and payments, they should visit their local Farm Service Agency office. When they go, the agency can review each individual farmer's and quota holder's situation and remedy any discrepancies that may arise. Of course, record documentation might be necessary.
On Oct. 22, 2004, President George W. Bush signed the American Jobs Creation Act of 2004. This included the Fair and Equitable Tobacco Reform Act that established the Tobacco Transition Payment Program. This program eliminates the federal tobacco marketing quota and price support loan programs. In effect, this means that the federal government will no longer issue marketing cards and offer price support loans.
Now, growers must operate under a free-market system, Truluck said. That means no restrictions by the government on how much a grower can plant or where he can plant. Of course, he also won't have any price support program to fall back on in case his tobacco does not bring a desired price.
The Tobacco Transition Payment Program provides active producers with compensation to transition from a federal government program into a free-market system. They will receive $3 per pound based on their share of the risk in raising tobacco in 2002, 2003 and 2004.
As a quota holder, they also will receive $7 per pound based on their basic quota at the 2002 marketing-year level. Active producers are those who are either owners, operators, landlords, tenants or sharecroppers who shared in the risk of producing the golden leaf during any of the 2002, 2003 and 2004 crops.
The following types of tobaccos are eligible for compensation: flue-cured, burley, dark fire-cured and dark air-cured, Virginia sun-cured, and cigar filler/binder.
Quota holders alone, who were not active producers, will receive only the $7 per pound.
Both quota holders and producers should start receiving payments between June and September 2005, Truluck said. They can receive payments over a 10-year period from the Commodity Credit Corp. or opt for a lump-sum payment through a financial institution. Truluck emphasized that the federal government under the Commodity Credit Corp. will not provide lump-sum payments.
To receive payments, quota holders and producers must sign up between March 14 and June 17, 2005. Truluck said any quota holder or producer who fails to sign up during that period will not receive compensation in 2005.
“You can go in and apply for a payment in 2006, but you will not be able to get that 2005 payment,” he said. “Sign up is voluntary. If you don't want the money, you don't have to sign up. Whether you sign up or not, whether you want it or not, there will be no program.”
Elimination of the program is bitter sweet. Growers can no longer rely on Uncle Sam for support. However, the ramifications of no buyout meant some quota holders and growers would end up with no compensation, especially if quotas continued on their downward spiral.
“I think we're a lot better off to have a buyout than we are to end up with nothing,” Truluck said. “It will be good for some; some it will be bad for. You will have to make your own decisions. You will have to do your own due diligence, but if you are not going to go into it and try to produce the best quality of tobacco that you can, it won't pay for it.”
In a few years, Truluck, as many speakers at the Tobacco Associates meeting, thinks U.S. tobacco production will increase, mainly because of lower prices and the absence of poundage rent, both designed to make growers more competitive in the world market.
He warned that capturing the world market again in production won't happen overnight because of the surplus of flue-cured tobacco right now.
Nonetheless, the majority of growers pleaded for a buyout, any kind of buyout before one was passed, Truluck said. “You asked for it; you've got it,” he said. “Now, what you're going to do with it is up to you.”