CONGRESS PASSED and the president signed a $10.1 billion tobacco buyout into law Oct. 22.
The bill provides $9.6 billion for growers and quota holders — $7 per pound for quota holders and $3 per pound for growers — to be paid out over 10 years.
With the passing of the 2004 crop year into the annals of time, the 70-year-old tobacco program also comes to an end.
The 2005 crop year begins July 1, 2005, for flue-cured tobacco. The Secretary of Agriculture has 180 days after the buyout became law to begin carrying out the provisions of the legislation. That would put the timeframe around late spring or early summer 2005 for the USDA to begin implementation.
While details remain to be formulated, the key provisions of the buyout include payments, assessments, lack of geographical or acreage restrictions, and elimination of the tobacco program.
Quota holders as of Oct. 22 will receive payments of 70 cents per pound over a 10-year period.
That's based on $7 for each pound on the 2002 basic level of quota. Farmers who grew tobacco in 2002, 2003, and 2004 are eligible for the full $3 per pound, or 30 cents per pound over 10 years.
The payment is based on 2002 effective quota. Growers who had tobacco two out of the three years are eligible for two-thirds of the payment, says Blake Brown, North Carolina State University Extension agricultural economist.
A farmer who grew tobacco one out of the three years is eligible for one-third of the payment. Quarterly assessments on tobacco manufacturers and importers, based on market share of domestic sales, will fund the buyout. The law allows growers and quota owners to assign payments to a financial institution.
“Growers and quota owners will need to carefully weight the cost of this option since the financial institutions will retain a portion of the stream of the payments in return for making a lump-sum payment,” Brown advises on the North Carolina State University Extension agricultural economics Web site.
The law charges the USDA with developing rules and regulations for implementing the buyout. Quota owners and producers must submit applications to the USDA in order to be eligible to receive the payments.
County committees will decide disputes over payments. Growers and quota owners can appeal a county committee decision to the National Appeals Division.
The buyout also sets aside $500 million to defer government costs of disposing of loan pool stocks. At mid-November, no decisions had been made regarding disposal of stocks.
Tobacco no longer has geographical or acreage restrictions.
The legislation places U.S. tobacco in a free market setting for the first time since the Great Depression. It will likely affect where tobacco is grown in the future and have an impact on the competitiveness of U.S. tobacco in the world market.
Growers and quota holders will have to make decisions as to the tax implications of the buyout. Information and rules about the buyout will be posted at the USDA Farm Service Agency Web site at www.fsa.usda.gov/tobacco/.
The following Web sites also provide helpful and updated information:
University of Tennessee, University of Kentucky and North Carolina State University:
University of Tennessee:
University of Kentucky:
North Carolina State University:
University of Georgia:
USDA Economic Research Service: