Tobacco Buyout Bill Summary Cost: $13 billion
Executive Summary: The bill provides an $8 per pound payment to quota holders and a $4 per pound direct payment to traditional producers over a six year period. The bill limits the amount of acreage that can be utilized to produce tobacco, and it can only be produced in traditional tobacco counties (except in the state of Georgia where contiguous counties would be eligible). In addition, a market stability program is established to allow for the creation of private insurance products that would provide producers with price insurance coverage. This program would be self-financed. A tobacco quality board is created. A separate production board is established for each kind of tobacco. Both are designed to assist the Secretary in administering the acreage limitation program and the market stability program as well as providing other input as necessary for each kind of tobacco. Detailed Summary: $8 buyout on 2002 quota level; July 1, 2002 for eligibility Payment Rates: $1.60 per pound (FY 2004) $1.50 per pound (FY 2005) $1.40 per pound (FY 2006) $1.30 per pound (FY 2007) $1.20 per pound (FY 2008) $1.10 per pound (FY 2009) Direct payments for growers provided for all kinds. Must have been an active grower in at least one of the years 2000-2002 in order to be eligible for payment. Payments distributed proportionally: Full payment if produced in all 3 years. 2/3 payment if produced in 2 of the 3 years. 1/3 payment if produced in 1of the 3 years. Payment Rates: $.75 per pound (FY 2004) $.75 per pound (FY 2005) $.70 per pound (FY 2006) $.65 per pound (FY 2007) $.60 per pound (FY 2008) $.55 per pound (FY 2009) Funding: Establishes revolving fund under CCC to borrow funds to provide compensation payments for quota holders (in exchange for the taking of this asset) and direct payments to traditional producers. These funds would be repaid annually by assessing importers and domestic manufacturers based on their volume of domestic sales as certified by ATF. Establishment of a National Standards Board 5 growers including at least 1 burley, 1 flue-cured, and 1 dark-fired grower, 5 company representatives including 1 smokeless representative and 1 export leaf representative, and 3 at-large seats including 1 designee of the Secretary; Secretary will designate a chair (2 yr terms for seats and chair). Advise the Secretary on the adjustment of the acreage eligibility range of 1998 to 2002, if necessary, from which the boards for each kind would choose. Establishment of Production Board for Each Kind No more than a total of 10 members can be appointed by the states for each kind. The number of appointments granted to each state would be based on its percentage share of production. Nominees for appointments by the Secretary for each state would be nominated by representatives of tobacco producers. The Secretary would appoint a chair from among the members on each respective board every two years. Each board would select on an annual basis the acreage level utilized for its respective kind. Acreage eligibility cannot exceed the maximum aggregate amount utilized by such state in any one of the years 1998-2002 (Exception provided: If the growers of a kind of tobacco present findings that suggest a potential imbalance of supply and demand, the Secretary may adjust the acreage base allowed for each producer accordingly. Acreage eligibility would be initially allocated to growers who produced in any one of the years established for each kind using the same criteria utilized for the proportional distribution of direct payments. Growers who decide not to continue as an "active" grower must relinquish their acreage eligibility to a county pool to be redistributed with new producers receiving first priority. Provision stating that acreage eligibility must not be sold, leased or transferred; stiff penalties provided. State-wide pool would be established for excess acreage eligibility that is not utilized within its respective county to be transferred to growers within the state with up to 10 percent set aside for new producers. Tobacco can only be produced in traditional tobacco counties except in the state of Georgia where tobacco could be produced in counties contiguous to a tradition tobacco county. Flue-cured and Burley Stabilization Cooperatives Current no-net-cost funds would be used to allow the cooperatives to buy loan stocks from USDA. Any excess no-net-cost funds would return to members of each respective cooperative association. $1.5 million per year per kind for 5 years would be made available for each cooperative contingent on a plan approved by the Secretary. $100 million included for Rural Development grants for tobacco dependent communities for each of the fiscal years 2005-2009. $12 million included for research grants for tobacco alternatives in tobacco-dependent areas as well as alternative uses for tobacco for each of the fiscal years 2005-2009. Market Stability Program (2-Tiered Price Insurance Program). Any time the average US price falls for a kind of tobacco falls below the world price (determined by the Secretary), a payment would trigger to all producers. This is funded by an assessment for each pound sold, divided equally between the producer and buyer, not to exceed 5 cent per pound unless adjusted by the secretary in consultation with the Tobacco Quality Board and the respective board for such kind. (Using an average price of $1.40 per pound while incorporating the price fluctuations of Zimbabwe, the worst market on the planet for severe price fluctuations, a 5 cent per pound assessment would provide enough funding to use $1 per pound as the funding trigger.) Allows for the creation of private insurance products IF a market develops. For example, a contract farmer with company x could insure himself at his 3 year personal average price so that if he has a bad year (in terms of his price average) he would be insuring himself based on his personal history. This would require a premium to be paid just as with other forms of insurance. $500 million would be set aside in reserve for future years.

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Updated September 1, 2003

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