Tobacco quota program

If renting a quota from someone else, he had to produce tobacco on the farm to which the quota was attached—a quota could not be leased or sold across county or state lines.

Thus less-efficient producers continued to grow tobacco because the program distorted the pattern of production, as restrictions on selling and renting quotas prevented production from moving to lower-cost regions. When the program ended, there were about , quota owners and about 60, active producers of tobacco in the United States.

Quota holdings repeatedly were divided by inheritances, land sales, or other transactions and disconnected from tobacco-farming operations, giving rise to widespread absentee ownership. Although tobacco was grown under quota in only 21 states, the quota owners were scattered across all 50 states, the District of Columbia, four U. What determined the quota price? Annual lease rates for quotas reflected the difference between the government-supported price of tobacco and non-quota costs of production, primarily land, labor, fertilizer, and pesticides.

Quota prices varied over time with changes in the amount of quotas and the supply and demand for tobacco. If, for example, the amount of quotas was reduced and economic conditions remained unchanged, the annual rental rate for quota increased. The capital value of the quota reflected the present value of the expected future annual rents.

The farmers who were assigned production rights when the tobacco program was initiated received a once-and-for-all windfall gain. Once the program began, farmers producing tobacco either had to own a tobacco allotment or rent it from someone who did. Thus producers in later years received little benefit from the price-support program because the higher product prices were largely offset by higher production costs. Individuals who later bought marketing quotas had to pay the market value—the estimated present value of estimated future annual quota rents.

Had the program been abolished without a buyout, all quota owners would have suffered losses—including many who had never received windfall gains. Once begun, some of the fully predictable but unintended consequences of the price-support program soon became manifest. The tobacco program led to increased costs of production for all producers because a prospective tobacco farmer either had to own or rent a quota.

If a farmer rented a quota for, say, 50 cents per pound, production outlays were increased by that amount. If a tobacco farmer used his own quota, the rental income forgone represented an implicit cost—the opportunity cost of what was lost by not renting the quota to another farmer.

Higher tobacco prices meant higher quota prices and increased costs of production. As a result, sales of U. That would put the timeframe around late spring or early summer 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.

The payment is based on 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. 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.

When the program ended, the government offered buyouts to farms to help them transition into the free market system. Doubling in size at the buyout, and then also going from that size to nothing in Open in Our App.

Download it here. What You Need To Know The federal tobacco quota program ended in The government gave farms payouts to help them transition into a free market system Pace Family Farms continued to farm tobacco for a decade but recently shifted to produce because of the costs Two years ago, Michelle Pace Davis and Pace Family Farms flipped the script on the years of tradition and turned to produce.