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Cost Estimates of Tobacco Equity Reduction Program

Cost Estimates of Tobacco Equity Reduction Program. For Presentation to the President’s Commission on Tobacco March 20, 2001. Sub-committee Recommendations. Mandatory quota buyout to compensate quota owners for lost asset value

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Cost Estimates of Tobacco Equity Reduction Program

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  1. Cost Estimates of Tobacco Equity Reduction Program For Presentation to the President’s Commission on Tobacco March 20, 2001

  2. Sub-committee Recommendations • Mandatory quota buyout to compensate quota owners for lost asset value • Payments to growers to compensate for declining production caused by non-market forces • Modifications to the Tobacco Program to continue stabilization of grower income and assure leaf supplies without creating a secondary asset • Includes all U.S. produced leaf except cigar type 61 and Maryland type 32 • A non-recurring payment not limited • Paid over a short period of time • Incentives to lessen tax impact and encourage community investment

  3. Compensation • Crop year 1997 is the base year for TERP calculations • Increase in quotas required significant additional investment by producers • Basic quota used for calculation • Payments: • $8 per pound to owners of every pound of quota • $4 per pound to producers for their share of production to be discontinued • $2 per pound to growers for their share of production to be continued plus the right to receive production permits

  4. Cost of TERP • Quota owners get $8 per pound • Growers can take either the $4 or the $2+permit option • Maximum possible exposure is $20.9 billion • Minimum possible exposure is $17.5 billion The $3.5 billion question:What proportion of growers will take which option?

  5. Million Pounds 1997 Basic Quota / Allotments • Flue-cured (types 11-14) 973.8 • Virginia fire-cured (type 21) 2.5 • Kentucky-Tennessee fire-cured 44.7 (types 22-23) • Burley (type 31) 704.5 • Kentucky-Tennessee air-cured 9.6 (types 35-36) • Virginia sun-cured (type 37) .2 • Cigar filler & binder 10.0 (types 42-44 &54-55) Total 1997 applicable quota: 1,745.3

  6. Annual Cost of TERP: By Percent of Growers Accepting Permits Cents per pack $ bil.

  7. Annual Cost of TERP: By Percent of Growers Accepting Permits Cents per pack

  8. Total Cost of TERP: By Percent of Growers Accepting Permits Cents per pack $ bil.

  9. Total Cost of TERP: By Percent of Growers Accepting Permits Cents per pack

  10. Total Cost of TERP: By Percent of Growers Accepting PermitsBased on 2001 Quota $ bil. Cents per pack

  11. Total Cost of TERP: By Percent of Growers Accepting Permits (2001 base) Cents per pack

  12. Total Cost of TERP: By Percent of Growers Accepting Permits (2001 base) Cents per pack

  13. What Determines Grower Decision? • Grower age • Existence of heirs interested in continuing tobacco production • Size of operation--too small or too big? • Contribution to family income • Potential for expansion • Financial condition of farm • Debt/Asset Ratio, Liquidity

  14. Virginia: Pounds by Grower Age

  15. North Carolina: Pounds by Grower Age

  16. Kentucky: Pounds by Grower Age

  17. Tennessee: Pounds by Grower Age

  18. United States: Pounds by Grower Age Total 1997 Production: 1,786 mil lbs

  19. Sources: • Census of Agriculture: http://www.nass.usda.gov/census/ • Tobacco Briefing Room:www.ers.usda.gov/briefing/tobacco • Tobacco Commission home page:http://www.fsa.usda.gov/tobcom/ • FSA Press Releases:http://www.fsa.usda.gov/pas/news/releases/index.htm

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