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Will Snell University of Kentucky Department of Agricultural Economics October 2003

Tobacco Outlook for 2003 and Beyond ???. Will Snell University of Kentucky Department of Agricultural Economics October 2003. U.S. Cigarette Production, Consumption and Exports. Source: USDA/ERS. Agricultural Economics. U.S. Cigarette Sales By Non-Majors (Imports + Deep/Discount Domestic).

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Will Snell University of Kentucky Department of Agricultural Economics October 2003

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  1. Tobacco Outlook for 2003 and Beyond ??? Will SnellUniversity of KentuckyDepartment of Agricultural EconomicsOctober 2003

  2. U.S. Cigarette Production, Consumption and Exports Source: USDA/ERS Agricultural Economics

  3. U.S. Cigarette Sales By Non-Majors(Imports + Deep/Discount Domestic) Agricultural Economics

  4. Share of Imported Tobacco Used in U.S. Blends Agricultural Economics

  5. U.S. Burley Basic and Effective Quota Agricultural Economics

  6. What About the Grower Lawsuit Settlement? 1/ Note: Intentions and Purchases Include RJR, but Settlement Level Does Not Include RJR Agricultural Economics

  7. What About the Buyout???

  8. Buyout Timeline • 2002 – 9 Bills Introduced • January 2003 – Fletcher and McIntyre Reintroduce House Buyout Bills • February, April 2003 – Goode and Coble Introduce House Buyout Bills • Spring 2003 – Senate Tobacco Buyout Working Group • July 2003 – Senate Introduces Single Buyout Bill ($8/$4 on 2002, Production Control in Traditional Areas, Minimal Safety Net) • July 2003 -- House Ag Hearing on House Buyout Bills • Too expensive • Too much like old program • Concerns about FDA/Impact on Companies • No Unity – Demand Single Bill • August 2003 – Work on Single House Bill • September 2003 – New House Bill Introduced (Similar to Senate, except $8/$4 Based on 1997-2002 Average) Agricultural Economics

  9. House Base Years “Considered” • Original Fletcher Bill: --1998 Base Year -- $19.1 Billion • 1998- Phase II -- $17.2 Billion • 1998- Phase II, TLAP, and 1999 Pools Stocks -- $15.7 Billion • 1997-2001 Average -- $15.5 Billion • 1998-2002 Average -- $13.6 Billion • 1997-2002 Average -- $14.95 Billion … vs $11.4 Billion for Quota Owners and Growers in the Senate Bill Agricultural Economics

  10. Senate vs House Buyout Bills

  11. Questions From Non-Tobacco State Legislators on Buyout Legislation • Isn’t a Tobacco Buyout Too Generous On a Per Acre Basis Compared to Other Crop Subsidies? Agricultural Economics

  12. Questions From Non-Tobacco State Legislators on Buyout Legislation • Isn’t a Tobacco Buyout Too Generous On a Per Acre Basis Compared to Other Crop Subsidies? • Scale of Production • Cost of Production • Buyout Payments End While Other Payments Will Likely Continue • Farm Bill Support • Public vs Private Funds Agricultural Economics

  13. Questions From Non-Tobacco State Legislators on Buyout Legislation • Won’t A Tobacco Buyout Bankrupt Companies ? • Tax vs Sunk Cost? • Price Increases Following MSA • Profits Since MSA • Some Tobacco Companies May be Sunk Even Without a Buyout • Won’t Tobacco Farmers Be Back For More Money Once the Buyout is Over • No Asset to Compensate • Diminished Political Clout in Terms of Participating Farms Agricultural Economics

  14. Questions From Non-Tobacco State Legislators on Buyout Legislation • Aren’t You Just Replacing a Program With a Program? • Non- Transferable Production Right in Traditional Areas As Required by Health Groups • Safety Net Is Below Cost of Production and Privately Funded • Limited Govt Intervention With Establishment of Privatized Boards • What Benefits Are There For My Non-Tobacco State? • Ending Controversial Program • Public Health Benefits From a Regulatory Tobacco Production and Consumption System • Potentially Limit Losses of Phase I payments • Tobacco Policy Makers Support for Other Commodities in Upcoming Farm Bill Debate Agricultural Economics

  15. Buyout Strategy: House vs Senate House: House Ag Committee Will Consider Buyout Bill … But Only Once the Senate Moves • Senate: • Buyout : Wait Until FDA Starts Moving • FDA: Schedule Mark-Up of Gregg/Dewine FDA Bill … • Attach it with McConnell’s Buyout Bill Agricultural Economics

  16. FDA Timeline • Sept 10 – FDA Mark-up Cancelled – Still Debate on “Minor Issues” • Sept 15 – Sept –19 Work on FDA – Hurricane Isabel • Sept 24 -- FDA Mark-up Rescheduled – Cancelled Senator Gregg’s Father Passed Away • Oct. 1 – FDA Mark-up Rescheduled … Last Day Prior to 2 Week Recess … Talks Break Down Over “New Issues” Media Declares “Buyout is Dead for 2003” • Oct. 7 – FDA Talks Rescheduled … Gregg’s Wife is Abducted • Oct. 8 – FDA Talks Resume, Some Positive Movement • Oct 14 – Senate Reconvenes … Will FDA Mark-Up Occur? Agricultural Economics

  17. Kentucky Tobacco Income Agricultural Economics

  18. 2002 Kentucky Net Farm Income vs. Tobacco Sales & Tobacco Buyout Agricultural Economics

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