1. Economic Subject Matter Meetings October 2002 Tobacco Quota Buyout Issues and Update

2. 50% Drop In Quotas Record Lease Prices Pessimistic Outlook Aging Farm Population Structure Price/lb Base years Program Modified or Eliminated? Funding Excise Taxes User Fee FDA Regulation Buyout Issues Buyout Environment Support for A Buyout

3. McIntyre Quota Buyout Bill • Quota Owner ($8/lb on 1998 Quota) • Grower ($4/lb on 2001 Marketings) • Payments over 5 Years/User Fee • Eliminate Program • FDA Regulation

4. Fletcher Quota Buyout Bill • Quota Owners ($8/lb on 1998 Quota) • Growers ($4/lb on 1998 Quota) • Individual Quota Owners – Split $ Based on Share of 2002 Basic Quota • Individual Growers – Split $ Based on Share of Average 2001-2002 Effective Quota and Marketings • $2/lb Payment for Those Exiting • Payments Over 5 Years/User Fee • Modified Program • Licenses • Safety net based on cost of production • No FDA Regulation

5. Helms Quota Buyout Bill • Quota Owners ($8/lb on 1998 Quota) • Growers ($4/lb on 2001 Effective Quota) • Lump Sum or Payments Over 5 Years Using 1999-2001 Excise Tax Funds • New Program • Price supports called Investment Protection Price (IPP) • Base production levels called Historical Quota Production (HQP) • Counter Cyclical Payments when prices fall below IPP • Direct Payments (35 cent/lb on HQP)s financed by assessments/user fees • Loss of Farm Program Benefits/Fines for Excess Production (Burley only) and Production in Non-Traditional Counties • Advisory Board Establishes Annual IPP and HQP lbs Eligible for IPP • No FDA Regulation

6. Political Challenges • Unity among tobacco farmers, companies and health groups • Congressional challenges • Maintaining the $8/lb value of quota and justifying a “grower” payment • Anti-tobacco members who recall T-LAP funding and forgiveness on 1999 pool stocks • Spending on another farm program following the controversial farm bill • Tobacco farm benefits vs the benefits other farmers received from the farm bill • Other more pressing issues such as homeland security, war on terrorism, and budget deficit

7. Opportunities for a Buyout • Farm groups committed to a consensus • Peanut quota buyout • Support from health groups • Support from PM • Non-taxpayer funds used to finance most bills

8. Kentucky Tobacco Cash Receipts/Mailbox $

9. U.S. Snuff and Chewing Tobacco Consumption

10. Dark Fire-Cured Production vs Use

11. Dark Air-Cured Production vs Use

12. This presentation was presented with the Agricultural Situation and Outlook, Fall 2002, publication number ESM-28, published by the Department of Agricultural Economics at the University of Kentucky with an additional contribution from Kentucky State University in October 2002. The entire publication can be accessed on the WWW at http://www.uky.edu/Ag/AgEcon/publications/esm_28.pdf. This article presents information on the economic situation and outlook for Kentucky agriculture and is intended to assist farmers, agribusiness professionals, Extension filed staff, and others with interest in agriculture and agribusiness. Information presented here is based on the most recent information and research available. However, the rapidly changing economic and policy conditions for agriculture limit the usefulness and life span of conclusions and recommendations cited here. Decision makers should keep these facts in mind. Feel free to use the information included in this publication for other uses, but please provide professional citation about the source. This paper is published without formal review and the views expressed are those of the authors and do not necessarily reflect the views of the University of Kentucky, the Agricultural Experiment Station, or the Cooperative Extension Service. If you need additional information or if you would like to provide comments or suggestions about this slideshow, please contact Will Snell at wsnell@uky.edu. University of Kentucky, Department of Agricultural Economics 400 Charles E. Barnhart Bldg., Lexington, KY 40546-0276  Phone: 859-257-5762, Fax: 859-323-1913 URL: http://www.uky.edu/Ag/AgEcon/