Tobacco Buyout Passes House and Senate

Legislation allocates $10 billion over 10 years to end the federal tobacco program, without FDA authority. Richard Davis

Published on: Oct 13, 2004

Many tobacco farmers and tobacco quota holders across the country are breathing a sigh of relief today after the Senate passed legislation on Monday (Oct. 11) that will pay them nearly $10 billion over 10 years in an end of the federal tobacco program.

Part of an overhaul of the nation's corporate tax structure, the tobacco buyout language in the bill will pay quota holders $7 per pound for each pound of quota that they owned in 2002. In addition, it will pay growers $3 per pound for the tobacco they grew that year.

Randy Lovett, a tobacco producer and warehouse owner in Mullins, S.C., says he felt a big weight had been lifted off his shoulders.

"It was our only salvation," Lovett says. "Some people were talking about a 30% cut in the quota and a 30-cent assessment for next year - that would have done away with the program, anyway. Really, we were on our knees. We had to appreciate anything we got because, the way they were talking, there really was not a lot of hope for us."

The federal tobacco program has boosted prices since the 1940s by limiting how much tobacco can be grown. These production limits will be lifted after the buyout so farmers will now be able to grow as much tobacco as they choose.

In addition to the money used to pay farmers and quota holders, another $500 million in the legislation will be used to buy out stocks from the Flue-Cured Tobacco Cooperative Stabilization Corporation (Stabilization), bringing the total cost of the legislation to $10.14 billion. Stabilization is the grower cooperative that administers the federal tobacco program.

Larry Wooten, president of the North Carolina Farm Bureau Federation, was energized by the buyout passage. "Many of us never thought this day would come, but despite long odds, we worked hard with our congressional delegation and their leaders to make the tobacco buyout a reality," he says. "… The legislation will pump $3.9 billion into North Carolina's rural areas, generating much-needed economic growth.

In addition to the payout to farmers, many growers have also wanted the government to purchase the quota in order to remove the cost of quota leases from of their cost of production. They says they needed the tobacco program to end so they could better compete on the world market. At the same time, the market limits that these quotas put upon tobacco ensured a higher price for their tobacco when they sold it.

A major feature of the buyout is the fact that it will not include Food and Drug Administration (FDA) regulation of tobacco. A number of anti-tobacco groups bemoaned that fact as soon as the word of the legislation's passage reached them.

The only thing left to make the buyout become law is the apparently assured signature of President Bush.

Earlier this year, President Bush says he could support a tobacco buyout on two conditions. First, he says, any buyout earning his signature should not include FDA regulation. Secondly, Bush says a buyout should not add to the federal deficit.

The second requirement was met when the legislation set up a Tobacco Trust Fund to finance the buyout. Tobacco manufacturers and importers will be required to pay into the fund. It would seem, then, that the two conditions that President Bush required for him to sign buyout legislation have been met.