cost estimates of tobacco equity reduction program for presentation to the president’s commission...
TRANSCRIPT
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
• 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
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
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 $3.5 billion question:What proportion of growers will take which
option?
1997 Basic Quota / Allotments
• Flue-cured (types 11-14) 973.8 • Virginia fire-cured (type 21) 2.5• Kentucky-Tennessee fire-cured 44.7 (types
22-23)• Burley (type 31) 704.5• Kentucky-Tennessee air-cured 9.6 (types
35-36)• Virginia sun-cured (type 37) .2• Cigar filler & binder 10.0
(types 42-44 &54-55)
Total 1997 applicable quota: 1,745.3
Million Pounds
0
2
4
6
8
10
25 50 75
25
26
27
28
29
30
31
32
33
34
35
Projected Federal Tax Collections
Cents per pack
TERP cost
Annual Cost of TERP: By Percent of Growers Accepting Permits
Cents per pack$ bil.
0
10
20
30
40
50
25 50 75
Tax collections
TERP cost
Annual Cost of TERP: By Percent of Growers Accepting Permits
Cents per pack
0
5
10
15
20
25
30
25 50 75
Projected Federal Tax Collections
TERP cost
Total Cost of TERP: By Percent of Growers Accepting Permits
Cents per pack$ bil.
0
25
50
75
100
125
25 50 75
Tax collections
TERP cost
Total Cost of TERP: By Percent of Growers Accepting Permits
Cents per pack
0
5
10
15
20
25
30
25 50 75
25
35
45
55
65
75
85
95
Projected Federal Tax Collections
Cents per pack
TERP cost
Total Cost of TERP: By Percent of Growers Accepting Permits
Based on 2001 QuotaCents per pack$ bil.
0
25
50
75
100
125
25 50 75
Tax collections
TERP cost
Total Cost of TERP: By Percent of Growers Accepting Permits (2001
base)Cents per pack
0
25
50
75
100
125
150
175
200
225
250
25 50 75
Wholesale price
TERP cost
Total Cost of TERP: By Percent of Growers Accepting Permits (2001
base)Cents per pack
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
25-34
35-44
45-54
55-64
>65
Total 1997 Production: 117.6 mil lbs
Virginia: Pounds by Grower Age
25-34
35-44
45-54
55-64
>65
Total 1997 Production: 731.4 mil lbs
North Carolina: Pounds by Grower Age
25-34
35-44
45-54
55-64
>65
Total 1997 Production: 498.3 mil lbs
Kentucky: Pounds by Grower Age
25-34
35-44
45-54
55-64
>65
Total 1997 Production: 114.3 mil lbs
Tennessee: Pounds by Grower Age
25-34
35-44
45-54
55-64
>65
United States: Pounds by Grower Age
Total 1997 Production: 1,786 mil lbs
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