North Carolina Tobacco Buyout

The Federal tobacco buyout legislation has been signed into law. Some of its greatest impact will be seen in North Carolina. After the 2004 crop year, there will be no federal program regulating tobacco production. With the beginning of the 2005 crop year on July 1, 2005 for flue-cured tobacco there will be no geographical restrictions on where tobacco can be produced. Price supports and quotas will no longer exist.

In the place of price support and quotas there will be a buyout program for those in the tobacco industry run by the The U.S. Department of Agriculture (USDA). The USDA is tasked with developing the rules and regulations for implementation of the buyout legislation. Quota owners and producers will submit applications to USDA in order to be eligible for their payments. County committees will be used to settlement disputes regarding payments. If the county committee is unable to satisfactorily resolve a dispute, the ruling can be appealed to the National Appeals Division.

The major provisions of this law include funding of $10 billion over 10 years of which $9.6 billion is to be paid to growers and quota owners. The remaining $500 million is for use in disposition of stocks held by grower associations and the Commodity Credit Corporation.The buyout will be funded by quarterly assessments on cigarette manufacturers and importers based on their share of of sales in the U.S. cigarette market. Payments will be to the owners of the quotas on the day the law was signed. The payment is seven dollars for each pound of quota owned based on the 2002 level of basic quota. However, these payments will be made over 10 years in equal payments or put another way seventy cents a pound of quota for ten years.

Growers will be paid $3 per pound of quota if they grew tobacco in 2002, 2003, or 2004. The amount of payment will be based on the 2002 effective marketing quota. Producers of a quota in all three years, 2002, 2003, and 2004, are eligible for payment of the full $3. If a grower grew a quota for 2 out of the 3 years, then the grower is eligible for 2/3 of the payment. If a grower grew a quota for 1 out of the 3 years then the grower is eligible for 1/3 of the payment. As above, the payments will be spread over 10 years in equal annual payments.

North Carolina growers and quota owners are allowed by the law to assign their payments to a financial institution. This allows the grower or quota owner to take an up-front lump-sum payment from the bank instead of government payments spread over 10 years.