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Tobacco Transition Assessments

posted on November 26, 2004


Hello, I'm Mark Pearson.

It's turkey week, but the most thankful people this year can be found in the beef industry. That's because USDA this week announced that further testing of an animal suspected of having Mad Cow disease proved negative.

Initial screening done last week provided a so-called "false positive" ... and briefly rattled cattle markets. More sophisticated tests done this week put those fears at ease.

The renewed concerns about Mad Cow disease ... and a lack of wholesale faith in the current testing process ... helped influence the debate last weekend on government spending. Food safety agencies were among the few government departments spared the budget axe for fiscal 2005.

In fact, USDA's Animal and Plant Inspection Service got a 13 percent boost, while the Food Safety and Inspection Service got a 6 percent hike.

Another program dealing with funding and allocation matters is the tobacco buyout, which ends the 1930s-era tobacco quota and price support program. At a public hearing in Washington this week, USDA announced the initial provisions for the buyout, and gave the tobacco industry a chance to weigh in.

Tobacco Transition Assessments Floyd Gaibler, Deputy Under Secretary for Farm and Foreign Agricultural Services: "The tobacco and market place have shifted and evolved. The new legislation seeks to make tobacco production more profitable for producers and allow profits to respond freely to supply and demand."

The program proposes establishing a 10-year transitional payment initiative funded by assessments of approximately 10 billion dollars on domestic tobacco manufacturers and importers of foreign tobacco.

Floyd Gaibler, Deputy Under Secretary for Farm and Foreign Agricultural Services: "The new program will eliminate the price support program and acreage controls, the tobacco transition payment will make payments to quota holders and producers, and the enrollment is set for 2005."

The 1930s-era federal Tobacco Program was implemented to increase and stabilize tobacco prices and to offset some of the market power of tobacco manufacturers. Over the years, however, a number of factors have put pressure on the program. Domestic manufacturing of cigarettes has declined by about 25 percent since the mid-1990s. The decrease is due largely to declining tobacco exports as production has shifted overseas. The country's imports of foreign tobacco have soared and the portion of domestic leaf in U.S. cigarettes has declined sharply. Declining domestic demand, increasing imports, and declining exports have all contributed to significant reductions in tobacco quotas in recent years.

This week's public meeting gave those involved in the tobacco industry an opportunity to remind USDA how the specifics of the buyout will impact thousands of U.S. tobacco quota holders and producers.

David Blalock, tobacco farmer: "The decisions you make as you define and specify terms and provisions of the buyouts will have a huge impact on me, my neighbors and thousands of other growers in the tobacco regions of this country."

Here are some of the initial Tobacco Transition Assessment Program provisions:

Transition payments will be assessed quarterly for the next 10 years, beginning in 2005 and ending in 2014.

Early next year, Farm Service Agency will conduct quota holder and producer sign-ups.

The number of pounds to apply the annual 70-cent payment to quota holders and the 30-cent payment to producers will be computed.

And, annual adjustments will be made based on market shares.

Final decisions on the Tobacco Transition Payment Program will be announced later.


Tags: agriculture Congress Mad Cow news smoking tobacco