Now that the tobacco buyout has passed, growers may be asking, “When will I get my check?” U.S. Rep. Bob Etheridge, D-N.C., says that although the plan provides for annual payments beginning in 2005, “I wouldn't be sitting by your mailbox on Jan. 1, 2005.” He says payments will likely start much later as USDA works out the particulars of the buyout.
Congress passed a $10.1 billion as part of a larger rewrite of corporate tax law.
Etheridge met with a group of farmers from the 2nd District in Clayton, N.C., to answer questions and lay out the particulars of the buyout, including eligibility and Phase II funds.
Questions and statements from the room filled with tobacco growers ranged from, “Are the payments guaranteed? How will the payments be taxed? What will be the role of Stabilization in this post-buyout era? To statements regarding how the buyout was done in Congress:
Quota holders who own farms that have 2004 tobacco quota, as well as growers who shared in the risk of production in either 2002, 2003 or 2004 crop years, are eligible.
For quota holders, multiply the number of 2002 basic quota pounds by $7. For those whose marketing quota was based on allotment or acreage, the quota will be converted on a pound basis by multiplying the quota by its average production per acre for 2001-2003, Etheridge says.
For growers, multiply effective quota by $3. Where quota is based on allotment or acreage, it will be converted to pounds. To get the full $3 per pound, a grower must have produced tobacco each of the three years of 2002-2004. For every year he didn't grow, he would lose a dollar multiplier.
Payments will be made over 10 years.
Drawing on similarities from the peanut buyout in the 2002 farm bill, Etheridge said that the IRS may treat payments to quota holders as capital gains and those to growers as income.
“It will take time for USDA to develop a buyout application process for farmers and quota holders to use and to coordinate the information necessary to administer the program,” Etheridge says. The buyout gives the Secretary of Agriculture the option to award the contract for administering the buyout to institutions outside of the USDA.
Because tobacco companies fund the buyout, Phase II payments are eliminated. Tobacco companies have already submitted Phase II payments for the first three quarters of 2004. “I hear a number of rumblings that the companies may try to get their payments for 2004 back,” Etheridge says. “I hope that's not true, because if Phase II gets tied up in litigation, there likely will be no payments for 2004.”
The end of the tobacco program lifts production restrictions on where tobacco can be grown in the United States.
“I know many of you are wondering whether to get out of the business of growing tobacco or give it another try next year,” says Etheridge, a part-time tobacco farmer. “Let me caution you to think carefully about that decision. Yes, the cost of renting quota will be eliminated, but the price you will get for your tobacco will come down, too.”
The Congressman believes a post-buyout world will be largely contracting. “You've got to have a place to sell,” he says.
He said the next few years will be ones of “transition and great change for our tobacco growers.”
Speaking on the process of making the legislation, Etheridge said that $3 billion was “left on the table” when FDA regulation was dropped. “We could have gotten $8 and $4 and the payout could have been over seven years instead of 10 if the House conferees had been willing to accept FDA regulation of tobacco products. But what's done is done.”
A question came from a farmer regarding the future of Stabilization. Larry Wooten, president of the North Carolina Farm Bureau, said, “We're going to need the co-op more in the future than we have in the past.”
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