Tobacco buyout makes progress, but the major obstacles remain

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PRINCETON, Ky. – For nearly a decade tobacco producers have been hearing about the possibility of a quota buyout.

Now, competing bills have been passed by the U.S. Senate and House of Representatives.

“While progress has definitely been made, the buyout still has a lot of hurdles to overcome before it becomes law,” said Will Snell, a tobacco policy specialist with the University of Kentucky College of Agriculture.

Movement? Vast differences remain between the two bills and much will have to be resolved before a buyout becomes a reality.

With Congress in the midst of its August recess, no movement on the buyout will occur until after Labor Day.

Both bills are part of a much larger corporate tax bill and the differences between the two bills will have to be resolved in a conference committee.

Key differences. Some of the key differences that the committee will have to tackle include the buyout funding mechanism, program issues, and USDA oversight.

The conference committee could chose to adopt either the House or Senate versions, modify either version or ultimately decide to throw out the buyout provision from the corporate tax bill, Snell said.

Here is an outline of what’s contained in the two bills:

House bill. The House bill is a $9.6 billion package that is determined by multiplying the 2002 basic quota by $7 per pound to yield a quota owner pot of money and $3 per pound times the 2002 effective quota to generate a grower fund.

The money would be distributed over five years to quota owners based on one’s share of the 2004 basic quota while the growers share would depend on their 2004 effective quota.

The House bill eliminates future production control and price support measures and does not grant FDA regulatory authority over tobacco.

It also keeps the remainder of Phase II payments in place.

Senate bill. The Senate buyout is an $11.6 billion package for quota owners and growers based on an $8/$4 buyout using 2002 quotas and is distributed in equal payments over 10 years.

As the bill currently reads, distribution of this fund will depend on quota ownership as of Jan. 1, 2004.

Grower’s activity during the 2000-2002 crops will determine payments.

These dates are subject to review and could easily be changed.

Unlike the House bill, which is funded by taxpayer money, the Senate bill is financed by a user fee on tobacco companies.

Consequently, the $11.6 billion Senate bill eliminates Phase II and is not quite as lucrative as the overall $9.6 billion House bill which retains an additional $3 billion for future Phase II payments.

However, as currently drafted, the Senate bill eliminates price supports but allows for development of a privatized production board with duties to manage production levels in traditional tobacco counties in a manner that adequately balances supply with anticipated demand.

It creates a new system of production licenses allocated among only active producers. These licenses cannot be sold, leased, or transferred.

A production limitation program would prescribe acreage and poundage limits for each active producer. There would be no price support.

Changes. “While currently in the Senate bill, we certainly could have some significant changes evolve in conference as it relates to some of the post-buyout program language,” Snell said.

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