Order Code RL31790
CRS Report for Congress
Received through the CRS Web
Tobacco Quota Buyout Proposals
in the 108th Congress
Updated June 10, 2004
Jasper Womach
Agriculture Policy Specialist
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Tobacco Quota Buyout Proposals in the 108th Congress
Summary
Tobacco farmers are actively seeking legislation to eliminate the current quota
program and to compensate active producers and absentee quota owners for the lost
value. The concept of a quota buyout is not new, but it gained political momentum
after being endorsed in the final report of the President’s Commission on Improving
Economic Opportunity in Communities Dependent on Tobacco Production While
Protecting Public Health, Tobacco at a Crossroads, A Call for Action (May 14,
2001), and by the leading U.S. cigarette manufacturer, Philip Morris. Several quota
bills were introduced in the 107th Congress without subsequent legislative action.
Supporters of a buyout and legislative sponsors again have put the proposal on the
legislative agenda this 108th Congress by introducing several differing bills.
Eventually, H.R. 3160 (Fletcher, McIntyre, Goode; September 24, 2003) was
introduced as a bipartisan consensus bill, closely matching S. 1490 (McConnell; July
30, 2003). These two bills would eliminate tobacco quotas and the price support loan
program. As compensation, quota owners (including absentee owners) and active
producers would be given lump sum payments. Active producers would be given $8
per pound for the quota they owned in 2002 plus $4 per pound for the quantity of
tobacco they were allowed to produce. Most producers are allowed to grow more
than their quota because they lease quota from other landlords. The absentee
landlords also would be paid $8 per pound for the quota they owned in 2002.
The source of funding for both bills is the same, an assessment on the
manufacturers and importers of tobacco products. The fact that the tobacco product
industry, and not the federal government, will bear the roughly $15 billion financial
burden of this buyout initiative eliminates any adverse federal budget impact.
Manufacturers are expected to cover their costs through higher prices and/or reduced
profits. Remaining Phase II payments count toward the manufacturers’ buyout
obligations.
The tobacco quota buyout, according to the bill sponsors and other participants
in the policymaking process, will be accompanied by new legal authority for the Food
and Drug Administration (FDA) to regulate tobacco products. This FDA authority
is on a separate legislative track, but the two differing policy objectives are linked
together and are viewed as a combined initiative by the tobacco industry and
participating health advocates. Proposed FDA authority is contained in identical bills
in the House and Senate (H.R. 4433, Davis-Waxman; and S. 2461, DeWine-
Kennedy)
Many of the cosponsors of the so-called consensus proposal subsequently signed
on to H.R. 4033 (Jenkins; March 25, 2004). This bill provides lower quota buyout
and transition payment rates, is funded out of current tobacco excise tax revenues,
and does not contain (or anticipate linkage to) FDA regulatory authority. This bill
is incorporated as Title VII in H.R. 4520, a tax bill called the American Jobs Creation
Act of 2004.
This report will be updated as warranted by legislative developments.

Contents
Design and Impact of Marketing Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Why a Quota Buyout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Make Tobacco Production Profitable for Active Producers . . . . . . . . . . . . . 5
Make U.S. Tobacco Price Competitive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Paying for a Quota Buyout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
List of Figures
Figure 1. U.S. Share of World Tobacco Exports . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2. Share of U.S. Tobacco in U.S. Cigarettes . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 3. Flue-Cured and Burley Basic Quota . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
List of Tables
Table 1. National Quota Levels and Actual Marketings of Flue-Cured and
Burley Tobacco, 1990-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 2. Comparison of Selected Tobacco Quota Buyout Proposals in the
108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Tobacco Quota Buyout Proposals in the
108th Congress

Several bills have been introduced in the 108th Congress that propose to
eliminate tobacco marketing quotas and compensate the owners for the loss of asset
value associated with quotas. Also, the bills would make “transition payments” to
active producers.1 This report presents a side-by-side comparison of some of these
so-called tobacco quota buyout bills.2
One basis for comparison is the total amount of money paid to farmers and the
source of funds. However, the bills involve more than the transfer of money. The
design of future tobacco production and marketing policy in each bill has important
consequences for farmers, communities, and the nation. Some proposals would
eliminate quotas. Others would replace quotas with production licenses or permits
for only active producers, thereby eliminating quota rents. Also, there is the question
of whether some level of domestic tobacco price support is to be continued or
eliminated.
To compare the bills in the context of public policy, it is helpful to examine
them against a set of objectives framed around the question: What should a quota
buyout program seek to accomplish? General agreement does not exist on this
question. Different interest groups seeking legislation have different objectives.
Quota owners argue that they should be compensated for federal policies that
discourage consumption of tobacco products and diminish their ability to earn a
livelihood. Producers leasing a large amount of quota from absentee owners want
to see their costs of production decline by granting them sole production rights and
prohibiting absentee quota ownership. Farmers who do not have quota argue that
they should not be prohibited, as is now the case, from growing tobacco. Also, there
are some public health advocates that see the quota program as a desirable constraint
on U.S. tobacco production. The cost of these proposals is important, especially to
the manufactures if they are the ones to pay. Finally, most involved parties anticipate
or are working toward the goal of linking quota buyout authority with new authority
1 Numerous terms in this report are unique to agriculture and the tobacco price support
program. For help with terminology see CRS Report 97-905, Agriculture: A Glossary of
Terms, Programs, and Laws
.
2 The idea of a quota buyout is not new. Two differing buyout proposals were contained
in S. 1415 in the 106th Congress. The bill, largely related to regulation of tobacco products,
was debated on the Senate floor but never reached a vote. Also, the 2002 farm bill (P.L.
107-171, Sec. 1309) included peanut quota buyout provisions as part of the redesign of
support for that commodity.

CRS-2
for the Food and Drug Administration to regulate tobacco products. The linkage is
seen as political necessity to broaden support for both efforts.
Design and Impact of Marketing Quotas
The federal tobacco support program works through a combination of
commodity price support loans and marketing quotas. The price support loans
guarantee farmers minimum set prices for tobacco (the 2004 loan prices for the two
principal types, flue-cured and burley, are $1.69 and $1.873/lb. respectively). These
prices are mandated by a formula in the law.3 Marketing quotas, which specify the
maximum quantity of tobacco that can be sold, are assigned by the U.S. Department
of Agriculture (USDA) each year to farms that have a history of tobacco production.
The purpose of quotas is to limit supplies in order to force buyers to pay the loan
prices or more (the 2004 national basic quotas for flue-cured and burley are 471.3
million pounds and 302.1 million pounds respectively). Together, the combination
of guaranteed minimum prices and managed supply is designed to create a stable
market for farmers and tobacco product manufacturers. Also, the pattern of assigning
quotas to farmland with a history of quotas confines production to the traditional
growing regions and farms. This system of support has operated since the 1930s and
is authorized in permanent law (7 U.S.C. 1311 et seq.). (See CRS Report 95-129,
Tobacco Price Support: An Overview of the Program.)
The economic stability that was desired and expected from the tobacco support
program has not been achieved. First, the support prices for U.S. tobacco, as
mandated by law, long have been higher than prices for competing tobacco in world
markets. As a consequence, U.S. farmers steadily have been losing both export and
domestic markets to foreign producers. The declines are pictured in Figures 1 and
2 (based on USDA data). Second, tobacco support prices long have been higher than
the costs of production. This has created economic profits that are capitalized into
the marketing quotas. So, marketing quotas are an asset that now adds substantial
value to farmland, and they are a source of rental income for owners choosing not to
grow tobacco themselves. Conversely, rent on quotas has become a sizable expense
for active producers renting quota in an attempt to expand or even maintain output
in the face of shrinking markets.
3 The law (7 U.S.C. 1445) specifies that each year’s support price be based on the five-year
moving average of auction prices and the change in the annual index of tobacco producer
costs of production.

CRS-3
Figure 1. U.S. Share of World Tobacco Exports
30%
25%
20%
15%
10%
5%
0%'60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04
Figure 2. Share of U.S. Tobacco in U.S. Cigarettes
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%'60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04

CRS-4
As with other crops, the number of active tobacco producers has declined over
time and production has become concentrated onto fewer but larger farms. In 1982
there were about 180,000 farms producing tobacco. By 2002, just 20 years later, the
number of active producers was about 57,000.4 Most of these active tobacco farmers
own some marketing quota themselves and also rent quota from about 360,000 other
absentee quota owners.5 In the mid-1990s, burley producers owned about 44% of
their effective quota and leased the remaining 56% at an average cost of $0.33/lb.
Lease and transfer of quota has been prohibited for flue-cured tobacco since 1986.
Instead, active flue-cured producers rent farmland that has quota attached to it,
thereby obtaining the tobacco production rights. In the mid-1990s, flue-cured
producers owned about 33% of their effective quota and rented the remaining 67%
at an average cost of $0.37/lb.6 Since these data were developed, there likely has
been more renting of quota and newer USDA cost of production data put the average
rental cost of quota in 2001 at $0.59/lb. for flue-cured and $0.52/lb. for burley.7
One reason for increased consolidation and higher quota rental fees is the sharp
decline in quota levels in recent years, as shown in Figure 3 and Table 1. The decline
is the response to the reversal of previously rapidly growing export markets for U.S.-
manufactured cigarettes. The basic quotas for flue-cured and burley tobacco declined
52% and 57% respectively since 1997. Farmers need to market enough tobacco to
maintain their revenue and to economically utilize their barns, equipment, and labor.
This may require renting more quota. Along with these economic pressures to
consolidate, several sources of financial aid have made it possible for farmers to offer
higher rental rates for quota.
First, in conjunction with Phase II of the 1998 Master Settlement Agreement,
cigarette manufacturers agreed to distribute $5.15 billion to tobacco producers and
quota owners over a 12-year period.8 Second, to help offset decreases in marketing
quotas, Congress acted to provide assistance. Four separate emergency assistance
laws (P.L. 106-78, P.L. 106-224, P.L. 107-25, P.L. 108-7) included what the industry
calls direct “tobacco loss payments” totaling $860 million. Third, Congress directed
the Commodity Credit Corporation (CCC) to take ownership of all 1999 tobacco
4 U.S. Census of Agriculture, 2002.
5 President’s Commission on Improving Economic Opportunity in Communities Dependent
on Tobacco Production While Protecting Public Health, Tobacco at a Crossroads, A Call
for Action, May 14, 2001.
6 Data are from Linda F. Foreman, Tobacco Farmers’ Ownership and Rental of Tobacco
Quota, in Tobacco Situation and Outlook Report, Economic Research Service, U.S.
Department of Agriculture, September 2001.
7 Linda F. Foreman, Tobacco 2001 Production Costs and Returns and Recent Changes That
Influence Costs, TBS-2002-01, Economic Research Service, U.S. Department of
Agriculture, February 2003.
8 In 1998, cigarette manufacturers agreed to pay states $206 billion over 25 years to settle
a lawsuit brought by a number of states’ attorney generals. This Master Settlement
Agreement included no monies specifically dedicated to farmers. Subsequently and
separately, manufacturers agreed on payments to tobacco-producing states specifically for
farmers, called Phase II payments.

CRS-5
pledged as price support loan collateral and to assume all financial losses (P.L. 106-
387, as amended). CCC finally completed disposal of this inventory in December
2003 by burying it in landfills. According to CCC data, the total cost of acquisition,
interest on principal, storage, and disposal was about $625 million.
These three sources of financial assistance, rather than income from the sale of
tobacco, are the primary reason active producers are able to pay higher rental rates
to absentee quota owners as they bid against each other for their share of a declining
national tobacco quota. (See CRS Report RS20802, Tobacco Farmer Assistance.)
Figure 3. Flue-Cured and Burley Basic Quota
1000
800
600
400
200
Flue-cured
Burley
0
1990
1994
1998
2002
Why a Quota Buyout
Make Tobacco Production Profitable
for Active Producers

Active tobacco producers are being hurt financially both by declining marketing
quotas, which reduce their sales revenue, and higher quota rental rates, which raise
their production costs. Farmers feel there is little they can do to increase the demand
for tobacco, especially since it is federal policy to discourage consumption of tobacco
products. However, the elimination of quota rents, through a buyout of marketing
quotas, could reduce the costs of production substantially for farmers now leasing in
substantial amounts of quota. At the same time, producers could continue to receive
the price benefit of a continuing support program.
Advocates of this policy approach (H.R. 245, Fletcher; H.R. 986, Goode) would
require active producers to have marketing licenses (or permits) that specify quantity
limits, just as with marketing quotas now. However, the licenses would be issued

CRS-6
only to active producers and all forms of rent would be prohibited. This restriction
is intended to prevent the licenses from acquiring any exchangeable value. The
initial recipients of the licenses would be current tobacco producers wanting to
continue as active growers.
Active producers, not just absentee landlords, also would receive quota buyout
payments under all of the legislative proposals that have been offered so far. This
would provide the farmers who want to quit growing tobacco with sizable benefits.
The farmers who remain active producers under the license scheme receive a windfall
from their buyout payment since they would have suffered no losses (they would
continue to get the extra income created by licenses and price support).
This framework for a quota buyout, of licensed future production and continued
price support, is the proposal that was developed by the President’s Commission on
Improving Economic Opportunity in Communities Dependent on Tobacco
Production While Protecting Public Health.9 This Commission included advocates
for tobacco farmers, antismoking and health organizations, and rural community
development proponents. H.R. 245 and H.R. 986 largely are modeled on the
Commission’s recommendations.
Make U.S. Tobacco Price Competitive
There is little disagreement that U.S. tobacco would become substantially more
competitive in the domestic as well as export markets if prices declined by the
amount now paid in quota rents. Such a price reduction would happen if tobacco
support program loan rates were reduced substantially or eliminated. The quota rent
now paid to absentee landlords would vanish. The decline in revenue from lower
tobacco prices largely would be offset by the elimination of quota rent payments,
leaving the producer in about the same net revenue situation. In fact, a North
Carolina agricultural economist estimates that in the absence of the price support
program, U.S. tobacco production could increase by possibly 50%.10
At the same time, the economic analysis notes there would be substantial
adjustment costs associated with dropping support prices to free market levels or
eliminating the program. Most immediately, the value now in quotas would be
wiped out. This would eliminate the rental income of absentee quota owners.
Furthermore, all of the farmland with quota, whether owned by absentee landlords
or active producers, would drop in value. However, the economic adjustments
associated with a reduction in tobacco prices could be minimized, if not eliminated,
by compensating quota owners for lost asset values.
This “free market” policy approach (H.R. 140, McIntyre; H.R. 4033, Jenkins)
could be most appealing to active producers who want to see an expansion of their
tobacco enterprises. These producers likely have a sizable investment in barns and
9 The Commission’s final report is Tobacco at a Crossroads: A Call for Action, May 2001.
10 A. Blake Brown, Implications of Elimination of the US Flue-Cured Tobacco Program,
Department of Agricultural and Resource Economics, North Carolina State University,
September 18, 1997.

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machinery, and probably rent a large proportion of their annual marketing quota.
This option may be equally appealing to farmers intending to exit from tobacco
production. The farmers most disadvantaged would be small to medium sized
operations and those that are inefficient because of high costs or low yields who want
to continue growing tobacco.
As compared to a system of licensed producers, this “free market” option would
result in fewer but larger farms because of economies of size. Also, production likely
would move within each of the tobacco states to the geographic locations with the
most suitable soils and climate for economical production. The very fact that
production could increase substantially makes the “free market” option unappealing
to antismoking and health advocates.
Somewhere between the Commission concept of production licenses with
continued price support and the free market proposal, S. 1490 (McConnell) would
eliminate quotas and price support but allocate a national crop acreage base among
active producers. Should supplies become excessive an acreage limitation program
would require reductions in planting. This acreage reduction concept was used in
conjunction with the support programs for grains and cotton before being eliminated
by the 1996 farm bill.
H.R. 3160 was introduced as a bipartisan consensus proposal by Fletcher,
McIntyre, and Goode. This bill is similar to the McConnell bill in most respects.
One major variation is a different basis for calculating the amount of money paid to
quota owners and active producers. Under S. 1490 these payments would total about
$11 billion, compared to about $15 billion under H.R. 3160. However, S. 1490
includes some community development assistance that is not present in H.R. 3160.
Paying for a Quota Buyout
The value of tobacco marketing quota depends on several factors, including
expectations about the future. Quota owners do know how much rent they currently
earn from active producers. What they do not know is how long the tobacco program
will continue to operate, or the size of the national marketing quotas in future years.
Survey data from Kentucky reveal that the average sale price of marketing
quotas was $2.58/lb. in 2001 (when lease rates averaged $0.62/lb.), and $2.08/lb. in
2000 (when lease rates averaged $0.58/lb.), and $1.75 in 1999 (when lease rates
averaged $0.40/lb.).11 One would expect to get much higher sale prices with annual
rents of these magnitudes. These sale prices compared to lease rates imply a time
horizon of about five years, based upon a 5% interest rate. In other words, buyers are
discounting the purchase price of quota relative to annual rent in anticipation of
future quota reductions or elimination of the program.
11 Will Snell, Burley Quota Lease and Sales Survey Results, University of Kentucky,
August 2001.

CRS-8
Most quota buyout proposals would pay owners $8/lb. This payment is equal
to the present value of annual rental income of $0.40/lb. in perpetuity at an interest
rate of 5%. The buyout price of $8/lb. is a much higher price than sellers of quota
are getting in the marketplace. Also, the current proposals offer to pay active
producers an additional $4/lb. for all production on the farm. The payment to
producers typically is described as a “transition payment.”
A buyout program that pays $8/lb. to quota owners plus $4/lb. to active
producers ends up paying $12/lb. for each pound of quota that qualifies for the
program. Depending on the crop years used to calculate payments and some
assumptions about participation levels, a rough and unofficial estimate of the buyout
and transition payments range from about $11 to $19 billion. It is proposed that this
money be paid to quota owners and active producers over a five-year period. How
much would a typical tobacco farmer receive?
! The average North Carolina tobacco farmer harvested about 27 acres
in 1997, producing about 54,000 pounds. Buying out this average
North Carolina producer who owns 33% of the quota and rents 67%
would cost $358,560 ($142,560 in quota payments and $216,000 in
transition payments).
! In South Carolina the average tobacco farmer harvested 43 acres in
1997, bringing in about 86,000 pounds. Buying out this average
South Carolina producer who owns 33% of the quota and rents 67%
would cost $571,040 ($227,040 in quota payments and $344,000 in
transition payments).
! Kentucky tobacco farms averaged 6 acres, producing about 12,000
pounds. Buying out this average Kentucky producer who owns 44%
of the quota and rents 56% would cost $138,240 ($42,240 in quota
payments and $96,000 in transition payments).
The President’s Commission recommended that federal excise taxes on
cigarettes and other tobacco products serve as the source of revenue for the proposed
buyout (estimated at $0.17 per pack on cigarettes for five years). All of the
legislative proposals described in this report include an assessment on manufacturers
and importers of tobacco products, or the use of Treasury funds, rather than an
increase in excise taxes on cigarettes.
Certainly, manufacturers could benefit from a buyout if the support price for
tobacco were reduced. One tobacco manufacturer, Philip Morris, has stated its
willingness to help pay for a tobacco buyout program. If U.S. manufacturers could
save $0.60/lb. on their 2004 purchase intentions of about 450 million pounds, the
savings would amount to $270 million. Additional savings would accrue if a drop
in the price of U.S. tobacco pushed down the price of foreign supplies. Additionally,
overseas operations also would save on the lower prices for both US. leaf and foreign
leaf. One tobacco analyst estimates it would take about 14 years for manufacturers
to recover the cost of a $15 billion quota buyout program.12 Philip Morris 13 has
12 USDA economist Bob Tarczy offered this estimate in his presentation on “Potential
(continued...)

CRS-9
coupled its offer to participate in a buyout with a proposal for Food and Drug
Administration (FDA) regulation of tobacco products. Health groups also advocate
FDA regulation.14 At this time Philip Morris is the only major manufacturer known
to support FDA regulation or a quota buyout. (See identical bills H.R. 4433 and S.
2461).
Whether the various interest groups involved in the debate over a tobacco quota
buyout (particularly tobacco farmers, health organizations, and tobacco
manufacturers) can reach agreement is uncertain. The uncertainty of creating such
a broad coalition encouraged sponsors of the latest bill, H.R. 4033 (Jenkins; March
25, 2004), to seek about $9.6 billion in funding out of existing tobacco excise tax
revenues, rather than from assessments on manufacturers, and to avoid any linkage
to FDA regulatory authority. The bill is cosponsored by most supporters of the so-
called House consensus bill. This bill provides $1/lb. lower quota buyout and
transition payment rates ($7/lb. and $3/lb. respectively). In contrast to other
proposals, Phase II payments to growers continue and provide an additional benefit
of about $3 billion. The Jenkins bill also is included as Title VII in H.R. 4520, a tax
bill called the American Jobs Creation Act of 2004.
Table 1. National Quota Levels and Actual Marketings
of Flue-Cured and Burley Tobacco, 1990-2004
Flue-cured, types 11-14
Burley, type 31
Flue-cured and Burley
Crop
Basic Effective
Actual
Basic Effective
Actual
Basic Effective
Actual
Year Quota
Quota Mktings
Quota
Quota
Mktings
Quota
Quota
Mktings
Million Pounds
1990
877.7
936.1
920.2
601.3
741.2
592.2
1,479.0
1,677.3
1,512.4
1991
877.6
891.5
882.5
724.1
846.1
657.0
1,601.7
1,737.6
1,539.5
1992
891.8
899.0
901.0
668.5
835.6
699.8
1,560.3
1,734.6
1,600.8
1993
892.0
889.6
891.7
601.9
717.9
626.6
1,493.9
1,607.5
1,518.3
1994
802.6
798.5
806.8
536.3
605.9
568.0
1,338.9
1,404.4
1,374.8
1995
934.6
924.9
854.2
546.5
577.9
480.4
1,481.1
1,502.8
1,334.6
1996
873.6
943.6
896.7
631.3
719.8
516.3
1,504.9
1,663.4
1,413.0
1997
973.8
1,019.8 1,013.5
704.5
879.8
628.8
1,678.3
1,899.6
1,642.3
1998
814.3
819.6
815.2
635.4
867.5
588.7
1,449.7
1,687.1
1,403.9
1999
667.7
671.5
645.0
452.6
690.1
551.2
1,120.3
1,361.6
1,196.2
2000
543.0
553.0
562.9
247.0
361.9
315.4
790.0
914.9
878.3
2001
548.9
543.0
544.4
332.0
368.8
343.7
880.9
911.8
888.1
2002
582.0
545.3
564.8
324.2
344.0
299.8
906.2
889.3
864.6
2003
526.3
540.0
508
287.8
320.2
290
814.1
860.2
798.0
2004
471.3
501.3
na
302.1
330.9
na
773.4
832.2
na
Source: Data are from Economic Research Service, Tobacco Outlook, Dec. 2003, and the Farm Service Agency.
12 (...continued)
Financial Impact of a Buyout” at the 41st Tobacco Workers’ Conference, January 22, 2004,
Nashville, TN.
13 PM USA’s Fundamental Principles of a Tobacco Quota Buyout and FDA & Tobacco are
posted on the internet at [http://www.philipmorrisusa.com/home.asp].
14 The summary of the joint views of several health groups is available at [http://
www.tobaccofreekids.org/research/factsheets/pdf/0181.pdf].

CRS-10
Table 2. Comparison of Selected Tobacco Quota Buyout Proposals in
the 108th Congress
S. 1490 (McConnell)
H.R. 3160 (Fletcher, McIntyre,
H.R. 4033 (Jenkins)
Goode)
Tobacco Market Transition Act
Tobacco Reduction,
Fair and Equitable Tobacco
(TMTA) of 2003
Accountability, and Community
Reform Act of 2004
Enhancement (TRACE) Act of
2003
FDA Regulation
None
None
None
Total Payments and Other
Spending
Total payments to quota owners
Total payments to quota owners
Total payments to quota owners
and producers are about $11
and producers are about $15
and producers are about $9.6
billion, including Phase II
billion, including Phase II
billion. Phase II payments
payments. Additional spending
payments. (CRS estimate).
continue and provide additionally
of about $2 billion for
Additional spending of about
about $3 over other bills. (CRS
community assistance, research,
$700 million (sponsor’s estimate)
estimates). There is no
administration, and stability
for research, administration, and
additional spending for
programs. (CRS estimates).
market stability program.
community assistance or other
activities.
Funding Sources
Payments to quota owners and
Payments to quota owners and
Funds to make payments are
active producers are to be made
active producers, and other
drawn from the general fund of
from a Tobacco Trust Fund.
expenses, are to be made from a
the Treasury, but not to exceed
Money comes from annual
Tobacco Trust Fund created in
the revenues coming into the
assessments on product
the CCC. Money comes from
Treasury from excise taxes on
manufacturers and importers.
quarterly assessments on product
tobacco products. [Sec. 206]
Cigarette manufactures pay
manufacturers and importers.
98.3%. [Sec. 201 (380S)]
Cigarettes pay 98.303%. [Sec. 5
(380S)]
Payment Timing
Payments to quota owners and
Payments to quota owners and
Payments to quota owners and
producers are to be made in six
producers are to be made in
producers are to be made in five
declining annual installments
seven equal annual installments
equal annual installments from
from 2004 through 2009. [Sec.
from 2004 through 2010. [Sec.
FY2005 through FY2009. [Sec.
201 (380B and 380C)]
201 (380B and 380C)]
202(e) and 203(d)]

CRS-11
S. 1490 (McConnell)
H.R. 3160 (Fletcher, McIntyre,
H.R. 4033 (Jenkins)
Goode)
Quota Owner Payments
Quota owners as of July 1, 2002,
Quota owners as of July 1, 2002,
Quota owners as of the day
are to be paid $8/lb. on basic
are to be paid in proportion to
before enactment of this bill are
quota levels for marketing year
their 2002 basic quota. Total
to be paid in proportion to their
2002, divided into 6 annual per
amount available for payments is
2002 basic quota. Total amount
pound rates of $1.60, $1.50,
$8/lb. times the average basic
available for payments is $7/lb.
$1.40, $1.30, $1.20, and $1.00.
quota level over marketing years
times the total basic quota for the
[Sec. 201 (380B)]
1997 through 2002. [Sec. 5
2002 marketing year. [Sec.
(380B)]
201(3) and Sec. 202 (e)]
Active Producer Payments
Traditional producers, who raised
Traditional producers, who raised
Farmers as of the day before
tobacco in 2000, 2001, or 2002,
tobacco in 2000, 2001, or 2002,
enactment of this bill who shared
are to be paid $4/lb. on effective
are to be paid on their annual
in the risk of production and
quota for marketing year 2002,
average effective quota for those
were actively engaged in
divided into 6 annual per pound
years. The total amount available
producing tobacco are to be paid
rates of 75¢, 75¢, 70¢, 65¢, 60¢,
for payments is $4 times the
in proportion to actual
and 55¢. Payments are reduced
average effective quota for 1997
marketings or quantity
by 1/3 for each year tobacco was
through 2002. [Sec. 5 (380C)]
considered planted in the 2002
not grown by the producer. [Sec.
marketing year. Total amount
201 (380C)]
available for payments is $3/lb.
Funds totaling $4/lb. times 1998
times the total marketings in the
quota levels are to be divided
2002 marketing year. [201(1) and
among all producers who were
203(d)]
active in 2002. [Sec. 103(c)]
Each producer is to be paid
proportionally based upon the
average of the effective and basic
quotas for 2001 and 2002. [Sec.
103(d)]
(Estimated cost = $5.8 billion.)
Exiting producers are paid an
additional $2/lb. [Sec. 103(e)]
(CRS-estimated payments = $1.8
billion. Calculation assumes
60% participation.)

CRS-12
S. 1490 (McConnell)
H.R. 3160 (Fletcher, McIntyre,
H.R. 4033 (Jenkins)
Goode)
Quotas and Licenses
Marketing quotas and acreage
Marketing quotas and acreage
Marketing quotas and acreage
allotments are terminated. [Sec.
allotments are terminated. [Sec.
allotments are terminated. [Sec.
101] In future years, a national
2] In future years, a national
101] There are no restrictions on
base acreage is established for
poundage base is established for
who can produce tobacco in the
each kind of tobacco and divided
each kind of tobacco and divided
future.
among active producers. [Sec.
among active producers in
201 (380I)]
traditional tobacco counties.
Marketing quotas and acreage
[Sec. 5 (380I)]
allotments are eliminated.
Production licenses are
established as a new mechanism
for limiting domestic production
to the level that does not exceed
domestic and export demand.
[Sec. 301-307]
Price Support
Price support loans and no net
Price support loans and no net
Price support loans and no net
cost assessments are terminated.
cost assessments are terminated.
cost assessments are terminated.
[Sec. 102] Annual assessments of
[Sec. 3] Annual assessments of
[Sec. 102]
up to 5¢ per pound divided
up to 5¢ per pound divided
equally between producers and
equally between producers and
purchasers are used to finance a
purchasers are used to finance a
Tobacco Market Stability
Tobacco Market Stability
Program. [Sec. 201 (380M)]
Program, with additional money
from the Trust Fund. [Sec. 201
(380M)]
Production Controls and
Restrictions
An Acreage Limitation Program
A Poundage Limitation Program
In 2005 and subsequent
allocates tobacco base acres
allocates tobacco poundage base
marketing years tobacco
among active producers and
among active producers in
production is restricted to
requires reductions when needed
traditional tobacco counties and
traditional tobacco counties
in order to balance supply with
requires reductions when needed
(counties that produced tobacco
demand at reasonable prices.
in order to maintain reasonable
in 2002 and contiguous
[Sec. 201(380M)]
and stable supplies and prices.
counties). There are no quantity
[Sec. 5(380I)]
limits or restriction on who can
produce tobacco. [Sec. 204]

CRS-13
S. 1490 (McConnell)
H.R. 3160 (Fletcher, McIntyre,
H.R. 4033 (Jenkins)
Goode)
Tobacco Board
Establishes a Tobacco Quality
Establishes a Tobacco Advisory
None
Board to examine domestic
Board for each kind of tobacco to
production and imports and
examine domestic production
advise on matters of quality.
and imports and advise on
Establishes a Production Board
matters of quality, the
for each kind of tobacco to
appropriate poundage limitations,
advise on the appropriate acreage
and the appropriate insured
limitations. [Sec. 201 (380G and
prices. [Sec. 5 (380G and 380H)]
380H)]
Other Tobacco Programs
A Tobacco Market Stability
A Tobacco Market Stability
None
Program makes payments to
Program makes payments to
producers when average
producers when average
domestic prices are below world
domestic prices are below
market prices and when domestic
insured prices (set by USDA but
prices are below $1 per pound.
not below $1 per pound). Funded
[Sec. 201 (380M)]
by assessments on producers and
purchasers up to 5¢/lb., plus $50
mil. per year for four years from
Tobacco Trust Fund. [Sec. 5
(380M)]
Community Assistance
Grants to states for economic
Grants to colleges and
None
development in counties most
universities for research on
impacted by declining tobacco
agricultural (tobacco and
sales ($500 million). Federal
tobacco-related) enterprises,
contribution shall not exceed
technologies, and uses ($60
75% of the cost of the
million). [Sec. 5 (380Q)]
development initiatives. [Sec.
201 (380O)]
Grants to colleges and
universities for research on
agricultural (tobacco and
tobacco-related) enterprises,
technologies, and uses($60
million). [Sec. 201 (380Q)]