CRS REPORT FOR CONGRESS
TOBACCO PROF THE U.S. DEPARTMENT OF AGRICULTURE:
THEIR OPERATION AND COST
Environment and Natural Resources Policy Division
January 15, 1988
Supersedes Report NO. 86-140 ENR
The Federal Government provides price support for tobacco through
nonrecourse loans and marketing quotas. In addition, other U.S. Department
of Agriculture services of benefit to tobacco producers are also provided.
This report explains the price support program and other federally funded
activities related to tobacco production and marketing, and provides detailed
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PRICESWPORTPROGRAH . . . . . . . . .
Programoperation . . . . . . . . .
No-Net-Cost Requirement . . . . . .
Federal Cost . . . . . . . . . . .
Net Realized Losses v s Net Outlays
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OTHER TOBACCO-RELATED ACTIVITIES
Administration of t h e Price Support Program . . . . . . . . .
Tobacco Inspection and Grading. and Market News Services .
Tobacco Research and Extension . . . . . . . . . . . . . .
Federal Crop Insurance . . . . . . . . . . . . . . . . . .
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LIST OF TABLES
Tobacco P r i c e Support Program Costs. FY 1961-1988
TABLE 2 .
Expenditures f o r Selected Tobacco-Related A c t i v i t i e s
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b y F i s c a l Y e a r . 1 9 8 6.1988
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Summary of Selected Provisions of Recent L e g i s l a t i o n
Affecting Tobacco Programs of the USDA
The tobacco price support program consists of marketing quotas and
nonrecourse loans. The national marketing quota is the amount of tobacco
production (with allowance for stocks) needed to satisfy domestic and foreign
demand at or above the mandatory support price. The national quota is
divided among tobacco producers who must then restrict production and sales
to a farm quota level. The marketing quota provisions of the price support
program serve to limit supplies and thereby raise market prices above the
loan rate. This supply control feature is supposed to enable the nonrecourse
loan feature of the program to operate at no loss to the Government.
Farmers are given advances on tobacco accepted as collateral by the
Commodity Credit Corporation under the nonrecourse loan provisions of the
price support program. This happens when tobacco does not sell at auction
above the specified loan rate. Producer cooperatives act on behalf of CCC by
making advances to producers; by redrying, packing, and storing the tobacco
held as collateral; and finally, by selling the tobacco and paying off the
loans from CCC with interest. Markets are stabilized by the presence of loan
stocks that are available to private buyers.
The law now requires that all
loan losses on 1982 and subsequent crops of tobacco (with the exception of
the 1983 burley crop) be reimbursed from assessments on producers and buyers
(the assessment funds are accumulated in a no-net-cost tobacco program
Proceeds from sales in excess of outstanding loans are also
retained by the CCC to offset future losses.
CCC records show that since 1933, about $9 billion has been loaned to
tobacco growers. Losses of loan principal will reach an estimated cumulative
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total of $505 million by the end of FY 1988. Plus, there will be an
estimated cumulative loss of loan interest of $319 million.
Estimated FY 88 net realized losses on loan operations are $63 million
(for losses on crops preceding the no-net-cost requirement).
level, as with the preceding two years, is dramatically higher than during
the prior 52 year history of tobacco price support operations. While losses
are being taken because repayments are inadequate to cover loan principal,
the amount of money being received is substantially greater than the amount
of new lending. Consequently, net budgetary outlays for FY 88 are estimated
at -$347 million (in other words, more money is coming in than is going out
in FY 88).
At the beginning of FY 88, outstanding principal on tobacco loans
was about $2 billion.
The administrative cost of managing the entire price support program
will be about $12.4 million in FY 88. Other tobacco-related activities of
the USDA and their estimated FY 1988 cost include:
(1) the inspection and
grading of tobacco at auction markets, which is primarily user-financed ($0.2
million); (2) market news reports on auction sales activity ($0.8 million);
(3) research and extension on tobacco production and marketing ($8.8
million); (4) the subsidy of producer premiums for all-risk crop insurance
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THE COST OF THE TOBACCO P U C E SUPPORT PROGRAM
~obaccolwas an especially important crop in the early history of the
United States. Even though it no longer holds its once superior economic
position, it is still vital to the major producing States. Tobacco is
produced in 21 States and Puerto Rico, but six States (North Carolina,
Kentucky, Tennessee, Virginia, South Carolina, and Georgia) accounted for 91
percent of the $1.9 billion in 1987 farm cash receipts from tobacco.
North Carolina is the leading State and produces primarily flue-cured
tobacco, and Kentucky, the second lea'ding State, produces primarily burley
tobacco. Flue-cured and burley tobaccos (combined with small amounts of
oriental tobaccos not produced in this country) are used in cigarettes and
constitute 93 percent of total U.S. tobacco production. About 179,000 farms
produce tobacco, harvesting an estimated 602,000 acres in 1987.
Cyclical swings in tobacco prices in the early part of this century led
to grower efforts to control production. In some cases violence was used
Tobacco leaves have differing characteristics that are important in
the manufacture of tobacco products. These differences have been
systematically classified by the USDA. There are seven major classes of
tobacco produced in the United States, with differences arising from
variations in soils and climate, in cultural practices, and in curing
methods. The classes are: flue-cured, fire-cured, air-cured, cigarfiller, cigar-binder,cigar-wrapper, and miscellaneous domestic. Classes
are further divided into types, of which there are 26 different categories.
Flue-cured, types 11-14, and burley, type 31, are the major tobaccos produced
in the United States.
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against uncooperative growers. But always, the nongovernmental efforts
failed. It was in 1933 that the Federal Government, under the Agricultural
Adjustment Act, attempted to control the supply of most major commodities in
order to boost prices. Various problems with this and subsequent legislation
ultimately led to adoption of the Agricultural Adjustment Act of 1938. This
law established a supply control and price support program for tobacco that
remains very much the same today.2 Additional tobacco production and
marketing assistance is provided through USDA inspection and grading
services, market news reporting, research and extension activities, and
subsidized crop insurance.
This report explains the several tobacco-related programs of the USDA
and presents detailed cost data.
The mandatory supply control features of the tobacco program were
characteristic of other commodities covered by the 1938 price support
legislation. However, only tobacco continues to utilize mandatory supply
controls. The current legal authority and requirements for the Federal
tobacco program are contained in 7 U.S.C. 1311-1316 and 7 U.S.C. 1445.
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PRICE SUPPORT PROGRAM
The U.S. Department of Agriculture (USDA) provides support and stability
to tobacco markets through operation of the tobacco program.
supported and stabilized by means of nonrecourse loans in combination with
Financial resources for carrying out price support
operations are provided by the Commodity Credit Corporation (CCC), with
administrative support coming from the Department's Agricultural
Stabilization and Conservation Service (ASCS).
The different classes of tobacco produced in the United States each have
their own separately administered, but operationally similar, price support
program. The growers of each class of tobacco vote in a national referendum
every three years on whether to have a program.
Grower approval makes
Federal support mandatory on both the Federal Government and all producers of
Tobacco is one of 15 agricultural commodities now receiving direct
Federal price support. Nonrecourse loans are used as the price support
mechanism for a number of commodities. Farmers pledge a harvested commodity
that has been placed in storage as collateral for the loan. In the event of
a default on the loan, which generally occurs if the market price is less
than the loan price, the Government takes ownership of the collateral in full
settlement of the loan. No additional recourse is taken against the
borrower, hence the designation nonrecourse loan.
Growers have disapproved marketing quotas for Maryland, Pennsylvania
filler, and cigar binder types of tobacco. There are no quotas on Puerto
Rican filler tobacco, but price support is provided.
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Federal support is provided through the mechanism of nonrecourse loans
available on each farmer's marketed crop. The loan price on 1988 crop fluecured tobacco is $1.442 per pound, and for burley tobacco the loan price will
be about $1.50.
(The loan price for each type of tobacco is announced each
year by the Secretary of Agriculture who uses the formula specified in the
statutes to calculate loan levels).
At the auction sale barn, each lot of
tobacco goes to the highest bidder, unless that bid does not exceed the
Government's loan price.
In that case, the tobacco is consigned to the price
stabilization cooperative5 and the farmer is paid the loan price with money
borrowed by the cooperative from the CCC. The tobacco becomes collateral for
the loan. The cooperative, acting as an agent for the CCC, later sells the
tobacco with the proceeds going to repay the loan from CCC.
When farmers vote in favor of price supports, they are at the same time
agreeing to accept Government restrictions on the amount of tobacco each can
market. The national marketing quota, which is allocated among farms based
upon their historical production, is the amount judged sufficient to meet
domestic and export demand, but at a price above the Government loan price.
By limiting the supply of tobacco, the market price is increased and total
A farmer cooperative receives the tobacco pledged as collateral,
redries, packs, and stores it. Cooperatives under contract with CCC to carry
out these activities are known as price stabilization cooperatives.
The marketing quota is actually assigned to the land. So, the right
to produce and market a specified quantity of tobacco resides with the owner
of the land. A farmer can only begin to grow tobacco if he purchases land
that has a quota, or rents the land from its owner.
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farm revenue is raised.7 In this way farm income is supposed to be supported
through artificially high market prices, rather than through Government
Congress, under the threat of legislative dissolution of the program in
1982, passed the "No Net Cost Tobacco Program ~ c t"8
. This legislation
imposed an assessment on growers for every pound of tobacco marketed.
assessment funds are to be used to reimburse the Government for any future
financial losses resulting from tobacco loan operations.
No one expected
that the assessment would ever exceed a penny or two per pound, since past
losses were low.
It turned out, however, that loan prices had been
legislated so much higher than world market prices during the late 1970s and
early 1980s that cigarette manufacturers imported larger and larger
quantities of tobacco.1°
There were yatutory limits on how much the
Revenue is increased because the demand for tobacco is price
inelastic. In other words, with a price increase consumers reduce
consumption, but by a smaller percentage than the price increase. The recent
studies put the price elasticity at about -0.7. This means that, for a 1
percent increase in price, consumption declines only 0.7 percent.
Public Law 97-218, enacted July 20, 1982.
Another loss savings feature of the legislation was the retention of
any profits on the sale of loan stocks. Profits were previously distributed
lo The support prices for flue-cured and burley tobacco reached $1.699
and $1.751 respectively in 1982 under a legislated formula that incorporated
past inflation in prices paid for farm supplies. Imported tobacco of
comparable quality was then being purchased at prices 30 percent lower than
U.S. tobacco (U.S. International Trade Commission publication 1644, Feb.
1985). The lack of import restrictions made the supply control aspect of the
price support program ineffective in the face of lower priced foreign
tobacco. The domestic tobacco content of cigarettes dropped from 80 percent
in 1977 to 64 percent in 1986 (Economic Research Service, Tobacco Situation
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marketing quota could be reduced each year, so production continuously
exceeded utilization and the surplus went under Government loan.
of tobacco under loan increased, no-net-cost assessments were increased until
they reached 25 cents per pound on flue-cured and 30 cents on burley in 1985.
The high assessments, declining marketing quota, and accumulating
surplus tobacco stocks created a crisis for tobacco growers and the Federal
Congress enacted a legislative remedy in the spring of
The legislation lowered tobacco loan prices about 26 cents per
At the same time, the cigarette manufacturers agreed to buy, over
the next five years, the surplus stocks of tobacco at discounted prices.
Loan losses expected to result from price discounts on old surplus tobacco
would fall upon the Government.
Backers of the new legislation anticipate that the current lower tobacco
support prices will make U.S. tobacco once again competitive in the
international marketplace, and very small amounts will be put under
Government loan in future ye&s.
Skeptics contend the support prices are
still too high to make U.S. tobacco sufficiently competitive.
and Outlook Report, Sept. 1987).
l1 Changes in the tobacco program were included in P.L. 99-272, the
Consolidated Omnibus Budget Reconciliation Act of 1986, enacted April 7, 1986.
l2 The no-net-cost assessment provisions were also modified to require
that growers and buyers of tobacco share the burden of the assessments
equally. Placing half the assessment on buyers was expected to encourage the
future use of domestic tobacco and discourage imports of foreign tobacco.
The assessment on both 1987 crop flue-cured and burley is 4 cents per pound
(2 cents paid by growers and 2 cents by buyers).
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At the time the No Net Cost Tobacco Program Act was adopted, financial
losses from the program were comparatively modest. At the end of FY 1982,
after nearly 50 years of operation, losses of loan principal amounted to $58
million. Losses have taken a sharp rise since that time, and are expected to
reach a cumulative total at the end of FY 1988 of about $505 million (on
cumulative lending of about $9 billion) .I3
Large losses were realized in FY 1986, FY 1987, and are anticipated for
FY 1988 ($124.4 million, $251.6 million, and $63.0 million respectively).
They arose primarily from loans made on the 1983 burley crop, as well as the
1976 through 1982 flue-cured crops. Legislation adopted in 1986 exempted
1983 crop burley loans from the requirement of no-net-cost,and the 1976
through 1982 flue-cured loans pre-date the no-net-cost requirement. The
losses on the 1983 burley crop, which would have been subject to no-net-cost
requirements without the congressionally mandated exception, amount to $373
million. All other loan program losses on 1982 and subsequent tobacco crops
have been recovered from tobacco assessment funds.
Net Realized Losses vs Net Outlavs
Tobacco loans made in one year are typically not repaid until several
years later, even as many as 10 years later. So long as the tobacco pledged
as collateral remains secure, CCC considers outstanding loans to be assets.
Only when the loans are settled is there a determination of the realized loss
l3 Loss data are from: U.S. Department of Agriculture. Report of
Financial Conditions and Operations of the Commodity Credit Corporation,
various issues; and current unpublished data from the Agricultural
Stabilization and Conservation Service as of January 15, 1988.
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or gain. Since CCC is not a for-profit lender, gains are modest by design
and only amount to service fees. Losses are more common (though small for
tobacco in comparison to other commodities supported through nonrecourse
loans)l4 and have historically been considered consistent with the price and
income support goals of farm programs. Net realized loss measures the final
burden of tobacco loans on taxpayers because the calculation is made after
loans are fully settled by liquidation of the loan collateral.
Table 1 shows the annual level of net realized losses of loan principal
since 1961. Passage of the No Net Cost Tobacco Program Act made a
significant change in Federal price support policy.l5
Shifting the financial
burden for tobacco program losses from the Federal Government to growers
discourages setting support prices at artificially high levels. This was
belatedly recognized when Congress finally reduced tobacco loan rates by
about 26 cents (and at the same time relieved burley growers of a $373
million no-net-cost loss burden).
l4 The total of net realized losses on all commodity price support loan
and inventory operations during M 1987 is estimated at about $7 billion
(including $252 million for tobacco). The cumulative loss total from FY 1933
through FY 1987 is estimated at about $40 billion for all commodities and
$442 million for tobacco. (Calculated from: U.S. Department of Agriculture.
Report of Financial Conditions and Operations of the Commodity Credit
Corporation, various issues. CCC Estimates, July 7, 1987.)
l5 The no-net-cost requirement for tobacco created a precedent for
commodity price support programs that was mandated for sugar in the 1985
omnibus farm bill (P.L. 98-198, the Food Security Act of 1985), although
Federal sugar program costs are controlled through restrictive import quotas
rather than assessments. The dairy program has also used grower assessments
to offset some Federal costs.
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Tobacco Price Support Program Costs, M 1961-1988
( ) indicate negative net losses or negative net outlays (ie., gains or
Source: U.S. Department of Agriculture. Agricultural Stabilization
and Conservation Service. Report of Financial Conditions and
Operations of the Commodity Credit Corporation, annual issues. History
of Budgetary Expenditures of the Commodity Credit Corporation, annual
issues. Unpublished estimates from the Agricultural Stabilization and
The cumulative total of realized losses of loan principal from 1933
through 1988 amounts to an estimated $505 million, with $373 million due
solely to loans made on the 1983 burley crop. Along with losses of loan
principal there are losses of interest, However, interest losses on all CCC
price support operations are lumped together in the account books.
by the USDA to identify interest losses on tobacco loans alone produce an
estimated cumulative total of $319 million in interest losses from 1933
For purposes of budgeting, the Federal Government calculates annual net
outlays (also sometimes called net budgetary expenditures) for its various
programs. In simple terms, net outlays equal expenditures less receipts.
The extent to which Government-wide expenditures exceed receipts is the
measure of the Federal budget deficit. So, tobacco program net outlays
measure tobacco's contribution to the annual Federal budget deficit (even
though some or all of these outlays could be recovered later through loan
Within any year, new loans made on tobacco are considered expenditures
and repayments of previous loans count as receipts. No adjustment is made
for the value of the tobacco inventory pledged as collateral for the new
loans. Table 1 shows the annual level of tobacco program net outlays since
1961. The negative net outlay numbers in FY 1987 and FY 1988 mean that
receipts exceeded expenditures. Large receipts resulted from the sale of
tobacco on which loans had been placed in previous years. The large receipts
more than offset new loans made in FY 1987 and FY 1988, hence the negative
net outlay numbers. However, the receipts were not sufficiently large to
cover the full amount of the original loan principal so there were, at the
same time, net realized losses.
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It is a matter of appearance more than substance that the two accounting
methods show dramatically different annual cost numbers. If the end-of-year
value of loan collateral were subtracted from the net outlay number, the
result would look much like realized loss data. However, the proper
valuation of inventory loan stocks would have to be at market prices-rather
than loan prices.
Furthermore, loans made one year are typically not repaid
until several years later. So, even after accounting for the value of loan
collateral, there would not be a perfect correspondence between the two sets
of cost data. The cumulative totals of both net realized losses and net
outlays would be equal if loan stocks were to ever be completely liquidated
and lending activity ceased.
The tobacco price support program is USDA's major tobacco related
program and is by far the most costly. The Department does incur additional
costs for other tobacco-related activities. For example, there are the
administrative services related to operating the price support program.
Additional services that benefit the tobacco industry are the inspection and
grading of tobacco at auction markets (modified in 1982 to be userfinanced), reporting of prices and volume during the trading season through a
market news service, administration of research and extension programs aimed
at improving tobacco production and marketing techniques, and a subsidy of
the insurance premiums for all-risk crop insurance. The annual cost of each
of these service activities is shown in table 2.
A portion of the office staff in some 600 Agricultural Stabilization
and Conservation Service county offices, as well as part of the headquarters staff time, is devoted to administering the marketing quota and
loan provisions of the tobacco price support program.
In FY 1988, some
$12.4 million will be spent for salaries and related expenses of ASCS
personnel working on the tobacco program.
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Tobacco Ins~ectionand Gradine. and Market News Services
The Tobacco Inspection Act of 1935 provided that the USDA would furnish,
without charge, inspection and grading services at tobacco auction markets.
The establishment of uniform standards of quality, with grading by unbiased
experts, assures that auction markets perform efficiently and fairly.
Federal grading also provides an assurance of quality for tobacco held as
collateral for CCC price support loans. In FY 1981, $7.3 million was spent
for salaries, expenses, and support for seasonal tobacco inspectors employed
by the USDA's Agricultural Marketing Service (AMS).
As a result of legislation in 1981, the inspection and grading services
came to be financed through user fees. The only Federal cost now associated
with inspection and grading is the development and maintenance of grading
standards applied by the inspector. The cost of standardization activity
will be about $204,000 for FY 1988.
Along with inspection and grading, AMS provides a market news service
for sellers and buyers of tobacco. Daily reports of grades, prices, and
sales volume at the auction markets are distributed throughout the tobacco
industry. The cost of the tobacco news service in FY 1988 will be about
$785,000. Similar market news services are provided for practically all
agricultural commodities. Market news services are designed to provide
farmers with timely, accurate, and unbiased information on market conditions,
to help them make better decisions on where and when to sell, and at what
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Tobacco Research and Extension
The USDA has long funded research related to tobacco production and
economics. Research results are disseminated to the industry through the
Extension Service. Following the Surgeon General's report on "Smoking and
Health," in 1964, the USDA initiated research to develop a tobacco that would
be safer to the health of smokers. USDA expenditures on research and
extension related to tobacco production and marketing will amount to $8.8
million in FY 1988. The health-related portion of the research budget will
amount to $7.4 million.
Federal C r o ~Insurance
The Federal Crop Insurance Corporation of the USDA began providing allrisk crop insurance to tobacco producers in 1948. The insurance covers
unavoidable production losses due to adverse weather, insect infestation,
plant diseases, and other natural calamities. It does not cover avoidable
losses caused by neglect or poor farming practices, or financial losses from
low prices. The crop insurance program is designed to be actuarially sound;
in other words, premiums must be set at a level adequate to cover claims for
losses and provide a reasonable reserve against unforeseen categories. From
1948 through 1981, tobacco producers paid $180.1 million in premiums and
received $190.2 million in indemnities. The loss ratio of 1.05 is due
largely to two particularly catastrophic years, 1977 and 1980. But in spite
of those two bad years--whichwere exactly the circumstances insurance is
designed to moderate--the tobacco insurance program successfully balanced
premiums and indemnities.
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In 1980, the Congress passed legislation to provide for the subsidization of producer premiums for Federal crop insurance. This was done to
encourage farmers to purchase all-risk crop insurance and diminish the need
for other forms of disaster assistance. The 1982 crop year was the first
application of premium subsidies. The level of premium subsidy for tobacco
producers is estimated to be $4.9 million in FY 1988.
TABLE 2. Expenditures for Selected Tobacco-Related Activities
by Fiscal Year, 1986-1988
k/ User fees were adopted for the 1982 and future crops. The
remaining Federal expenditure is for development and maintenance of
Subsidization of the crop insurance premium began with the
Source: Compiled from an internal document of the Office of
Management and Finance, U.S. Department of Agriculture, titled Programby-Program Summary, Estimated Costs Related to Tobacco Activities,
Sumnary of Selected Provisions of Recent Lagislation
Affecting Tobacco Programs of the USm
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Omnibus Budpet Reconciliation Act of 1981
--Amends the Tobacco Inspection Act to require
the collection of fees and charges that are
sufficient to cover the cost of Federal
Awriculture and Food Act of 1981
--Expresses intent of Congress that the
tobacco program result in no net cost, other
than administrative costs, to the Government.
--Subjects nonquota tobacco to a quota if
it is produced in a quota area. Certain
tobaccos are exempt from this provision
under specific circumstances.
No Net Cost Tobacco Proeram Act of 1982
--Requires that producers of tobacco (and
lessors of flue-cured quota) contribute to a
fund at an amount adequate to reimburse CCC
for any net losses sustained from its loan
--Provides that net gains from the sale of
loan collateral tobacco be retained by CCC to
offset other loan losses or to reduce
outstanding loan balances.
--Allows a reduction of the support rate on
grades of tobacco in excess supply so long
as the average support level is not reduced by
more than 35 percent.
--Allows grades of flue-cured tobacco that are
in excess supply to be sold at a special
auction. Price supports would not be
available and the tobacco would be deducted
from under marketings.
--Prohibits fall leasing of flue-cured
allotments and quotas and prohibits
--Limits the total flue-cured allotment for
any farm to 50 percent of the farm's tillable
--Permits the sale of flue-cured allotments
and quotas to active tobacco producers in the
--Prohibits nonindividuals from owning fluecured and burley allotments after December 1,
1983, if their land is not used for
--Requires the national yield factor for fluecured tobacco to be set at the past five-year
average yield beginning in 1983 and each five
- -Increases from 15,000 to 30,000
amount of burley quota that can be leased and
--Allows producers of dark air-cured and firecured tobacco (types 22 and 23) to adopt
--Exempts nonquota tobacco from quotas if it
is produced in a quota area with not more than
20 acres of quota tobacco.
An Act to Amend the 4gricultural Act of 1949
$0 Set 1983 Tobacco Price S u ~ ~ o sr t
--Sets 1983 tobacco support prices at 1982
--Allows burley quotas to be reduced by as
much as 1 0 percent (instead of 5 percent) to
--Requires a determination of whether imports
are interfering with the burley program if
support is ever restrained or quotas reduced.
Pairv and Tobacco Adiustrnent Act of 1983
--Sets 1984 tobacco support prices at 1982
levels and revises method for determining
support prices in future years.
--Allows price supports for certain grades of
flue-cured to be reduced.
--Eliminates requirement of a no-net-cost
assessment on lessors of flue-cured
allotments and quotas.
--Eliminates off-farm lease and transfer of
flue-cured allotments and quotas beginning
with the 1987 crop.
--Extends to December 1, 1984, the deadline
for non-farming entities to sell their tobacco
quotas and exempts certain owners from the
--Reduces to 15,000 pounds the amount of
burley quota that can be leased or
transferred to any farm.
--Requires that tobacco imported into the U.S.
be inspected for grade and quality.
--Sets the support price for the 1985 crop of
burley tobacco at $1.488 per pound (a
reduction from the previously required minimum
--Sets the no-net-cost assessment o n 1985
burley marketings at not more than 4 cents per
pound (a reduction from the previously
announced level of 30 cents).
An Act to Delav the Referendum on Flue-Cured
and to Delav the Proclamation of the Burlev
--Sets the 1986-88 flue-cured referendum date
at up to 30 days after announcement of the
1986 quota, but no later than March 1, 1986.
--Sets the announcement of the burley quota at
not later than March 1.
Consolidated Omnibus Budpet Reconciliation
Act of 1986
--Sets the support price for the 1986 crop at
$1.438 per pound for flue-cured and $1.488 for
--The support price for 1987 and subsequent
crops will be adjusted by a formula that
includes recent market prices, production
costs, and supply-demand levels.
--Marketing quotas will be based on intended
purchases by cigarette manufacturers, recent
export levels, and reserve stock levels.
--Manufacturers are required to purchase 90%
of their intended levels or pay a penalty.
--The no-net-cost assessment is to be shared
equally by both farmers and the buyers of
--The inventory of tobacco loan stocks
predating no-net-cost are to be offered for
sale at a 90% discount from base prices in
effect on Oct. 29, 1984. The 1983 burley
stocks are to become the property of CCC and
in turn offered for sale at up to a 90%
discount. All other no-net-cost tobacco
stocks are to be offered for sale at a 10%
discount. Cigarette manufacturers are
authorized to purchase the surplus stocks at
discounted prices over a five- to eight-year
CRS - 2 3
--No tobacco can be imported to the United
States that has been treated with pesticides
prohibited from use in the United States.
Both imported and domestic tobacco is to be
inspected for pesticides.
Budvet Reconciliation Act of 1987
(H.R. 3 5 4 5 )
--Requires the level of support to be reduced
by 1.4 percent for 1988 and 1989. Assessments
on producers and purchasers may be imposed in
lieu of support reduction to achieve the same
savings in Federal outlays.
--Allows for the lease and transfer of fluecured quota if a farm's expected production is
less than 80 percent of its effective quota
because of natural disaster.
Eliminates the five-year interval requirement
for setting the national average yield goal
--Expresses a sense of Congress that the
Secretary of Agriculture should review
compliance procedures for quotas on dark-air
and fire-cured tobaccos and recommend needed
changes in the law.