Tobacco Price Support: An Overview of the Program

95-129 -- Tobacco Price Support: An Overview of the Program

Updated December 31, 2005

Summary

About 94% of U.S. tobacco production is flue-cured and burley (both being cigarette tobacco types). These crops are particularly important to the agriculture of North Carolina (where flue-cured is grown) and Kentucky (where burley is grown). Together, these two states produce 66% of the total U.S. tobacco crop. The federal tobacco price support program was designed to support and stabilize prices for farmers. It operated through a combination of mandatory marketing quotas and nonrecourse loans. Marketing quotas limit the amount of tobacco each farmer could sell, which indirectly raised market prices. The loan program established guaranteed minimum prices. The law required that the loan program operate at no net cost to the federal government. Apart from year-to-year budget impacts, no-net-cost provisions of the law were intended to assure that all loan principal plus interest would be recovered.(1) The 2004 tobacco crop was the last crop eligible for federal support, as the program was terminated by P.L. 108-357, Title VI, the Fair and Equitable Tobacco Reform Act of 2004. This report will be not be updated.