Tobacco Farmer Assistance

RS20802 -- Tobacco Farmer Assistance

Updated December 31, 2005

Summary

Efforts to reduce tobacco consumption in the United States, stimulated by the 1998 Master Settlement Agreement (MSA), contributed to a sharp decline in the demand for U.S.-grown tobacco. The other major contributor to the long term decline in domestic as well as foreign demand was the federal price support program, which limited supply and raised the price of U.S. tobacco above competitive market levels. Consequently, foreign-grown tobacco displaced U.S. tobacco in both domestic and world markets. Because of the drop in demand, farmers asked for and received compensation and assistance from cigarette manufacturers and the federal government. Manufacturers, in conjunction with the MSA, pledged $5.15 billion in payments to farmers to be distributed over 12 years. Also, Congress approved $328 million in tobacco loss payments to farmers for FY2000, $340 million for FY2001, another $129 million for FY2001, and $55 million for FY2003. In addition, losses on 1999 crop price support loan stocks, amounting to $625 million, were shifted to taxpayers. Finally, in 2004, legislation was adopted terminating the tobacco support program, but with compensation to quota owners and active producers of $9.6 billion (paid by manufacturers).

This report will not be updated.