TOBACCO October 05, 2001 October 2001, ERS-TBS-250 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- TOBACCO is published three times a year (includes Yearbook) by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the report tables and graphics are not included. Subscriptions to the printed version of this report are a available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #SUB- TBS-4031, $30/year. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Summary U.S. tobacco production for the 2001 season was forecast at 1.02 million pounds as of September 1. The crop is 3-percent lower than last year. Quota levels did not change substantially as they did the previous season. Acreage in 2001 is projected at 451.3 thousand acres, down 4.5 percent from 2000’s 472.4 thousand acres. Flue-cured and burley effective quotas fell 2 and 4 percent, respectively. The resulting downward shift in acreage was small compared with last season when flue-cured and burley effective quotas plunged 32 percent. Acreage for Maryland, dark fire-, and air-cured tobacco slipped while acreage advanced for cigar types. Direct contracting between producers and manufacturers or leaf dealers will play a major role in marketing tobacco for the first time since the existence of the tobacco program. Flue-cured growers are expected to sell 80 percent of their crop through contracts, and burley growers will likely sell 60 percent under contracts. Flue-cured auctions and contract sales are currently under way, with 409.4 million pounds or 70 percent of estimated production sold through September 14. The supply of U.S.-grown tobacco in 2001 will likely decrease due to slightly lower production and lower beginning stocks. Carryin is likely to slip 10 percent in 2001. However, taking into account loan-forgiveness for 1999 flue-cured and burley stocks reduces effective stocks by an additional 300 million pounds farm-sales weight. Estimated use of U.S.-grown leaf is expected to gain about 5 percent by the end of the 2000-01 marketing year. Domestic use will gain and exports will decline. U.S. leaf tobacco exports in 2000-01 (July-June) fell 2 percent, reaching 380.7 million pounds, declared weight. Cigarette output in 2000 reached 594.7 billion pieces, less than 1999 but higher than expected. Domestic taxable removals totaled 423.3 billion pieces compared with 434.5 billion in 1999. Exports for the year were 148.3 billion pieces, 3.1 billion fewer than 1999. The cigarette industry has stabilized after higher prices and tax increases caused adjustments during the past few years. Expectations for 2001, based on limited data, are for a 3- percent decline in cigarette output, to about 580 billion pieces. Taxable removal data for first-quarter 2001 are not yet available, but they are likely to mirror the decline in output. Exports through June 2001 were 69.6 billion pieces compared with 71.9 billion during the same period in 2000, down 3.2 percent. The 2001 flue-cured crop is forecast at 582.2 million pounds as of September 1. On-farm carryover this year is estimated at 66 million pounds. Marketings are expected to total nearly 560 million pounds. The effective quota is 545.0 million pounds, so on-farm carryover into 2002 could be significant. Through September 14 (47 days of sales, 29 days of auction sales), total flue-cured sales for the season have reached 409.4 million pounds and returned $184.36 per hundred pounds. Beginning flue-cured stocks on July 1, 2001, were 1,036 million pounds, compared with 1,189 million pounds on July 1, 2000. Total reported supply of U.S.-grown flue-cured in 2001 is about 1,600 million pounds, compared with 1,754 million pounds in 2000. However, taking into account 1999 loan-forgiveness stocks, beginning stocks in 2001 are effectively about 1,420 million pounds. Use in 2000 totaled 717.2 million pounds, 3 percent greater than the previous season and is not expected to change significantly in 2001. As of September 1, burley production in 2001 is estimated at 372.0 million pounds, 3 percent ahead of last year's production. Marketings this year could reach 360 million pounds, resulting in supplies of 1.021 million pounds, 9 percent below 2000. However, accounting for loan-forgiveness tobacco, stocks may fall to nearly 650 million pounds, 18 percent below a year earlier. Smaller crops are forecast for Maryland, dark air-cured, and dark fire-cured, while cigar tobacco production will rebound. To date, 69 percent of tobacco growers in Maryland have opted to participate in that State's buyout program, accounting for 82 percent of production. An estimated 3,700 acres of low-nicotine tobacco is being grown in Pennsylvania. By December 15, 2001, the U.S. Department of Agriculture (USDA) will announce the flue-cured poundage quota and matching acreage allotment for 2002. Individual farm quotas and acreage allotments for the next year will reflect this year’s overmarketings and undermarketings. By February 1, 2002, USDA will announce the 2002 burley poundage quota, and by March 1, it will announce the 2002 acreage allotments for other kinds of tobacco. Price supports for 2001 flue-cured and burley tobacco will be based on a 5-year moving average of market prices and changes in costs of production. For other types, changes in support will continue to be based on the average of the parity index during the previous 3 years compared with 1959. Tobacco Products Cigarette output in 2000 reached 594.7 billion pieces, below 1999 but higher than expected. Domestic taxable removals totaled 423.3 billion pieces compared with 429.8 billion (revised) in 1999. Exports for the year were 148.3 billion pieces, 3.1 billion fewer than 1999. The cigarette industry has stabilized after higher prices and tax increases caused adjustments during the past few years. Expectations for 2001, based on limited data, are for a lower cigarette output, by about 3 percent. At this rate, year-end output will be about 580 billion pieces. Taxable removal data for first-quarter 2001 are not yet available, but they are likely to mirror the decline in output. Exports through June 2001 were 69.6 billion pieces compared with 71.9 billion during the same period in 2000, a 3.2-percent slide. However, exports for the July 2000-June 2001 period were ahead by 3.3 billion pieces compared with July 1999- June 2000. January-June 2001 cigarette imports (for consumption) reached 5.8 billion pieces, 1.0 billion higher than the same period last year. Imports for calendar 2001 could reach 14 billion pieces. Consumption of cigarettes in 2001 is expected to be between 420 and 425 billion pieces. After 2-1/2 years, the Master Settlement Agreement (MSA) has had the unintended effect of accelerating the already- underway increase in the number of small cigarette manufacturers. In 1998, cigarettes manufactured by firms other than the major five companies accounted for 1.2 percent of total sales. In 2000, nearly 2 percent of sales were by small manufacturers. Under the MSA, if the non- signatory manufacturer share of sales reaches a prescribed level, manufacturers' payments are reduced. Of the year-to-date (January-June 2001) cigarette shipments overseas, Japan took 37.6 billion cigarettes--over half-- while Saudi Arabia was a distant second at 6.2 billion followed by South Korea, Cyprus, and Lebanon. January-June 2001 shipments to the European Union (EU) totaled 3.2 billion cigarettes compared with 6.3 billion during the first 6 months of 2000. Over half the U.S. shipments to the EU went to Belgium and were likely transshipped to other countries. Cigarette Taxes After numerous tax increases during the last half of the 1990s, State cigarette tax increases have slowed. During 2000, only New York and Louisiana raised cigarette taxes. During 2001, Maine raised its cigarette tax from 74 cents per pack to $1.00 and Rhode Island raised its tax from 71 cents per pack to $1.00. As of June 2001, 20 States have tax rates of at least 50 cents per pack and five States have rates $1.00 or greater. Virginia and Kentucky remain the lowest cigarette taxing States at 2.5 and 3 cents per pack, respectively. During the first half of 2001, generic cigarette sales slipped compared with yhr same period in 2000, falling to 25.9 percent. During calendar 2000, the discount share was 26.7 percent. Wholesale Price Increase In April 2001, wholesale cigarette prices rose from $2.114 per pack to $2.254, advancing 14 cents per pack. Including the Federal excise tax, the current wholesale price is $2.59 per pack. The Federal excise tax will increase 5 cents per pack on January 1, 2002, to 39 cents per pack. Manufacturers may choose not to pass the entire tax increase on to consumers. In 2000, after a 10-cent Federal tax increase, the wholesale price including tax did not rise. Cigar Output and Consumption Steady in 2000 With 12 months of data now available, 2000 output of large cigars fell 4 percent to 2,825 million cigars, from 2,938 million cigars in 1999. However, taxable removals advanced from 3,349 to 3,370 million cigars during the same period. Tax-exempt removals in 2000, mostly exports, totaled 113.7 million cigars, compared with 121.1 million cigars in 1999. Exports in 2000 reached 113 million cigars, 35 percent higher than in 1999. Imports for consumption totaled 480 million cigars, 3 percent below 1999. Total U.S. cigar consumption reached 3,850 million, 5 million ahead of 1999. Cigar consumption is expected to either level off or decline slightly in the upcoming years. Output and taxable removal data are not available for 2001 at this time. However, both are expected to decline slightly from 2000 levels. Exports through June 2001 are slightly behind 2000. Canada, Greece, Turkey, the United Arab Emirates, the United Kingdom, and Japan are the major destinations for cigars during the first half of 2001. For the 12-month period ending June 2001, imports were 8 million cigars behind the previous year at 489 million cigars. For the first 6 months of 2001, imports were 4 percent ahead of last year. Imports were dominated by the Dominican Republic, which shipped 64 percent of large cigars. Honduras, Nicaragua, and West Germany followed. Together, these four countries accounted for 93 percent of U.S. cigar imports. Small cigars (those weighing under 3 pounds per 1,000 cigars) have increased in popularity during recent years. Consumption in the United States, as indicated by taxable removals, reached 2,243 million cigars in 2001, compared with 2,196 million in 2000. Consumption has been rising steadily since the early 1990s. Very few small cigars are exported and imports are negligible. In 2000, imports reached 33.5 million small cigars and through June 2001, imports have reached 22.9 million cigars, compared with 17.1 million cigars the first half of 2000. The Netherlands and Germany are the major sources of imported small cigars. Production of small cigars in the United States in 2000 reached 2,469 million pieces compared with 2,316 million the previous year. Other Tobacco Products Output of snuff continues to rise. In 2000, output advanced 7 percent to reach 70.0 million pounds. Taxable removals of snuff gained 4 percent to 64.8 million pounds. Snuff consumption has increased continually for over a decade. Chewing tobacco output fell 3 percent to 49.4 million pounds, the lowest level since 1971. Taxable removals declined to 48.5 million pounds. Smoking tobacco output slid 5 percent to 13.6 million pounds. Taxable removals lost 2 percent, ending at 13.1 million pounds. After a slight upturn due to sales of roll-your-own smoking tobacco, declines have resumed. Taxes for other tobacco products increased in 2001, notably in California where the tax rate for other tobacco products jumped from 54.89 percent of wholesale price to 52.65 percent for cigars, pipe and fine-cut tobacco to 490 percent for chewing tobacco. U.S. Exports and Imports For January-June 2001, leaf exports totaled 220.7 million pounds (308.5 million pounds farm-sales weight) 9 percent below the same period last year and 18 percent below 1999. Flue-cured shipments suffered the greatest setbacks, sliding 23 percent during the 6-month period. For the first 6 months, Germany purchased the most flue-cured but still received 6 million pounds less than the same period last year. Japan took 17 million pounds, compared with 27 million pounds for the 6-month period in 2000. The Bureau of the Census reported 73 countries as destinations for tobacco leaf in 2001. January-June leaf export value reached $656 million compared with $726 million during the same 6 months in 2000. However, the value of flue-cured leaf exports slipped 6 percent, while burley export value fell 3 percent. During the first 6 months of 2001, flue-cured and burley made up 78 percent of total export value. January-June 2001 burley shipments fell 5 percent to 58.7 million pounds. The Netherlands bought 6 times as much as the previous year, but other major buyers reduced their takings. Shipments during the 6-month period in 2000 were 62.1 million pounds, and in 1999 were 85.7 million pounds. Maryland and Kentucky-Tennessee dark-fired leaf showed modest gains. The Netherlands entered the market for Maryland, offsetting reductions by Germany, Belgium, and Switzerland. France, Nigeria, and Egypt were among countries importing more Kentucky-Tennessee dark-fired leaf. Overall shipments in January-June 2001 advanced 28 percent to 11.9 million pounds compared with the previous year. The Netherlands, Sweden, and Egypt, major buyers in 2000, reduced their purchases in the first half of 2001. However, in 2001, more countries purchased Kentucky-Tennessee dark- fired leaf, boosting overall shipments. Sri Lanka, Japan, and South Korea increased purchases. Shipments of Virginia fire-cured and sun-cured tobacco more than doubled compared with the January-June period last year, reaching 178,000 pounds. Cigar binder shipments were up slightly, by 32,000 pounds, reaching 131,000 pounds due to purchases by Honduras. Cigar wrapper slid 22 percent as shipments to the Dominican Republic, the major buyer, slipped. Shipments of stems and refuse fell slightly by 2.6 million pounds to 40.1 million pounds. Major buyers were Russia, Belgium, and Germany. ‘Other tobacco’ exports increased from 15.8 million pounds in January-June 2000 to 22.6 million pounds. Germany, Russia, Nigeria, and Japan were the top destinations. On a July-June basis, U.S. tobacco exports totaled 381 million pounds valued at $1.15 billion in 2000. The previous year, 1999, exports were 390 million pounds valued at $1.21 billion. However, exports in 1998 were 21 percent higher than 2000 at 462 million pounds. For July 2000-June 2001, flue-cured fell 8 percent to 165 million pounds, while burley slipped 4.4 percent to 80 million pounds. Germany and Japan were the two top destinations for flue-cured tobacco both years. The top burley importers in 2000 (July-June) were Germany, Belgium, Turkey, and Japan. Kentucky-Tennessee dark-fired, Virginia fire-cured and sun-cured, and ‘other leaf’ showed gains. Export volume for Maryland, cigar binder, cigar wrapper, and stems slipped. Leaf Imports for Consumption Volume Declines On the import side, volume (imports for consumption-duty paid) fell during the first 6 months of 2001 (January-June) compared with 2000. The period ended at 254.3 million pounds, down 7 percent or 18.5 million pounds. Value gained 9 percent, reaching $381 million. Turkey was the leading source for leaf during the first half of 2001, closely followed by Brazil. In 2000, Brazil led Turkey by 25 million pounds. Canada, Argentina, Malawi, Greece, and Italy followed. Oriental leaf led imports, accounting for a third of total imported leaf. U.S. stocks of Oriental are at historically low levels and are being replenished. Stemmed flue-cured imports were down for the period and ranked second by type. Other stemmed cigarette leaf (nspf) followed, with slightly lower volume than the 6-month period last year. General imports at the end of the 6-month period rose to 237 million pounds valued at $350 million compared with 209 million pounds valued at $279 million in 2000. Declines in some categories were not as pronounced as in imports for consumption but generally followed the same pattern. July-June Imports Diminished by 5 Percent. For July 2000-June 2001, leaf import volume (consumption) fell 5 percent to 461 million pounds from 485 million pounds in July 1999-June 2000. Stemmed flue-cured leaf and stems accounted for 38 million pounds of the decline. Oriental leaf volume changed little. Overall import value rose due to higher prices for Oriental and stemmed flue-cured. For the July-June period, Brazil, Turkey, Malawi, and Argentina were the leading foreign suppliers of leaf. Brazil and Turkey were the leaders in 1999 also. During July 2000-June 2001, the value of unmanufactured leaf imports for consumption was $666 million compared with $648 million the previous July- June period. At the same time, general imports slipped from $695 million to $649 million. U.S. Tobacco Leaf Situation and Outlook -----1/ ----- 1/ All quantities in this section are in farm-sales weight unless otherwise noted. Years refer to marketing years; for instance, the 2000 crop year is July 2000-June 2001 for flue-cured and cigar wrapper (type 61) and October 2000- September 2001 for all other types, unless otherwise noted. ----- Total U.S. leaf production in 2000 is 1.05 billion pounds, and projected production in 2001 is about 3-percent less at 1.02 billion pounds. Production stabilized because, unlike recent years, the effective quota did not fall much in 2001. At 954 million pounds for flue-cured and burley together, the decline was only 7.6 million pounds for the two major types. Cigarette leaf production accounted for 94 percent of U.S. output in 2001. Cigar types accounted for 1 percent, while dark-fired and air-cured leaf accounted for 5 percent. During the past marketing year (2000-01), total disappearance of U.S. leaf fell 9 percent to 1.30 billion pounds. About 70 percent of U.S.-grown tobacco leaf was used domestically and 30 percent was exported. Contracting Upends Traditional Auction Marketing System For the first time in the history of the U.S. tobacco industry, contract sales of tobacco leaf directly from grower to purchaser (manufacturer or dealer) has made significant inroads, reaching over half the flue-cured sold and is likely to do the same for burley as well. Many warehouses have closed as a result. While many warehouses continue to auction tobacco, some have become collection points for major contract buyers. Contracting appeals to many growers because they are paid immediately, the price exceeds expected auction prices this season, and all a grower's leaf is sold to one buyer in one transaction. Growers also avoid paying warehouse commissions. In North Carolina alone, 69 out of 129 warehouses have closed this year. It is estimated that 28 out of 78 warehouses may close this season in Kentucky. Warehouses were already suffering from 3 years of large quota cuts that reduced the quantity of leaf they marketed and caused some less-competitive warehouses to close. Coming on the heels of these quota cuts, removing an additional 60 to 80 percent of the leaf available at auction will reduce the amount of tobacco to levels that may not be economically viable for most warehouses. Efforts To Eliminate Unauthorized Pesticides Continue Pesticide use on U.S. tobacco has been restricted for many years. Furthermore, the Food Security Act of 1985 extended adherence standards. The act requires the United States Department of Agriculture (USDA) to inspect domestic and imported flue-cured and burley tobacco to determine if pesticide residues exceed established limits. Before selling their tobacco, growers must certify to the Farm Service Agency (FSA) that any pesticides used in production have been approved by the Environmental Protection Agency for use on tobacco and were applied in accordance with labeled directions. Growers lose price support if they falsify the certification, fail to certify, or refuse to provide samples for testing. Growers who are found filing a false report will be required to refund any price support advances received on the current crop. In addition, violators are subject to a $10,000 fine, 5 years imprisonment, or both. To ensure the integrity of U.S.-grown tobacco, efforts to eliminate unauthorized pesticides include: 1) tests of samples taken from auction warehouse floors, 2) efforts to educate growers about unapproved pesticides, and 3) intensified monitoring of pesticide use and penalties for misuse. U.S. Industry Buys 351.4 Million Pounds of 2000 Flue-Cured Tobacco U.S. cigarette manufacturers purchased 351.4 million pounds (farm-sales weight) of flue-cured tobacco during the July 2000-June 2001 marketing year, 93.5 million pounds more than the previous year. Actual purchases were 118 percent of manufacturers' purchase intentions of 297.0 million pounds. Legislation requires each major domestic cigarette manufacturer to purchase an amount equal to at least 90 percent of their stated purchase intentions to avoid the assessment of a penalty. Manufacturers purchased 257.9 million pounds of flue-cured tobacco in 1999, or 109 percent of that year’s purchase intentions. Marketing Quota and Price Support in 2001 By December 15, 2001, USDA will announce the flue-cured poundage quota and matching acreage allotment for 2002. Individual farm quotas and acreage allotments for the next year will reflect this year’s overmarketings and undermarketings. Marketings for 2000 are expected to be below the 2000 effective quota at about 560 million pounds (table 15). By February 1, 2002, USDA will announce the 2002 burley poundage quota, and by March 1, it will announce the 2002 acreage allotments for other kinds of tobacco. Growers of fire-cured and dark air-cured tobaccos approved in March 2000 marketing quotas applicable to the 2000, 2001, and 2002 crops. Growers of flue-cured, burley, and Virginia sun-cured voted in January 2001 to continue quotas for the 2001, 2002, and 2003 crops. Growers of Wisconsin Binder (types 54-55) will vote in March 2002 on the continuation of marketing quotas for the 2002, 2003, and 2004 crops. Producers of Maryland (type 32), Pennsylvania cigar-filler (type 41), and Connecticut Valley cigar-binder (types 51-52) tobaccos voted in referenda March 2001 to disapprove marketing quotas for the 2001, 2002, and 2003 crops. Growers of Maryland, Pennsylvania filler, and Connecticut binder tobacco turned down marketing quotas in their last referenda (2001), so Government price support is not available for their 2002 crop. The quota law provides that flue-cured and burley quotas equal the sum of buying intentions of domestic cigarette manufacturers, the 3-year average of unmanufactured tobacco exports, and adjustments of loan association inventories needed to reach the reserve stock level. The Secretary of Agriculture may adjust this three-part total either up or down by a maximum of 3 percent. Support levels for 2001 average $1.660 per pound for flue- cured and $1.826 per pound for burley. Grade loan rates range from $1.24 to $1.92 per pound for flue-cured and $1.14 to $1.85 per pound for burley. Price supports for other supported types range from $1.252 per pound to $1.736 per pound. For 2001, the flue-cured and burley price support will be the level for 2000 adjusted by changes in the 5-year moving average of prices (two-thirds weight) and changes in a cost- of-production index (one-third weight). Costs include general variable expenditures, but exclude costs of land, quota, risk, overhead, management, marketing contributions, and other costs not directly related to tobacco production. The Secretary of Agriculture can set the price support at the previous year’s level adjusted by between 65 and 100 percent of the calculated increase or decrease. For other kinds, changes in price support will continue to be based on the average of the parity index during the 3 previous years compared with 1959. However, loan associations can request lower support levels if market conditions warrant. Estimated flue-cured production costs for 2001 are used by FSA in determining the cost component for the 2002 support level. The combined effect of price and cost changes will likely result in a slight increase in the flue-cured support level in 2002. Flue-Cured Tobacco Marketing of flue-cured tobacco for the 2001 season began Monday, July 9, 2001, as growers began delivering leaf to contract centers in both the northern and southern areas (except Georgia and Florida). Carryover tobacco dominated the market, except in Georgia and Florida, through the third week of sales but was no longer a factor by the end of the fifth week. Auction sales began during the third week of sales. Volume was behind last season through the ninth week of sales, while prices were higher. Through September 12th (47 days of sales, 29 days of auction sales), total flue-cured sales for the season have reached 350.6 million pounds and returned $183.69 per hundred pounds. After 47 days of sales, season net (producer) sales totaled 389.4 million pounds. Of the crop estimate of 582.2 million pounds, 67 percent had been sold after 47 days. The effective quota is 545.3 million pounds. Growers may market up to 103 percent of their effective quota without penalty. Through the ninth week of gross sales, 14.8 percent of auction sales, or 8.3 million pounds have been purchased by Flue-Cured Stabilization. Traditional Nomenclature for Tobacco Growing Areas Changed in Face of High Contract Volume The Agricultural Marketing Service (AMS) has redefined the reporting areas for flue-cured tobacco. Beginning with the 2001 season, the Type 11-14 designations will have different meanings. The following table shows the old and new designations for flue-cured marketing areas. These designations are used by AMS in Market News Reports published during the flue-cured season. Reports Through 2000 Season Type 11 (Old Belt) Type 12 (Eastern NC Belt) Type 13 (SC/Border NC Belt) Type 14 (GA/FLA Belt) Reports Beginning With 2001 Season Type 11 (Northern Auction Area) Type 12 (Northern Contract Centers) Type 13 (Southern Auction Area) Type 14 (Southern Contract Centers) Pilot Project for Flue-Cured Stabilization Marketing Centers Established The Flue-Cured Tobacco Cooperative Stabilization Corporation announced the formation of a pilot auction-marketing center in Wilson, NC for the 2001 flue-cured tobacco-marketing season. The Flue-Cured Tobacco Cooperative Stabilization Corporation is the flue-cured tobacco farmer-owned marketing association which administers price support for flue-cured tobacco farmers under a contractual agreement with the United States Department of Agriculture. The objective of this pilot project is to collect information which will lead to the development of an ultra-modern, high volume marketing facility that can offer to both tobacco farmers and tobacco purchasers more choices when marketing or purchasing tobacco. One significant goal of this concept is to develop a financially self-sufficient, modern tobacco marketing center, which will afford reduced selling costs to tobacco farmers and reduced purchasing costs to tobacco purchasers. The Stabilization Board of Directors chose to pursue the marketing center concept for the following reasons: o to offer tobacco farmers and tobacco quota owners alternative marketing opportunities o to offer selectivity of tobacco grades and qualities to tobacco purchasers o to protect the export market o to protect the asset value of tobacco quota and o to provide a tobacco farmer and purchaser-friendly environment. To receive price support in 2001, flue-cured tobacco growers must: O Certify pesticide use and absence of nesting. o Designate one or more warehouses within 100 miles of their county seat where they plan to sell their crop. o Contribute to a no-net-cost account that totals 2.5 cents for the producer and 2.5 cents for the purchaser for each pound of 2001-crop flue-cured tobacco that is marketed. Under quota legislation, growers receive price support on marketings up to 103 percent of their farm poundage quotas. However, marketings above the poundage quota are deducted from the following year’s quotas. For marketings above 103 percent, growers must pay a penalty of $1.34 a pound (75 percent of the average market price for the preceding year). Based on the September 1, USDA estimate, 2001 production will total about 582.2 million pounds. Growers carried over 66 million pounds of the 2000 crop, more than last season. The effective quota is 545 million pounds, so carryover into 2002 could be significant. Marketings are expected to total nearly 560 million pounds. Since 1988, lease and transfer of flue-cured quotas has applied for disaster conditions only. Disappearance Up Slightly in 2000 Disappearance of flue-cured tobacco in the 2000 marketing year (July 2000-June 2001) advanced 3 percent compared with the previous year. Beginning stocks on July 1, 2000, were 1,189 million pounds, and marketings during the year were 564.1 million pounds. Disappearance of 717 million pounds left ending stocks down 13 percent lower at 1,036 million pounds. Ending stocks reported by the Agricultural Marketing Service in the July 1, 2001, ‘Tobacco Stocks’ report include 88 million pounds of 1999 tobacco held by cooperatives which have been acquired by the Commodity Credit Corporation (CCC) under legislation passed by Congress in December 2000. Legislation prohibits this leaf from being sold domestically, and international agreements make it difficult to sell abroad. This leaf has essentially been removed from the tobacco supply, leaving on July 1, 2001, 948 million pounds of flue-cured actually available to manufacturers and leaf dealers. Supplies for 2001 Likely Lower With estimated marketings of 560 million pounds and beginning stocks on July 1, 2001, of 948.3 million pounds, supplies of domestic flue-cured leaf are expected to slide about 19 percent compared with supplies at the beginning of the previous marketing year. At 1,420 million pounds, 2001 supplies are estimated lower than any time since the late 1930s. Burley Tobacco Producer marketings in the 2000 crop year (October 2000 through September 2001) totaled 223.5 million pounds. With 87.5 million pounds of non-auction (mostly contract) sales, total marketings reached only 310.9 million pounds, a 44- percent decline from the previous season's 551.2 million pounds. Auction volume in 2000-01 was the lightest since the 1936 crop. Most of the decline was due to the 45-percent drop in the basic quota but contract sales also reduced auction sales significantly. Supplies in 2000-01 Were 7 Percent Lower Lower production combined with higher beginning stocks in 2000-01 resulted in supplies of 1,351 million pounds, 7 percent below the previous season. Burley tobacco use is likely to increase in 2000-01 by about 50 million pounds. During the first 9 months of the marketing year (September 2000 through June 2001), disappearance totaled 373.5 million pounds, 20 percent ahead of last year. Export demand fell 10 percent but domestic use advanced 30 percent during the 9-month period. Domestic use likely rose to offset very low use the previous year. Domestic use is estimated to be 60 million pounds higher than last season. Adjusting the supply of burley leaf to reflect approximately 229.1 million pounds (farm-sales weight), which are now owned by the CCC as part of the burley loan-forgiveness legislation, results in 2000 supplies of 1.12 billion pounds. This tobacco, as with flue-cured, will effectively be eliminated from the marketing system, and supplies beginning in October 2001 will be reduced by that amount. As of September 1, burley production in 2001 is estimated at 372.0 million pounds, 3 percent ahead of last year's production. Marketings this year could reach 360 million pounds, including carryover tobacco, resulting in supplies of 1.270 million pounds, 6 percent below 2000. However, accounting for the loan-forgiveness tobacco, stocks may fall to nearly 500 million pounds, half the previous year's supply. Available tobacco in 2001 (including on-farm carryover) are expected to be about 400 million pounds compared with 311 million pounds during the 2000-01 season. The effective quota is only 352 million pounds, so marketings are limited to about 360 million pounds. Burley is usually undermarketed by about 15-20 percent. However, given the excellent quality of this year's crop and tight supplies, an amount close to the quota may well be marketed. Maryland Tobacco Production of Maryland (type 32) leaf grown in Maryland has plummeted as a result of the State-sponsored buyout of tobacco. Production in 2000 was 13.4 million pounds. In 2001 estimated production is 4.1 million pounds. About 69 percent of tobacco growers are participating in the buyout. These growers account for about 82 percent of production. Maryland leaf grown in Pennsylvania has declined from 5.1 million pounds to 1.7 million pounds. There is no buyout in Pennsylvania, but growers have switched to growing low- nicotine tobacco for Star Tobacco Company. Acreage of low- nicotine leaf has reached 3,700 acres, with production of around 6 million pounds likely. Beginning stocks of Maryland leaf on January 1, 2001, were 13.4 million pounds. Production of 13.4 million pounds brings 2000 supply to 26.8 million pounds. Ending stocks (January 1, 2002) are likely to be down considerably from the previous year because of reduced production. October-June disappearance of Maryland leaf was 19 percent ahead of the same period last year. Estimated disappearance for the 2000 marketing year (October 2000-2001) is expected to be close to 18 million pounds. Fire-Cured Tobacco Fire-cured tobacco is mainly used in making snuff, plug chewing tobacco, and twist chewing tobacco. About half the crop is usually exported. Production of fire-cured leaf in 2000 reached 51.6 million pounds, 36 percent higher than the previous season. Prices were higher also. However, in 2001, production is forecast at nearly 1999 levels--an estimated 39.5 million pounds. Kentucky-Tennessee fire-cured leaf production as of September 1, 2001, is estimated at 37.2 million pounds compared with 49.1 million pounds in 2000. Production of Virginia fire-cured tobacco is estimated at 2.3 million pounds compared with 2.5 million pounds in 2000. Exports Gain Strong demand for fire-cured in export markets has boosted disappearance during recent seasons. Exports during the 2000 crop year have been ahead of the previous year. Exports of Kentucky-Tennessee fire-cured shipments were 19 percent higher during the first 9 months of the 2000 crop year (October 2000-June 2001) than the previous year. Total exports are expected to reach 25 million pounds. Total disappearance for the first 9 months of the 2000 marketing year totaled 32.6 million pounds. Disappearance is expected to exceed 40 million pounds for the entire marketing year, slightly higher than during 1999. Dark Air-Cured Dark air-cured tobacco (types 35-37) is used in plug and twist chewing tobacco, snuff, and to some extent, smoking tobacco. Production and use have declined by more than half over the last two decades. Exports usually account for 10 to 20 percent of total use. The marketing year for dark air- cured tobacco is on an October-September basis. Disappearance Slips to Near 1998 Level Disappearance during the 2000 crop year (October 2000- September 2001) will likely fall compared with the previous season and be closer to 1998 levels. Exports of dark air- cured slipped during the first 9 months. Disappearance during the first 9 months of the 2000 marketing year are 10 percent below the same period of the previous season, at 7.3 million pounds. Export demand for dark air-cured leaf is strong because of its low nitrosamine levels. Production in 2001 Slips After reaching the highest production level since 1994, production is set to slip 21 percent according to September 1 estimates. However, production should still be the second highest in the past decade. Increased use by U.S. manufacturers is behind the sustained demand. Stocks of Kentucky-Tennessee dark air-cured (types 35-36) in July 2001 were 7.6 million pounds greater than in July 2000. Supplies in 2001 are expected to be nearly 10 million pounds above the previous year's levels. Cigar Tobacco Cigar leaf (types 41-61) is classified according to its traditional use: filler, binder, and wrapper. Most cigar wrapper is exported for use in cigars, but loose leaf chewing tobacco takes most of the filler and binder. Some binder is also used in smoking tobacco. Exports of filler and binder are negligible. Cigar Leaf Production Rebounds in 2001 After reaching its lowest level since the 1800s, cigar production will recover but still be below 1999 levels. September 1 crop estimates indicate cigar leaf production in 2001 is expected to be 13.2 million pounds compared with 10.2 million pounds in 2000. Production in 1999 was 16.5 million pounds. Acreage increased 26 percent and yields are higher. Acreage of wrapper was up 50 acres to 1,300 acres. Binder acreage nearly doubled, rising 97 percent to 3,670 acres. Connecticut Valley Broadleaf binder surged from 900 acres in 2000 to an estimated 2,150 acres in 2001. Yields recovered from the disease-afflicted 1,189 pounds per acre to 1,801 pounds. Wisconsin binder surged from 960 acres to 1,530 this season with slightly lower yields. Pennsylvania Seedleaf acreage slid from 2,400 to 2,000 acres as growers shifted to low-nicotine varieties of tobacco and reduced overall tobacco acreage. Filler Disappearance Plummets in 2000 During the first 9 months of the marketing year (October 2000-June 2001) disappearance of filler tobacco reached 4.3 million pounds, compared with 7.5 million pounds the previous year. Although disappearance is expected to quicken in the last quarter, it will fall short of last season’s 7.8 million pounds. Lower beginning stocks and production will reduce supplies of cigar filler in 2001. Binder Disappearance Slips in 2000 October 2000-June 2001 disappearance of binder leaf in 2000 slipped from 8.3 million pounds to 5.4 million pounds. Low binder production in 2000 reduced supplies. Stocks were drawn down, but consumption of products that contain binder declined. Both chewing tobacco and smoking tobacco fell in 2000. Smoking tobacco slipped after a year of gains spurred by rising roll-your-own consumption. Disappearance of binder tobacco for the 2000 season is expected to be about 6 million pounds. Connecticut Binder usually accounts for about a third of total binder disappearance. Wrapper Disappearance Decimated by Low Supply During the first 9 months of the 2000 season, disappearance of wrapper leaf slowed to 1.5 million pounds compared with 4.1 million pounds in 1999. Blue mold devastated production, reducing yields and harvested acres. Disappearance in 2000 (October 2000-September 2001) is likely to be half that of 1999, around 2 million pounds. Much of shade-grown wrapper is shipped overseas for processing, dither to foreign buyers or to subsidiaries of U.S. firms in the Dominican Republic. With production gains expected in 2001, supplies will increase. Imported Cigar Tobacco Use Advances in 2000 Low supplies of domestic cigar leaf in 2000 due to declining stocks and production have boosted demand for imported cigar leaf. During July 2000-June 2001, manufacturers used 116.1 million pounds of imported cigar tobacco, compared with 100.5 million pounds during the same period a year earlier. U.S. stocks of foreign-grown cigar leaf totaled 103.3 million pounds on July 1, 2001, compared with 106.8 a year earlier. Special Article U. S. Tobacco Import Update Tom Capehart 2/----- ----- 2/ Senior economist, Market and Trade Economics Division, Economic Research Service, USDA. ----- Abstract: U.S. imports (arrivals) of foreign-grown leaf and stems declined from 516 million pounds in 1999/2000 (July- June) to 467 million pounds during 2000/01 (July/June), a loss of 9.5 percent. Much of the slide was in Oriental, stemmed flue-cured, and stems. During the same period, imports for consumption of leaf and stems declined 4.9 percent. Use of foreign-grown flue-cured and Oriental tobaccos fell during this period, as foreign stocks were depleted. Use of imported burley leaf advanced and imported burley stocks shrunk. Under the tariff-rate quota currently in place, imports of leaf are not severely restricted. Keywords: Imports, arrivals, Oriental, flue-cured, burley, TRQ. Introduction This article updates those published annually in the September 1992-2000 issues of the Tobacco Situation and Outlook report. U.S. imports (arrivals) of foreign-grown leaf and stems declined from 516 million pounds in 1999/2000 (July-June) to 467 million pounds during 2000/01 (July/June), a loss of 9.5 percent. Much of the slide was in Oriental, stemmed flue- cured, and stems. During the same period, imports for consumption declined from 485 million pounds in 1999/2000 to 461 million pounds in 2000/01. U.S. leaf imports for consumption had climbed from 413 million pounds in 1990 to more than 1 billion pounds in 1993. The main reason for this surge was the rising popularity in the United States and abroad for low and mid- priced cigarette brands (discounts). Furthermore, U.S. exports were increasing rapidly, boosting demand for lower priced foreign leaf. To meet this demand, manufacturers imported an increasing amount of foreign tobacco. After imports reached 44 percent of domestic disappearance, Congress acted to restrict imports by implementing the Domestic Marketing Assessment (DMA). The DMA was in effect from January 1, 1994, to September 13, 1995. If foreign leaf content of U.S. cigarettes exceeded 25 percent, a penalty was assessed on the manufacturer for calendar 1994 only. The DMA was eliminated on September 13, 1995, (retroactive to January 1, 1995) when a tariff-rate quota (TRQ) was proclaimed for cigarette leaf tobacco, mainly flue-cured and burley. The proclamation also eliminated duties on Oriental and cigar wrapper, binder, and filler tobacco. Imports of cigarette leaf tobaccos, which exceed predetermined quota levels, will be subject to an import duty of 350 percent ad valorem. A draw-back provision allows most of the duty to be refunded if the same leaf that is imported is re-exported as product. Tariff-Rate Quota Activity For the period September 13, 2000, through September 12, 2001, which represents the 12-months upon which the TRQ is calculated, U.S. leaf imports within the TRQ totaled 174.7 million pounds. Only 52.6 percent of the total quota allocation of 332.2 million pounds has been imported, about the same as the previous year. Under the TRQ, the volume of tobacco imports for consumption under nine harmonized tariff subheadings, primarily flue- cured and burley, during the period from September 13 in any year to September 12 of the following year, are restricted as shown in table A-5. Use of Imported Leaf Declines Relative to Domestic Use On a farm-sales weight basis, estimated U.S. use of imported flue-cured tobacco fell 21 percent from July-June 1999/2000 to 2000/01 (tables A-1 and A-2). Domestic disappearance advanced 10 percent, the import share of total flue-cured use increased from 33 percent to 26 percent. During the same period, foreign-grown flue-cured stocks held by U.S. tobacco dealers and manufacturers fell 5 percent (table B-3). Estimated use of burley imported leaf increased 5 percent from 1999/2000 to 2000/01. Projected domestic use leapt 23 percent. The import share of total burley use fell from 44.5 to 41.7 percent. Foreign-grown burley stocks declined 11 percent from July 1, 2000, to July 1, 2001. Based on arrival data (adjusted for stock changes), Oriental leaf use fell 19 percent in 2000/01 after rising sharply the previous year. Stocks on hand declined 14 percent from July 1, 2000, to July 1, 2001. Cigar leaf imports gained 16 percent to 109.8 million pounds (farm-sales weight). Because of low domestic production, imported cigar leaf represented a record-high 87.0 percent of total cigar leaf disappearance (use) in the United States, compared with 85.6 percent last year. Total 2000/01 imported cigar use was 116.1 million pounds, compared with 100.5 million pounds in 1999/2000. Tobacco Farmers’ Ownership and Rental of Tobacco Quota By Linda F. Foreman------ 3/ ----- 3/ Linda Foreman is an agricultural economist with the Resource Economics Division in the Economic Research Service. ----- Abstract: In 1996, tobacco farmers owned less than half of the total tobacco quota, and they owned lower percentages of quota for flue-cured than burley. Younger tobacco farmers operated larger tobacco enterprises and rented higher percentages of their quota than older farmers. Burley tobacco producers were more likely to share-rent quota than flue-cured tobacco producers. Burley tobacco producers were also more numerous than flue-cured tobacco producers. Burley tobacco producers operated smaller tobacco enterprises and were more likely to farm part-time than flue-cured tobacco producers. Keywords: Tobacco quota, flue-cured tobacco, burley tobacco, tobacco farms. Declining demand for U.S. tobacco has contributed to a reduction in tobacco quotas. For burley tobacco, the effective quota dropped 60 percent from 1997 to 2001 ----- 4/. ----- 4/ The effective quota is the amount of tobacco that can be marketed. ----- During this same period, the effective quota for flue-cured tobacco fell 47 percent. Tobacco is a relatively high-value commodity. The income that farmers lost from reductions in tobacco production cannot be easily replaced by shifting to the production of other commodities (Gale). As quota levels fell, tobacco producers bid up quota rental rates in an effort to secure enough quota to maintain their incomes and to efficiently use their investments in tobacco-related equipment and structures. For tobacco producers, the rise in quota rental rates increased their costs of tobacco production, which further reduced their incomes. For quota owners who do not produce tobacco, the higher rental rates partially offset their declines in rental income caused by the quota reductions. Numerous tobacco buyout programs have been proposed to address the problems of tobacco farmers and their communities as they adjust to the declining demand for U.S. tobacco (Kuegel). An essential feature of most tobacco buyout proposals is compensation for quota owners for their quota. Nearly all proposals also offer compensation to tobacco producers who use tobacco quota (whether owned or rented) and agree to forego the use of that quota in the future. The compensation for discontinuing tobacco production is usually less than the compensation for quota ownership. Many quota owners are not tobacco producers; rather, they lease their tobacco quota to tobacco producers. There were 112,625 owners of flue-cured tobacco quota and 303,124 owners of burley tobacco quota in 1999 according to data from the Farm Service Agency in the preliminary report from the President’s Commission on Tobacco. The Census of Agriculture counted 89,706 tobacco producers in 1997. There were approximately 72,000 producers of burley tobacco and 14,500 producers of flue-cured tobacco in 1997.-----5/ ------ 5/ Figure was estimated using data from the 1997 Census of Agriculture and the production regions for burley and flue- cured tobacco. ----- Hence, there are far more tobacco quota owners than producers, with a higher ratio of owners to producers for flue-cured tobacco than for burley. Usually, the effective flue-cured tobacco quota exceeds those of burley. Little information is available on the characteristics of the tobacco quota owners who are not tobacco producers. Anecdotal evidence suggests that many former tobacco producers and their spouses do not sell their tobacco quota upon retirement from farming. Instead, they rent their retained quota to supplement other sources of retirement income. Many tobacco quota owners who inherit their tobacco quota do not farm. A significant number of quota inheritors may no longer live on a farm. Some of them reside outside of the tobacco-producing regions. While hardly any information is available on characteristics of quota owners that do not produce tobacco, the characteristics of tobacco producers who use quota (either through ownership or rental) can be examined. The purpose of this paper is to provide some background information on the percentage of quota owned by tobacco producers and non- tobacco-producing landlords, and the proportion of quota ownership and rental among tobacco producers. This paper examines the percentage of quota owned and rented by burley and flue-cured tobacco producers and then explores the traits of tobacco producers by their percentage of quota ownership and age. Data Most of the data in this report are derived from the burley tobacco version of the 1995 Farm Costs and Returns Survey (FCRS) and the flue-cured tobacco version of the 1996 Agricultural Resource Management Study (ARMS) survey. These were the last surveys that collected data on tobacco production costs and the tobacco enterprise. Both surveys were developed jointly by the Economic Research Service and the National Agricultural Statistics Service. The burley tobacco survey collected data from Kentucky and Tennessee producers, while the flue-cured tobacco survey collected data from Virginia, North Carolina, South Carolina, and Georgia producers. The survey data were weighted to represent the total tobacco acreage. Tobacco producers’ ownership of quota Burley tobacco producers in Kentucky and Tennessee owned about 44 percent of their effective tobacco quota in 1995 (fig. 1). About one-third of the quota for burley tobacco producers was share-rented while just over one-fourth was cash-rented. Burley tobacco producers share-rented a higher percentage and cash-rented a lower percentage of their tobacco quota than flue-cured tobacco producers. Most burley tobacco producers did not rent their quota to others. More than 99 percent of the burley tobacco quota owned by tobacco producers was used by them. Therefore, nearly all cash- and share-rented burley tobacco quota was owned by non-farm landlords or by agricultural producers who did not produce tobacco. Hence, approximately 55 percent of the 578 million pounds of quota in 1995 was owned by individuals who did not produce tobacco. With rental rates averaging $0.33 per pound in 1995, 6/----- ----- 6/ Share-rental rates were assumed to equal the producer’s average cash rental rate for cash-rented quota. For producers not cash-renting quota, the State’s average cash- rental rate was used as an estimate for the share-rental rate. ----- non-tobacco-producing landlords received about $105 million from the rental of burley tobacco quota, or approximately $452 per acre of harvested tobacco. Flue-cured tobacco producers in the four surveyed States owned about one-third of their effective tobacco quota in 1996 (fig. 2). Just over half of their quota was cash-rented and the rest was share-rented. Survey data indicated that less than 2 percent of quota owned by tobacco producers was rented to others and less than 1 percent of the flue-cured tobacco producers who owned quota rented it to others. Therefore, nearly all cash- and share-rented quotas were owned by non-tobacco-producing landlords. The average rental rate for flue-cured tobacco quota in 1996 was $0.37 per pound. With two-thirds of the 943.6 million pounds of the flue-cured tobacco quota rented in 1996, non-tobacco- producing landlords received approximately $230 million from renting quota, or an average of $530 per tobacco acre. Producers’ characteristics by percentage of quota ownership Tobacco producers are grouped into three categories based on their percentage of quota ownership. For this paper, tobacco producers owning 25 percent or less of their effective quota are defined as quota renters. Producers owning 26 to 75 percent of their quota are defined as mixed-tenure producers, and producers owning over 75 percent of their quota are referred to as quota owners. Burley tobacco producers were more likely to own all of their quota than flue-cured producers (fig. 3). About 44 percent of burley tobacco producers were quota owners, while 27 percent were mixed-tenure producers. At the other extreme, about 29 percent of the burley tobacco operators were classified as quota renters in 1995. In comparison, 22 percent of flue-cured tobacco producers were quota owners, while 42 percent were quota renters in 1996. Burley tobacco producers in the quota owner and mixed-tenure categories had similar characteristics (table 1) in 1995. Both sets of tobacco producers had average ages of around 55 years. Tobacco composed 47 percent of the annual agricultural production value for both groups. Quota owners and mixed-tenure tobacco producers are distinguished by their differences in the average amounts of rented quota and acres rather than their differences in ownership levels. Quota owners rented an average of 100 pounds of quota and 22 acres of farmland compared with 4,882 pounds of quota and 70 acres for mixed-tenure tobacco producers. The average amount of quota owned by quota owners and mixed-tenure producers was not statistically different between the two groups. On average, both groups owned about 122 acres with similar values of farm equity that averaged about $260,000 per farm. This suggests that quota owners and mixed-tenure producers were able to acquire approximately the same amount of land and quota, but mixed-tenure producers expanded the size of their tobacco enterprises and farm operations through rentals. In 1995, burley tobacco quota renters differed from mixed- tenure and quota owners in the average operator’s age, tobacco acreage, the amount of owned quota and acreage per farm, and in the value of farm equity. Quota renters were younger than other tobacco producers, yet they operated larger tobacco enterprises and were more dependent on tobacco production for farm income. Although renters operated farms that did not differ significantly in acreage, they owned less acreage and quota than mixed-tenure producers and quota owners. Quota renters leased assets to expand the size of their tobacco enterprises and farms. Share-renting was their primary method to gain access to more quota. Quota renters may prefer share-renting to cash- renting since share-renting reduces exposure to production risks and conserves cash outlays. Flue-cured tobacco producers, with their larger sized farms and larger tobacco enterprises, tended to own lower percentages of their tobacco quotas than burley tobacco producers (fig. 3). Only 15 percent of flue-cured tobacco producers owned all of their quota compared with 40 percent for burley producers. About 40 percent of the flue-cured tobacco producers owned 25 percent or less of their quota and about 20 percent owned none. Like burley tobacco quota renters, flue-cured quota renters had larger tobacco enterprises than quota owners. Quota renters planted 43 acres of flue-cured tobacco per farm and controlled an average of 93,617 pounds of quota but owned only 8,021 pounds in 1996 (table 2). In contrast, quota owners planted 24 acres of tobacco, controlled an average of 50,922 pounds of quota, and owned an average of 46,326 pounds. Quota renters paid more per pound of quota, although there were no statistically significant differences between quota renters and owners in their variable cash production costs per acre for tobacco or their tobacco yields. Typically, those who rented more quota paid more per pound. Flue-cured tobacco producers who were classified as quota renters or quota owners operated farms that averaged just over 400 acres. Quota renters owned an average of 68 acres, or 16 percent of their operated acres compared with quota owners who owned 308 acres or 76 percent of their operated acres. Hence, quota renters had lower average values of farm equity than quota owners. Quota renters had higher net cash incomes, $102,599 per farm on average, than quota owners who averaged $47,748 per farm. Quota renters’ higher incomes partially resulted from their larger tobacco enterprises. Flue-cured quota renters cash-rented the majority of their quota in contrast to burley tobacco renters who share-rented most of their quota. The average age of quota renters was 49 years, 8 years younger than the average of quota owners. Producer characteristics by age A tobacco producer’s acceptance of a tobacco buyout may depend on age and whether a successor has been identified for his or her operation. Younger tobacco producers are more likely to have longer horizons for recouping capital invested in tobacco-related structures and equipment than older producers. Therefore, one might expect that older farmers would more likely accept buyout offers due to their shorter planning horizons, if they do not have a successor. Tobacco producers were divided into three groups by age: those less than 45 (youngest producers), those 45 to 59, and those 60 and over (oldest producers). In 1995, about one-fourth of burley tobacco producers were under 45, while roughly half were 45 to 59, and another one- fourth were 60 years or older (table 3). The youngest burley tobacco producers were twice as likely to have graduated from high school than the oldest producers. Just 36 percent of the oldest producers graduated from high school. About 35 percent of the youngest and oldest producers classified themselves as farmers, while approximately 40 percent of the oldest producers listed retirement as their major occupation. In contrast, 65 percent of the youngest burley tobacco farmers listed non-farm work as their principal occupation. The youngest burley tobacco producers controlled twice as much tobacco quota per farm as the oldest producers; yet, the youngest owned less quota per farm. The youngest producers share-rented 7,217 pounds of quota compared with 347 pounds per farm for the oldest producers. Although the average acreage operated per farm did not differ significantly among the age groups, the youngest farmers owned an average of 65 acres per farm compared with the oldest farmers who owned 116 acres per farm. The youngest producers had the highest debt-to-asset ratio, although they owned less acreage and quota per farm than older producers. The oldest producers were more likely to be located in Tennessee than Kentucky. Tennessee’s lower tobacco yields contributed to the oldest producers’ higher variable cash costs of production per expected pound. The more competitive producers tend to have lower ratios of expenses to output unit. Slightly more than one-fourth of flue-cured tobacco producers were 60 years or older (table 4). About half were 45 to 59 years old, and slightly less than one-fourth were less than 45 years old. Only half of the oldest flue-cured tobacco growers completed high school compared with 93 percent for the youngest. Flue-cured tobacco producers are more dependent on income from farming than burley tobacco producers. In all age classes, nearly 90 percent of flue- cured farmers listed farming as their principal occupation. The oldest producers were more reliant on tobacco production than the youngest, with tobacco comprising just over 70 percent of the total value of agricultural production for the oldest producers compared with 43 percent for the youngest. The oldest flue-cured producers averaged $32,408 in net cash income from farming in comparison with the youngest, who averaged $141,357 per farm. The youngest growers had an average debt-to-asset ratio of 18 percent, more than double that of the oldest growers. The average variable cash costs per expected pound did not vary significantly by age. Conclusion The design of a tobacco buyout program combined with farmers’ characteristics can influence the future structure of tobacco production. Since the tobacco buyout programs that have been proposed have been largely based on quota ownership and use, any payments producers receive from accepting a tobacco buyout will depend on the producers’ quantity of owned and rented quota and the buyout provisions. Burley tobacco producers own 44 percent of their tobacco quota, while flue-cured tobacco producers own 34 percent. Thus, in a quota buyout program, non-tobacco-producing landlords could receive over half of the funds made available to compensate tobacco quota owners for their quotas. Little information exists to indicate the characteristics of these landlords and whether the funds received by them would remain in rural communities. On average, there were approximately seven non-tobacco producing quota owners for every flue-cured producer compared with three for burley tobacco producers. With 303,124 owners of burley tobacco quota and 112,625 owners of flue-cured tobacco quota in 1999 and fewer pounds of burley quota than flue-cured, burley tobacco quota owners own less quota on average than flue-cured quota owners. Hence, the average burley tobacco quota owner would receive smaller total compensation payments for quota ownership than the average flue-cured quota owner, assuming that the buyout payment rates for burley and flue-cured quotas are the same. However, the burley quota payments would be distributed over more people. Tobacco producers who rent a large proportion of their tobacco quotas tended to be younger and control more quota per farm than producers who owned large proportions of their quota. References Gale, H. Frederick, Linda Foreman, and Thomas Capehart, Tobacco and the Economy: Farms, Jobs, and Communities. Economic Research Service, U.S. Department of Agriculture, Agricultural Economic Report, No. 789, Sept. 2000. Kuegel, Willam, Martin, and Matthew Myers, Co-chairs, Tobacco Communities at a Crossroad, preliminary report, The President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health, January 26, 2001. Kuegel, Willam, Martin, and Matthew Myers, Co-chairs, Tobacco Communities at a Crossroads: A Call for Action. Final Report of The President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco Production While Protecting Public Health, May 14, 2001. 1997 Census of Agriculture, United States Summary and State Data, Volume 1, Geographic Area Series, Part 51, March 1999, U.S. Department of Agriculture, AC97-A-51. Box Text Tobacco Quota Rental Arrangements There are several types of rental arrangements for tobacco quota. Tobacco quota may be cash or share rented with or without land. Tobacco quota is assigned to a specific parcel of land. The land’s owner has control over the tobacco quota assigned to his/her land. Since 1987 flue-cured quota renters who cash or share rent quota must raise the tobacco on its assigned farm rather than lease and transfer quota. All burley tobacco quota renters can lease and transfer quota within counties. Tennessee burley tobacco producers can lease and transfer quota across Tennessee’s counties. Starting with the 2001 crop, burley tobacco producers in Indiana and Ohio may also lease and transfer quota across counties within their State. Each of the more common types of rental agreements is described below. Cash Rented Quota Without Land--When tobacco is cash rented without land, the landlord receives a fixed rental price per pound of quota that is mutually agreed upon by the producer and the landlord. The price is normally set before the tobacco season begins. The quota owner usually does not supply any inputs and does not share the risks in growing tobacco. Cash Rented With Land--When the producer rents tobacco quota with land, the rental price per pound of tobacco quota may or may not include the cost of the land rental. In some arrangements, the price for quota rental is separate from the price for land rental, and both the producer and landlord have clear knowledge of the cost per unit for quota and land. In another type of cash rented quota arrangement, the explicit quota rental rate includes the rental rate for farmland. Thus, it may be difficult to assess the true quota rental rate from the farmland rental rate. Sometimes the quota renter will be able to use tobacco barns on the landlord’s property. Other than the use of tobacco barns, the quota owner usually does not supply any inputs and does not assume any risks in raising the tobacco. Share Rented Without Land--In share renting without land, the landlord assumes some of the risk in producing tobacco. In this rental arrangement the landlord provides the tobacco quota and usually provides some production inputs. In return, the landlord receives a fixed share of the tobacco crop as rental payment for tobacco quota and production inputs. The landlord frequently contributes a share of the fertilizer, chemicals, and sometimes equipment and labor. Share Rented With Land--In cases where tobacco quota is share rented with land, the landlord often provides the land, quota, barns, fertilizer, cover crop, and a share of chemicals. There is a great deal of variation among share rental agreements with land. The amount of tobacco received by the landlord often varies from 25 to 50 percent of the crop depending partly on the share of inputs provided by the landlord. END_OF_FILE