Tobacco Price Support Program

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The Tobacco Price Support Program used a combination of marketing quotas and nonrecourse loans to keep prices stable and higher than they would be otherwise in the United States. The tobacco quota limited production to raise prices. Nonrecourse loans allowed producers to hold tobacco stocks for long periods to balance supplies with market demand conditions.

Under the No Net Cost Tobacco Act of 1982, tobacco loan program operations were required to function at no net cost to taxpayers (P.L. 97-218). A no net cost assessment was collected on all leaf tobacco sold to build a reserve fund that reimbursed the Commodity Credit Corporation (CCC) for any losses of loan principal and interest. Adoption of the tobacco quota buyout in P.L. 108-357, Title VI, also ended the price support program for the crop in 2005 and subsequent years.

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Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender can seize and sell the collateral, but if the collateral sells for less than the debt, the lender cannot seek that deficiency balance from the borrower—its recovery is limited only to the value of the collateral. Thus, nonrecourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan.

Federal Agriculture Improvement and Reform Act of 1996 United States federal law

The Federal Agriculture Improvement and Reform Act of 1996, known informally as the Freedom to Farm Act, the FAIR Act, or the 1996 U.S. Farm Bill, was the omnibus 1996 farm bill that, among other provisions, revises and simplifies direct payment programs for crops and eliminates milk price supports through direct government purchases.

The Fair and Equitable Tobacco Reform Act is a component of the American Jobs Creation Act, passed in the United States in October 2004. The main component of the Fair and Equitable Tobacco Reform Act is the Tobacco Transition Payment Program, which was formalized by the United States Department of Agriculture in February 2005.

The commodity loan rate is the price per unit at which the Commodity Credit Corporation (CCC) provides commodity loans to farmers to enable them to hold commodities for later sale, to realize marketing loan gains, or to receive loan deficiency payments (LDPs). Marketing assistance loan rates for the “loan commodities” and peanuts for crop years 2002 through 2007 are specified in the 2002 farm bill. Nonrecourse loans also are available from the Commodity Credit Corporation for refined beet and raw cane sugar.

In United States federal agricultural policy, the term commodity programs is usually meant to include the commodity price and income support programs administered by the Farm Service Agency and financed by the Commodity Credit Corporation (CCC). The commodities now receiving support are:

  1. those receiving Direct and Counter-cyclical Program (DCP) payments, specifically wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans and other oilseeds, and peanuts;
  2. those eligible for nonrecourse marketing assistance loans, which includes the previous mentioned commodities plus wool, mohair, honey, dry peas, lentils, and small chickpeas; and
  3. those having other unique support, including sugar, and milk.
Dairy and Tobacco Adjustment Act of 1983

The Dairy and Tobacco Adjustment Act of 1983 is a United States federal law.

Extra-Long Staple Cotton Act of 1983

The Extra-Long Staple Cotton Act of 1983 eliminated marketing quotas and allotments for extra-long staple cotton and tied its support to upland cotton through a formula that set the nonrecourse loan rate at not less than 150% of the upland cotton loan level. The act amended the Agricultural Act of 1949 to set forth new Extra-Long Staple cotton program provisions and Agriculture and Food Act of 1981 to add Extra-Long Staple cotton to the $50,000 payment limitation for the payments which a person received under commodity programs. The act was sponsored by Kika de la Garza.

In the United States, Tobacco quotas were a supply control feature of federal price support for tobacco. Burley tobacco was subject to marketing quotas and flue-cured tobacco was subject to marketing quotas and acreage allotments. Tobacco quota owners voted every three years on whether or not to continue with price support and marketing quotas. Producers of several minor tobaccos had disapproved federal support. The national marketing quota was calculated according to a formula specified by law that included consideration of intended purchases by domestic manufacturers, average exports over the preceding three years, and reserve stock requirements. The effective quota was the basic quota plus and minus temporary adjustments for allowable previous year under and over marketings. The Fair and Equitable Tobacco Reform Act of 2004 ended tobacco quotas for 2005 crop and subsequent years.

The U.S. Sugar program is the federal commodity support program that maintains a minimum price for sugar, authorized by the 2002 farm bill to cover the 2002-2007 crops of sugar beets and sugarcane.

In United States agriculture policy, Loan deficiency payments are a farm income support program first authorized by the Food Security Act of 1985 that makes direct payments, equivalent to marketing loan gains, to producers who agree not to obtain nonrecourse loans, even though they are eligible. Loan deficiency payments are available under the 2002 farm bill for wheat, corn, grain sorghum, barley, oats, upland cotton, rice, soybeans, other oilseeds, wool, mohair, honey, dry peas, lentils, and small chickpeas.

A poundage quota, also called a marketing quota, is a quantitative limit on the amount of a commodity that can be marketed under the provisions of a permanent law. Once a common feature of price support programs, this supply control mechanism ended with the quota buyouts for peanuts in 2002 and tobacco in 2004.

No Net Cost Tobacco Act of 1982

The No Net Cost Tobacco Act of 1982 required that the Tobacco Price Support Program operate at no net cost to taxpayers, other than for the administrative expenses common to all price support programs. To satisfy this mandate, sellers and buyers of tobacco were assessed equally to build a capital account that was drawn upon to reimburse the Commodity Credit Corporation (CCC) for any losses of principal and interest resulting from nonrecourse loan operations. Other provisions of this law provided for reducing the level of support for tobacco and made various modifications to the marketing quota and acreage allotment programs. No net cost assessments ended when price support was terminated after the 2004 crop.

No net cost is a requirement that certain commodity programs operate at no net cost to the federal government. The No Net Cost Tobacco Act of 1982 required an assessment on 1982 and subsequent tobacco crops to cover potential tobacco price support program losses. The 1985 farm bill required that USDA operate the sugar program for the first time at no cost; a provision repealed by the 1996 farm bill and reinstated by the 2002 farm bill. The 1996 changes to the peanut price support program were designed to ensure that it also operated at no cost. Subsequently, the peanut program was completely changed by the 2002 farm bill, but not in a manner to make it no-net-cost.

The 2002 farm bill replaced the longtime (65-year) support program for peanuts with a framework identical in structure to the program for the so-called covered commodities. The three components of the Peanut Price Support Program are fixed direct payments, counter-cyclical payments, and marketing assistance loans or loan deficiency payments (LDPs). The peanut poundage quota and the two-tiered pricing features of the old program were repealed. Only historic peanut producers are eligible for the Direct and Counter-cyclical Program (DCP). All current production is eligible for marketing assistance loans and LDPs. Previous owners of peanut quota were compensated through a buy-out program at a rate of 55¢/lb. ($1,100/ton) over a 5-year period.

In United States agricultural policy, a marketing loan repayment provision is a loan settlement provision, first authorized by the Food Security Act of 1985, that allowed producers to repay nonrecourse loans at less than the announced loan rates whenever the world price or loan repayment rate for the commodity were less than the loan rate. Marketing loan provisions became mandatory for soybeans and other oilseeds, upland cotton, and rice and were permitted for wheat, corn, grain sorghum, barley, oats, and honey under amendments made by the 1990 farm bill. The 1996 farm bill retained the marketing loan provisions for wheat, feed grains, rice, upland cotton, and oilseeds. The 2002 farm bill continued marketing assistance loans and expanded their application to wool, mohair, dry peas, lentils, and small chickpeas.

Marketing assistance loans are nonrecourse loans made available to producers of loan commodities under the 2002 farm bill. The new law largely continued the commodity loan programs as they were under previous law. Loan rate caps are specified in the law. Marketing loan repayment provisions apply when market prices drop below the loan rates. For farmers who forgo the use of marketing assistance loans, loan deficiency payment (LDP) rules apply.

Marketing assessments are payments in United States agricultural policy. At times, producers and first purchasers of some supported commodities are required to pay assessments as a contribution toward achieving budget deficit reduction targets. Under the 1996 farm bill, assessments were imposed on sugar processors and on producers and first buyers of peanuts. However, the 1996 farm bill eliminated a milk marketing assessment. The 2002 farm bill eliminated the assessments for peanuts and sugar. Tobacco was subject to a no-net-cost assessment on all marketings to offset Commodity Credit Corporation (CCC) losses on price support loan operations until support was ended in 2005 under the quota buyout provision.

Flue-cured tobacco Variety of cigarette tobacco

Flue-cured tobacco is a type of cigarette tobacco. Along with burley tobacco, it accounts for more than 90% of US tobacco production. Flue-cured farming is centered in North Carolina. Production was limited by national marketing quotas and acreage allotments. The crop was eligible for non-recourse price support loans until 2005, when the quota buyout program ended these programs.

The Farmer-Owned Grain Reserve (FOR) was a program, established under the Food and Agriculture Act of 1977, designed to buffer sharp price movements and to provide reserves against production shortfalls by allowing wheat and feed grain farmers to participate in a subsidized grain storage program. Farmers who placed their grain in storage received an extended nonrecourse loan for at least 3 years. Under certain conditions, interest on the loan could be waived and farmers could receive annual storage payments from the government. The 1996 farm bill repealed this program.

Farm programs can be part of a concentrated effort to boost a country’s agricultural productivity in general or in specific sectors where they may have a comparative advantage. There are many different types of farm programs, with a variety of objectives and created with different economic mechanisms in mind. Some are meant to benefit farmers directly, while others seek to benefit consumers. They target food prices and quantity of food available on the market, as well as production and consumption of certain goods. Some are meant to benefit farmers directly, while others seek to benefit consumers. They target food prices and quantity of food available on the market, as well as production and consumption of certain goods.