10/28/04 — Farmers have questions about tobacco buyout

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Farmers have questions about tobacco buyout

By Sam Atkins
Published in News on October 28, 2004 2:01 PM

MOUNT OLIVE -- The recently passed tobacco buyout has spawned many questions from farmers.

David Rouzer, senior adviser to Sen. Elizabeth Dole, tried to answer some of those questions Wednesday before 125 farmers at Oak Wolfe Fire Department.

"This has been a long journey," he said. "We are very fortunate to have gotten it done."

The tobacco industry was split, with R.J. Reynolds wanting the buyout without FDA regulation and Philip Morris wanting it with FDA regulation. The international tax bill the buyout was attached to provided a "must pass" vehicle.

The buyout provides payments of $7 per pound to quota holders and $3 per pound to growers. The payments, based on the 2002 quota level, will be distributed over a 10-year period.

"There were a lot of people out there who really needed this," said Rouzer, who will be traveling around the state over the next few months to answer questions about the buyout.

The Commodity Credit Corp. will produce the payments up front assuming it will receive the tobacco assessments from the tobacco companies, said Rick Tharrington with the Wayne County Farm Service Agency. This will help the payments come in sooner because the companies have until December 2005 to make the assessment payments.

Rouzer said farmers are allowed to receive the payments over the 10-year period or assign their payments to a financial institution and receive it in a lump sum or spread it out as they wish, based on the agreement with the institution. There will be a small discount if they get it in a lump sum. The money is guaranteed even if the tobacco companies go out of business.

The money is easier to calculate for quota holders than growers. If a quota holder has 100 pounds of tobacco now, he has to multiply what he had in 2002 by $7.

If someone grew 100 pounds of tobacco in 2002, but did not grow in 2003 and 2004, he will get $1 per pound for those pounds he grew in 2002.

If someone else grew the tobacco in 2003 and 2004, that person would get $2 per pound for those years, he said. There is no payment limitation amendment in the bill.

Farmers will sign up for payment allocation at their local Farm Service Agency offices. Rouzer said quota holders should be able to receive a lump sum of that money and spread out their grower payments. Also, if the quota holder dies, the money will go to his estate.

The grower money is taxed as ordinary income and the holder money is taxed as a capital gain, added Rouzer. He expects it will take a little longer for the grower payments to be distributed because it is a more complicated process. Those payments could be distributed as late as June or July.

Winslow Tew, a farmer in Duplin County, has 35 acres of tobacco and owns about 7,000 pounds. He has a contract with Diamond Tobacco Co.

He said he is pleased to have the buyout because it was something farmers had to have. He is concerned with what will happen next, and his plan is to stay in the tobacco industry if his contract stays good.

"There is nothing we can grow on the farm to take the place of tobacco," he said. Corn and beans will not bring in the same money.

Also, he and other farmers have invested lots of money in purchasing equipment for harvesting their tobacco, and he said the equipment depreciated with the buyout. He said some farmers will have to purchase other machinery to harvest other types of crops to replace tobacco.

Max Turner has farmland in Duplin County, and in 1997 he had 175 acres of tobacco. He now has a little over 100 acres. He owns about 10 percent of the crop. He said that when he receives his buyout money, it will go toward paying off his farming debt.

He said staying in the tobacco industry will also depend on his contract with RJ America, formerly RJ Reynolds. He is pleased to have the money, but farmers were hoping for the $8 and $4 provision.

"It's better than nothing, but it's not as good as it should have been," said Turner.

Rouzer said farmers were facing at least a 30 percent cut in their quota, and it was either the $10.1 billion buyout deal or nothing. He said $7 and $3 is well beyond his wildest expectations.

Farming will change as a result of the buyout, but farmers were going to have to face a transition one way or another, with or without financial assistance. This way they have the assistance to make the transition, he said.