DATE: MARCH 12, 2001

TO: EXTENSION AGENTS IN TOBACCO PRODUCING COUNTIES

FROM: BILL GIVAN & J. MICHAEL MOORE

WE ARE FREQUENTLY ASKED TO JUSTIFY FUNDS GOING TO TOBACCO FARMERS. ie, HOW MUCH GOOD DID THIS MONEY DO? WHAT DID TOBACCO GROWERS DO WITH IT?

WE CAN'T SPECIFICALLY ANSWER THESE QUESTIONS - BUT CAN SHOW WHAT LOSSES HAVE BEEN REPLACED. THE FOLLOWING IS AN ATTEMPT TO ANSWER THIS. WE HAVE USED FIVE COUNTIES AS AN EXAMPLE. THESE ARE EITHER COUNTIES WITH A LOT OF TOBACCO OR THE CROP MAKES UP A HIGH PERCENTAGE OF TOTAL FARM REVENUE.

FYI - TABLE 1 IS THE MAIN TABLE. TABLE 2 WAS INCLUDED BECAUSE MUCH OF THE FIGURES IN TABLE 1 CAME FROM IT.

...and how local economies have fared.

Flue cured tobacco has been a major source of farm income in Georgia since the mid 1930's. It is grown under provisions of federal legislation, consisting of supply control and price supports. It has annually contributed millions of dollars to farm gate income, resulting in higher economic activity in areas where it is grown.

But economic and political forces have resulted in a 44% reduction in the basic quota of Georgia tobacco growers since 1997. Statewide, this has resulted in an estimated $176.6 million reduction in lost farm income since 1997 (table 1). While this has meant a reduction of economic activity in Georgia's aggregate tobacco-growing area, it has been a major loss in those counties where tobacco income is a significant portion of total annual farm income.
 

The magnitude of quota loss and the impact of tobacco in five of the major tobacco producing counties in Georgia is shown in table 1. Each of these counties experienced a minimum $1 million loss of tobacco receipts in 2000. During the past three years (1998-2000), tobacco receipts in these five counties were an accumulated $45.5 million less than they would have been had the quota stayed at the 1997 level.

This effect is further shown when we consider tobacco in these five counties constituted from 8% to 24% of total farm receipts prior to 1998 when the quota reduction began. These percentage have all declined as is shown in table 1.

Given that flue cured tobacco generates $3,500 - $3,750 gross receipts per acre grown, and that acreage in the state has declined from about 43,000 acres in 1997 to about 30,000 acres in 2000, we better realize just how much income has been lost. This amount of receipts pays for substantial production inputs, with the residual being the return to quota and profit. One observer has commented "The alternative to tobacco, is tobacco".

And given that tobacco growers have large investments in specialized equipment and quota, and that the crop is grown in a relatively small number of counties, there has been attention by various entities to the economic plight currently facing these farmers. Both tobacco companies (who are dependent on growers for a high quality flue-cured leaf), and the U.S. Congress, whose members recognize the current economic crises by the entire farm sector, have provided some funds to help these growers through their current economic dilemma. While these funds have been essential to allow some farmers pay their annual expenses, the continued annual income stream the lost quota would have generated has not been replaced.
 

Table 1. Estimated Loss of Farmgate Income Due to Tobacco Quota Loss, Selected Counties, Georgia
				Tobacco Income as % of Total County Farmgate Income
County	Basic Quota Loss, 1997 to 2000	Tobacco Farmgate Income Loss in 2000 *	Cumulative Tobacco Income Loss, 1998-2000*	1997	1999
	(000 Lbs)	(Mil. Dol.)	(Mil. Dol.)	%	%
Lowndes	2,327.6	1.2	8.3	24.0	14.7
Pierce	2,204.1	1.1	7.7	15.7	12.9
Cook	1,973.9	1.0	6.8	14.0	9.8
Berrien	2,691.1	1.3	10.0	12.0	10.1
Colquitt	3,564.6	1.8	12.7	8.0	5.5
Sub-total	12,761.3	6.4	45.5
State Total	48,400	22.8	176.6	xxx	xxx

* Market Value of Tobacco
 

Of special significance are the funds appropriated in 2000 from the Georgia Master Tobacco Settlement. This money was in the amount of $1 per pound quota for each pound of basic quota lost from 1999 to 2000. Georgia tobacco growers collectively lost 13 million pounds of quota in 2000 (table 2). So in effect, approximately $13 million was paid to the state's tobacco growers and quota owners to help compensate for the quota loss.

To better show the local effects, Cook county growers and quota owners received $575,400; and Colquitt growers and owners received $1,027,300 ($1 per pound for each quota pound lost in 2000), table 2. While this is less that the loss of tobacco receipts, (and while this money is taxable as ordinary farm income - and self-employment tax), it does help the growers and the local economies maintain their sense of being. And especially is this significant as many non-tobacco farm commodities have sold for less than the production costs for the past 2 - 3 years. These type appropriations have helped many growers remain in business.
 

Table 2. Basic Flue-Cured Tobacco Quota Loss, and Tobacco and Total Farmgate Income, Selected Counties, Georgia
	Basic Quota Loss			Farmgate Income *		Value of Tobacco *
County	000 Lbs.			Mil. Dol.		Mil. Dol.
	1998	1999	2000	1997	1999	1997	1999
Lowndes	882.6	783.8	661.2	39.0	42.2	9.4	6.2
Pierce	817.9	742.9	643.3	56.6	50.4	8.9	6.5
Cook	719.8	678.7	575.4	58.0	62.3	8.1	6.1
Berrien	1,101.8	912.9	776.4	70.8	73.1	8.5	7.4
Colquitt	1,331.4	1,205.9	1,027.3	162.9	174.1	13.1	9.6
State Totals	19,900	15,400	13,100	7,553.2	7,926.0	166.6	115.4

* Gross Value of Production. Net Income Not Available.
 

Looking to the 2001 crop year, it is anticipated the effective flue cured quota in Georgia may be less than the 2000 level due to overmarketing in 2000. So while the 2001 basic quota is basically unchanged, there may be less tobacco grown in the state this year. An estimate of the comparison of the state's tobacco economy in 1997 and projected in 2001 is shown in table 3.

Georgia tobacco growers - and all U.S. farmers are currently being affected by the 1996 Freedom-to-Farm bill, designed to remove farm production from the traditional supply control-price support system - to a free market.

But, someone forgot to tell us just how brutal the free market can be for farm commodities that have little increase in demand even though their prices may decline. The human stomach has a limited capacity. But tobacco farmers are also feeling the economic pinch of less tobacco being purchased for manufacturing and tobacco purchased for exports. They are experiencing price and income pressures from more than one source.

In addition to helping pay annual expenses, this previously mentioned appropriation further provides tobacco growers a source of equity with which they can use to borrow operating funds. The quota loss (48.4 million pounds in three years) means Georgia tobacco growers assets have declined approximately $387 million (@ $8 per pound). In effect, they have less equity to pledge when applying for loans, but this loss is partially restored with these funds previously mentioned.

And given that tobacco quota is an asset that can be bought and sold, many tobacco growers who have recently purchased quota have experienced an asset loss (quota) that, for some, is not fully paid. They are paying for an asset that no longer exists. These funds are helping those individuals repay these debts.

As tobacco is a relatively expensive crop to produce, its' production pays for a host of inputs purchased in the local economies. Further, profits made growing the crop provide growers with income to purchase family items. The adverse effects on these local economies of the quota reduction has been documented. Any funds that help these growers stay in business is beneficial for those economies.

The final result is that a system of tobacco production is undergoing changes at the same time the U.S. farm economy is in a depressed state. Consequently, tobacco growers are faced with two problems instead of one. The crop has been a stabilizing force in many rural counties in the state and recent appropriations have assisted the growers and their economies stay viable.
 

Table 3 Estimated Economic Effects of Tobacco Production in Georgia
Item	1997	2001 (est.)	Change 1997 to 2001
Acres Tobacco Grown	44,000	26,000	-18,000
Average Yield per Acre (lbs.)	2,030	2,200
Average Price per Pound (dol.)	$1.71	$1,70
Total Value of Crop (mil. Dol.)	$152.7	$97.2	-$55.5
Total Economic Effect of Non - Tobacco Manufacturing (mil. dol.)	$381.0	$243.1	-$138.7
Total Cash Operating  Expenses (mil. dol.)	$95.0	$55.6	-$39.4
Labor (mil. dol.)	$26.4	$15.6	-$9.0
Chemicals (mil. dol.)	$14.7	$8.6	-$6.1
Total Net Returns to Land, Quota  and Management (mil. dol.)	$28.4	$19.0	-9.4
Number of Items This Net Return  Would Buy (number)
Pickup Trucks	1,185	759	-426
100 h. p. Tractors	569	362	-207
Sport Utility Vehicles	1,016	654	-326
Sales Tax Generated (non-tobacco)	$9.2 mil.	$6.8 mil.	-$2.4
Full Time Jobs Created	5,621	3,578	-2,043

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