CAAP Agricultural Policy Analysis Center - University of Tennessee Morgan Hall - Knoxville, TN phone: (865) fax: (865) Post-Buyout Burley Tobacco Production and Trends in the Traditional Burley Regions of Tennessee, North Carolina and Virginia Southern Agricultural Economics Association Annual Meeting Mobile, AL February 5, 2007 LaKeya Jones & Kelly Tiller

CAAP Tobacco Buyout Program Fair and Equitable Tobacco Reform Act (FETRA), commonly referred to as the Tobacco Buyout –Signed and enacted on October 22, 2004 –One of the most drastic changes in agricultural policy history –Tobacco industry is now a free market –No limits on the amount of tobacco grown or sold

CAAP Tobacco Buyout Program The tobacco buyout marked the end of the federal tobacco program –All reporting requirements vanished with the new buyout legislation –Price supports and quota are a thing of the past –Lack of timely and credible information regarding profitability, acreage, location of tobacco farms, etc.

CAAP Tobacco Buyout Program Post-buyout tobacco production and marketing –Significantly more risk –No minimum price guarantee –Tobacco marketed almost exclusively through direct contracts with tobacco manufacturers or leaf dealers

CAAP Change in Burley Acreage 2005 to to % 10.3% -14.9% -44.6% -41.7% -52.5% 4.3% 18.5% 33.3% -8.8% -17.6% 0.0% 150.0%

CAAP 2006 Burley Tobacco Survey Mail-based survey of 6,000 burley growers in traditional areas of TN, VA, NC –Sample drawn from burley active grower buyout contract recipients First available market and production information post- buyout Surveys completed May completed responses, preliminary results available

CAAPMethodology Variables of interest are divided into 3 categories: –Producing (indicated that they are definitely or probably still producing tobacco in 2007) –Undecided (indicated that they are not sure if they will produce tobacco in 2007) –Exiting (indicated that they intend to probably not or definitely not produce in 2007) Analysis has been limited to include respondents that indicated that they were still actively producing tobacco in 2006

CAAP Respondents Growing in ‘06 46% 47% 52%40% No Yes

CAAP Average Planted Acres

CAAP ’06 Average Acreage No 53% Yes 47%

CAAP Last Year Actively Growing 3% 11% 62% 23%

CAAP Likelihood of Producing Among respondents producing tobacco in 2006 …

CAAP Variables Considered Household-specific characteristics Resource endowment Market incentives Risk and uncertainty Biophysical factors

CAAP Variables Considered Household-specific characteristics –Education level –Age –Primary occupation Resource endowment Market incentives Risk and uncertainty Biophysical factors

CAAP Education Level Household-Specific Characteristics

CAAPAge

CAAP Primary Occupation Half of current tobacco growers are full-time farmers, one-quarter work full-time off the farm, 14% retired Farmers who work full-time off the farm are less likely to continue producing tobacco Retired farmers are more likely to exit Household-Specific Characteristics

CAAP Variables Considered Household-specific characteristics Resource endowment –Total farm acreage –Tobacco acreage –Tobacco as a % of total gross farm receipts –Size of household Market incentives Risk and uncertainty Biophysical factors

CAAP Total Farm Acreage Resource Endowment

CAAP Tobacco Acreage Resource Endowment

CAAP Tobacco as % of Total Gross Farm Receipts Resource Endowment

CAAP Size of Household Resource Endowment

CAAP Variables Considered Household-specific characteristics Resource endowment Market incentives –Price –Contract –Grow other tobacco types –Availability of financing Risk and uncertainty Biophysical factors

CAAPPrice Market Incentives $1.55 $1.55 $1.56

CAAPContract Small percentage of producers did not have a contract Of the 10% of producers that don’t have a contract, about half of them are in the Undecided or Exiting category Market Incentives

CAAP Other Types of Tobacco 11% also grow another type of tobacco (dark-fired, dark air-cured or flue-cured) Farmers who grow other types of tobacco may have additional tobacco-specific resources and capital investments Of those that grow additional types of tobacco, 73% are in the Producing category Market Incentives

CAAP Importance of Financing Not a significant factor in production decisions Of those that stated that financing was a significant factor, more than half are in the Producing category Market Incentives

CAAP Variables Considered Household-specific characteristics Resource endowment Market incentives Risk and uncertainty –Labor –Increasing costs of production –Contract prices too low –Contract risk Biophysical factors

CAAPLabor More than two-thirds of respondents stated labor as a challenge in production Of the 27% of producers that do not believe labor is a challenge in production, more than half are in the Producing category Risk and Uncertainty

CAAP Increasing Costs of Production 35% of producers do not consider increasing costs of production a challenge in production decision Among those farmers that consider increasing costs of production a challenge, more than half are still producing Risk and Uncertainty

CAAP Contract Prices Too Low More than two-thirds of respondents indicated that a significant challenge was the low prices of contracts Among those farmers that stated contract prices were not an issue, 68% of them are still producing Risk and Uncertainty

CAAP Contract Risk Among those respondents that indicated contract risk as one of their top three challenges, 66% are in the Producing category Risk and Uncertainty

CAAP Variables Considered Household-specific characteristics Resource endowment Market incentives Risk and uncertainty Biophysical factors –Expected yield –Availability of quality land

CAAP Expected Yield Biophysical Factors 2,208 2,291 2,304

CAAP Availability of Quality Land More than half of respondents do not consider the availability of quality land to be a challenge in production Among respondents that do consider availability of quality land a significant challenge, 78% are in the Producing category Biophysical Factors

CAAPConclusions Paper serves as preliminary view of detailed post-buyout production, trends, challenges, and decision factors Study provides specific details of the current burley tobacco industry that has not been widely available in the post buyout era Variables identified in this study will be used for further analysis, areas of interest include: Modeling the decision of whether to produce or not to produce in the short to long term Determining the intent to expand burley tobacco acreage

CAAPhttp://agpolicy.org/tobacco/