Southern Agricultural Economics Association Annual Meeting Mobile, AL February 5, 2007

1. Post-Buyout Burley Tobacco Production and Trends in the Traditional Burley Regions of Tennessee, North Carolina and Virginia LaKeya Jones& Kelly Tiller Southern Agricultural EconomicsAssociation Annual Meeting Mobile, AL February 5, 2007 Agricultural Policy Analysis Center - University of Tennessee - 310 Morgan Hall - Knoxville, TN 37996-4519 www.agpolicy.org - phone: (865) 974-7407 - fax: (865) 974-7298

2. 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

3. 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.

4. 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

5. -44.6% -52.5% 10.3% -31.1% -14.9% -41.7% Change in Burley Acreage 2004 to 2006 2005 to 2006 150.0% -8.8% 0.0% 18.5% 4.3% 33.3% -17.6%

6. 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 2006 • 813 completed responses, preliminary results available

7. Methodology • 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

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

9. Average Planted Acres

10. ’06 Average Acreage No 53% Yes 47%

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

12. Among respondents producing tobacco in 2006 … Likelihood of Producing 2010 2007 2015

13. Variables Considered • Household-specific characteristics • Resource endowment • Market incentives • Risk and uncertainty • Biophysical factors

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

15. Household-Specific Characteristics Education Level 11.4 12.2 12.7

16. Household-Specific Characteristics Age 57.0 54.3 60.2

17. Household-Specific Characteristics 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

18. 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

19. Resource Endowment Total Farm Acreage 110.38 93.86 117.50

20. Resource Endowment Tobacco Acreage

21. Resource Endowment Tobacco as % of Total Gross Farm Receipts 46.86 46.20 46.94

22. Resource Endowment Size of Household 2.50 2.27 2.64

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

24. Market Incentives Price $1.55 $1.55 $1.56

25. Market Incentives Contract • 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

26. Market Incentives 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

27. Market Incentives 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

28. 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

29. Risk and Uncertainty Labor • 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

30. Risk and Uncertainty 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

31. Risk and Uncertainty 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

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

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

34. Biophysical Factors Expected Yield 2,291 2,208 2,304

35. Biophysical Factors 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

36. Conclusions • 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

37. http://agpolicy.org/tobacco/