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The Tobacco Buyout

The Tobacco Buyout. Scott Sanford September 2005. Outreach. 500,000 official signup letters sent to quota holders and producers (6,000 printed in Spanish) 600,000 notices sent to quota holders and producers (6,000 printed in Spanish)

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The Tobacco Buyout

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  1. The Tobacco Buyout Scott Sanford September 2005

  2. Outreach • 500,000 official signup letters sent to quota holders and producers (6,000 printed in Spanish) • 600,000 notices sent to quota holders and producers (6,000 printed in Spanish) • Ads in Progressive Farmer, Farm Journal, Flue-Cured Tobacco Farmer, and the Farm Progress family of magazines. • 40 Regional radio ads • 200 local newspaper ads running bimonthly from March to May • Bilingual national call center

  3. Fair and Equitable Tobacco Reform Act • Terminates tobacco quota program • Terminates tobacco price support • Provides transitional payments to quota holders and producers • Provides for assessments as a source of funds for payments • Establishes “Tobacco Trust Fund” • Provides for disposition of CCC loan stocks

  4. Who is Getting Paid? Contract payments are offered to tobacco quota owners and tobacco producers • Contract payments shall constitute full and fair consideration for the termination of such tobacco marketing quotas and related price support. • Contract payments are to be made during each of the fiscal years 2005 - 2014 in annual amounts equal to 1/10th of the total payment due each quota owner and quota producer. • Signup period for the program was March 14, 2005 through June 17, 2005. • Continuous sign-up (for those who missed original sign-up) is local FSA County Office (only for future payments). • November 1 each FY is cut-off for sign-up for the FY payment

  5. How Much Are They Getting Paid? Contract payments are calculated based on quota levels established in the 2002 marketing year. • Contract payments to tobacco quota owners are determined by multiplying the base quota level by $7 per pound. Base quota levels are determined by the basic quota established in the 2002 marketing year. • Contract payments to tobacco producers are determined by multiplying the base quota level by $3 per pound. Actual payment rates vary according to the producer’s share of the risk associated with producing the quota during 2002 – 2004. • As of September 16, 2005, FY05 payments total $932 million.

  6. What Can You Do With These Payments (Contracts)? • A recipient may receive CCC payments in 10 annual installments. • A recipient may involve a third party through— Assignment of payment, or, Successor-in-interest contract. • A recipient may arrange for a lump sum payment.

  7. What Can You Do With These Payments (Contracts)?—cont. Quota holder or producer contracts will not be eligible to be transferred if— • An assignment of payment is currently on file for the contract, or • The transferor has a delinquent debt (claim), or • The transferor has a TTPP receivable (i.e., overpayment).

  8. Assignment of Payments • May be entered into at anytime. • All or any part of payment stream may be assigned. • Subject to administrative offset under the Debt Collection Improvement Act of 1966. • Revocable at any time with the consent of the assignee. • May be used beginning with the first payment in 2005. • Form CCC-959, Tobacco Transition Payment Program Assignment of Payment (March 31, 2005) must be used.

  9. Successor-In-Interest Contract • May be entered into starting with the fiscal year 2006. • May not be revoked. • Enter into a successor-in-interest contract by November 1st in order to receive the subsequent January payment. • Succeed to whole contract (partial successor-in-interest contracts are not allowed). • Prior and subsequent actions of the original contract holder will not affect the rights of the successor. • CCC will allow sale of successor-in-interest contracts to another party.

  10. Inventory Losses Related to CCC Held Tobacco Loans Tobacco Association Losses Incurred by CCC Flue Cured Tobacco Stabilization Corporation Burley Tobacco Growers Cooperative Association Burley Stabilization Corporation Stemming Tobacco District Eastern Tobacco Type 22 Type 35 Western Tobacco Type 23 Type 35 Wisconsin Cigar Dark Tobacco Total1 $125,631,359.19 135,096,477.01 27,208,737.11 385,351.77 570,852.23 221,336.07 2,096,345.47 76,399.44 156,219.14 282,813.95 $291,725,891.38 1$287,210,590.32 losses recognized as of June 30, 2005 and $4,515,300.86 recognized after June 30, 2005.

  11. CCC Tobacco Loan Stock Sales – FY 2005 Tobacco Invitation Quantity Sales Average Type # Date Quantity (lbs) Sold Balance Proceeds Price Burley/Flue Burley/Flue Minor Minor Burley Total 26 28 29 30 31 3/25/2005 4/12/2005 4/22/2005 5/23/2005 6/19/2005 100,209,023 11,180,899 2,201,822 1,769,074 11,649,480 89,028,124 11,180,899 432,748 1,769,074 11,649,480 114,060,325 11,180,899 0 1,769,074 0 0 $163,743,034.16 $8,723,186.33 $773,612.13 $2,265,881.13 $30,057,649.90 $205,563,363.65 $1.84 $0.78 $1.79 $1.28 $2.58 $1.80

  12. Who Is Paying for the Buyout? • Each tobacco product manufacturer and importer that sells tobacco products in domestic commerce in the United States. • Treasury lists about 800 companies with permits to manufacture or import tobacco products.

  13. National Assessment • The national quarterly assessment reflects contract payments made to tobacco quota holders and producers and other expenditures of the Tobacco Trust Fund. The total assessment over 10 years is not to exceed $10.14 billion. • The national quarterly assessment is then apportioned to each class of tobacco using the following percentages: • 96.331 Cigarettes • 2.783 Cigars • 0.539 Snuff • 0.171 Roll-Your-Own Tobacco • 0.111 Chewing Tobacco • 0.066 Pipe Tobacco

  14. Calculation of Initial Assessments for Each Class of Tobacco Under Section 625 (c) 2003 Calendar Year Amount1 Maximum Estimated Allocation Product Domestic Imports Total Tax Rate2 Taxes by class (%) 1Source: Alcohol and Tobacco Tax and Trade Bureau, National Revenue Center, December 2003 Monthly Statistical Release, Re-issued August 19, 2004, Report Symbol TTB s 5200-12-2003. www.ttb.gov/tobacco/stats/index.htm. 2Source: Alcohol and Tobacco Tax and Trade Bureau, Tax and Fee Rate. www.ttb.gov/alcohol/info/atftaxes.htm.

  15. Tobacco Class Market Shares by Taxes Paid, 2001- 2004 Class 2001 2002 2003 2004 Percent Small cigarettes Large cigarettes Small cigars Large cigars Snuff Chewing tobacco Pipe Roll your own 96.839 0.000 0.048 2.328 0.475 0.112 0.076 0.122 96.674 0.000 0.051 2.443 0.497 0.110 0.073 0.152 96.331 0.000 0.056 2.727 0.539 0.111 0.066 0.171 95.999 0.000 0.066 2.978 0.565 0.104 0.064 0.224

  16. Manufacturer/Importer Assessments • Individual manufacturer/importer assessments are calculated by multiplying each company’s quarterly market share by the national quarterly assessment for that class of tobacco. • Each company’s market share is calculated by dividing the total taxes paid (total volume for cigars) by that company for the quarter by the total taxes paid (total volume for cigars) by all companies that reported to CCC for that class of tobacco. • Any company with a market share of less than 0.0001 is excluded from the assessment. • A new market share is then calculated for each company by dividing the total taxes paid (total volume for cigars) by that company for the quarter by the total taxes paid (total volume for cigars) by all assessed companies.

  17. National Assessment March and June 2005 September 1, 2005** 1Since CCC had not incurred any costs this total is 1/40th of the 10-year maximum total cost of the program of $10.14 billion. September 2005 1This total includes one-fortieth of the estimated $9.6 billion in contract payments; $287,210,591 in CCC loan losses; and $4,531,501 for payments to a financial institution to help carry out this program.

  18. Manufacturer/Importer Assessments CLASS: Cigarettes (1) Total gross taxes paid by all companies that reported to CCC for this class of tobacco. (2) Rounded to 4 decimal places as required by 7 U.S.C. 518-519a. (3) Excludes those companies with a market share of less than .0001. (4) Share of assessment (.000525272) multiplied by national quarterly assessment for class of tobacco ($269,061). CLASS: Cigars (1) Total gross taxes paid by all companies that reported to CCC for this class of tobacco. (2) Rounded to 4 decimal places as required by 7 U.S.C. 518-519a. (3) Excludes those companies with a market share of less than .0001. (4) Share of assessment (.000926434) multiplied by national quarterly assessment for class of tobacco ($ 13,710).

  19. Tobacco Assessment Summary 1Market share of 0.01% or higher.

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