C C A A A A P P 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 Post-Buyout Burley Post-Buyout Burley Tobacco Production and Tobacco Production and Trends in the Trends in the Traditional Burley Traditional Burley Regions of Tennessee, Regions of Tennessee, North Carolina and North Carolina and Virginia Virginia Southern Agricultural Economics Association Annual Meeting Mobile, AL February 5, 2007 LaKeya Jones & Kelly Tiller
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Southern Agricultural Economics Association Annual Meeting Mobile, AL February 5, 2007
Post-Buyout Burley Tobacco Production and Trends in the Traditional Burley Regions of Tennessee, North Carolina and Virginia. LaKeya Jones & Kelly Tiller. Southern Agricultural Economics Association Annual Meeting Mobile, AL February 5, 2007. - PowerPoint PPT Presentation
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CCAAAAPPAgricultural Policy Analysis Center - University of Tennessee - 310 Morgan Hall - Knoxville, TN 37996-4519
• 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
CCAAAAPP
Tobacco Buyout ProgramTobacco 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.
CCAAAAPP
Tobacco Buyout ProgramTobacco 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
Total Farm AcreageTotal Farm AcreageResource EndowmentResource Endowment
0
510
15
2025
30
35
4045
50
<10 10-24 25-49 50-74 75-99 100-149
150-199
200-249
250-500
500>
Freq
uenc
y
Producing Undecided Exiting
110.38110.3893.8693.86 117.50117.50
CCAAAAPP
Tobacco AcreageTobacco Acreage
0
1
2
3
4
5
6
7
8
9
10
Producing Undecided Exiting
Resource EndowmentResource Endowment
CCAAAAPP
Tobacco as % of Total Gross Farm ReceiptsTobacco as % of Total Gross Farm Receipts
Resource EndowmentResource Endowment
0
10
20
30
40
50
60
70
0 1-9 10-24 25-49 50-74 75-99 100
Fre
quency
Producing Undecided Exiting
46.2046.20 46.9446.94
46.8646.86
CCAAAAPP
Size of HouseholdSize of HouseholdResource EndowmentResource Endowment
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8>
Fre
quen
cy
Producing Undecided Exiting
2.272.27
2.502.50
2.642.64
CCAAAAPP
Variables ConsideredVariables Considered
• Household-specific characteristics
• Resource endowment
• Market incentives– Price
– Contract
– Grow other tobacco types
– Availability of financing
• Risk and uncertainty
• Biophysical factors
CCAAAAPP
PricePrice
0
10
20
30
40
50
60
70
80
90
100
<1.35 1.35-1.39
1.40-1.44
1.45-1.49
1.50-1.54
1.55-1.59
1.60-1.64
1.65-1.69
1.70-1.74
1.75>
Fre
quen
cy
Producing Undecided Exiting
Market IncentivesMarket Incentives
$1.55$1.55
$1.55$1.55
$1.56$1.56
CCAAAAPP
ContractContract
(n=374) Yes NoProducing 205 20
61% 53%Undecided 116 16
35% 42%Exiting 15 2
4% 5%
Had a mark eting contract in 2006?
• 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 IncentivesMarket Incentives
CCAAAAPP
Other Types of TobaccoOther Types of TobaccoOther tobacco types a part of your farm?
(n=357) Yes NoProducing 29 187
73% 59%Undecided 10 116
25% 37%Exiting 1 14
3% 4%
• 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 IncentivesMarket Incentives
CCAAAAPP
Importance of FinancingImportance 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 IncentivesMarket Incentives
Importance of financing availabilty on future production decisions?*(n=360) Major Minor Somewhat None
Producing 64 43 54 6067% 61% 69% 52%
Undecided 29 26 23 4530% 37% 29% 39%
Exiting 3 2 1 103% 3% 1% 9%
CCAAAAPP
Variables ConsideredVariables Considered
• Household-specific characteristics
• Resource endowment
• Market incentives
• Risk and uncertainty– Labor
– Increasing costs of production
– Contract prices too low
– Contract risk
• Biophysical factors
CCAAAAPP
LaborLabor
• 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
Biggest Challenge is Labor(n=369) Yes No
Producing 164 6061% 61%
Undecided 97 3436% 35%
Exiting 10 44% 4%
Risk and UncertaintyRisk and Uncertainty
CCAAAAPP
Increasing Costs of ProductionIncreasing 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
Increasing Costs of Production(n=369) Yes No
Producing 141 8359% 64%
Undecided 87 4436% 34%
Exiting 11 35% 2%
Risk and UncertaintyRisk and Uncertainty
CCAAAAPP
Contract Prices Too LowContract 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
Contract Price Too Low**(n=369) Yes No
Producing 139 8557% 68%
Undecided 99 3241% 26%
Exiting 6 82% 6%
Risk and UncertaintyRisk and Uncertainty
CCAAAAPP
Contract RiskContract Risk
• Among those respondents that indicated contract risk as one of their top three challenges, 66% are in the Producing category
Risk and UncertaintyRisk and Uncertainty
Contract RiskYes No
Producing 31 19366% 60%
Undecided 16 11534% 36%
Exiting 0 140% 4%
CCAAAAPP
Variables ConsideredVariables Considered
• Household-specific characteristics
• Resource endowment
• Market incentives
• Risk and uncertainty
• Biophysical factors– Expected yield
– Availability of quality land
CCAAAAPP
Expected YieldExpected Yield
0
10
20
30
40
50
60
70
<1750 1750-1999
2000-2249
2250-2499
2500-2749
2750-2999
3000-3249
3250>
Fre
quen
cy
Producing Undecided Exiting
Biophysical FactorsBiophysical Factors
2,2082,208
2,2912,291
2,3042,304
CCAAAAPP
Availability of Quality LandAvailability of Quality LandConcerned About Availability of Quality Land**
Yes NoProducing 25 199
78% 59%Undecided 5 126
16% 37%Exiting 2 12
6% 4%
• 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 FactorsBiophysical Factors
CCAAAAPP
ConclusionsConclusions
• 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