As tobacco farmers move into the selling part of the growing season, they are also moving into the final year of the Tobacco Transition Payment Program (TTPP).
In 2014, tobacco quota owners will receive the 10th and final payment brought about by the 2004 federal quota buyout.
According to the USDA, the program provides annual transitional payments for 10 years to eligible tobacco quota holders and producers. The payments, which came about to help tobacco farmers make the transition into a free market system, began in 2005 and continue through next year. Payments are funded through assessments of approximately $10 billion on tobacco-product manufacturers and importers.
The fact that the money does not come from the federal government by way of taxes has many tobacco farmers confused as to why those payments may now be reduced due to the effects of sequestration.
In late November, the USDA’s Farm Service Agency (FSA) released a reminder to farmers and ranchers who participate in FSA programs to plan for these automatic reductions.
“The Budget Control Act of 2011 (BCA) mandates that federal agencies implement automatic, annual reductions to discretionary and mandatory spending limits. For mandatory programs, the sequestration rate for FY2014 is 7.2 percent,” noted the release.
Kentucky Farm Bureau Federation President Mark Haney said in an audio posting on the agency’s website that the announcement of the TTPP reductions was a surprise.
“The money is being held by the federal government through a trust fund, and it was really to facilitate the process. It certainly was not a budgeted item that would fall under sequestration,” he said.
Haney added that like Conservation Reserve Program (CRP) payments, which were exempt from sequestration, TTPP should also be exempt, as well.
He noted that the Office of Management and Budget estimates the TTPP payment to be about $960 million, of which $69 million could be cut. That could mean about $17 million in cuts for Kentucky quota owners.
“When you are due the money, you expect to get paid,” Haney said.
Hampton “Hoppy” Henton, a tobacco, corn and soybean producer from Woodford County, said the cuts were applicable to agricultural payments, including commodity loans, and more than tobacco producers are being affected by the sequester.
After harvesting his corn, Henton took out a commodity loan that was reduced by 5.1 percent due to the demands of the BCA for 2013.
“Now that’s a loan I have to pay back in nine months. It’s not like it is an expenditure in the classic way of thinking about it, but it is in the way the government thinks about it. It’s an outflow, and all outflows of funding were subject to the 5.1 percent reduction,” he said.
Henton said the TTPP reduction was in fact applicable to the 2013 payment, but that payment had already been made by the time the action had gone into effect.
“As we go into 2014, it has been deemed that it will reduce the TTPP payment, the final payment,” he said. ‘That’s what the interpretation of the law is from the USDA.”
But what the interpretation is and what farmers and farm organizations believe are two different things.
“The argument that the tobacco community makes with quite some validity, is that the dollars that go to the farmers are not taxpayer dollars,” he said. “The government acts as an agent because the government issued the quotas … and had the records of who should or should not be paid; the government had the responsibility of making the payments.”
Henton brought up a couple of questions that still remain. First, will the tobacco companies that pay the money — which makes up the TTPP payment — still pay in their statutory amount or will they pay less?
“The general thinking is, no, they’ll pay in their full amount and the difference between the amount the companies pay in and the amount the growers and quota holders get back, that money will be retained by the government for, effectively, budget reduction,” he said.
Just exactly how that will be done, Henton said, he doesn’t know, since the money would be coming from a trust, but it would be a drop in the bucket as far as a budget reduction is concerned.
The other question is related to those quota owners who opted to take a lump sum buyout. Not all growers went the 10-year payment route. Some received a one-time lump-sum payment by selling their interest to a third party through “successor-in-interest” contracts, according to the USDA. The agency notes that since 2005, third parties bought more than 170,000 TTPP contracts worth more than $3 billion.
These third parties, financial institutions for the most part, in turn received the TTPP payments. Henton said the question remains what role those institutions will play in getting this rule reversed.
“I think the financial institutions are having a hissy fit, because they don’t think they should be affected by sequester,” he said.
Henton added that it will be interesting to see how these banks will handle the issue, saying the loss of an income stream by farmers may be minimized by what happens to large financial institutions.
“But we should be just as concerned about farmers as those financial institutions,” he said.
In addition to commodity loans and TTPP payments, other agricultural programs affected by the BCA include the Dairy Indemnity Payment Program, sugar loans, the Noninsured Crop Disaster Assistance Program, 2013 Direct and Counter-Cyclical Payments, the 2013 Average Crop Revenue Election Program, the 2011 and 2012 Supplemental Revenue Assistance Program, storage, handling and Economic Adjustment Assistance for Upland Cotton, according to information from the FSA.