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

CCAAAAPPAgricultural 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 Traditional Trends in the Traditional

Burley Regions of Burley Regions of Tennessee, North Carolina Tennessee, North Carolina

and Virginiaand Virginia

Southern Agricultural EconomicsAssociation Annual Meeting

Mobile, AL

February 5, 2007

LaKeya Jones& Kelly Tiller

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Tobacco Buyout ProgramTobacco 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

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• 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.

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• 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

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Change in Burley AcreageChange in Burley Acreage

2005 to 20062004 to 2006

-31.1%

10.3%

-14.9%

-44.6%

-41.7%

-52.5%4.3%

18.5%

33.3%

-8.8%

-17.6%

0.0%

150.0%

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2006 Burley Tobacco Survey2006 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

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MethodologyMethodology

• 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

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Respondents Growing in ‘06Respondents Growing in ‘06

0

100

200

300

400

500

600

700

800

900

Total TN VA NC

Nu

mb

er

of

Re

spo

nd

en

ts

46%47%

52% 40%

No

Yes

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Average Planted AcresAverage Planted Acres

0123456789

10

Ave

rag

e P

lan

ted

Acr

es

2004 2005 2006

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’’06 Average Acreage06 Average AcreageNo

53%Yes47%

0123456789

10P

lan

ted

Acr

es

All TN VA NC

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Last Year Actively GrowingLast Year Actively Growing

0

50

100

150

200

250

# R

esp

on

den

ts E

xiti

ng

2002 2003 2004 2005

3%

11%

62%

23%

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Likelihood of ProducingLikelihood of Producing

Probably Not

Definitely Not

Not Sure

Definitely Yes

Probably Yes

2007 2010

2015

Among respondents producing tobacco in 2006 …

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Variables ConsideredVariables Considered

• Household-specific characteristics

• Resource endowment

• Market incentives

• Risk and uncertainty

• Biophysical factors

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• Household-specific characteristics– Education level– Age– Primary occupation





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Education LevelEducation Level

0

10

20

30

40

50

60

70

80

90

100

None Some HS HS Grad Some Coll Coll Grad Graduate

Fre

quen

cy

Producing Undecided Exiting

11.411.4 12.212.2 12.712.7

Household-Specific CharacteristicsHousehold-Specific Characteristics

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0

10

20

30

40

50

60

70

<25 25-34 35-44 45-54 55-64 65-74 75-84 85>

Fre

quen

cy


AgeAge

60.260.2

57.057.0

54.354.3


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Primary OccupationPrimary OccupationPrimary Occupation

(n=347)

Full-Time Farmer

Work Part-Time Off

Farm

Work Full-Time Off

Farm RetiredProducing 107 27 45 28

62% 63% 54% 58%Undecided 60 14 35 16

35% 33% 42% 33%Exiting 6 2 3 4

3% 5% 4% 8%

• 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


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• Resource endowment– Total farm acreage

– Tobacco acreage

– Tobacco as a % of total gross farm receipts

– Size of household




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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


110.38110.3893.8693.86 117.50117.50

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Tobacco AcreageTobacco Acreage

0

1

2

3

4

5

6

7

8

9

10


Resource EndowmentResource Endowment

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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


46.2046.20 46.9446.94

46.8646.86

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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


2.272.27

2.502.50

2.642.64

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• Market incentives– Price

– Contract

– Grow other tobacco types

– Availability of financing



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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


Market IncentivesMarket Incentives

$1.55$1.55

$1.55$1.55

$1.56$1.56

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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


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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


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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


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%

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• Risk and uncertainty– Labor

– Increasing costs of production

– Contract prices too low

– Contract risk


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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

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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%


Exiting 11 35% 2%


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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%


Exiting 6 82% 6%


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Contract RiskContract Risk

• Among those respondents that indicated contract risk as one of their top three challenges, 66% are in the Producing category


Contract RiskYes No

Producing 31 19366% 60%

Undecided 16 11534% 36%

Exiting 0 140% 4%

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• Biophysical factors– Expected yield

– Availability of quality land

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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


Biophysical FactorsBiophysical Factors

2,2082,208

2,2912,291

2,3042,304

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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

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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

acreage

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

Documents

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