Tobacco subsidies, up in smoke.

My investigations into the food system generally result in depression and/or anger. When I decided to take on tobacco subsidies, I had a feeling it would at least ruin my weekend. Just goes to show, you never know the answer until you ask the question.

After the great depression, programs like farm subsidies and crop insurance were instituted to protect people (both growers and consumers) from volatile crop prices. The program for tobacco restricted the size and location of tobacco farms as well as the amount of tobacco that could be grown on any one farm. The idea was to regulate the supply of tobacco to keep the price steady over many years. If the price of tobacco fell despite the quotas, farmers could use their crops as collateral on a loan from the government. The loans were generally repaid over the next few growing seasons as the price rebounded.

In 1982, as people were learning that tobacco products are extremely addictive and lead directly to many forms of cancer, there was a public outcry. People did not want the government supporting tobacco farming with their tax dollars. The No-Net-Cost Tobacco Program was the result: growers and buyers shared the cost of a small fee added to all marketed tobacco. The fee was used to defray the costs of loans that were not repaid. Thus, although the loan program continued to help regulate the market and thereby supported tobacco farming in the US, it wasn’t costing the taxpayers money. At least, it wasn’t supposed to…

Administrative costs for the program remained the responsibility of the government. The government also paid tobacco farmers additional money in response to agricultural and natural disasters. In years when the prices of tobacco and other commodities were especially low, the government again authorized payments to farmers that came from taxpayer dollars. Administrative costs, and these extra payments, ran in the hundreds of millions. It’s a tiny fraction of the federal budget but still a lot of government money for a “no-cost” program.

Over time, domestic demand for tobacco continued to fall, causing the price to also fall. In response, the government reduced the quotas on tobacco production, thereby decreasing supply, in order to bolster tobacco prices. At the same time, however, tobacco farming from outside the US became increasingly competitive, and the US tobacco market suffered even more. It became clear that the old quota and loan system was no longer effective.

In 2005, President George W. Bush enacted the Tobacco Transition Payment Program (the “tobacco buyout”). The act eliminated regulations on the size and location of tobacco farms, crop quotas, and the loan program. Instead, starting in 2005 and continuing for the next 10 years, tobacco farmers receive a direct payment subsidy based on the amount of tobacco they grew in the years before the buyout. After this ten-year period, tobacco farmers will receive no financial assistance from the government.

With the money from the tobacco buyout, farmers can choose to transition to another crop, consolidate or expand their tobacco operations to become more efficient, or give up the farming business altogether. The buyout seems like a good way of transitioning farmers away from tobacco, but how much is it costing us?

Nothing. That’s right. The $10 billion that will be spent on direct payments to tobacco farmers is being paid by the manufacturers and importers of tobacco products. In exchange, these companies do not have to pay part of a health-based court settlement.

I wasn’t able to find any information on the environmental impact of more consolidated tobacco farms, and I don’t know if the buyout has increased cigarette prices or influenced demand for tobacco products. I do know that the government is getting out of the tobacco business and using the settlement against tobacco companies to do so. Overall, I can’t think of anything wrong with this, and that leaves me feeling surprisingly cheerful. If, years from now, it is shown that added sugar makes processed foods addictive and is unequivocally linked to severe health problems (as we already suspect), perhaps there will be a corn buyout. That would make me cheerful too.

(I did find this interesting article on the global environmental and ethical issues pertaining to tobacco farming. Lots of good reasons to no longer support tobacco farming, which I guess we don't!)

Sources:
The USDA Farm Service page on the buyout
CRS Report for Congress on (pre-buyout) tobacco price supports by J. Womack
The NC State buyout site (assistance for farmers)
The EWG Farm Subsidy Database