Tobacco farmers cautioned on use of buyout money

Source from:  BY JOHN REID BLACKWELL TIMES-DISPATCH STAFF WRITER 01/31/2005

Growers attending meeting are urged to invest funds wisely Growers of Virginia's top cash crop were cautioned yesterday to consider carefully how they use the money they receive from a $10 billion buyout of U.S. tobacco allotments. Thousands of farmers and tobacco-quota owners in Virginia will get about $667 million over 10 years from the buyout, which Congress approved in October. Tobacco-farmer organizations had been lobbying for a buyout for years as demand for U.S.-grown tobacco dropped dramatically. Several speakers warned farmers at the annual meeting of the Virginia Tobacco Growers Association that the buyout eliminates safety nets that were established during the Great Depression to stabilize the U.S leaf market. Starting this year, farmers will have no more price supports. Restrictions on where tobacco can be grown also have been eliminated, raising the possibility that production could shift out of Virginia. "Make sure you focus on what is best for you in getting this money," U.S. Rep. Virgil H. Goode Jr., R-5th, told about 300 farmers and quota owners at the meeting. "I don't know if I would put it into an operation that is going to go up and down in the future. "Prior to 1937, the market would go up and down, and that is the way it is going to be now," Goode said. Growers got no news yesterday on when the buyout payments will start coming. The U.S. Department of Agriculture is still working out the details of the buyout plan, said Nelson Link, agricultural programs specialist for the USDA's Farm Service Agency in Virginia. Link said he hopes farmers and quota owners will be able to sign up for payments in early spring. "It is a monumental task to get all this money out, and do it fairly," he said. Cigarette companies are paying for 96 percent of the buyout, with the rest paid by manufacturers of other tobacco products. Quota owners will receive 10 annual payments totaling $7 per pound, based on the 2002 quota. Growers who produced tobacco from 2002 to 2004 will receive $3 per pound. 'Think about ways to invest that money wisely," said Dixie Watts Reaves, an extension economist at Virginia Tech. She reminded growers that the buyout payments are taxable. Payments to farmers will be taxed as regular income, and payments to quota holders will be taxed as capital gains. The buyout legislation gives farmers and quota owners the option of getting a lump-sum amount from financial institutions in exchange for the 10-year flow of payments. But farmers should know that financial institutions will discount the upfront amount, Reaves said. "I encourage you not to be in a big hurry to take a lump-sum payment," she advised the farmers. "Shop around a little bit." Enditem