Tobacco Growers and Quota Holders Face Important Choices

Source from:  RICHMOND vafb.com 07/11/2005

Many of the thousands of Virginia tobacco growers and former quota holders who signed up for the federal Tobacco Transition Payment Program have a difficult choice to make—whether to take the payments over a 10-year period or choose one of several lump sum options. Last year Congress approved legislation that ended the federal tobacco program begun in 1938; provided tobacco quota holders with compensation payments for lost quota equity; and provided tobacco producers with transition payments. Virginia quota holders and tobacco growers are expected to receive almost $666 million over the next decade. Enrollment in the TTPP, or tobacco buyout, ended June 17, and the first payments will be made by Sept. 30. But many farmers were actively seeking ways to sign up for the buyout but minimize the impact payments would have on their finances. Some recipients are interested in securitizing their payments in order to get a lump sum payout now instead of receiving payments over 10 years. Virginia Farm Bureau members requested that option, said Al Glass, the organization's director of commodity marketing, because sometimes it could allow them to pay off debt, invest in retirement savings or use the money for needed equipment. However, if a recipient does arrange for a lump sum payment, he must be aware of the discount rates that will be applied by a third-party vendor. "For example, if a grower was eligible for $100,000 worth of buyout payments over the next 10 years, he could end up with about $73,000 before taxes if the lump sum provider discounts the payments at 8 percent," Glass said. "This could still be a good deal, depending on his needs." Because each individual's financial situation is different, Glass recommends all buyout participants consult with a financial and tax advisor as to which payment method would maximize the value of their payments. The Virginia Farm Bureau Mutual Insurance Co. is sponsoring a series of meetings this summer in tobacco-growing regions to discuss the financial options available to growers and former quota holders. The remaining meetings are scheduled for July 11 at Duffield Primary School in Scott County; July 12 at the Washington County Fairgrounds Conference Center; July 13 at Mildred's Place in Lunenburg County; July 14 at the Jarrett Ruritan Club in Sussex and at Mary's Diner in Danville, and July 21 at William Campbell High School in Campbell County. Contact Glass at 804-290-1156; Tony Banks, VFBF assistant director of commodities and marketing, at 804-290-1114; or Norm Hyde, VFBF video producer, at 804-290-1146. Enditem