Tobacco Farmers use Buyout Money on Debts, Investments

Source from:  The Associated Press the-dispatch.com 09/20/2005

Some are investing in timberland or real estate. Some are diversifying their crops. Many are paying off debts. North Carolina tobacco farmers are facing a welcome dilemma - trying to decide how to use the money that's started coming to them through the federal government's quota buyout. "The typical response from farmers is, 'I'm going to use it to pay down debt,'" Blake Brown, an agricultural economist at N.C. State University, told the Winston-Salem Journal. "For quota owners, this was an income source for them. And if they're wise - and a lot of them are - they're looking to invest this money so it continues to be an income source for them." The federal government has paid almost $385 million to North Carolina farmers over the past six weeks, with the first installment of checks from the $9.6 billion buyout of tobacco quotas. Some farmers and quota holders may instead "securitize" their payments by taking their money in one discounted, lump-sum payment for the entire 10-year buyout. They have until Nov. 1 to decide. Congress agreed last year to buy out quotas, the Depression-era system of limiting tobacco supply to support its price. The money comes from assessments against cigarette-makers. Under the buyout, quota owners will get $7 a pound over 10 years for the quota they owned in 2002. Farmers will get $3 a pound for the leaf they grew. Most began to receive their first checks last month. The Farm Service Agency in Raleigh reported that, as of Thursday, it had sent checks for $115.2 million to farmers and $269.3 million to quota owners - 98 percent of the buyout money for which farmers signed contracts this year. "I personally know of four or five people who are going to securitize their quota-owner payment," said Billy Carter, a Moore County farmer who heads the state's Tobacco Trust Fund Commission. "I know of one investing in timberland. I know of one who's buying a condo at the beach. I know a couple who are investing in real-estate investment trusts." While most appear to be planning to cut their debt with a lump-sum payment, Carter recommended that quota holders who depended on an annual rent check from a grower might want to consider investing the money instead. "I think a lot of older quota owners are going to salt theirs away ... to replace their rental income," he said. Robert Dawson, a 29-year-old farmer in Greene County, is growing 160 acres of tobacco this year. He is thinking of using the buyout money to help expand his Angus beef operation beyond the 26 cows he has now. He also envisions feeding the cattle with hay made from the foliage of peanuts that he also grows. "We're trying to use everything expendable from the farm," he said. "This buyout thing needs to be secure for me. I don't want to wind up 10 years from now and not know where the hell it is. "I've been diversifying for the last four years. People say, 'Tobacco's going out - just diversify.' Well, it's not that easy," he said. "You don't just turn a farming operation on and off." David Griffin, 58, grew 100 acres of tobacco last year near the Nash County town of Spring Hope. This year he gave it up, in part because neither of his sons intends to farm. "I decided to quit growing tobacco, primarily because I didn't see much profit on growing that tobacco, and with those buyout funds, I didn't want to farm that away," he said. "I certainly would hope to conserve a major portion of those buyout funds for retirement purposes." Enditem