An examination of the impact of the burley tobacco program and the economic consequences of program changes

The purpose of this study was to provide an economic analysis of the burley tobacco program benefits and possible changes in these benefits and their distribution if burley tobacco quota were allowed to transfer across county lines. The distribution of program benefits were estimated by state, county, income, age, and occupation, both before and after program changes were made. The study area included 147 Tennessee, Kentucky, and Virginia counties divided into nine regions. Data were obtained from surveys of ASCS county executive directors, 9,000 Tennessee quota owners, and secondary sources. Quota rental rates were used to estimate both total and average program benefits. The quota demand model was used to estimate the quantitative relationship between quota rental rate and quantity of quota. The quota demand function was then used to estimate the impact of allowing interstate and intrastate transferability of quota. Considerable direct benefits of the present burley tobacco program accrue to quota owners. These benefits were estimated to be $144 million for 1974. On the average, quota owner benefits were not particularly large: $879 for Kentucky, $259 for Tennessee, and $263 for Virginia. Even though this income supplement was quite small, its impact may have been quite important because many quota owners had very low incomes. Over half the program benefits in Tennessee went to quota owners with under $2500 gross farm income in 1974. Almost 90 percent of the Tennessee quota owners received under $500 in benefits. The study showed that program benefits would increase substantially if intrastate transfer of quota were allowed and even more so if interstate transfer were allowed. Production distribution would shift as a result of the transfer but the quota lease would compensate producers for this shift. Quota rental rates would rise in quota exporting areas and fall in quota importing areas. Allowing intrastate or interstate transfer would generate both gains and losses for quota owners, but society as a whole and most quota owners would gain. The study showed that through changes in the lease and transfer provisions of the burley tobacco program, it would be possible to allow movement of burley tobacco production to more efficient production areas while providing some compensation to owners of the quota in exporting areas.