United States

Department of

Agriculture

Economic

Research

Service 

Economic

Information

Bulletin

Number 60

November 2009 Erik Dohlman, Linda Foreman, and Michelle Da Pra

The Post-Buyout Experience

Peanut and Tobacco Sectors 

Adapt to Policy Reform
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Photo credits: Shutterstock.

Dohlman, Erik N.

 The post-buyout experience : peanut and tobacco sectors adapt 

to policy reform.

 (Economic information bulletin ; no. 60)

 1. Peanut industry--United States. 

 2. Tobacco industry--United States.

 3.Agriculture and state--United States. 

 I. Foreman, Linda.

 II. Da Pra, Michelle.

III. United States. Dept. of Agriculture. Economic Research Service.

IV. Title.

HD9235.P32

You can find additional information on peanuts and tobacco 

on ERS website briefing rooms, as follows:

Peanuts: www.ers.usda.gov/Briefing/SoybeansOilCrops/

Tobacco: www.ers.usda.gov/Briefing/Archive/Tobacco/
United States 

Department 

of Agriculture 

www.ers.usda.gov 

A Report from the Economic Research Service

Abstract

Marketing quota and price support programs for peanuts and tobacco were a longstanding feature of U.S. farm policy, from the 1930s until the Government enacted quota 

buyouts, in 2002 for peanuts and 2004 for tobacco. Quota owners were compensated 

with temporary payments, but elimination of the quota programs exposed producers more 

to market risks and brought about structural changes at farm, regional, and marketwide 

levels. Since the buyouts, many peanut and tobacco farms have exited production. The 

farms that remain are mostly larger and have adopted new risk management strategies, 

such as contracting. Freed of the planting restrictions in the quota programs, production 

of peanuts, and to a lesser extent of tobacco, has been relocated to regions better suited 

to their growth. While total acreage and prices for peanuts and tobacco have remained 

below pre-buyout levels, the lower prices—along with increased production efficiency—

have supported renewed growth in demand, particularly in export markets.

Keywords: policy reform, farm policy, buyouts, marketing quotas, peanuts, tobacco, 

adjustment, structural change

Acknowledgments

The authors thank the following individuals for their valuable insights and recommendations: Daniel Pick, Greg Pompelli, Carolyn Dimitri, Kelsey Wittenberger, Andrea 

Woolverton, and Edwin Young of USDA’s Economic Research Service; Scott Sanford of 

USDA’s Farm Service Agency; and Walter Thurman of North Carolina State University. 

The authors also thank Courtney Knauth and Linda Hatcher for editing the manuscript, 

and Susan DeGeorge, Chris Dicken, and Wilma Davis for design assistance.

Erik Dohlman

Linda Foreman

Michelle Da Pra

The Post-Buyout Experience: 

Peanut and Tobacco Sectors 

Adapt to Policy Reform

Economic

Information 

Bulletin

Number 60

November 2009

3

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Objectives of Marketing Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Market Pressures That Led to the Quota Buyouts . . . . . . . . . . . . . . . . . . . .10

Provisions of the Quota Buyouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Structural Adjustments to the Buyouts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

 Market-Level Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

 Farm-Level Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

 Regional Shifts in Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Other Tobacco Buyout Experiences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Appendix Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Data Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

 

Recommended citation format for this publication:

Dohlman, Erik, Linda Foreman, and Michelle Da Pra. The Post-Buyout 

Experience: Peanut and Tobacco Sectors Adapt to Policy Reform.

EIB-60. U.S. Dept. of Agriculture, Econ. Res. Serv. November 2009.
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The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Summary

When longstanding marketing quota systems were eliminated (“bought out”) 

in 2002 for peanuts and 2004 for tobacco, producers lost quota-related price 

supports and other quota system protections and were exposed more directly 

to a market-oriented system. Their response to new economic challenges has 

markedly altered industry characteristics, including farm size, crop regions, 

and use of risk-management tools. The study identifies the market forces that 

have affected the post-buyout peanut and tobacco industries and adjustments 

that have ensued at the farm, regional, and domestic and foreign market levels.

What Is the Issue?

Until the buyouts, peanuts and tobacco had been among a small group of 

U.S. commodities regulated through quotas that limited supply and provided 

price supports. These programs fostered price stability, but caused market 

inflexibilities that undermined the long-term viability of the quota system. 

The peanut and tobacco quota programs also stood in contrast to evolving 

U.S. farm policy, which had moved toward planting flexibility and reduced 

most Government support tied to production of individual commodities. A 

central issue was how peanut and tobacco producers would adapt following 

the elimination of the quotas. In particular, how would the number of farms 

and farm scale, location, and risk-management strategies be affected by 

lower prices and greater exposure to market risk?

What Did the Study Find? 

After the buyouts, tobacco producers no longer received financial support 

from Federal programs. Peanut producers became eligible for other federally funded commodity programs, but these programs provided a lower 

price guarantee than the quota system. Although not all ensuing changes to 

the peanut and tobacco sectors can be attributed to the buyouts, the quota 

terminations were clearly landmark events that shaped many of the structural 

changes that followed. Key findings of the study were:

•	Market forces guided structural changes. Adjustments to the buyouts—

largely in response to market forces—occurred rapidly, including changes 

in domestic and foreign demand, a movement toward larger operations in 

regions best adapted to production, and greater use of marketing contracts 

as a hedge against financial risk. 

•	Farms became fewer, but larger. The buyouts initiated a contraction 

in the number of peanut and tobacco farms, with smaller operators most 

likely to exit. The decline in farm numbers was especially large and swift 

for tobacco farmers, falling by more than half in the year after the buyout, 

while the number of peanut farms declined by a third after several years. 

The remaining producers farmed more peanut and tobacco acres, operated 

larger farms, and are generally in as good financial condition today as the 

average farmer preceding the buyout. By 2007, the average peanut farm 

planted two-thirds more peanuts (90 additional acres) than before the 2002 

buyout. The average burley tobacco farm had twice the burley acreage 

in 2007 that it had at the 2004 tobacco buyout (10.5 versus 5 acres), and 

average flue-cured tobacco acreage increased by more than 150 percent 

over the same period (from 32 to 84 acres). 
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The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

•	Lower prices revived demand, particularly in export markets. Peanut 

prices fell by about 30 percent and tobacco prices by 20 percent shortly 

after the buyouts. Although peanut acreage and production initially 

declined in response, reduced prices stimulated domestic demand and 

contributed, along with a weaker dollar, to a rebound in U.S. exports 

and production and a sharp drop in imports. Tobacco production also 

fell substantially immediately after the buyout, and domestic use of U.S. 

tobacco leaf has remained weak. As with peanuts, however, lower prices 

and improved net exports have supported overall demand for U.S. tobacco 

leaf, particularly flue-cured tobacco. 

•	Planting flexibility spurred regional shifts in production areas.

Without the geographic restrictions that the quotas placed on production, 

growers could farm in areas best suited to their crops, and the buyouts 

were followed by interstate and intrastate shifts in production regions. 

Peanut acreage became more concentrated in the Southeast, and every 

State experienced notable changes in peanut-farming areas. Flue-cured 

and burley tobacco became more concentrated in the two major tobaccoproducing States, flue-cured in North Carolina and burley in Kentucky. 

For peanuts, the shifts in area have been accompanied by steady growth in 

national average yields, whereas tobacco yields have remained steady.

•	Effects of buyouts on quota owners’ and producers’ decisions 

were mixed. The termination of the quota programs and the associated Government support prices affected active producers differently, 

depending on the extent to which they owned or leased quota rights. 

Producers of peanuts and tobacco who owned most of their quota faced 

reduced cash revenues due to lower prices, and a number of them may 

have ceased farming those crops. Although producers who primarily 

leased quota rights from others also faced lower prices, their net returns—

and production incentives—may have increased because they were free 

of the expense of renting quota. For the many quota owners who were not 

actively producing peanuts or tobacco, the primary impact was seeing their 

quota rental income replaced by a one-time cash infusion from the buyout.

•	Farmers increased their use of marketing contracts. After the buyouts, 

peanut and tobacco growers faced price risks from which they had been 

protected by price supports and other provisions of the quota programs. 

As a hedge against market uncertainties, more farmers turned to marketing 

contracts. In 2004, 2 years after the peanut quota buyout, 79 percent of 

peanut farmers had entered into contracts compared with 40 percent in 

2002. Similarly, in 2006, 2 years after the tobacco buyout, 71 percent of 

burley producers and 76 percent of flue-cured producers marketed their 

tobacco under contract, compared with 31 and 47 percent in 2004.

How Was the Study Conducted?

This report draws on recent ERS reports and other literature on the peanut 

and tobacco buyouts, and on data drawn from the U.S. Department of 

Agriculture’s National Agricultural Statistics Service, the Agricultural 

Resource Management Survey (ARMS), and other data sources. The ARMS 

collects data on the financial conditions and production practices of farm 

businesses for specific years and contains survey data on field-level production practices, farm business accounts, and farm households.
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Introduction

Elimination of Federal Peanut and 

Tobacco Quota Policies Spurred 

Significant Structural Change

Peanut and tobacco growers have become more directly exposed and 

responsive to market forces.

Until recently, peanuts and tobacco were among a small group of U.S. 

commodities regulated by marketing quotas. Similar to the sugar and dairy 

programs still in effect, the peanut and tobacco marketing quota programs 

were established during the 1930s to support and stabilize growers’ incomes. 

Although the programs provided dependable short-term expectations about 

prices and output, they tempered growers’ ability to adapt to longer term 

market forces by discouraging economies of scale, restricting production 

location, and distorting trade. The 2002 Farm Act and the Fair and Equitable 

Tobacco Reform Act of 2004 eliminated longstanding price support programs 

and brought about structural change in the peanut and tobacco leaf industries. 

The elimination of the marketing quotas is commonly referred to as a 

“buyout” because quota owners—those with the right to sell the commodity 

at a regulated support price—were financially compensated for the loss of 

an asset (quota ownership). Peanut quota owners received buyout payments 

of around $1.3 billion, funded by the Federal Government, whereas tobacco 

quota owners and active producers receive a total of $9.6 billion over 10 

years from assessments on tobacco product manufacturers and importers. 

Peanut farmers then became eligible for the same type of commodity 

support programs—marketing loans, direct payments, and countercyclical 

payments—available to producers of corn, soybeans, cotton, and other crops, 

while tobacco producers did not.

For producers of the two commodities, the quota elimination represented 

a striking policy change. For most other crops, the earlier introduction of 

planting flexibility provisions, and the decoupling of most Government 

support tied to production of specific commodities, had already fostered a 

greater market orientation, especially since the 1996 Farm Act. However, 

peanut and tobacco producers avoided a substantial overhaul of their 

programs until it became clear that high prices and global competition 

were causing declining market shares in domestic and/or export markets. 

The threat of lower demand, along with high production costs, made longterm operation of the programs as “no net cost” (i.e., self-paying, without 

Government expenditures) less viable.1

The buyouts were enacted in response to many economic factors that were 

primarily linked to global competition. For peanuts, lower priced imports 

had made inroads in the domestic market as a result of trade treaties, and 

producers faced eventual reductions to their quota allocations or lower 

support prices. U.S. tobacco producers contended with global competition 

from lower cost foreign producers, which led to falling global demand for 

U.S. tobacco cigarettes and leaf and an increased share of foreign leaf in U.S. 

cigarette production. The reduced demand resulted in lower annual marketing 

1By law, the peanut and tobacco marketing quota programs were meant to 

operate without any direct government 

payments to producers. Supply limitations supported producer prices, so the 

marketing quota programs acted as a 

transfer from consumers—rather than 

all taxpayers—to producers.
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Economic Research Service / USDA

quota levels. In addition, under the quota systems, growers were subject to 

limits on quantities that could be marketed and geographical restrictions 

on production. This made it difficult for new operators to enter the market 

and for efficient producers to expand in order to reduce average production 

costs.2 In terminating the quota and price support programs, the buyouts also 

eliminated geographical restrictions on production.

Although not all ensuing changes to the peanut and tobacco sectors can 

be attributed to the buyouts, they clearly represented landmark events that 

guided many of the structural changes that followed. Peanut and tobacco 

producers were not previously immune to market forces, but decisions on 

whether to continue, reduce, or drop out of production—or even to begin 

production for the first time—can now be based more on market-determined 

net returns from alternate crop choices, without any geographical restrictions. 

Initially, the buyouts induced lower prices and a contraction of peanut and 

tobacco acreage, but recent market developments, regional shifts, and farm 

consolidation suggest that the buyouts and planting flexibility have enhanced 

overall efficiency.

2See Rucker, Thurman, and Sumner 

(1995) for an analysis of how this affected tobacco production.

What Were Quotas?

Prior to the buyout legislation, tobacco and peanut producers were under marketing quota systems, 

which gave the quota owners the exclusive right to sell a set amount of their commodity at or 

above the support price within a geographic area. Tobacco producers without quota could not sell 

the commodity, while peanut producers without quotas faced certain marketing restrictions. Thus, 

quotas limited the supply that could be brought to market. Quota was essentially an asset that 

could be owned and used by producers or leased from owners who no longer produced peanuts or 

tobacco. Absentee owners obtained quota either through inheritance or retention of a quota if they 

quit farming, but they could not obtain it through purchases because quota could be sold only to 

active producers. 

Quotas often limited production to specific geographic regions. Quotas for flue-cured and burley 

tobacco were assigned to specific counties in their respective growing regions and were not usually 

transferable. Only in Tennessee were burley quotas allowed to be transferred across counties within 

the State. Before 1962, tobacco acreage was limited through allotments assigned only to farms in 

operation at the time the Agricultural Act of 1930 was enacted. Quota was tied to the land, as only 

individuals owning or renting allotment land could grow tobacco leaf. After 1962, farmers could 

purchase or rent quota allotments without having to farm the traditional allotment land, although 

there were restrictions on the distance that allotments could be transferred. Many quotas applied 

only within the county or State of the allotment holder. The tobacco quota system applied to most 

types of tobacco, but minor tobacco-producing States, such as Maryland and Pennsylvania, did not 

participate in the Federal marketing quota system.

After 1981, the peanut program allowed nonquota holders in any location to produce peanuts for 

export or crush, but restrictions on transferring peanut quotas confined most production to areas 

originally granted quota acreage in the 1940s. The 1996 Farm Act loosened restrictions on peanut 

quota transfers, allowing up to 40 percent of quota production to be transferred across county 

lines, but transfers across State lines were generally not allowed, except from adjacent counties in 

different States.
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3These two types of tobacco account 

for about 90 percent of U.S. tobacco 

production.

4For peanut cost and return data for 

1995-2003 and 2004-08, see: 

http://www.ers.usda.gov/data/

costsandreturns/data/recent/Pean/

R-USPean.xls

5During 1999-2001, total peanut production averaged 3.79 billion pounds 

annually, about 37 percent greater than 

the quota level of 2.36 billion pounds.

Objectives of Marketing Quotas

The Peanut and Tobacco Quota Programs 

Were Intended To Elevate and Stabilize 

Farm Prices

Marketing quotas limited the supply of peanuts and tobacco, and a 

Government loan program supported prices.

The U.S. Department of Agriculture (USDA) historically has facilitated 

price support programs for a number of crops, including peanuts, tobacco, 

and sugar, as well as for dairy. For peanuts and tobacco, support programs 

were intended to maintain high and stable farm prices by limiting supply and 

matching it with anticipated demand, at a price at or above a predetermined 

level. To accomplish this goal, both peanuts and tobacco were governed by 

marketing quotas, and prices were underpinned by loan programs operated by 

USDA’s Commodity Credit Corporation (CCC). 

The national quota levels for these commodities were adjusted each year 

based on anticipated demand and were set so that prices would match or 

exceed the loan rates established by the CCC. For peanuts, quotas applied 

only to domestic “food use” (e.g., peanut butter and snacks) demand, whereas 

quotas for flue-cured and burley tobacco leaf—the two main tobacco types 

subject to quotas—applied to anticipated demand from both domestic use 

and exports.3 Once the annual quota level was determined, USDA distributed quotas to peanut and tobacco quota owners with a history of production, 

based on their share of quota ownership (Womach, 2004). Restrictions were 

established to limit transfers of quota rights to other counties. Limitations 

on peanut production were less binding than for tobacco because nonquota 

(“additional”) peanuts could be produced and sold, without restriction, as 

long as they were exported or crushed for oil and animal feed. 

USDA loan rates for quota peanuts—amounting to $610 per short ton during 

1996-2001—were typically well above operating costs and were above 

prevailing international prices, giving quota holders better per acre returns 

than other crops and strong incentives to maximize their use of quota rights.4

Producers not possessing quota rights were guaranteed a lower loan rate of 

$132 per ton in 2001/02, but typically grew peanuts under contract for export 

at world prices (ranging from $320 to $460 per ton) and responded primarily 

to demand in foreign markets.5

Producers of burley and flue-cured tobacco leaf were also supported with 

nonrecourse loans that guaranteed them a minimum price. If buyers at 

tobacco leaf auctions were unwilling to pay a price that exceeded the loan 

rate, the price stabilization cooperative would buy the tobacco at the loan 

rate. The cooperative stored the tobacco leaf and later sold it to repay the loan 
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6As mandated by 7 U.S.C 1445, Title 7, 

which authorizes the support price to be 

calculated as the 5-year olympic moving average of prices and the change in 

the annual index for producer costs. For 

U.S. Code 1445.Title 7: Agriculture, 

see http://vlex.com/vid/19271264.

7Prior to 1982, general tax revenues 

were used to cover CCC losses on 

tobacco. Congress passed the NoNet-Cost Tobacco Act in 1982, which 

eliminated the taxpayer subsidy, with 

the exception of administrative costs 

(Womach, June 2004, updated 

December 31, 2005).

8Government payments were made to 

offset losses on tobacco loan inventory 

in 1983 and 1999 (Womach, March 

2004). 

principal with interest. In 2004, the loan rates were $1.69 per pound for fluecured and $1.87 per pound for burley tobacco.6

Both the peanut and tobacco programs were operated on a “no-net-cost” basis 

to taxpayers.7 To cover any shortfalls between market prices and loan rates, 

assessment fees were placed, if necessary, on producers and buyers to recoup 

losses on loan repayments to the CCC.8 The fee was intended to ensure that 

the Federal Government and the taxpayer did not subsidize tobacco or peanut 

sales directly. 
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The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

9Section 22 of the Agricultural Adjustment Act of 1933 granted allowances 

for import restrictions on agricultural 

commodities covered by price support 

programs, in the form of import quotas 

and tariffs.

Market Pressures That Led to the Quota Buyouts

International Competition Weakened 

Marketing Quota Programs

Competitively priced foreign substitutes and “no-net-cost to the 

Government” provisions undermined the sustainability of the peanut and 

tobacco programs.

Although the experiences were not entirely parallel, a common factor precipitating the peanut and tobacco buyouts was pressure, or the threat of pressure, 

from international competition. The prospect of increased imports was an 

important consideration when the peanut marketing quota system was ended 

in 2002. Pressure from global competition, especially from Brazil—combined 

with growers’ limited ability to respond to changing market conditions—

was a central factor leading to the tobacco buyout. Nevertheless, several key 

differences distinguished the evolving patterns of trade and overall demand 

for the two commodities and the implications of these patterns for the 

sustainability of the quota programs. The United States was an importer and 

exporter of both peanuts and tobacco, and thus trade was an important determinant of quota levels, which were subject to annual adjustments based on 

anticipated demand. However, the criteria for establishing quota levels and 

import tariff regimes affected each commodity differently.9

For peanuts, the marketing quota was based exclusively on anticipated 

domestic “food use” demand, which had been relatively stable. So, unlike 

tobacco, the annually determined quota did not depend on the ability to 

competitively sell peanuts abroad. The peanut program allowed exports of 

nonquota peanuts at market-determined rates. However, because U.S. peanut 

prices for domestic food use were supported at well above international 

levels, import restraints were essential to supporting domestic prices and 

maintaining a stable level of quota production. 
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Tobacco, in contrast, had been more exposed to international competition, 

through both exports and imports. A widening price gap between foreign and 

domestic leaf prices meant a decline in exports, a shift to overseas production, and a loss of domestic market share to imports from foreign producers. 

Since tobacco quota levels were based on combined domestic and export 

demand, they were subject to the effects of reductions in both foreign market 

share and domestic leaf demand.

In both cases, increased competition from foreign producers would likely 

require the U.S. Government to reduce the quota levels and/or lower the 

quota loan rates if the programs were to be maintained as “no-net-cost to the 

Government” programs.
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10Without import restrictions, unsold 

domestic quota peanuts would likely 

have been forfeited to the Commodity 

Credit Corporation. Since the marketing quota was meant to operate at “nonet-cost” to the government under the 

1996 Farm Act, large forfeitures would 

have required either cuts in the domestic marketing quota level or an eventual 

reduction of the quota loan rate under 

new legislation. For more information, 

see Skully (1999), Skinner (1999), and 

Becker (1999).

11The 1994 WTO agreement (still in 

effect as of October 2009) allows lower 

tariff peanut imports of 116 million 

pounds (about 6 percent of domestic 

food use at the time of the buyout). 

12Peanut butter is covered under a 

separate TRQ.

13For more detail on the new types 

of government support and projected 

government outlays, see Dohlman and 

Livezey (2005) and Dohlman, Hoffman, Young, and McBride (2004).

Market Pressures That Led to the Quota Buyouts

The Peanut Buyout Was Precipitated by 

Trade Agreements That Opened the Market 

to Imports

The peanut quota program did not give producers flexibility to cope with the 

threat of increased imports. 

The overhaul of the peanut quota program in 2002 was likely influenced 

by the recognition that policy change was unavoidable due to trade agreements that had begun to liberalize U.S. peanut imports (Dohlman & Livezey, 

2005). Until 1994, U.S. trade restrictions capped peanut imports at a very low 

level, well below 1 percent of domestic consumption. However, under the 

separate North American Free Trade Agreement (NAFTA) and World Trade 

Organization (WTO) agreements signed in the mid-1990s, the United States 

opened its market to gradually increasing peanut imports with the introduction of tariff-rate quotas (TRQs). TRQs replaced purely quantitative limits on 

peanut imports, and, in this case, opened trade by allowing a larger amount of 

U.S. consumption to be met by low-tariff (“within-quota”) imports. Imports 

beyond that level are still restrained with much higher (“over-quota”) tariff 

rates. 

At the time of the buyout, the higher “over-quota” tariff rates continued to 

protect most of the domestic market, and imports had not yet led to reductions in the U.S. marketing quota level for peanuts (fig. 1a).10 However, the 

fast import growth prior to 2002 indicated that further relaxation of import 

barriers could reduce the demand for domestically produced peanuts (fig. 

1b). This issue was particularly relevant under the NAFTA accord, which 

was entirely phasing out tariffs on Mexican peanuts.11 Mexico was a relatively minor peanut producer, with output equal to 6 percent of U.S. production in 2001/02; however, the incentive to increase production and export 

lower priced peanuts to the United States was recognized as a threat to the 

future viability of the U.S. marketing quota program. U.S. commitments 

to enter into other trade agreements, along with rising imports of peanutcontaining products not covered by TRQs, also created incentives to change 

the domestic support program.12 These competitive pressures—and the additional Government support made available to peanut producers by the 2002 

Farm Act—facilitated the acceptance of policy change by many growers.13

Following the 2002 peanut buyout, peanut imports fell sharply as the price of 

U.S. peanuts became more competitive.
13

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

0

1.0

2.0

3.0

3.5

2.5

1.5

.5

Marketing year

Sources: Quota - Farm Service Agency, USDA; Exports and Imports - Foreign Agricultural 

Service, USDA; Domestic Disappearance - Economic Research Service, USDA.

Billion lbs

Figure 1a

Before the buyout, the marketing quota level for peanuts was 

holding steady...

Domestic disappearance (food use) Exports Imports Quota

Annual marketing quota

Marketing year

NAFTA=North American Free Trade Association; WTO=World Trade Association.

Note: Marketing year is August-July.

Source: USDA, Foreign Agricultural Service, U.S. Trade Internet System http://www.fas.usda.gov/ 

ustrade/USTImFAS.asp?QI=. 

Million lbs

0

20

40

60

80

100

120

140

160

180

1989 91 93 95 97 99 2001 03 05 07

Figure 1b

...But import growth was a looming concern

Argentina

Nicaragua

China

South Africa

Mexico

Rest of world

NAFTA and WTO

agreements (1994)
14

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Economic Research Service / USDA

14A duty drawback provision allows 

most of the duty to be refunded if the 

same leaf is re-exported as product 

(e.g., cigarettes); source: http://www.

ers.usda.gov/publications/tbs/may07/

tbs26201/tbs26201.pdf. The United 

States has never filled more than 80 

percent of the overall TRQ, but imports 

from Brazil—which has the largest 

TRQ allocation—had been filling its 

quota level of 80,000 metric tons when 

the buyout was enacted (USITC, 2007).

15The 1998 Master Settlement Agreement (MSA) required that cigarette 

manufacturers reimburse States for 

their health care costs caused by smoking (Tiller, 2002) and that cigarette 

manufacturers address the negative 

economic impacts the agreement 

would have on tobacco producers and 

quota owners. As a result, Phase II of 

the agreement was created in 1999, 

requiring that participating cigarette 

manufacturers pay $5.15 billion over 

12 years into the National Tobacco 

Growers’ Settlement Trust Fund, to be 

dispensed directly to quota owners and 

tobacco producers.

Market Pressures That Led to the Quota Buyouts

Tobacco Faced Challenges on Many Fronts

Declining domestic and foreign demand had reduced tobacco quotas, with 

further cuts likely. 

While the peanut buyout was precipitated largely by the anticipation of 

increased imports and the prospect of declining quotas and/or support prices, 

the tobacco program had been confronting and adjusting to trade, demand, 

and cost pressures for many years preceding the buyout. Declining demand 

for U.S. tobacco leaf had already led to sharp reductions in tobacco quota 

levels, and the sector faced the prospect of further reductions. 

Demand for U.S.-produced tobacco leaf was hurt by developments both 

in the United States and abroad. Exports of U.S. tobacco leaf fell mainly 

due to widening price differences and narrowing quality between U.S. 

and foreign tobacco. U.S. tobacco leaf was more expensive than foreign 

leaf, but U.S. price premiums were frequently attributed to higher quality. 

However, the quality of foreign tobacco had increased even as the price gap 

between U.S. and foreign tobacco leaf rose. New manufacturing processes 

also allowed lower quality tobacco to be used in cigarettes. Reduced foreign 

demand lowered the quantity of U.S. flue-cured and burley exports by 28 

percent between 1997 and 2004. The same factors caused U.S. cigarette 

manufacturers to increase the share of foreign tobacco in their products. In 

2004, foreign tobacco comprised nearly 60 percent of U.S.-manufactured 

cigarettes, compared with 38 percent in 1995. U.S. cigarette manufacturers 

began importing a large share of the leaf used in manufacturing in the early 

1990s, which led the United States to implement a tariff-rate quota (TRQ) for 

tobacco in 1995. Under this TRQ, imports above a certain level are subject to 

a 350-percent duty.14

U.S. cigarette exports also began to decline after the mid-1990s, and 

domestic leaf demand was hurt by health concerns associated with smoking, 

public smoking restrictions, and rising retail cigarette prices, which lowered 

demand for cigarettes in the United States. Retail prices climbed as a result 

of higher Federal, State, and local excise taxes and the enactment of the 1998 

Master Settlement Agreement.15 The declining demand for U.S. tobacco leaf, 

along with higher support prices, led to further reductions in tobacco quota 

levels. As a result, the national marketing quota (“effective quota”) for burley 

fell 54 percent and the quota allotment for flue-cured leaf fell 47 percent 

between 1996 and 2004 (fig. 2). 
15

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

16According to ERS tobacco cost of 

production accounts, the opportunity 

cost of using land and quota rose substantially from 1996 to 2004, on a dollar per hundredweight basis, for both 

burley and flue-cured tobacco (source: 

http://www.ers.usda.gov/Data/costsandreturns/data/history/Toba/H-USToba.

xls). In Reaves’s update (2001), an 

agricultural extension agent estimated 

that quota rental rates rose 65 percent 

between 1997 and 2001 (http://govinfo.library.unt.edu/tobacco/_PReptdisc/00000048.htm).

17Financial assistance from various 

sources likely allowed a number of less 

efficient growers to continue farming 

until the buyout. One source was the 

$5.15 billion trust fund established 

by Phase II of the Master Settlement 

Agreement. Additionally, several emergency assistance laws enacted by Congress, such as tobacco loss payments, 

provided $860 million to tobacco 

growers (P.L 106-224, P.L. 106-76, P.L 

107-25, and P.L. 108-7). Finally, because the financial solvency of the CCC 

nonrecourse support loan program was 

in jeopardy, Congress directed the CCC 

to assume all financial losses of the 

program in 1999, at a cost of approximately $625 million (P.L 106-387). See 

Womach (March, 2004).

Declining quota led to additional pressures as sharp reductions in tobacco 

quota led farmers to bid more to rent quota in order to maintain sufficient 

acreage to cover their investments in tobacco-related farm machinery, equipment, and buildings.16 This pushed up quota rental rates, which further 

increased prices and lowered global competitiveness. Input costs, such as 

for labor, also rose throughout much of agriculture and lowered the returns 

from crop sales.17 Rising labor costs were especially of concern to tobacco 

producers because labor constitutes a relatively large proportion of tobacco 

production expenses. Ultimately, price pressures tied to declining domestic 

and export demand and improved foreign quality, along with cost pressures 

associated with acquiring quota rights, led many growers to support an end to 

the tobacco program.

Sources: Export and domestic disappearance data are from the Tobacco Outlook, ERS, USDA, TBS-263, Oct. 2007. Import 

data are from the U.S. Tobacco Import Update 2005/06, ERS, USDA, TBS-262-01. Effective quota data are from Tobacco 

Outlook, ERS, USDA, TBS-258, May 2005. 

Note: The sum of domestic disappearance and exports is the usage of U.S,-produced tobacco leaf, while the sum of domestic 

disappearance and imports is usage of tobacco leaf in the United States.

0

200

400

600

800

1,000

1,200

1996 97 98 99 2000 02 01 03 04 1996 97 98 99 2000 02 01 03 04

200

400

600

800

1,000

1,200

0

Million lbs Million lbs

Burley tobacco Flue-cured tobacco

Figure 2

Declining domestic and export demand for U.S. tobacco leaf from 1996 to 2004 led to 

quota reductions for burley and flue-cured tobacco

Imports Exports Domestic disappearance Effective quota
16

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

18Base acres are the peanut acres eligible for some Government commodity 

programs. For more information on 

peanut program and other commodity 

provisions of the 2002 Farm Act and 

revisions enacted in the 2008 Farm 

Act, see the Title I provisions in: 

“The 2008 Farm Bill Side-By-Side 

Comparison,” http://www.ers.usda.gov/

FarmBill/2008/. Definitions of specific 

farm policy terms can be found at 

http://www.ers.usda.gov/Briefing/

FarmPolicy/glossary.htm.

Provisions of the Quota Buyouts

Payments Went to Peanut and Tobacco 

Quota Owners, With Additional Payments 

to Tobacco Growers

Provisions of the peanut and tobacco buyouts differed in important respects.

Although the peanut and tobacco buyout programs were similar in intent, 

they contrasted notably in their structure, financial size, and Government 

support. These differences were most evident in the total size of payments, 

the method of dispersing payments to quota owners and/or farmers, and the 

source of funds for the buyout payments. A comparison of financial and 

other aspects of the two buyout programs provides insights into subsequent 

adjustments at the aggregate and farm level in each sector. 

The Fair and Equitable Tobacco Reform Act of 2004 eliminated tobacco 

quotas and price supports effective in 2005, but provided 10 years of buyout 

and transition payments, which were convertible to a lump sum. The 2002 

Farm Act included buyout payments to peanut quota owners only, but also 

instituted a new marketing loan program and provisions allowing producers 

to receive new types of support, such as direct and countercyclical payments 

tied to peanut base acreage.18 Whereas only quota owners received payments 

in the peanut buyout, the tobacco buyout program provided buyout transition payments, at different rates, to both quota owners and active producers 

leasing or renting quota. The source of buyout payments for peanuts and 

tobacco were also different. Peanut buyout payments (and the new forms 

of Government assistance) were funded by the Federal Government, while 

tobacco payments were funded from assessments on tobacco product manufacturers and importers. 
17

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

19With relatively minor changes, the 

peanut provisions of the 2002 Farm Act 

were continued in the new farm legislation enacted in 2008.

20The direct payment rate on peanuts 

is $36 per ton for 2002-12, while 

countercyclical payments range from 

$0 to $104 per short ton, depending on 

market prices.

Provisions of the Quota Buyouts

The Buyouts Included New Government 

Support for Peanuts

The peanut buyout program ended traditional price supports in exchange for 

new types of Federal assistance.

The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) 

eliminated the marketing quota program for peanuts, allowing (without any 

geographic limitations) all producers to sell their peanuts in the domestic 

market for food use. Those owning quota in 2001 were compensated for the 

loss of the quota asset value, with buyout payments spanning 5 years. Quota 

owners, regardless of whether they had farmed or rented out quota, were 

eligible either to receive payments in annual installments of $220 per short 

ton ($0.11 per pound) for quota during fiscal years 2002-06 or to take a lumpsum payment in a year that they specified. No payments were authorized to 

peanut farmers who did not own quota. The total cost of the buyout payments 

amounted to about $1.3 billion, funded entirely by the Federal Government.

In addition to the quota buyout, peanut producers became eligible—starting 

with the 2002/03 peanut crop—for the same kinds of Government commodity 

program payments available to producers of other crops, such as corn, 

soybeans, and cotton. Most significantly, these forms of assistance included 

a new marketing assistance loan program and fixed direct payments and 

countercyclical payments on newly defined peanut base acreage.19 These 

programs operate as follows:

Marketing Assistance Loans

Marketing loans provide short-term liquidity until the farmer’s crop is 

marketed and a guaranteed minimum revenue for production. Since the 2002 

Farm Act, a national average marketing loan rate of $355 per ton have been 

available to all peanut producers. While well below the $610 per ton for quota 

peanuts under the old system, it is significantly above the $132 per ton loan 

rate previously available for nonquota peanuts. 

Direct and Countercyclical Payments

To receive direct and countercyclical payments, peanut producers are required 

to establish peanut base acreage and payment yields from their farm production history. It does not matter whether they produced quota or nonquota 

(“additional”) peanuts.20 Because these benefits are tied to historical production levels on specific plots of land rather than current production, farmers’ 

cropping decisions are more flexible and aligned to market incentives, such as 

prospective returns from alternative crop choices. Most peanut producers—

covering about 96 percent of eligible land—elected to enroll their peanut base 

acres in the new program following the buyout. 
18

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

21Total assessments are $10.1 billion. 

The additional $500 million was used 

to compensate grower cooperatives and 

for surplus tobacco disposal. Assessments began in 2005 (based on fourthquarter 2004 market activity) and will 

continue for 10 years.

22Tobacco producers who owned their 

own quota would receive a total of $10 

per pound. When the tobacco quota 

was specified in farm acreage allotments, the number of pounds owned 

was calculated by taking the 2002 basic 

farm acreage allotment and multiplying 

by the average county yields for 2001, 

2002, and 2003. The number of pounds 

produced was calculated by multiplying the 2002 effective farm acreage 

allotment by the average farm yield for 

2001, 2002, and 2003. The $3 payment 

per pound for tobacco produced was 

prorated if the tobacco producer did not 

produce tobacco in all 3 years.

Provisions of the Quota Buyouts

The Tobacco Buyout Program Included 

Payments to Quota Owners and Producers, 

but No Future Federal Support

However, tobacco buyout payments were larger and spread among more 

recipients than were peanut buyout payments.

The Fair and Equitable Tobacco Reform Act of 2004 ended U.S. tobacco 

price supports and quotas and created the Tobacco Transition Payment 

Program (TTPP). Beginning with the 2005 production season, restrictions 

were removed on the amount of tobacco that could be sold, geographic 

restrictions on production were eliminated, and compensation was provided 

for quota owners and renters. Payments are funded from $9.6 billion in 

assessments on tobacco product manufacturers and importers, based on their 

market share.21 The tobacco buyout program eliminated an estimated $2 

billion that tobacco growers and quota owners would have received from 

2005 to 2010 from Phase II of the Master Settlement Agreement (MSA) 

(Womach, 2005). Pennsylvania and Maryland tobacco producers also lost the 

right to further Phase II payments, even though they did not participate in the 

tobacco program and were not eligible for Federal quota buyout payments 

(see section “Other Tobacco Buyout Experiences,” pp. 42-43).

Unlike the provisions for peanut producers, no new commodity provisions were established for tobacco producers. Tobacco producers and quota 

owners receive 10 equal annual payments that began in 2005, with quota 

owners receiving a total of $7 per pound (or $.70 per pound per year) and 

active producers receiving an additional $3 per pound in transition payments 

(Womach, 2005).22 Tobacco producers owning and using quota could receive 

a total of $10 per pound. Growers and quota owners were permitted to make 

arrangements with financial institutions to receive a discounted lump-sum 

buyout payment rather than receiving payments over 10 years.
19

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

26The figures presented do not take into 

account the prospect that rental rates, 

and the overall value of owning quota, 

may have declined if the support prices 

or marketing allotments were reduced.

23Note that not all peanuts were produced under quota. The figure given 

here for peanuts is based on the quota 

level (2.36 billion pounds) and loan 

rate ($0.305/pound) in effect during 

1999-2001.

24For WTO domestic support provisions, see http://www.ers.usda.gov/

Briefing/WTO/domsupport.htm.

25Brown, Rucker, and Thurman (2007) 

estimated that the economic rents associated with the ownership or rental 

revenues from flue-cured tobacco quota 

(not burley) were $274 million in 2003. 

The authors also present several different perspectives, without judgment, 

on the “appropriate level of compensation.”

Although tobacco producers did not become eligible for new forms of 

Government support, total transfers to the tobacco sector from the buyouts 

alone exceed those to the peanut sector by a large margin, approximately $9.6 

billion for tobacco versus $1.3 billion for peanuts. As a rough comparison, 

the tobacco buyout payments were equivalent to 5.7 times the 3-year average 

annual value of all tobacco production leading up to the buyout (2002-04), 

whereas the total buyout for peanuts of $1.3 billion amounted to 1.8 times 

the annual value of quota peanut production during the 3 years 1999-2001.23

Measured another way, the value of the peanut price support program—

based on a fixed reference price reported to the World Trade Organization 

(WTO)—was estimated as ranging between $303 and $350 million annually between 1996 and 2001.24 By this accounting, the buyout payments 

were equivalent to about 4 years of the estimated past value of quota. The 

United States did not report a similar price support measure for tobacco to the 

WTO.25 According to Orden (undated), the lump-sum $0.55/pound peanut 

buyout was equivalent to 24 years of average peanut quota rental revenues. 

For tobacco, quota buyout payments of $7 per pound for (non-operator) quota 

owners were equal to 16 years of average quota rental payments for fluecured tobacco and 21 years of payments for burley tobacco.26
20

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

27Data from the 1995 Farm Costs and 

Returns Survey indicated that burley 

tobacco producers owned 44 percent of 

their effective quota and either cash- or 

share-rented the remainder (Foreman, 

2001). Data from the 1996 Agricultural 

Resource Management Survey indicated that 34 percent of the flue-cured 

tobacco quota was owned by producers, 

while most of the remainder was cashrented. The percentage of quota owned 

and operated likely fell after these surveys because producers tended to retain 

quota rights after retirement and rented 

them to active producers.

28Quota owners were not required to 

produce peanuts themselves, but to own 

the asset, they were required to have an 

ownership interest in a farm.

29The improvement in net returns 

assumes the quota rental rate was 

equivalent to the difference between the 

producers’ marginal cost of production 

and the price under the quota system 

(Brown, Rucker, and Thurman, 2007). 

Recall that tobacco producers who 

rented quota also received $3 per pound 

in transitional payments.

Provisions of the Quota Buyouts

Many Buyout Recipients Were Not 

Active Peanut or Tobacco Farmers

A majority of buyout payments went to recipients who were not producing 

peanuts or tobacco, but maintained ownership rights to market the crops at 

the quota support price. 

The majority of buyout payments went to quota owners who were not 

actively producing peanuts or tobacco, and the number of recipients was far 

greater than the number of active peanut and tobacco farmers. According 

to Womach (2005), about 358,000 non-operator landlords were eligible for 

tobacco quota buyout payments, along with almost 57,000 tobacco farm 

operators. Although most tobacco producers owned some quota, more than 

half of burley quota and about two-thirds of flue-cured tobacco quota was 

leased.27

Peanut buyout payments were distributed among roughly 75,000 quota 

owners, most of whom did not produce peanuts.28 At the time of the buyout, 

there were fewer than 9,000 peanut farms. Some of those farms produced 

only nonquota (“additional”) peanuts for export or crush. Of the farms that 

did produce quota peanuts, the majority of production (about 60 percent) was 

accounted for by producers who cash- or share-rented quota rights. 

Consequently, for most quota owners, the buyout payments replaced an 

income stream from renting or leasing quota rights to other farm operators, 

but did not directly impact peanut or tobacco production. For producers 

renting quota from others, elimination of the quota represented a reduction 

in production costs that could more than compensate for the reduction in 

revenue caused by lower prices after the buyouts. In theory, this would lead 

to higher net returns and increased production among those who had previously rented quota. With the elimination of regional restrictions on production, an expanding share of production would shift to counties or regions with 

lower production costs.29 Active producers who had owned much or all of 

their peanut or tobacco quota faced lower prices but had no offsetting cash 

savings on production costs, since they did not lease their quota. Producers 

whose costs of production exceeded prices after the buyout would most likely 

be the first to exit production. 
21

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Structural Adjustments to the Buyouts:

Market Level Changes

Peanut Prices and Acreage Fell

After the Buyout

Average yields per acre have been higher since the buyouts, however, and 

both acreage and prices recently rebounded.

After marketing quotas were eliminated, the peanut sector initially became 

smaller, particularly after the first year (2002) of the new policy. Peanut 

prices in 2002 fell over 30 percent below the previous 5-year average. Large 

stocks from the previous year and anticipation of the buyout (enacted in 

May 2002) contributed to a 12-percent decline in planted acreage in 2002, 

and another decline in 2003 (fig. 3). However, the ensuing growth in peanut 

demand, along with more efficient production, appears to have stemmed a 

long-term decline in peanut acreage and stimulated yield improvements—

indicating that incentives to grow peanuts remain strong despite prices that, 

until recently, remained substantially below the pre-2002 Farm Act average.

Annual peanut acreage has generally remained below the pre-buyout 

level. However, production has been supported by improved yields, which 

have been a notable trend for the peanut sector since the buyout (see 

section “Shifts in Peanut Production Regions Reflected Increased Planting 

Flexibility,” p. 38). National average yields exceeded 3,000 pounds per acre 

only once prior to the buyout, but have exceeded that level four times since 

2002. Record yields and relatively high peanut plantings in 2008 contributed 

to the largest U.S. peanut crop to date. However, peanut-planted acreage fell 

sharply (by 28 percent) in 2009, a result of large stocks from the 2008 crop 

and low contract prices offered to farmers in 2009.

0

200

1998/99 2000/01 2002/03 2004/05 2006/07 2008/09

400

600

800

1,000

1,200

1,400

1,600

1,800

0.10

0.12

0.14

0.16

0.18

0.20

0.22

0.24

0.26

0.28

0.30

Acres

Peanut buyout

Price

1,000 acres (planted) Price ($/lb)

Source: Quick Stats, National Agricultural Statistics Service, USDA.

Figure 3

Annual peanut acreage and price, 1998/99-2008/09
22

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Structural Adjustments to the Buyouts:

Market Level Changes

Peanut Production Initially Declined, but the 

Impact on Demand Was Ultimately Positive

Although peanut prices and acreage fell following the buyouts, domestic

and foreign demand gained strength.

Before the buyout, domestic consumption had been on a slight upward trend 

since the mid-1990s (table 1). After 2002, lower peanut prices furthered this 

growth, making peanut products more competitive. For example, the price of 

peanut butter, the leading use for peanuts, trended downward between 2002 

and 2005, indicating that lower farm prices for peanuts were transmitted to 

the retail level. Increased demand was bolstered initially by an upswing in 

domestic demand for food-use peanuts (e.g., peanut butter and candy), and, 

more recently, by larger exports. However, peanut butter prices have since 

strengthened, which may explain a tapering off of growth in domestic fooduse demand (Data Resources, BLS).

Domestic peanut demand appears to have reached a plateau. However, 

foreign demand for U.S. peanuts—which averaged almost 30 percent lower 

in the first 4 years following the buyout than in the year before the buyout—

has been on an upward path since 2006, and exports are projected at 765 

million pounds in 2008/09, the highest volume in 13 years (fig. 4). U.S. 

exports have been supported by lower prices and by the general weakening 

of the dollar since 2002. Lower prices have also dampened import demand, 

which are well below pre-2002 levels despite regional trade agreements (i.e., 

NAFTA and the U.S. free trade agreement with the Dominican Republic and 

Central America) that continue to liberalize U.S. peanut imports.

1997/98 1999/00 2001/02 2003/04 2005/06 2007/08

* 2008/09 is estimated. 

Source: PSD Online, Foreign Agricultural Service, USDA. http://www.fas.usda.gov/psdonline/

psdHome.aspx

*

0

500

1,000

1,000

2,000

2,500

3,000

3,500

Million lbs

Figure 4

Peanut consumption and exports respond to lower prices

Exports

Imports

Domestic disapperance (food use)
23

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Table 1

Peanut supply and disappearance, 1990/91-2008/091

Marketing Planted Domestic

year2 acres Production3 food use Exports Imports Crush Yield Price

 Pounds/ Cents/

1,000’s ------------------------------Million pounds-------------------------- acre pound

1990/91 1,846 3,604 2,020 652 27 689 1,985 34.7

1991/92 2,039 4,927 2,207 1,002 5 1,103 2,444 28.3

1992/93 1,687 4,284 2,122 951 2 891 2,567 30.0

1993/94 1,734 3,392 2,088 533 2 670 2,008 30.4

1994/95 1,641 4,247 2,009 878 74 982 2,624 28.9

1995/96 1,538 3,461 1,993 826 153 999 2,282 29.3

1996/97 1,402 3,661 2,029 668 127 692 2,653 28.1

1997/98 1,434 3,539 2,099 682 141 544 2,503 28.3

1998/99 1,521 3,963 2,153 562 155 460 2,702 28.4

1999/00 1,535 3,829 2,233 743 180 713 2,667 25.4

2000/01 1,537 3,266 2,184 527 216 548 2,444 27.4

2001/02 1,541 4,277 2,225 700 203 693 3,029 23.4

2002/03 1,353 3,321 2,241 490 75 857 2,571 18.1

2003/04 1,344 4,144 2,456 516 38 536 3,159 19.3

2004/05 1,430 4,288 2,600 491 37 393 3,076 18.9

2005/06 1,657 4,870 2,616 491 32 542 2,989 17.3

2006/07 1,243 3,464 2,585 603 61 513 2,863 17.7

2007/08 1,230 3,672 2,517 750 73 496 3,073 20.5

2008/094 1,534 5,148 2,550 765 75 455 3,416 23.0

1As of August 12, 2009.

2Marketing year begins August 1st. 

3Units are farmer stock (in-shell) basis. 

42008/09 is preliminary.

Sources: National Agricultural Statistics Service, USDA; Foreign Agricultural Service, USDA;

U.S. Department of Commerce.
24

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Structural Adjustments to the Buyouts:

Market Level Changes

Tobacco Acreage, Production, and Price 

Initially Fell Post-Buyout

Flue-cured tobacco production has since rebounded, while burley tobacco 

production remains below pre-buyout levels.

The tobacco sector, like the peanut sector, experienced a decline in farmlevel prices, acreage, and production immediately following the buyout (fig. 

5; table 2). After the tobacco buyout, many farmers discontinued tobacco 

production, and those who remained were confronted by more uncertainty 

about the profitability of tobacco farming. Although producers no longer had 

to rent quota, they faced lower tobacco prices that reflected the absence of 

minimum price supports and quota rental payments. Prices initially fell more 

than 20 percent from 2004/05 to 2005/06 and have remained well below prebuyout levels. Preceding and directly following the buyout, many remaining 

producers held off making capital investments needed to significantly expand 

production. A reduction in the number of farms and lower prices led to a 

decline in harvested acreage of a third for burley leaf and a quarter for fluecured leaf between 2004 and 2005. 

As a result, burley and flue-cured tobacco leaf production dropped to 584 

million pounds in 2005, the lowest in decades. Production has increased 

since then, however, and is estimated at 701 million pounds for 2008. Prices 

remain considerably below those preceding the buyout, but renewed export 

growth has contributed to a modest trend of strengthening demand, particularly for flue-cured tobacco. Flue-cured tobacco acreage has increased 

steadily since 2005, returning to pre-buyout levels, and production in 2008 

was 8 percent higher than the previous 5-year average. Four years after 

0

100

200

300

400

1.0

1.2

1.4

1.6

1.8

2.0

2.2

1,000 acres (harvested) Price ($/lb)

Figure 5

Annual tobacco acreage and price, 1998/99-2008/09

1998/

99

2000/

01

2002/

03

2004/

05

2006/

07

2008/

09

Tobacco buyout

Flue-cured acres Burley acres Flue-cured prices Burley prices

Source: Quick Stats, National Agricultural Statistics Service, USDA; burley type 

31, flue-cured types 11-14. 
25

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Table 2

Flue-cured tobacco, types 11-14, and burley tobacco, type 31: Acreage, yield, production, domestic 

disappearance, trade, and season average price, 1997/98-2008/09 (farm-sales weight)1

Marketing Acreage Yield per Disappearance Net Average price

year2 harvested acre Production Total Domestic Exports Imports exports per pound

1,000 acres Pounds ---------------------------------------Million pounds-------------------------------------- Dollars

Flue-cured, types 11-14:

1997/98 458.3 2,285 1047.2 876.8 534.8 342.0 176.5 165.5 1.72

1998/99 368.8 2,204 812.8 833.7 492.2 341.5 182.1 159.4 1.75

1999/00 303.8 2,162 656.8 698.7 434.8 263.9 157.5 106.4 1.73

2000/01 247.0 2,426 599.2 717.2 473.3 243.9 130.4 113.5 1.79

2001/02 238.1 2,432 579.1 664.9 385.3 279.6 179.7 99.9 1.85

2002/03 245.6 2,094 514.3 643.0 420.6 222.4 190.2 32.2 1.82

2003/04 233.4 1,957 456.8 522.5 306.8 215.7 290.8 -75.1 1.85

2004/05 228.4 2,283 521.4 526.2 337.5 188.7 107.6 81.1 1.84

2005/06 174.5 2,182 380.8 572.8 314.4 258.4 179.3 79.1 1.47

2006/07 213.1 2,095 446.4 557.3 310.5 246.8 220.6 26.2 1.49

2007/08 223.0 2,259 503.8 641.9 336.8 305.1 213.2 91.9 1.52

2008/09 223.0 2,239 499.3 3 3 3 3 3 1.75

Burley, type 31:

1997/98 335.3 1,934 648.5 556.1 379.2 176.9 139.9 37.0 1.88

1998/99 307.1 1,896 582.3 520.5 348.8 171.7 128.2 43.6 1.90

1999/00 303.6 1,829 555.3 416.1 276.6 139.5 178.6 -39.1 1.89

2000/01 185.4 1,957 362.8 666.0 523.7 142.3 170.0 -27.7 1.96

2001/02 164.4 2,032 334.1 385.2 244.7 140.5 220.2 -79.7 1.97

2002/03 157.7 1,861 293.5 369.6 220.6 149.0 191.7 -42.7 1.97

2003/04 152.3 1,850 281.8 309.8 136.1 173.7 217.5 -43.8 1.97

2004/05 153.2 1,908 292.3 327.5 98.3 229.2 187.3 41.9 1.99

2005/06 100.2 2,031 203.5 292.6 84.1 208.5 262.3 -53.8 1.56

2006/07 103.7 2,100 217.8 324.3 64.7 259.6 216.3 43.3 1.63

2007/08 106.3 2,033 216.1 247.4 55.3 192.1 161.0 31.1 1.60

2008/09 97.5 2,067 201.5 3 3 3 3 3 1.66

1Factors for converting tobacco stocks to farm weight taken from USDA/ Agricultural Marketing Service Tobacco Stock Report. 2Flue-cured types 11-14 marketing year is July-June. Burley type 31 marketing year is October-September.

3Data not available. 

Sources: Prepared by ERS-USDA, using data from USDA/National Agricultural Statistics Service Crop Production Report, U.S. Dept. of 

Commerce, Census Bureau, and USDA-ERS Tobacco Outlook, various years.

the buyout, harvested burley tobacco acres remained well below the levels 

preceding the buyout, and production was 16 percent lower in 2008 than the 

preceding 5-year average. Modest price increases for all tobacco in recent 

years likely reflect increased export demand and buyers’ desire to maintain 

domestic tobacco supplies, as well as inflationary pressures on production 

costs associated with higher prices for energy, chemicals, and hired labor. 
26

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Structural Adjustments to the Buyouts:

Market-Level Changes

Domestic Tobacco Use Remains Weak, but 

Trade Outlook Is Improving

Domestic use lags, but lower prices and a weaker dollar have reversed the 

U.S. decline in net tobacco exports.

Despite the lower prices stemming from the buyout, domestic use of U.S.-

produced tobacco leaf has not increased. Domestic use of flue-cured tobacco 

for each of the post-buyout years has been flat or down compared with use in 

2004, while domestic use of burley tobacco has nearly disappeared. Domestic 

demand has been cut by the decline in per capita smoking rates, the large 

share of foreign tobacco that continues to be used in U.S.-manufactured cigarettes, and an ongoing decline in U.S. cigarette exports. Although the price 

gap has narrowed, foreign flue-cured and burley prices remain well below 

U.S. prices (table 3).30

A bright spot for U.S. tobacco growers has been renewed export demand 

and a generally more favorable net trade (exports minus imports) position. 

Spurred by lower prices, a weakening dollar, and a resulting decline in the 

price gap between U.S. and foreign producers, U.S. tobacco has become 

more competitive since the buyout (fig. 6). U.S. flue-cured exports averaged 

270 million pounds during 2005-07 compared with an average of 209 million 

pounds during 2002-04. For burley, exports averaged 220 million pounds 

during 2005-07, compared with an average of 184 million pounds during 

2002-04. Nearly 87 percent of burley tobacco was exported in 2006, while 

exports accounted for 48 percent of flue-cured tobacco disappearance. As a 

result, total disappearance of flue-cured tobacco has increased slightly since 

the buyout, while burley tobacco disappearance has remained flat.

U.S. imports of burley and flue-cured tobacco have remained relatively 

stable, so the share of foreign tobacco in U.S.-manufactured cigarettes has 

not declined substantially. In 2004, nearly 60 percent of the tobacco in U.S.-

manufactured cigarettes was imported, declining to 53 percent in 2005, 

the year after the buyout (ERS, Tobacco Outlook, Oct. 24, 2007, table 22). 

Nevertheless, the overall trade picture for both types of U.S. tobacco leaf has 

improved, with net exports stronger in the past several years compared with 

the immediate pre-buyout period.

30The price drop for tobacco leaf has 

not had a significant impact on domestic cigarette demand, since the cost 

of tobacco leaf comprised only about 

21⁄2 cents of the price per pack in 2003 

(Capehart).

Table 3

The price difference between U.S. and foreign tobacco narrowed after the buyout

Burley Flue-cured

Country 2004 2005 2006 2007E 2004 2005 2006 2007E

Dollars per kilogram

United States 4.38 3.49 3.61 3.71 4.07 3.30 3.42 3.48

Brazil 1.26 1.51 1.73 1.80 na 1.62 1.90 2.00

Argentina 1.55 1.22 1.24 1.30 1.43 1.37 1.45 1.67

E=Estimated. 

na = not available. 

Data source: Universal Leaf Tobacco Company, Supply and Demand, Aug. 2007, 

Aug. 2006, Oct. 2005. Note: no prices provided in the 2008 report.
27

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Total tobacco production was also supported by increased demand for some 

specialized products, such as dark tobacco. (See box “Rising Demand for 

Dark Tobacco Softens the Impact of the Buyout as Acreage Increases.”)

0

600

400

200

1,000

800

1,200

1,400

1,600

1,800

Million lbs

Figure 6

Exports account for a growing share of total disappearance

1997 98 99 2000 01 02 03 04 05 06 07

Sources: Economic Research Service, USDA Tobacco Outlook, 2007; U.S. Commerce

Department, Bureau of the Census. 

Exports

Imports

Domestic disappearance (U.S. tobacco leaf)

Rising Demand for Dark Tobacco Softens the Impact 

of the Buyout as Acreage Increases 

With little competition from foreign dark tobacco producers and rising domestic 

demand, U.S. dark tobacco producers experienced smaller impacts from the tobacco 

buyout than burley and flue-cured tobacco producers. Domestic demand for dark 

tobacco rose, and prices fell less than for other tobaccos because dark tobacco is 

used in snuff, which has gained popularity as smoking restrictions have increased. 

The domestic consumption of smokeless tobacco, especially snuff, has increased 

steadily since the 1980s as bans against smoking in the workplace have proliferated 

(Bickers, March 15, 2006). Rising demand, along with comparatively high prices 

and improved yields, has led to increases in dark tobacco acreage. Dark tobacco 

accounts for a small share of U.S. tobacco production (3 percent in 2008), but 

acreage of dark tobacco expanded 67 percent between 2004 and 2008 compared 

with a 37-percent decline for burley tobacco and a 1-percent decline for flue-cured 

tobacco (NASS). The production regions for many of the dark tobacco types overlap 

with burley production regions, and some burley farmers in those regions may have 

switched to dark tobacco acreage because dark tobacco is more profitable (Snell, 

June 2008).
28

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31Contracting in this report refers to 

marketing contracts. Marketing contracts are defined as verbal or written 

agreements between a contractor and 

a grower that set a price (or pricing 

mechanism) and an outlet for the commodity before harvest or before the 

commodity is ready to be marketed 

(Economic Research Service, USDA, 

Farm Structure Briefing Room).

0

10,000

20,000

30,000

40,000

50,000

60,000

2002 2003 2004 2005 2006 2007

0

50

100

150

200

250

Number of farms Acres per farm

Figure 7

After the buyouts, farm numbers declined, but average acreage climbed

Note: The number of acres refers only to peanuts, flue-cured tobacco, and burley tobacco 

per farm, respectively.

Source: Agricultural Resource Management Survey (ARMS), USDA, 2002-2007. 

Flue-cured farms Burley farms Peanut farms

Flue-cured acreage Burley acreage Peanut acreage

Structural Adjustments to the Buyouts:

Farm-Level Changes

Buyouts Spurred Farm-Level Consolidation 

Increased competition and reduced regulation prompted a rapid 

consolidation of farms, with remaining producers operating larger farms. 

Changes in market-level indicators such as prices, production, and trade are 

shaped by the interaction between overall demand conditions and the aggregated supply response of individual farmers. However, even with production levels that are comparable to the immediate pre-buyout periods, the 

structure of the peanut and tobacco farm sectors have changed considerably 

due to farm exits, entry, and grower decisions to alter production levels and 

practices. The key considerations for growers in a post-buyout environment 

were whether peanut or tobacco farming could be profitable in a new, lower 

priced market and whether they could manage price and production risk. 

Many smaller scale producers exited peanut and tobacco production, finding 

that high production costs and price uncertainty made their operations nonviable. The ensuing consolidation has created a farm structure characterized 

by fewer, but larger, peanut and tobacco farms that have household income 

levels averaging about the same as those for peanut and tobacco farms 

before the buyout (fig. 7; app. tables 1-4). Remaining producers increasingly 

engaged in contracting to manage price risk.31
29

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32In 2004, burley tobacco quota rental 

rates averaged an estimated $0.52 per 

pound, while flue-cured tobacco quota 

rental rates averaged an estimated $0.66 

per pound (authors’ calculation based 

on the historical relationship between 

quota rental rates and quota levels). 

The value (opportunity cost) of peanut 

quota was in the $80- to $90-per acre 

range during 1996-2001, which translates into about 3.5 cents per pound 

based on national average yields (ERS 

Costs and Returns, http://www.ers.

usda.gov/Data/CostsAndReturns/). In 

addition, tobacco producers may have 

seen some reduction in their marketing expenses since they were no longer 

paying a no-net-cost assessment fee. In 

2004, the no-net-cost fee was $0.01 per 

pound for burley and $0.05 per pound 

for flue.

Consolidation of tobacco and peanut farms has been motivated by increased 

domestic and overseas competition and the drive for economies of scale. 

Until the buyout, quotas and price supports kept prices relatively high, so 

producers could make a profit even on relatively small acreages. When the 

quotas ended, domestic producers had to increase their scale and lower their 

production costs to compete more successfully with other U.S. growers and 

foreign producers. By increasing acreage per farm, producers can spread 

their fixed costs over more acreage and obtain discounts on large purchases 

of inputs. These actions may have lowered the costs both per acre and per 

pound and helped large growers achieve economy of scale advantages. In 

addition, some producers benefited from a drop in cash outlays because 

discontinuation of marketing quotas eliminated quota rental payments, with 

producers who had rented most of their quota seeing the largest cost reductions.32 Growers who had previously rented quotas from multiple landlords, 

especially when it was spread among different counties, could realize cash 

savings by consolidating their farm operations on fewer fields over smaller 

distances. They could also save in management time because they no longer 

needed to locate landlords with rentable quotas or negotiate quota rental 

rates. 
30

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33Combining data from two surveys 

yields rough estimates of the percentages of tobacco farmers who quit 

farming.

Structural Adjustments to the Buyouts:

Farm-Level Changes

Tobacco Buyout Led to Rapid Exit 

From Tobacco Farming

Within a year of the buyout, 54 percent of tobacco growers had ceased 

production, with exits higher among flue-cured growers than burley growers.

Although overall tobacco production has been recovering—with lower but 

stabilizing burley acreage and rebounding flue-cured acreage—the 2004 

tobacco buyout marked a dramatic change that was followed by sudden and 

enduring changes to the structure of tobacco production at the farm level. 

Most notably, the number of tobacco farms swiftly declined, with many 

older tobacco growers choosing to retire and exit the market. The remaining 

farms tended to be larger (both in tobacco acreage and total farm acreage) 

and more diversified compared with the average tobacco farm preceding the 

buyout (app. tables 3 and 4).

The rapid decline in tobacco farms partly reflects the fact that many 

producers, especially older producers, anticipated the tobacco buyout and 

remained in production to be eligible for the buyout “transition” payments 

to active tobacco growers. Following the buyout, rising competition and 

uncertainty about the future of tobacco production increased the probability 

that less efficient tobacco producers would quit growing tobacco. Data from 

USDA’s Agricultural Resource Management Survey (ARMS) indicate that 

about 27,000 (approximately 54 percent) of flue-cured and burley growers 

ceased production of these two crops in the year after the buyout, with the 

larger share of them flue-cured producers. However, farmers who previously 

produced flue-cured tobacco were more likely than burley growers to remain 

active producers of other commodities.

Burley Tobacco Farm Exits

According to the 2004 ARMS, about 39,000 farmers grew burley tobacco 

in 2004, but data from the 2005 ARMS indicate that the number of burley 

farmers had dropped to roughly 19,000 a year after the buyout. Combined 

data from the 2004 and 2005 ARMS suggest that 56 percent of the 2004 

burley tobacco growers quit farming burley a year after the buyout.33 A 

further breakdown of the data indicates that roughly 41 percent of the 2004 

burley producers quit farming altogether in 2005, while 15 percent continued 

to farm but did not produce burley (fig. 8). The remaining 44 percent of 

producers grew burley tobacco in both years. Roughly, 1,000 producers who 

grew burley tobacco in 2005 did not grow the crop in 2004. Without quota 

restrictions, producers outside the normal burley tobacco production regions, 

such as those in Pennsylvania, could and did grow burley. 

Flue-Cured Tobacco Farm Exits

Flue-cured tobacco producers were more likely to discontinue tobacco 

production because the residual returns per acre for flue-cured tobacco 

production had been lower than those for burley tobacco production for 
31

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34 http://www.ers.usda.gov/data/

CostsandReturns/data/history/Toba/HUSToba.xls.

Quit farming 

Burley tobacco farmers Flue-cured tobacco farmers

27%

37%

36%

Figure 8

One year after the buyout, flue-cured tobacco farmers were more likely 

than burley tobacco producers to discontinue tobacco production, but 

were less likely to discontinue farming

Data source: 2004 and 2005 Agricultural Resource Management Survey (ARMS), USDA. 

Continued to farm, but 

quit tobacco production 

Continued to 

grow tobacco 

44%

41%

15%

10 years preceding the buyout.34 Estimates from the 2004 ARMS show 

that about 11,000 producers grew flue-cured tobacco that year. ARMS data 

for 2004 and 2005 indicate that roughly 63 percent of the 2004 flue-cured 

tobacco producers quit producing flue-cured in the first year of the tobacco 

buyout (fig. 8). The remaining 37 percent continued to grow tobacco. Very 

few producers grew flue-cured tobacco in 2005 who had not done so in 2004, 

suggesting that few producers wanted to risk entering into flue-cured production. The lack of new entrants indicates that flue-cured production remained 

in the traditional regions in the short term.

Although more of flue-cured producers discontinued tobacco production 

than burley producers, flue-cured producers were more apt to remain active 

farmers. In 2005, only 27 percent of the 2004 flue-cured producers retired 

from farming compared with 41 percent of burley tobacco producers—

probably due to flue-cured producers’ greater diversification in commodities 

and greater dependence on farm income. For example, flue-cured producers 

sold an average of 4.6 commodities and burley producers sold an average of 

4.1 in 2007 compared with 3.3 and 2.8 commodities in 2004, respectively. 

Dropping one commodity, such as tobacco, would not significantly change 

the income levels for most flue-cured farms because commodity diversification generates income from—and spread risks over–several farm enterprises. 

In addition, flue-cured tobacco producers had larger farms, which tend to 

generate higher farm incomes and allow less time for operators to pursue offfarm employment. With larger farms and their greater dependency on income 

from their farm operations, former growers of flue-cured tobacco were less 

likely to discontinue farming. 
32

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

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35 http://www.ers.usda.gov/data/

CostsandReturns/data/history/Toba/HUSToba.xls

Structural Adjustments to the Buyouts:

Farm-Level Changes

Increasing Tobacco Acreage per Farm 

Has Implications for Tobacco Production

Despite labor shortages, remaining tobacco farms grew in scale and 

household incomes held steady.

Average tobacco acreage per farm increased after the buyout, more on farms 

producing flue-cured tobacco than on burley farms. Most of the increase 

in tobacco acreage per farm, at least initially, was due to smaller tobacco 

farmers dropping out, while larger farms were more likely to remain in 

operation. ARMS data show that the average burley tobacco farm harvested 

approximately 5 acres of burley in 1995, 5 acres in 2004, and over 10 acres 

in 2006 and 2007 (app. table 3). In 1996, farms producing flue-cured tobacco 

harvested 38 acres on average; by 2004, the year of the buyout, this had 

dropped to an average of 32 acres. Just 1 year later, the average was 47 acres 

per farm, and it rose to 84 acres by 2007 (app. table 4).

Increasing the tobacco acreage per farm to achieve economies of scale has 

had multiple consequences for tobacco producers. One of the challenges 

tobacco farmers face today is finding the labor to support the increased scale 

of production; tobacco production is very labor-intensive, with hired labor 

accounting for 30 percent of variable cash expenses for flue-cured tobacco 

production in 2004 and 42 percent of variable cash expenses for burley 

production.35 Snell (2007) estimates that 200 hours of labor per acre are 

needed to produce burley tobacco. In the past, many small tobacco operations were able to handle the workload by supplementing operator and family 

labor with hired local laborers. As tobacco acreage per farm increases, family 

labor and the supply of local residents willing to work with tobacco may no 

longer meet labor requirements. 

The increasing burley tobacco acreage per farm, combined with the difficulties in finding workers, has increased producers’ interest in mechanization 

(Center for Tobacco Grower Research). One effect of the quotas had been 

to constrain the size of tobacco operations, indirectly discouraging use of 

new production technologies, since the quota limited the quantity that each 

producer could market. Without quotas, tobacco acreage per farm can be 

increased to levels that support mechanization of the intensive tobacco labor 

operations, but producers need sufficient acreage to spread purchase and 

maintenance costs to acceptable levels.
33

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

The average total (farm and off-farm) household income per farm family 

did not rise significantly for flue-cured or burley tobacco producers after 

the tobacco buyout. However, farm income per family for flue-cured 

tobacco producers was somewhat higher in 2007, according to the ARMS 

data, compared with income for the 2004 producers. Producers of fluecured tobacco had more farm acreage and more tobacco acreage per farm 

in 2007 than in 2004. The higher acreages may have resulted in the higher 

average farm-based income for flue-cured producers in 2007. In contrast, the 

average farm income earned by burley tobacco producers in 2007 remained 

unchanged from the time of the buyout (app. table 3). 
34

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Structural Adjustments to the Buyouts:

Farm-Level Changes

Peanut Farms Are Fewer, but Larger, 

Since the Buyout

The number of peanut farms declined by a third—somewhat more gradually 

than for tobacco—and average acreage increased by two-thirds. 

As with tobacco farms, peanut farms following the 2002 buyout have 

become fewer in number, but larger on average, in both peanut acreage and 

total operated acreage per farm (app. tables 1 and 2). According to ARMS 

data, the decline in the number of peanut farm operators was not as rapid as 

with tobacco, but by 2007, the number of farms had shrunk by nearly 3,000, 

or more than a third. However, as the number of farms fell, average peanut 

acreage per farm increased by two-thirds (by 90 acres) between 2002 and 

2007. Total operated cropland acreage per farm also became significantly 

larger—rising to more than 1,500 acres per farm in 2007 compared with just 

over 900 acres in 2002. 

Although the data are not conclusive, ARMS data indicate that the average 

(farm and off-farm) household income per farm family for peanut producers 

rose after the peanut buyout (app. table 2). The increase is tied mainly to a 

rise in farm income, indicating that remaining peanut farmers depend more 

on farm activities to support total household income than previously. This 

dependence may reflect the increasing scale of peanut farms, requiring more 

management and leaving less time for off-farm work. ARMS data indicate 

that between 2002 and 2007, the share of peanut farms operating in the 

largest sales class—farm sales over $500,000 annually—rose from 8 percent 

to 33 percent. The increase in scale and full-time management of peanut 

farms may also contribute to the growth in national average peanut yields. 

ARMS data also provide some perspectives on why peanut farming area 

shifted strongly from the Mid-Atlantic and Southwestern regions to the 

Southeast following the buyout. In 2004, U.S. peanut farmers were asked 

several policy-related questions as part of the 2004 ARMS data collection. The results showed that a larger percentage of peanut farmers in 

the Southeast expected to be farming the same peanut acreage in 5 years 

compared with peanut farmers in the Mid-Atlantic and Southwest. The 

Mid-Atlantic region had the smallest percentage of peanut farmers expecting 

to keep the same acreage and the most farmers who expected to stop 

producing peanuts compared with the other two regions. Peanut farmers in 

the Southwest indicated they were most likely to reduce peanut acreage, but 

very few planned to stop producing peanuts. The 2004 ARMS data also indicate that a much larger share of farmers in the Mid-Atlantic felt that peanut 

production had become less profitable since the buyout than did farmers in 

the other two regions. A substantial majority of farmers in the Southwest 

felt that production had become more profitable since the buyout. Before 

the buyout, many of these growers produced “additional” peanuts (nonquota 

peanuts for export or crush) without CCC quota loans. 
35

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36 http://www.ers.usda.gov/data/costsandreturns/data/recent/Pean/

R-USPean.xls. See Data Resources, 

p. 53.

Peanut farmers’ expectations, as expressed in the 2004 ARMS, have largely 

been borne out. Prior to the buyout, peanut production was most profitable in the Mid-Atlantic region due to higher yields than in the other two 

regions (ERS cost-of-production accounts).36 However, peanut yields in 

the Mid-Atlantic region remained about the same after the buyout, while 

yields increased moderately in the Southeast and rose significantly in the 

Southwest. Profitability from peanut production declined in the Mid-Atlantic 

region as yields stagnated and prices declined, and peanut production is 

currently least profitable in the Mid-Atlantic.

Despite the shift in peanut-growing area toward the Southeast, ERS peanut 

cost-of-production data indicate that peanut production is now most profitable in the Southwest due to soaring peanut yields. This reflects the increased 

share of peanut production in the Southwest that is grown under irrigation, 

which rose from 64 percent to 86 percent between the 1995 and 2004 peanut 

surveys. With lower peanut prices after the buyout, it was difficult to maintain dryland peanut production in the Southwest, since yields tend to be 

higher on irrigated acreage. This explains the decline in total peanut acreage 

in the Southwest.
36

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

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37The use of contracting in U.S. agriculture has been a growing trend. Agricultural contracts covered 41 percent of 

the value of agricultural production in 

2005, up from 36 percent in 2001 and 

28 percent in 1991 (MacDonald and 

Korb, 2008).

38For more information see MacDonald 

et al. (2004).

Structural Adjustments to the Buyouts:

Farm-Level Changes

Peanut and Tobacco Growers Turned 

More to Contracting To Manage Risk 

After the Buyouts

Measured by both the percentage of farms and the value of production, the 

use of marketing contracts rose significantly for peanut and tobacco farmers. 

In agriculture, producers routinely use contracts to market their commodities.37 The contracts are agreements between farmers and other players in the 

marketing chain that specify, among other things, conditions of producing or 

selling an agricultural product. By combining market functions, contracting 

can reduce participants’ exposure to risk by specifying quality requirements, 

price, and quantities. The contractee (in this case, the farmer) assumes all 

risks of production, but shares price risk with the contractor.38 After the 

buyouts, and following the decline of tobacco auctions used to market 

tobacco leaf, growers selling on the spot market faced risks related to crop 

prices that were not present under Government price supports in the quota 

programs. As a result, peanut and tobacco producers increasingly relied on 

marketing contracts to control price risk and ensure that a market existed for 

their production (fig. 9).

Because farmers cannot adjust easily to changes in demand after planting 

investments are made, supplies from individual producers are often insensitive to spot market price movements caused by large fluctuations in 

market demand or aggregate production. In the absence of minimum price 

supports—or with lower levels of support, in the case of peanuts—tobacco 

and peanut farmers faced more uncertainty after the buyouts about whether 

prices would be high enough to recover investment costs incurred during 

planting. In the new post-buyout environment, contracts offered a way to 

smooth production, control quality, and manage price risk.

Although marketing contracts were important in the production and supply 

of peanuts and tobacco before the buyout programs, the number of farms 

using these contracts significantly increased following the policy changes. In 

2004, 2 years after the peanut quota buyout, the share of peanut farms using 

marketing contracts for their peanut production had grown to 64 percent 

compared with 40 percent in 2002. Similarly, tobacco growers—who could 

no longer rely on minimum selling prices at tobacco auction—expanded 

their marketing contract use. By 2006, 71 percent of burley farms and 75 

percent of flue-cured farms marketed their tobacco under marketing contracts 

compared with 31 and 47 percent in 2004. ARMS data show that in 2007, the 

percentage of burley producers using tobacco marketing contracts declined, 

reversing what had been an upward trend, while the percentage of flue-cured 

producers using contracts stayed fairly stable.
37

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

0

20

40

60

80

100

Percent of farms with marketing contracts1

Figure 9

Contracting increases following the buyouts

2000 2001 2002 2003 2004 2005 2006 2007

1

Refers to the share of farms using marketing contracts for the specified commodity.

Source: Agricultural Resource Management Survey (ARMS), USDA, 2000-2007.

Peanut buyout

Burley tobacco Flue-cured tobacco Peanuts

Tobacco buyout

In addition to a rising share of peanut and tobacco farms using marketing 

contracts after the buyouts, the value of production under contract also rose 

significantly. According to ARMS data, the proportion of peanut production value under a marketing contract averaged 63 percent in the 5 years 

following the buyout (2003 to 2007), up from 24 percent in 2001. Similarly, 

the share of burley and flue-cured tobacco production value under marketing 

contracts was higher in the 3 years after the buyout than in the 3 years 

before: from 2005 to 2007, the average share of the annual burley tobacco 

value under marketing contract was 57 percent, compared with 32 percent 

during 2001-03, while the value of flue-cured tobacco production under 

contract rose to 85 percent from 68 percent. 
38

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

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39The USDA National Agricultural 

Statistics Service did not report Statelevel peanut plantings for Mississippi 

until 2005.

Structural Adjustments to the Buyouts:

Regional Shifts in Production

Shifts in Peanut Production Regions 

Reflected Increased Planting Flexibility

The buyouts gave peanut farmers flexibility to produce in areas where the 

soil, climate, and other conditions are better adapted to peanut crops—

leading to regional production shifts and rising yields.

While overall peanut acreage has fluctuated since the 2002 buyout, it appears 

that domestic and export demand have provided sufficient incentives to 

prevent further contraction of acreage. However, a major adaptation has been 

a significant change in production location, with shifts between and within 

each of the three main peanut-growing regions—a development related at 

least partly to the elimination of planting restrictions brought about by policy 

change. 

Regional and State Shifts in Peanut Acreage

Although acreage has declined sharply in the Southwest (Texas, Oklahoma, 

and New Mexico) and the Virginia-North Carolina region since 2002, plantings in the Southeast (Alabama, Florida, Georgia, Mississippi, and South 

Carolina) have expanded considerably. The Southeast accounted for roughly 

75 percent of national plantings in 2008 compared with just over half immediately preceding the buyout. 

In addition to peanut area shifts between regions, the relocation of production within regions and individual States has been pronounced, reflecting the 

new mobility of peanut production. For example, figure 10—which maps 

percentage changes in average peanut acreage by county from the pre-Farm 

Act years (1998-2001) to 2005-07—shows a large decline in south-central 

Georgia, while growth in surrounding areas more than compensated for 

those losses. Production has also shifted in other States, with acreage gains 

in northern Florida and western Texas and losses in northern North Carolina, 

central Texas, and throughout Oklahoma and Virginia. Additionally, peanut 

acreage has declined in southeast Alabama, with production shifting into 

the southwest portion of the State. New peanut-farming States such as 

Mississippi now plant more acres than long-established peanut-producing 

States such as Oklahoma or New Mexico.39

Peanut Yields Improve as Producers Shift Location 

and Expand Operations

Major shifts within and between production regions have been associated 

with steady growth in national average peanut yields since the buyout. Data 

indicate that counties with good yield histories have been gaining area at 

the expense of counties with poorer performance and that national average 

peanut yields during 2003-08 improved by almost 450 pounds per acre, or 17 

percent, compared with yields during the 1996 Farm Act period (1996-2002). 

The impacts of greater planting flexibility and market orientation, brought 

about by the 2002 Farm Act, have contributed to increased yields. Previously, 
39

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

2008 plantings, 

24,000 acres

Enrolled base, 

71,200 acres 2008 plantings, 

19,000 acres

Enrolled base, 

83,400 acres

2008 plantings, 

8,000 acres

Enrolled base, 

20,200 acres

2008 plantings, 

255,000 acres

Enrolled base, 

383,600 acres

2008 plantings, 

22,000 acres

Enrolled base, 

3,300 acres

2008 plantings, 

695,000 acres

Enrolled base, 

497,200 acres

2008 plantings, 

71,000 acres

Enrolled base, 

10,200 acres

2008 plantings, 

99,000 acres

Enrolled base, 

118,600 acres

2008 plantings, 

145,000 acres

Enrolled base, 

88,100 acres

2008 plantings, 

195,000 acres

Enrolled base, 

184,700 acres

Decrease > 50% < 200 acres

 200 - 1,000 acres

> 1,000 acres

Enrolled farms peanut base (U.S. total) = 1.466 million acres

Increase or decrease < 15%

Decrease 15-50%

Increase 15-100%

Increase > 100%

Percent of base acres (05-07)* New production acres (05-07)

Figure 10

Percent of peanut base acres* planted by county, 2005-07

* Percent of base acres indicates the ratio of average plantings during 2005-07 to base acres. Base acres, which generally reflect 

average plantings during 1998-2001, are the peanut acreage eligible to participate in government commodity programs.

Source: Prepared by ERS using data from USDA, National Agricultural Statistics Service, Quick Stats.

NM OK

TX

MS AL

GA

NC

VA

SC

FL

the quota system may have hindered yield improvements by creating rigidities 

in planting decisions, such as preventing movement to more productive areas. 

Before 2002, for example, the cost of acquiring quota rights, and restrictions 

on the transfer of quota rights between counties and States, tended to concentrate production on land originally granted quota acreage “allotments.” Higher 

prices for quota peanuts encouraged less efficient quota holders to continue 

producing, and acquiring quota rights to expand production was costly or 

impossible for more efficient producers elsewhere. 

Many of those who ceased producing peanuts after 2002 were likely smaller 

scale, less competitive quota owners or operators who relied on the $610-perton quota loan rate to cover production costs. Meanwhile, other more efficient 

producers—probably either those who had been growing nonquota peanuts 

for export or new producers attracted by the opportunity to sell peanuts 

domestically without renting quota rights—have expanded. Peanut farms are 

two-thirds larger than they were at the time of the buyout, and a greater share 

of farms fall into the largest sales class ($500,000 or more annually). Better 

growing conditions in the new areas, along with crop management practices 

employed by larger operations—such as longer crop rotation strategies and 

optimal use of inputs (e.g., fertilizers and chemicals)—have contributed to 

yield growth.
40

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

40Acreage rather than quantity was 

used in this comparison because annual 

weather variations by State can skew 

the results, especially, when only 3 

years of post-buyout data is compared 

with pre-buyout data.

41NASS data show that flue-cured 

tobacco yields averaged over 2,150 

pounds per acre from 1980 to 2004, 

with standard deviations of less than 

180 pounds per acre, in eastern North 

Carolina. This compares with yields 

of less than 2,150 pounds per acre for 

most of the other flue-cured regions. 

The standard deviations for regions 

other than eastern North Carolina often 

exceeded 200 pounds per acre (standard 

deviations are a measure of the variance 

around the average). Lower figures 

indicate that yields are less volatile, 

implying less production risk.

Structural Adjustments to the Buyouts:

Regional Shifts in Production

Tobacco Production Shifted Less After 

the Buyouts Than Peanut Production

Instead, tobacco farming became more concentrated in prime growing areas.

With tobacco production no longer constrained by geographic restrictions, 

tobacco area expanded in lower cost areas, such as the coastal plains of 

North and South Carolina, while higher cost tobacco farming areas, such 

as Tennessee, decreased in size. Tobacco production became more concentrated in the key tobacco production States: Kentucky for burley and North 

Carolina for flue-cured tobacco (fig. 11). Kentucky producers harvested 72 

percent of burley tobacco acreage in 2008 compared with 69 percent in the 

year before the buyout.40 Tennessee’s share of burley harvested acreage fell 

to 14 percent in 2008 from 16 percent in 2004 and 19 percent in the 1999-

2002 period. In 2008, North Carolina accounted for 76 percent of flue-cured 

harvested acreage, up from 66 percent in 2004, while all other flue-curedproducing States showed declines. 

The growing concentration of burley and flue-cured tobacco production in 

specific areas of central Kentucky and eastern North Carolina indicate that 

these regions remain especially suited to tobacco production. These regions 

have exhibited consistently higher yields and lower production costs and 

have a well-established production and distribution infrastructure capable of 

handling large quantities of tobacco. While declining in every other significant production region, flue-cured acreage in eastern (coastal) North Carolina 

has expanded—perhaps benefiting from comparatively low land values, 

the ability to reduce unit costs with expanded production, and availability 

of relatively flat, fertile land.41 Production in this region also benefits from 

proximity to port facilities, as exports continue to account for a growing 

share of flue-cured tobacco demand.

Burley tobacco production has declined predominantly in eastern portions of 

Kentucky and in Tennessee, North Carolina, and Virginia, while remaining 

relatively stable in central and western regions of Kentucky (See burley 

map). Burley tobacco yields in Kentucky’s eastern region and in Tennessee 

tend to be lower, which boosts production costs per pound and lowers profitability. According to NASS data, burley tobacco yields averaged less than 
41

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Burley tobacco

Note: The tobacco buyout was enacted in 2004, but took effect in 2005.

Source: Economic Research Service, USDA, using data from Quick Stats, National Agricultural Statistics Service, USDA.

Flue-cured tobacco

Acres 2004

Acres 2007

Acres 2004

Acres 2007

Figure 11

Harvested acres of burley and flue-cured tobacco by NASS county districts before (2004) 

and after (2007) the buyout

AL

GA

GA

FL

SC

NC

VA

SC

TN

KY

IN

OH

NC

VA

MD

WV

PA

2,000 pounds per acre from 1980-2004 in these regions compared with 

higher yields in the central and western portions of Kentucky. 

Producers are starting to grow some burley tobacco outside its traditional 

production regions. Flue-cured tobacco producers in the Piedmont regions of 

North Carolina and Virginia are experimenting with burley tobacco production, and Amish tobacco farmers around Lancaster, Pennsylvania, have also 

started raising burley tobacco (Bickers, March 16, 2006). Pennsylvania had 

no reported burley acreage prior to 2005, but by 2008, it ranked third among 

the seven burley-producing States—behind Kentucky and Tennessee—

accounting for 4 percent of U.S. burley tobacco production. Burley tobacco 

yields of Pennsylvania farmers have been consistently higher than the 

national average, which helps them to compete with farmers in the traditional 

burley production regions. 
42

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

42 If the farmland changes hands 

before the end of the 10-year period, 

a covenant must be added to the sales 

contract that prevents the new owner 

from raising tobacco on the land until 

the 10-year period has passed.

43Maryland tobacco producers producing type 32 could enroll in the program 

any time between 2000 and 2004.

44 “End of an Era For Maryland 

Tobacco,” Washington Post, Thursday, 

March 1, 2007.

Other Tobacco Buyout Experiences

Maryland’s Self-Funded Buyout

As foreign demand dropped for Maryland tobacco, the State launched a longterm program to phase out production. Most Maryland tobacco producers 

enrolled in the program, and the U.S. supply of this type of tobacco was 

reduced. 

Three years before the Federal tobacco buyout, Maryland funded its own 

tobacco buyout program to reduce Maryland Tobacco type 32 production. 

The buyout was prompted by declining demand for Maryland tobacco, which 

was primarily exported to Europe, where older smokers preferred the heavier 

smoke produced by the fast-burning Maryland tobacco leaf used in blends 

(Yancy). However, younger European smokers preferred lighter cigarettes 

and alternative blends were developed, which reduced demand for Maryland 

leaf.

Maryland did not participate in the Federal tobacco program and was therefore ineligible for quota buyout payments. However, in 1999, Maryland 

allocated $78 million of the $4 billion received from tobacco settlement 

money to fund its tobacco buyout (Frisman). The Maryland tobacco buyout 

program pays tobacco producers $1 per pound each year for 10 years if they 

voluntarily agree to give up tobacco production permanently, as long as they 

continue operating the farm for at least 10 years for other purposes (Southern 

Maryland Agricultural Development Commission).42 Eligibility was based 

on the producer’s average tobacco sales from 1996-98, with payment 

contracts effective from 2001 to 2015, depending on when the farmer 

enrolled in the buyout.43

By the time of the Federal buyout in 2004, about 85 percent of the 990 

eligible Maryland farmers were participating in the State program and had 

converted their land to other agricultural uses. Currently, the majority of 

the 100 farmers growing Maryland tobacco are Amish farmers who do not 

accept Government payments.44 Production of type 32 tobacco in Maryland 

fell from an average of 7,000 acres per year in the 3 years preceding the 

buyout to 1,133 acres in the last 3 years that the Maryland producers could 

enroll in the program (2001-2004).
43

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

45The referenced source, Tobacco 

Farmers in Crisis, is an organization, 

established in 2005, representing Canadian tobacco growers facing economic 

hardship.

46The funds were provided through 

the Tobacco Adjustment Assistance 

Program (TAAP).

47An additional $15 million was allocated to fund community development 

initiatives. 

Other Tobacco Buyout Experiences

Canada’s Partial Tobacco Buyout

In 2005, Canada bought out some of its tobacco growers to reduce quota 

and to bring supply closer to reduced demand. However, demand continued 

to decline, and Canada implemented a transition program to further assist 

tobacco farmers who wanted to exit production.

Canadian tobacco producers contended with issues similar to those of 

U.S. tobacco producers before the U.S. buyout. Canadian producers faced 

declining demand for their tobacco leaf due to falling domestic cigarette 

consumption related to higher taxes (Tobacco Farmers in Crisis),45 and 

higher taxes led to the development of a significant market in cheaper, 

contraband cigarettes. By 2007, over 40 percent of cigarettes sold in Canada 

were contraband. To remain competitive with the contraband cigarettes, 

legitimate manufacturers imported cheaper tobacco (Ontario Flue-Cured 

Tobacco Growers’ Marketing Board, 2008 Annual Report). 

Since Canadian tobacco producers have a quota system that limits their 

tobacco production, the reduction in tobacco demand led to quota reductions. 

In addition to facing declining quotas, Canadian tobacco producers had to 

invest in equipment in 2002 to reduce nitrosamines in tobacco. The quota 

reductions and rising investment costs put economic pressure on the tobacco 

producers. In 2005, the Federal and provincial governments provided funding 

for a partial buyout of tobacco quotas, with farmers competing to retire their 

quota through bidding.46 Thirty-six percent of bids by farmers in Ontario 

were accepted, vs. 53 of 57 bids from Quebec. 

The buyout was partially intended to help the farmers who were still 

producing tobacco remain viable. However, the partial buyout did not stem 

the falling demand for Canadian tobacco leaf, and tobacco quota levels 

continued to fall. In 2008, the Ontario tobacco quota level totaled 20 million 

pounds compared with an estimated 87.9 million pounds in 2005 (Ontario 

Flue-Cured Tobacco Growers’ Marketing Board Annual Reports). In addition to falling quota, the remaining Canadian tobacco farmers experienced 

rising tobacco production costs, while tobacco prices remained steady from 

2005 to 2007. Because most Canadian tobacco is sold at auction, Canadian 

producers were unsure of the price they would receive for their crop until 

harvest. The resulting financial stress caused the number of Ontario tobacco 

farmers to fall from 580 in 2005 to 444 in 2007 and prompted repeated calls 

for another tobacco buyout. 

In August 2008, the Canadian Government announced that it was providing 

$286 million to tobacco producers through the Tobacco Transition Program 

to assist remaining farmers in exiting the tobacco industry (Agriculture and 

Agri-Food Canada).47 The program provides $1.05 per pound for tobacco 

quota. Producers who accept the transition payments will not be able to 

return to tobacco production. 
44

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Conclusions

Market Forces Provide Signals in the 

New Policy Setting 

The buyouts fostered rapid adjustments among peanut and tobacco 

producers, with production now more responsive to demand developments 

and efficiency considerations.

The peanut and tobacco buyouts each arose from international pressures that 

created concerns about declining quota levels and the ability to sustain the 

programs at no net cost to the Government. The 2002 Farm Bill included a 

buyout of the peanut marketing quota, and made peanut producers eligible 

for a new marketing loan program as well as for direct and countercyclical 

payments. The 2004 tobacco buyout ended quotas and loan programs with 

no additional support beyond the buyout payments. The buyouts represented 

milestone policy changes that ushered in structural adjustments, such as 

farm consolidation and regional shifts in production. Once the buyouts were 

enacted, these adjustments occurred rapidly. Ensuing developments were 

guided by market forces, including changes in domestic and foreign demand, 

and a movement toward larger operations in regions best suited for production. Average tobacco and peanut acreage and average total acres per farm 

grew after the buyouts as both sectors consolidated.

With the elimination of price supports and assurances of a buyer, growers 

adapted to increased market risk by engaging more in contracting. Without 

minimum price supports, farmers had less assurance of recovering investment costs from their sales. Marketing contracts provided a method for 

farmers to decrease price uncertainty and share output price risk with buyers, 

making contracts appealing to peanut and tobacco growers in the new postbuyout environment. 

Following the buyouts, the location of tobacco and peanut farms was increasingly determined by market forces and tied to costs, quality, and yields. With 

quota transfer restrictions no longer in place, interstate and intrastate movements occurred where opportunities for efficiency gains existed. Increased 

efficiency and lower prices contributed to stability, and even to a resumption 

of demand growth, particularly in export markets. 
45

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Quota removals and reduced price supports for peanuts—or, in the case 

of tobacco, the complete elimination of price supports—have allowed the 

U.S. supply of peanuts and tobacco to more closely match the domestic 

and foreign demand for these commodities. Prices offered for peanuts and 

tobacco fell after the quota buyouts since producers no longer had to lease 

quota. Domestic demand for peanuts benefited from lower retail prices, and 

both peanut and tobacco exports improved due to lower prices and a weaker 

dollar. Although declining domestic cigarette consumption has reduced 

domestic demand for U.S.-grown burley and flue-cured tobacco, there is a 

growing niche market for dark tobacco, boosting its demand and acreage. 

After Canada’s and Maryland’s buyouts, the demand for their respective 

tobacco products continued to fall, resulting in sharply reduced production. 

These cases illustrate that changes in demand are a central determinant of 

how agricultural sectors evolve after a policy change. The experience of the 

peanut and tobacco sectors demonstrates that adaptation to policy changes 

can occur quickly and that a stronger market orientation supports more costcompetitive production and greater responsiveness to changes in demand. 
46

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Appendix table 1

Characteristics of peanut farms, 2001, 2002, 2004, 2006, and 2007

Item 2001 (A) 2002 (B) 2004 (C) 2006 (D) 2007 (E)

 Farm size (acres per farm):

 Operated *860 907 E *894 E 1,054 1,525 BC

 Owned *356 398 a437 524 *726

 Peanut acreage and yield:

 Harvested (average peanut acres per farm) *120 E 137 E 156 E 182 E 227 ABCD

 Yield (pounds per acre) 2,605 2,352 CDE 3,022 B 2,980 B 3,148 B

 Percent of peanut production value

 under marketing contracts a24 CDE 38 CDE 81 ABDE 63 ABC 57 ABC

Other crop acreage (average per farm):

 Cotton *161 DE 231 193 DE 308 AC 300 AC

 Corn for grain *76 38 E 53 E 50 E *158 BCD

 Soybeans *26 DE 41 E 43 E 54 A *94 ABC

 Wheat *19 E *48 *24 23 *86 A

 Tobacco a2 BE *6 A a7 *4 *7 A

 Production specialty1 (percent of farms):

 Peanut *53 E 41 DE 41 E 27 B *18 ABC

 Cotton a24 *12 D *14 D 35 BCE *19 D

 General crop a9 CE *25 26 A 18 E 32 AD

 Tobacco a4 a9 a8 *2 *2

 Cattle a1 a5 a4 *5 a6

 Sales class (percent of farms):

 $500,000 or more *8 a14 15 22 33

 $250,000-$499,999 *12 *15 *27 26 26

 $100,000-$249,999 *38 *20 *20 20 16

 $40,000-$99,999 a22 *29 *24 14 *17

 $39,999 or less a19 *21 *14 17 a8

 Regions2 (percent of farms):

 Mid-Atlantic a24 19 10 10 13

 Southeast *45 67 69 84 75

 Southwest a30 *11 *20 a6 *12

1 The production specialty refers to the commodity that accounted for 50 percent or more of the farm’s value of production. General crop farms did 

not have a single commodity that met this criterion. 

2 The Mid-Atlantic region consists of Virginia and northeastern counties in North Carolina. The Southeast region includes the southeastern counties in North Carolina and all of South Carolina, Georgia, Alabama, Mississippi, and Florida. The Southwest region includes Texas and Oklahoma. 

Coefficient of Variation = (Standard Error/Estimate) x 100. 

*Indicates that CV is greater than 25 and less than or equal to 50. 

a indicates that CV is above 50.

Letters A, B, C, D, and E indicate significant column difference tests based on t-statistics at a 90-percent confidence level or higher.

Rounded percents may not add precisely to 100. 

Source: 2001, 2002, 2004, 2006, and 2007 Agricultural Resource Management Survey (ARMS), National Agricultural Statistics Service, and 

ERS, USDA. 

Appendix Tables
47

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Appendix table 2

Characteristics of peanut farms after the peanut buyout for selected years

Item 2002 (A) 2004 (B) 2006 (C) 2007 (D)

Number of peanut farms 8,086 D 8,608 D 6,386 D 5,134 ABC

 Percent with a peanut 

 marketing/production contract 40 BCD 79 AC 55 AB 65 A

Peanuts as percent of value of production 28 32 25 28

Peanut acres per farm 137 D 156 D 182 D 227 ABC

Operated acres per farm 907 D *894 D 1,054 1,525 AB

 Owned and operated *387 a423 497 *707

 Rented 520 D 427 D 556 D 816 ABC

 Cropland acres 676 D 606 D 798 D 1,050 ABC

Operator occupation (percent):

 Farming 85 79 82 87

 Nonfarm a7 14 C a2 BD *13 C

 Retired a8 *7 CD 0 B 0 B

Operator age (mean) 50 53 55 A 54

 Less than 50 years (percent) 52 CD 40 32 A 29 A

 65 or more (percent) 24 *20 19 *18

Operator education (percent):

 Completed high school 90 87 D 95 97 B

 Completed college *19 *24 25 28

Farm organization (percent):

 Sole/family proprietor 80 86 A 82 A 84 A

 Partnership *12 a8 9 12

 Family corporation a5 5 C *1 BD *5 C

Number of commodities per farm

3.7 D 3.5 D 3.4 D 4.9 ABC

Percent of farms raising:

 Corn 38 D 41 D 32 D 59 ABC

 Hay *32 27 25 33

 Cotton 57 55 61 62

 Soybeans 23 21 D 22 31 B

 Cattle 42 44 36 38

Household income/farm family (dollars) 76,643 *109,938 117,878 *110,912

 Farm income/farm family a21,264 BC *74,224 A 62,088 A *65,427

 Off-farm income/farm family 55,380 B 35,714 A *55,790 45,485

Average value in dollars per farm:

 Farm assets *937,706 CD *1,173,570 1,673,032 A 2,128,666 A

 Farm debt *162,009 *140,065 133,057 184,620

 Farm business net worth *775,697 CD *1,033,505 1,539,976 A 1,944,046 A

Business debt/asset ratio 17 CD *12 8 A 9 A

Coefficient of Variation = (Standard Error/Estimate) x 100. 

*Indicates that CV is greater than 25 and less than or equal to 50. 

a indicates that CV is above 50.

Letters A, B, C, and D indicate significant column differences based on t-statistics at a 90-percent confidence level or higher.

Source: 2002, 2004, 2006, and 2007 USDA Agricultural Resource Management Survey (ARMS), National Agricultural Statistics Service, and 

ERS, USDA.
48

The Post-Buyout Experience: Peanut and Tobacco Sectors Adapt to Policy Reform / EIB-60

Economic Research Service / USDA

Appendix table 3

Comparison of burley tobacco farms before and after tobacco buyout1

Item 2004 (A) 2005 (B) 2006 (C) 2007(D) 

 Number of tobacco farms 39,215 BCD 19,233 A 13,443 A *12,973 A

 Percent with a tobacco 

 marketing/production contract 31 BC 78 AD 71A 49 B

Tobacco as percent of value of production 43 a21 33 39

 Operated acres per farm 191 C 215 328 A 247

 Owned and operated 116 CD 138 169 A 190 A

 Rented *70 *56 C *136 BD a44 C

Cropland acres operated 106 C *133 215 A 124

Tobacco acres per farm 5.0 C *6.3 10.1 A *10.5

Percent of total labor expenses:

 Operator and unpaid labor2 84 BC 69 A 59 A 79

 Operator occupation (percent):

 Farming 41 *50 42 A *34

 Retired *18 CD a16 CD 0 AB 0 AB

Operator age (mean) 57 CD 55 49 A 50 A

 Less than 50 years (percent) 37 46 *37 47

 65 or more (percent) 34 CD *23 a8 A a8 A

Operator education (percent):

 Completed high school 68 CD 84 97 A 88 

 Completed college a9 B 0 AC *6 B a7

Farm organization (percent):

 Sole/family proprietor 92 97 95 86

 Partnership a8 *3 a4 a14

Number of commodities per farm 2.8 D 2.3 D 2.8 D 4.1 ABC

 Percent of farms with one *12 BD *32 AD a16 0 AB

 Percent of farms with two 27 33 a29 *19

 Percent of farms with three 42 B *18 A a38 *39

 Percent of farms with four or more 18 17 18 41

Percent of farms raising:

 Corn *16 *18 *17 *26

 Hay 72 57 78 73

 Soybeans *4 C *9 *13 A a8

 Cattle 59 *35 *52 *43

Household income/farm family (dollars) 53,597 54,495 80,436 60,175

 Farm income/farm family *10,414 C *20,022 C 47,414 ABD a 8,741 C

 Off-farm income/farm family 43,183 34,474 D 33,022 D 51,434 BC

Average value in dollars per farm:

 Farm assets 465,056 C 557,464 802,981 A 651,486

 Farm debt 37,068 *19,488 C *79,395 B a43,254

 Farm business net worth 427,988 CD 537,976 723,586 A 608,233 

Business debt/asset ratio 8 B *3 AC *10 B a7

1Tobacco quotas and price supports ended after 2004 when the tobacco buyout program began. Table includes all farms raising tobacco in the 

traditional burley tobacco production region. Most of these farms grow only burley tobacco, but some may also grow dark or flue-cured tobacco.

2An imputed wage rate is used to value unpaid labor hours. 

Coefficient of Variation = (Standard Error/Estimate) x 100. 

*Indicates that CV is greater than 25 and less than or equal to 50. 

a indicates that CV is above 50. 

Letters A, B, C, and D indicate significant column differences based on t-statistics at a 90-percent confidence level or higher. 

Source: 2004–07 Agricultural Resource Management Survey (ARMS), National Agricultural Statistics Service, and ERS, USDA. 
49

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Economic Research Service / USDA

Appendix table 4

Comparison of flue-cured tobacco farms before and after tobacco buyout1

Item 2004 (A) 2005 (B) 2006 (C) 2007 (D)

Number of tobacco farms 11,062 BCD 3,766 A 3,469 A *2,639 A

 Percent with tobacco 

 marketing/production contract 47 BCD 88 A 76 A 83 A

Tobacco as percent of value of production 45 37 47 47

 Operated acres per farm 566 D 690 662 906 A

 Owned and operated *275 222 218 272

 Rented 275 BD 456 A 428 615 A

 Cropland acres operated 355 BD 547 A 489 694 A

Flue-cured tobacco acres per farm 32.6 CD 46.9 D 59.7 AD 84.2 ABC

Percent of total labor expenses:

 Operator and unpaid labor2 50 CD 43 D 35 AD 28 ABC

Operator occupation (percent):

 Farming 81 C 92 97 A 94

 Nonfarm *11 BC a2 A a1 A a6

 Retired a8 CD a6 0 A 0 A

Operator age (mean) 54 53 53 52

 Less than 50 years (percent) *33 34 *25 38

 65 or more (percent) *14 *17 *9 a16

Operator education (percent):

 Completed high school 83 D 86 D 93 95 AB

 Completed college *11 B 0 ACD *21 B *16 B

Farm organization (percent):

 Sole/family proprietor 89 81 85 82C

 Partnership *7 *15 *5 a9

 Family corporation *4 BC a1 AD a1 AD *8 BC

Number of commodities per farm 3.3 D 3.7 D 3.4 D 4.6 ABC

Percent of farms raising:

 Corn 32 38 39 *48

 Hay *32 35 *29 *24

 Cotton *28 14 22 *22

 Soybeans 44 B 65 A 60 62

 Peanuts *13 9 10 *11

 Cattle *34 26 *24 *21

 Household income/farm family (dollars) 103,024 133,002 *111,662 139,934

 Farm income/farm family 64,243 B 104,272 A *78,265 109,740

 Off-farm income/farm family 38,781 B 28,720 A *32,397 30,193

 Average value in dollars per farm:

 Farm assets 927,587 1,208,370 1,201,051 1,574,797

 Farm debt *88,030 77,606 D 91,900 138,104 B

 Farm business net worth 839,556 1,130,764 1,109,151 1,436,693

Business debt/asset ratio *9 6 8 9

1Tobacco quotas and price supports ended after 2004 when the tobacco buyout program began. Table includes all farms raising tobacco in 

the traditional flue-cured tobacco production region. Most of these farms grow only flue-cured tobacco, but some may also grow dark or burley 

tobacco.

2An imputed wage rate is used to value unpaid labor hours.

Coefficient of Variation = (Standard Error/Estimate) x 100. 

*Indicates that CV is greater than 25 and less than or equal to 50. 

a indicates that CV is above 50. 

Letters A, B, C, and D indicate significant column differences based on t-statistics at a 90-percent confidence level or higher. 

Source: 2004–07 Agricultural Resource Management Survey (ARMS), National Agricultural Statistics Service, and ERS, USDA. 
50

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Data Resources

Agricultural Resource Management Survey Dataase

(http://www.ers.usda.gov/Briefing/ARMS/). Annual survey of farm and 

ranch operators administered by USDA’s NASS.

Bureau of Labor Statistics (BLS) (http://data.bls.gov/PDQ/outside.

jsp?survey=ap.). Provides average price data for selected areas and food 

products. The retail price for peanut butter is provided on a monthly basis 

back to 1984.

Foreign Agricultural Trade of the United States (FATUS) 

(http://www.ers.usda.gov/data/FATUS/). Provides U.S. agricultural exports 

and imports, volume and value, by country, by commodity, and by calendar 

year, fiscal year, and month, for varying periods, such as 1935 to the present 

or 1989 to the present. Updated by month and by year.

Production, Supply and Distribution (PSD) (http://www.fas.usda.gov/

psdonline/psdHome.aspx/). Contains official USDA data on production, 

supply, and distribution of agricultural commodities for the United States 

and major importing and exporting countries. The database provides projections for the coming year and historical data for more than 200 countries and 

major crop, livestock, fishery, and forest products.

WTO Agricultural Trade Policy Commitments Data Base

(http://www.ers.usda.gov/db/wto/). Contains data on implementation of 

trade policy commitments by World Trade Organization member countries. 

Data on domestic support, export subsidies, and tariffs are organized for 

comparison across countries. This queriable database offers various options 

for viewing and downloading data.

Quick Stats: Agricultural Statistics Data Base

(http://www.nass.usda.gov/QuickStats/). Offers U.S., State, and countylevel agricultural statistics (including price, production, and yield) for many 

commodities and data series. Quick Stats offers the ability to query by 

commodity, State, and year. The dataset can be downloaded for easy use in a 

database or spreadsheet.

Farm Program Acres (http://www.ers.usda.gov/data/baseacres/). Allows 

downloading and mapping of county-level farm program and planted acreage 

data for nine major program crops (corn, grain sorghum, barley, oats, wheat, 

rice, cotton, peanuts, and oilseeds).

Farm Programs, Price Supports, Participation, and Payment Rates

(http://www.ers.usda.gov/publications/agoutlook/aotables/jul2003/aotab19.

xls). Contains program parameters for individual commodities.

CCC Net Outlays by Commodity and Function

(http://www.fsa.usda.gov/dam/bud/CCC%20Estimates%20Book/ 

2006PresBud/ Pres%20Bud%20Table%2035.pdf). Provides total 

Commodity Credit Corporation expenditures by commodity.
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U.S. and State Farm Income Data. Includes calendar year data on direct 

Government payments:

• Direct Government payments, history (http://www.ers.usda.gov/data/

FarmIncome/finfidmu.htm#payments)

• Latest forecast (http://www.ers.usda.gov/Briefing/FarmIncome/Data/

GP_T7.htm)

U.S. Trade Reports. FASonline U.S. Trade Internet System

(http://www.fas.usda.gov/ustrade/). A searchable database with U.S. bilateral 

import and export data (quantity and value) by commodity. Monthly and 

annual data are available dating back to 1989.

Price Support Loan and LDP Activity Report (http://www.fsa.usda.gov/

dafp/psd/Reports.htm). Includes data on year-to-date and the previous 4 years 

of marketing loan and loan deficiency payment expenditures.

National and County Commodity Loan Rates (http://www.fsa.usda.gov/

dafp/psd/LoanRate.htm). Provides county and national marketing loan rates.

U.S. WTO Domestic Support and Support Reduction Commitments

(http://www.ers.usda.gov/briefing/FarmPolicy/data/totalusa.xls). Summarizes 

the U.S. domestic support notifications to the World Trade Organization.

Costs of Production, ERS, USDA. (http://www.ers.usda.gov/Data/

CostsAndReturns/). USDA estimates of the annual production costs and 

returns for the major field crop and livestock enterprises for the United States 

and major production regions. 

Additional Tobacco Sources

Economic Research Service, Data and Reports. Tobacco is included in 

ongoing ERS research on farm structure, trade, and other key issues. http://

www.ers.usda.gov/Browse/Crops/Tobacco.htm

U.S. Department of Alcohol and Tobacco Tax and Trade Bureau (TTB). 

Tobacco Statistics. TTB, (http://www.treas.gov/index.html), collects information on tobacco production and excise taxes and conducts product analysis in order to ensure tax and trade compliance with the Federal Alcohol 

Administration Act and the Internal Revenue Code: http://www.ttb.gov/

tobacco/tobacco_stats.shtml

Agricultural Marketing Service, Tobacco Stocks. AMS reports stocks of 

tobacco leaf by type, as well as production, stocks, supply, and disappearance, by type on a farm sales-weight basis. http://www.ams.usda.gov/

AMSv1.0/ams.fetchTemplateData.do?startIndex=1&template=TemplateV&n

avID=Market%2520News%2520Reports&rightNav1=Market%2520News%

2520Reports&topNav=&leftNav=CommodityAreas&page=TobaccoMarket

News&resultType=&acct=AMSPW/tobacco/tgeninfo

Foreign Agricultural Service, Tobacco Statistics and Reports. FAS provides 

historical World Market and Trade Reports, as well as links to other historical USDA tobacco data sources such as Tobacco Outlook and Tobacco 

Auction Reports. http://www.fas.usda.gov/cots/tobstats.html