Tobacco Transition Payment Program, 17150-17166 [05-6455]
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17150
Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Rules and Regulations
Background
DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 723
Commodity Credit Corporation
7 CFR Parts 1463 and 1464
RIN 0560–AH30
Tobacco Transition Payment Program
Commodity Credit Corporation
and Farm Service Agency, USDA.
AGENCY:
ACTION:
Final rule.
SUMMARY: This rule provides regulations
for the Tobacco Transition Payment
Program (TTPP), as required by Title VI
of the American Jobs Creation Act of
2004 (the 2004 Act), ending the tobacco
marketing quota and price support loan
programs. The TTPP will provide
payments over a ten-year period to
quota holders and producers of quota
tobacco to help them make the
transition from the federally-regulated
program. This rule also removes from
the Code of Federal Regulations obsolete
tobacco program provisions at 7 CFR
parts 723 and 1464.
Effective Date: This rule will be
effective March 30, 2005, except for the
removal of 7 CFR parts 723 and 1464,
which will be effective November 1,
2005.
DATES:
Ann
Wortham, Tobacco Division, Farm
Service Agency (FSA), United States
Department of Agriculture (USDA), Stop
0514, 1400 Independence Ave., SW.,
Washington, DC 20250–0514. Phone:
(202) 720–2715; e-mail:
ann.wortham@wdc.usda.gov. Persons
with disabilities who require alternative
means for communication (Braille, large
print, audio tape, etc.) should contact
the USDA Target Center at (202) 720–
2600 (voice and TDD).
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Notice and Comment
Section 642(b) of the 2004 Act
requires that these regulations be
promulgated without regard to the
notice and comment provisions of 5
U.S.C. 553 or the Statement of Policy of
the Secretary of Agriculture effective
July 24, 1971, (36 FR 13804) relating to
notices of proposed rulemaking and
public participation in rulemaking.
These regulations are thus issued as
final.
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Eligible Quota Holders
General Overview
Sections 611 through 613 of the
American Jobs Creation Act of 2004
(Pub. L. 108–357; the 2004 Act) repeal
the tobacco marketing quota and related
price support programs authorized by
Title III of the Agricultural Adjustment
Act of 1938 (the 1938 Act) and the
Agricultural Act of 1949. This action is
effective at the end of the 2004
marketing years established for the
respective kinds of tobacco that are
subject to such quotas. The regulations
used to administer the marketing quota
program are codified at 7 CFR part 723
and the price support loan program
regulations are codified at 7 CFR part
1464.
Sections 621 through 624 of the 2004
Act provide for transitional payments to
tobacco quota holders and producers.
Eligible tobacco quota holders and
producers will receive payments under
this program in 10 installments in each
of the 2005 through 2014 fiscal years
(FYs). To the extent practical, the
Commodity Credit Corporation (CCC)
intends to make the FY 2005 payment
between June and September of 2005,
and subsequent payments during
January of each FY.
Transition payments will be based on
the Basic Quota Levels (BQLs)
determined for each farm, and then for
quota holders’ ownership shares in the
farm and producers’ shares in the risk
of producing quota tobacco on the farm
during the years 2002, 2003 and 2004.
For example, if a quota holder is the
sole owner of a farm to which quota was
assigned for the 2002 marketing year,
the BQL established for that farm will
also be the BQL for that quota holder.
Similarly, if the quota holder has only
a one-third ownership share in the farm,
that quota holder’s BQL will be one
third of the BQL established for the
farm.
Sections 625 through 627 of the 2004
Act provide for the establishment of
assessments on certain domestic
manufacturers and importers of tobacco
products in order to fund the TTPP. The
regulations relating to the manner in
which the assessment provisions of the
2004 Act are to be administered are set
forth in 7 CFR part 1463 subpart A.
TTPP contract payments are made by
CCC and have the same contractual
sanctity as other CCC payments.
Accordingly, while the source of the
funding is primarily derived from
assessments levied upon manufacturers
and importers of tobacco products, the
obligation arising from these contracts
that accrues to CCC is the same as for
any other CCC contract.
Payments
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Generally, this rule provides for
payments to be made to persons who
owned farms on October 22, 2004 for
which tobacco quota was assigned for
the 2004 marketing year. Payments to
such persons, or quota holders, are
based on the marketing quota assigned
to the farm for the 2002 marketing year,
as provided by 7 CFR part 723. The
payment rate is $7 per pound of eligible
quota, to be paid in equal installments
over 10 years.
Generally, this rule also provides for
payments to producers of quota tobacco.
Overmarketings and undermarketings
play a part in calculating burley and
flue-cured producer BQL. They are both
conditions that are the result of an
action in one year that cause temporary
quota adjustments the following year.
Overmarketings are tobacco pounds
sold during a marketing year in excess
of a farm’s effective marketing quota for
that year. The excess pounds of tobacco
sold in one year are deducted from the
next year’s marketing quota for that
farm.
Undermarketings for burley or fluecured tobacco are tobacco that could
have been sold during a marketing year
but were not. There are two categories
of undermarketings: actual and
effective. Actual undermarketings are
the pounds of tobacco by which the
effective quota is more than the pounds
of tobacco marketed during a marketing
year. Effective undermarketings are the
smaller of the actual undermarketings or
the sum of the previous year’s basic
quota on the farm plus pounds that were
temporarily transferred to that farm for
the previous year.
The BQL calculation must consider in
what year these over/under pounds
were originally assigned to a farm
because under the former tobacco
program marketing quotas were adjusted
each year by a national factor
determined by CCC to account for
changes in supply and demand. Because
payments are to be based on 2002 quota
levels, the quotas for each year must be
adjusted to the 2002 level. For example,
undermarketings that are carried
forward from 2002 to 2003 are pounds
that were already at the 2002 level.
Therefore, in calculating 2003 BQL
these 2002 undermarketings are
deducted from the 2003 marketings; the
BQL factor is applied to the remaining
2003 marketings to bring them to the
2002 level; and then the 2002
undermarketings are added back into
the process. The adjustment process is
more fully described in the Eligible
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Quota Producers section of this
Preamble.
The 2004 Act specifically addresses
the situation where permanent transfers
of tobacco-marketing quota were
initiated prior to October 22, 2004, but
not completed as of that date.
Accordingly, in the case of the
incomplete transfer of an entire farm,
where the quota distribution has not
been agreed upon, CCC has determined
that the eligible tobacco quota holder
will be considered to be the person
contractually bound to purchase the
entire farm. Similarly, the 2004 Act
provides that where there was in
existence on October 21, 2004, an
agreement for the permanent transfer of
the tobacco quota, but the transfer was
not completed by October 21, 2004, the
owner of the farm to which the tobacco
quota was to be transferred will be
considered to be the eligible tobacco
quota holder.
If a written agreement was initiated
before October 22, 2004 for the purchase
of all or a portion of a farm, the
transition payment will be disbursed as
specified in the agreement so long as the
resulting distribution is consistent with
the 2004 Act. If a written agreement was
initiated before October 22, 2004 for the
purchase of all or a portion of a farm
and the agreement specified the
distribution of the farm’s tobacco quota
and the parties to the agreement do not
concur about the manner in which such
quota would be assigned to the different
portions of the farm, payments will be
made in a fair and equitable manner as
determined by CCC taking into account
any incomplete permanent transfer of
such quota. Where there was a sale of
part of the farm not yet completed by
October 22, 2004, CCC will divide the
disputed quota taking into account the
ratio of cropland on the unsold portion
of the farm to the cropland on the
portion of the farm subject to the
purchase contract.
Disputes
In the event there is a dispute
regarding the determination of which
persons are eligible quota holders on a
farm, no payment to any quota holder
on that farm will be made until all
parties have agreed or until all
administrative appeals have been
exhausted. Also, if a farm is determined
eligible for a permanent tobacco quota
and all or part of that farm is sold after
October 22, 2004, the tobacco quota
attributed to the owner of the farm as of
October 22, 2004 cannot be transferred
for purposes of determining a TTPP
payment. In addition, consistent with
the manner in which CCC administers
other commodity programs, a person
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who holds a life-estate interest in a farm
with a tobacco quota will be considered
the owner of the farm in determining
who is an eligible tobacco quota holder.
A person with a remainder interest, any
other contingent interest, or any
equitable interest as a creditor or
otherwise in such farm or marketing
quota will not be considered to be an
owner of the farm for purposes of
determining a TTPP payment. If such a
person believes that a private sales
transaction did not take into account
these statutory and regulatory
provisions, a private resolution of such
a dispute must be undertaken by the
parties to the contract; neither FSA nor
CCC will participate in the resolution of
such matter.
There may have been transfers of
farms that were not reported to FSA, or
incomplete transfers of tobacco quotas
and farms as of October 22, 2004.
Accordingly, in order to ensure that
only persons who meet the
requirements of the 2004 Act receive a
TTPP payment, and to reduce debt
collection efforts with respect to persons
who improperly represented their
eligibility status to CCC, CCC will
require program participants to make
certain representations regarding
whether the tobacco quota or their farm
had been transferred to another person.
This rule provides that if a person
who is not the tobacco quota holder for
a farm, as identified in FSA records,
submits a TTPP contract or other
written claim to CCC before May 31,
2005, no payments will be made with
respect to such farm until CCC has
determined the eligibility status of each
claimant and any other person who may
be eligible to receive the payment. This
60-day period is intended to provide an
opportunity for anyone who should
have reported to FSA under 7 CFR part
723, but did not (1) claim ownership in
a farm or tobacco quota or; (2) transfer
ownership of a farm or tobacco quota. If
a contract or written claim is submitted
to CCC after May 31, 2005, and either,
the first TTPP payment is made to the
tobacco quota holder identified in FSA
records, or collected by CCC of FSA by
administrative offset or other action,
additional payments will not be made
on the subject TTPP contract until CCC
can determine the status of the
competing claimants. The rule also
provides that if a contract or other
written claim is provided to CCC by
May 31, 2005 by two or more persons
for the same tobacco quota used to
calculate a TTPP payment, no payment
will be issued until CCC determines the
eligibility status of each claimant.
Therefore, in anticipation of disputes
concerning assignment of a farm
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17151
marketing quota for purposes of
determining the TTPP payment, any
person who intends to enter into a TTPP
contract is advised to visit the USDA
service center in the county where the
farm is located to make corrections or
changes to records that relate to the
farm.
Quota Holder Assignments and
Successor in Interest Contracts
Any quota holder may assign the
payment to another party, using the
correct CCC form, so long as the
consideration for the assignment is
greater than or equal to the discounted
value based on the discount rate
established by CCC, except that special
provision will be made for assignments
between immediate family members and
persons who purchased a tobacco
marketing quota prior to October 22,
2004 and, in accordance with 7 CFR
part 723, placed the quota on anther
person’s farm, prior to such date, with
consent of the owner. The discount rate
will be established by CCC at the prime
rate plus two percentage points rounded
to the nearest whole number.
Any quota holder may execute a
successor in interest contract for their
TTPP payments, except the 2005
payment, by using the correct CCC form,
and subject to the following conditions:
(1) The quota holder must not be subject
to the payment offset provisions of the
Debt Collection Improvement Act of
1996 as a result of a debt to any agency
of the United States; (2) Consideration
for the succession to TTPP payments
must be greater than or equal to the
discounted value of the remaining
payment stream based on the discount
rate established by CCC, except that
special provision will be made for
assignments between immediate family
members and persons who purchased a
tobacco marketing quota prior to
October 22, 2004 and, in accordance
with 7 CFR part 723, placed the quota
on anther person’s farm, prior to such
date, with consent of the owner; and (3)
For payments to be issued the following
January for the 2006 and successive year
payments, the successor must file a
successor in interest contract no later
than November 1 of the preceding year.
Once it has been determined that a
tobacco quota holder is eligible for a
payment under this rule, and CCC has
executed a TTPP contract with such
quota holder, the person may sell all or
a portion of his farm and still receive
the TTPP payments. CCC will not
execute a TTPP contract with a person
who was the buyer of the farm in a
transaction that took place after October
22, 2004 unless the seller who had
previously been determined by CCC to
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be an eligible quota holder has executed
a successor in interest contract, using
the correct CCC form, in which the
seller transfers all rights and obligations
to the successor party, as approved by
CCC.
Eligible Quota Producers
Generally, this rule provides for
payments to persons who produced a
crop or part of a crop of tobacco subject
to a marketing quota in one or more of
the 2002, 2003, and 2004-crop years.
The Secretary will establish a base quota
level (BQL) for each producer based on
the 2002 marketing year effective quota
produced on the farm each of the years
2002, 2003 and 2004. Marketing quota
temporarily leased to a farm under
disaster conditions will not be included
in the receiving farm producer’s BQL.
The total payment of $3 per pound of
eligible quota is to be paid at a rate of
1⁄3 that rate, or $1 per pound, for each
of the years 2002, 2003 and 2004 in
which the producer shared in the risk of
producing the quota tobacco.
Where two or more persons shared in
the risk of producing the same quota
pound (for flue-cured and burley
tobaccos only—effective
undermarketings) the pound shall not
be included in the producer’s BQL for
the year the effective undermarketing
was suffered. Effective undermarketings
are carried forward from the year
suffered to the farm’s next established
marketing quota. These pounds were
not factored when determining the
national basic quota for the applicable
year under 7 CFR part 723.
Actual undermarketings (flue-cured
and burley tobacco only) that were not
allowed to be carried forward to the
farm’s next established quota may be
included in the producer’s BQL where
suffered to the extent the pounds were
considered planted as defined under
this subpart.
For burley tobacco, effective
undermarketing pounds that were
reduced under 7 CFR 723.206(c) in the
2004 marketing year will be included in
the 2003 marketing year producer’s BQL
to the extent the quota was considered
planted as defined under this subpart
during the 2003 marketing year.
Overmarketings (flue-cured and
burley only) exist when a farm markets
in excess of the farm’s effective quota
established under 7 CFR part 723 and
are deducted from the farm’s next
established marketing quota. To the
extent the farm marketed penalty-free,
these quota pounds will be included in
the producer’s BQL for the year in
which the pounds were actually
marketed, except in the 2004 marketing
year. Overmarketings will be excluded
from the 2004 marketing year producer’s
BQL because these pounds were not
deducted from the farm’s next
established marketing quota.
For flue-cured and burley farms that
temporarily leased quota pounds from
the farm during the marketing year
under disaster conditions these pounds
will be included in the transferring
farm’s producer BQL and reduced from
the receiving farm’s producer BQL for
the applicable year.
For tobaccos other than flue-cured
and burley, marketing quotas were
established under 7 CFR part 723 in
acreage allotments. The acreage
allotments will be converted to
poundage quotas for purposes of
determining the producer’s BQL. In
order to convert 2002 basic allotments
established under 7 CFR part 723 to
poundage quotas the allotment
established will be multiplied by the
farm’s three-year average yield for the
2001, 2002 and 2003 crop years.
For all tobaccos for which temporary
transfers of marketing quota were
allowed under 7 CFR part 723 the
producer’s BQL will be adjusted to
consider these pounds. An upward
adjustment will be made to the
receiving farm producer’s BQL and a
downward adjustment will be made to
the transferring farm producer’s BQL for
each applicable year.
In order to calculate the producer’s
BQL for 2003 and 2004 marketing years,
the BQL must be converted to the
equivalent of the 2002 effective quota
(flue-cured and burley) or the 2002 basic
quota (tobaccos other than flue-cured
and burley) level. This conversion will
reverse the national marketing quota
adjustments made by the Secretary for
each applicable year. For this reason
each producer’s BQL for 2003 and 2004
will be broken down between basic
quota pounds (adjusted annually by the
Secretary) and effective undermarketing
pounds (pounds for which two or more
persons may have been at risk). Basic
quota pounds will be adjusted using the
BQL adjustment factor for the applicable
kind of tobacco as shown in Table 1.
The adjustment factor was determined
for 2003 by dividing one by the national
factor determined by FSA under 7 CFR
part 723 for 2003 and, for 2004 by
dividing one by the product of the
national factor for 2003 times the
national factor for 2004. The BQL factor,
when applied to the 2003 or 2004 basic
quota, will equate those years’ basic
quotas to the 2002 basic quota level.
Effective undermarketings in the 2003
marketing year will not be adjusted
because they were carried forward from
the 2002 marketing year at the 2002
basic quota level. Effective
undermarketings for the 2004 marketing
year will be adjusted to the 2002 basic
quota level using the 2003 adjustment
factor shown in Table 1. These pounds
were adjusted in 2003 from the 2002
level and will be factored to the 2002
basic quota level.
For burley farms where temporary
transfers (not including disaster
transfers) were approved, the receiving
farm will be apportioned
undermarketing pound history by
dividing the transferring farm’s prior
year undermarketing pounds by the
transferring farm’s effective quota
(before any temporary transfers) to
determine a factor for apportionment of
undermarketing pounds.
The receiving farm’s share of
undermarketing pounds will be
determined by multiplying the
transferring farm’s apportionment factor
by the receiving farms pounds leased
from the transferring farm. The result
will be subtracted from the total pounds
leased into the receiving farm so the
applicable BQL adjustment factor (Table
1) can be applied. The adjusted
undermarketings leased to the receiving
farm will be added to the receiving farm
producer’s BQL and subtracted from the
transferring farm producer’s BQL.
TABLE 1.—NATIONAL FACTORS AND BQL ADJUSTMENT FACTORS
Kind of Tobacco
2003
Burley (type 31) ...............................................................................................
Flue-Cured (types 11–14) ...............................................................................
Fire-Cured (type 21) ........................................................................................
Fire-Cured (types 22–23) ................................................................................
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National Factor ...................................
BQL Adjustment Factor .....................
National Factor ...................................
BQL Adjustment Factor .....................
National Factor ...................................
BQL Adjustment Factor .....................
National Factor ...................................
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04APR2
.889
1 1.124860
.905
11.104970
2004
1.05
2 1.071295
.895
2 1.234570
1.00
1.00
1 1.00
2 1.00
1.02
1.03
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17153
TABLE 1.—NATIONAL FACTORS AND BQL ADJUSTMENT FACTORS—Continued
Kind of Tobacco
2003
Dark Air-Cured (types 35–36) .........................................................................
Va Sun-Cured (type 37) ..................................................................................
Cigar Filler/Binder (types 42–44 and 54–55) ..................................................
BQL Adjustment Factor .....................
National Factor Factor .......................
BQL Adjustment .................................
National Factor ...................................
BQL Adjustment Factor .....................
National Factor ...................................
BQL Adjustment Factor .....................
1.980392
1.05
1.952381
1.00
1 1.00
1.12
1.892900
2004
2.951837
1.03
2.924640
1.00
2 1.00
.95
2.939800
1 2003
BQL adjustment factors were determined by dividing 1 by the 2003 national factor for the applicable kind of tobacco.
BQL adjustment factors were determined by dividing 1 by the product of the 2003 national factor times the 2004 national factor for the
applicable kind of tobacco.
2 2004
Farm Example 1
Example 1 shows the BQL calculation for
a single flue-cured producer for a farm that
had no under-or over-marketings from a
Examples of BQL calculations are
illustrated below.
previous year, no temporary transfers
(disaster), and marketed the entire effective
quota for each of the years 2002, 2003 and
2004.
FARM EXAMPLE 1.—FLUE-CURED TOBACCO FARM
2002
2003
2004
905
0
0
0
0
905
0
0
905
905
0
0
0
1.104970
1,000
1.000
810
0
0
0
0
810
0
0
810
810
0
0
0
1.234570
1,000
1.000
$1,000
$1,000
Basic Quota ..........................................................................................................................
Effective Undermarketings (previous year) ..........................................................................
Overmarketings (previous year) ...........................................................................................
Lease Transfer To ................................................................................................................
Lease Transfer From ............................................................................................................
Effective Quota .....................................................................................................................
Disaster Lease Transfer To .................................................................................................
Disaster Lease Transfer From .............................................................................................
TTPP Effective Quota (w/disaster leases) ...........................................................................
Actual Marketings .................................................................................................................
Overmarketings ....................................................................................................................
Actual Undermarketings .......................................................................................................
Effective Undermarketings ...................................................................................................
BQL Adjustment Factor ........................................................................................................
Farm BQL .............................................................................................................................
Producer Share ....................................................................................................................
+
+
¥
+
¥
=
¥
+
=
×
=
×
1,000
0
0
0
0
1,000
0
0
1,000
1,000
0
0
0
1.000000
1,000
1.000
Total Payments .............................................................................................................
=
$1,000
Farm Example 2
Example 2 shows the BQL calculation for
a single burley producer for a farm that had
temporary transfers (not disaster) in 2002,
2003 and 2004. This farm did not have any
under-or over-marketings from a previous
year.
FARM EXAMPLE 2.—BURLEY TOBACCO FARM
2002
2003
2004
889
0
0
0
500
389
0
0
389
389
0
0
0
1.124860
438
1.000
933
0
0
0
500
433
0
0
433
433
0
0
0
1.071295
464
1.000
$438
$464
Basic Quota ..........................................................................................................................
Effective Undermarketings (previous year) ..........................................................................
Overmarketings (previous year) ...........................................................................................
Lease Transfer To ................................................................................................................
Lease Transfer From ............................................................................................................
Effective Quota .....................................................................................................................
Disaster Lease Transfer To .................................................................................................
Disaster Lease Transfer From .............................................................................................
TTPP Effective Quota (w/disaster leases) ...........................................................................
Actual Marketings .................................................................................................................
Overmarketings ....................................................................................................................
Actual Undermarketings .......................................................................................................
Effective Undermarketings ...................................................................................................
BQL Adjustment Factor ........................................................................................................
BQL ......................................................................................................................................
Producer share .....................................................................................................................
+
+
¥
+
¥
=
¥
+
=
×
=
×
1,000
0
0
0
500
500
0
0
500
500
0
0
0
1.000000
500
1.000
Total Payments .............................................................................................................
=
$500
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Farm Example 3:
Example 3 shows the BQL calculation for
a single burley producer for a farm that had
undermarketings from a previous year. In this
example it is important to understand the
separation of basic quota pounds from
undermarketing pounds that are necessary in
order to convert the 2003 or 2004 effective
marketing quota to the applicable 2002
effective marketing quota level. As shown in
this example the burley farm’s basic quota for
2002 was 1,000 pounds and effective
undermarketings (from 2001 marketing year)
carried forward were 100 pounds. No
temporary adjustments for leasing took place.
The farm’s 2002 effective quota was
determined to be 1,100 pounds. The farm
actually marketed 1,025 pounds which
resulted in 75 pounds of actual
undermarketings. Because the actual
undermarketings are less than effective
undermarketings brought forward from the
2001 marketing year all 75 pounds would be
considered effective undermarketing in
determining the farm’s 2003 effective quota.
Since the 75 pounds of effective
undermarketings are included in both the
2002 and 2003 effective quota for the farm,
the 75 pounds will be deducted from the
producers BQL determined for 2002. In this
case the producer’s BQL for 2002 would be
1,025 pounds and the payment would be
calculated as 1,025 pounds BQL multiplied
by $1, or $1,025 for the producer with a 100percent share in the 2002 crop.
In calculating the producer’s BQL for the
2003 crop year the farm’s marketing quota
must be divided between basic quota pounds
and undermarketings. This example shows
the farm’s basic quota was reduced from the
2002 marketing year (1,000 pounds) to the
2003 (889 pounds) marketing year. The farm
has previous year effective undermarketings
from 2002 (75 pounds). So that no pound is
paid twice, the farm’s actual marketings will
be considered as the primary factor in
determining the risk in production for the
2003 marketing year. Effective
undermarketings will be deducted from the
actual marketings so that the appropriate
BQL adjustment factor from Table 1 can be
applied to the basic quota. After adjusting the
actual marketings to the 2002 effective quota
level, the farm’s adjusted marketing quota
may, to the extent the quota was considered
planted under this subpart, be adjusted
upward to include the previous year effective
undermarketing quota pounds in the
producer’s BQL.
The 2003 BQL calculation was performed
as follows: 2002 effective undermarketings
brought forward to 2003 marketing quota (75
pounds) are deducted from the farm’s 2003
actual marketings (914 pounds). This is the
necessary step to establish the farm’s basic
quota pounds so they can be adjusted to the
2002 basic quota level (839 pounds will be
adjusted by the BQL adjustment factor of
1.12486 from Table 1). Once the 2002 basic
quota level has been determined (944
pounds) the results must be adjusted to
include the 2002 effective undermarketings
(75 pounds). In this example the producer’s
BQL would be 1,019 pounds (944 pounds
basic quota plus 75 pounds effective
undermarketings) and the payment would be
calculated as 1,019 pounds BQL multiplied
by $1, or $1,019 for the producer with a 100percent share in the 2003 crop.
In calculating the producer’s BQL for the
2004 crop year the farm’s marketing quota at
the 2002 effective quota level the farm’s
effective quota must be divided between
basic quota pounds and undermarketings.
This example shows the farm’s basic quota
was increased from the 2003 marketing year
(889 pounds) to the 2004 (993 pounds)
marketing year, however the adjustment was
still less than the 2002 marketing year (1,000
pounds) established for the farm. The farm’s
effective undermarketings from 2003 (50
pounds) will be deducted from the farm’s
basic quota (933 pounds) in order to convert
the basic quota pounds to the 2002 basic
quota level (933 pounds will be adjusted by
the BQL adjustment factor of 1.071295 in
Table 1). Once the 2002 basic quota level has
been determined (1,000 pounds) the results
must be adjusted to include the 2003
effective undermarketings (50 pounds will be
adjusted by the BQL adjustment factor of
1.12486 from Table 1 or 56 pounds). The
producer’s 2004 BQL would be 1,056 pounds
(1,000 pounds basic quota plus 56 pounds
effective undermarketings) and the payment
would be calculated as 1,056 pounds BQL
multiplied by $1 or $1,056 for the producer
with a 100 percent share in the 2004 crop.
Since 2004 effective undermarketings and
overmarketings will not be considered in
establishing future year marketing quotas
(program was repealed beginning with the
2005 crop year by the 2004 Act) the actual
undermarketings suffered will be paid to the
producer at risk during 2004 crop year on the
farm. Similarly, had this farm overproduced
and marketed in excess of the 2004 effective
quota penalty-free, those pounds would not
be considered in calculating the producer’s
BQL for 2004 because they could not be
deducted from the next established
marketing quota for the farm.
FARM EXAMPLE 3.—BURLEY TOBACCO FARM
2002
Basic Quota ..........................................................................................................................
Effective Undermarketings (previous year) ..........................................................................
Overmarketings (previous year) ...........................................................................................
Lease Transfer To ................................................................................................................
Lease Transfer From ............................................................................................................
Effective Quota .....................................................................................................................
Disaster Lease Transfer To .................................................................................................
Disaster Lease Transfer From .............................................................................................
TTPP Effective Quota ..........................................................................................................
Actual Marketings .................................................................................................................
Overmarketings ....................................................................................................................
Actual Undermarketings .......................................................................................................
Effective Undermarketings ...................................................................................................
BQL Adjustment Factor ........................................................................................................
Farm BQL .............................................................................................................................
Producer share .....................................................................................................................
+
+
¥
+
¥
¥
¥
+
¥
Total Payments .............................................................................................................
=
Farm Example 4
Example 4 shows the BQL calculation for
a single flue-cured producer for a farm that
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×
=
×
2003
2004
1,025
1.000
899
75
0
0
0
964
0
0
964
914
0
50
50
1.124860
1,019
1.000
933
50
0
0
0
983
0
0
983
983
0
0
0
1.071295
1,056
1.000
$1,025
$1,019
$1,056
1,000
100
0
0
0
1100
0
0
1100
1025
0
75
75
had a temporary transfer (disaster) each of
the years 2002, 2003 and 2004. This farm did
not have any under- or over-marketings from
a previous year.
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17155
FARM EXAMPLE 4.—FLUE-CURED TOBACCO FARM
2002
Basic Quota ..........................................................................................................................
Effective Undermarketings (previous year) ..........................................................................
Overmarketings (previous year) ...........................................................................................
Effective Quota .....................................................................................................................
Disaster Lease to .................................................................................................................
Disaster Lease from .............................................................................................................
TTPP Effective Quota (w/disaster leases) ...........................................................................
Actual Marketings .................................................................................................................
Overmarketings ....................................................................................................................
Actual Undermarketings .......................................................................................................
Effective Undermarketings ...................................................................................................
BQL Adjustment Factor ........................................................................................................
Farm BQL .............................................................................................................................
Producer share .....................................................................................................................
Total Payments .............................................................................................................
Farm Example 5
Example 5 shows the BQL calculation for
a single dark air-cured producer for a farm
905
0
0
0
0
905
905
0
0
0
0
1.104970
1,000
1.000
810
0
0
0
0
810
810
0
0
0
0
1.234570
1,000
1.000
$1,000
×
=
x
2004
1,000
0
0
0
0
1,000
1,000
0
0
0
0
1.0000
1,000
1.000
+
+
¥
=
¥
+
=
2003
$1,000
$1,000
that had a temporary transfer to the farm each
of the years 2002, 2003 and 2004.
FARM EXAMPLE 5.—DARK AIR-CURED TOBACCO FARM
2002
2003
2004
Basic Allotment (acres) ........................................................................................................
Temporary Leased to ...........................................................................................................
Temporary Leased from .......................................................................................................
Effective Allotment (acres) ...................................................................................................
BQL Adjustment Factor ........................................................................................................
Effective Allotment at the 2002 Level ..................................................................................
Farm’s 2001–03 Average Yield (lbs./acre) ..........................................................................
TTPP Effective Quota (Farm’s Allotment Converted to Pounds) ........................................
Farm BQL .............................................................................................................................
Producer Share ....................................................................................................................
+
+
¥
=
×
=
×
=
=
×
3.52
1.00
0
4.52
1.0000
4.52
3,037
13,727
13,727
1.000
3.70
1.00
0
4.70
1.0497
4.48
3,037
13,606
13,606
1.000
3.81
1.00
0
4.81
1.23457
4.45
3,037
13,515
13,515
1.000
Total Payments .............................................................................................................
=
$13,727
$13,606
$13,515
Multiple Producers on a Farm
Disputes
The 2004 Act provides that when
more than one producer shared in the
risk of producing tobacco on a farm in
one or more of the 2002, 2003, and 2004
crop years, the producer may divide the
payment on the farm in such manner as
is fair and equitable. The producer must
divide the payment in the same manner
as all other CCC farm program payments
are made by taking into consideration
the degree to which a producer was at
risk in the production of the crop in
each of those three years. Subject to the
preceding adjustment to reflect each
producer’s share in the production of
each of the three crop years, a producer
who produced tobacco in one of those
years will receive 1⁄3 of the payment
determined for the producers on the
farm; a producer who produced tobacco
in two of those years will receive 2⁄3 of
the payment; and a producer who
produced tobacco in all three years will
receive all of the payment.
In the event there is a dispute
regarding the determination of which
persons are eligible quota producers on
a farm, no payment to a quota producer
on such farm will be made until all
parties have agreed or until all
administrative appeals have been
exhausted.
Producer share information on the
TTPP contract shall be obtained from
FSA–578 reported shares. Producers
may change share percentages; however
all producers on the farm for the
applicable year must agree with the
division of quota shares, not to exceed
100 percent. If producers are unable to
agree with the share percentages, no
payments to a quota producer on such
farm will be made until all
administrative appeals have been
exhausted.
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Producer Assignments and Successor in
Interest Contracts
Any producer may assign the
payment to another party, using the
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correct CCC form, so long as the
consideration for the assignment is
greater than or equal to the discounted
value using the discount rate
established by the CCC, except that
special provision will be made for
assignments between immediate family
members, and persons who purchased a
tobacco marketing quota prior to
October 22, 2004 and, in accordance
with 7 CFR part 723, placed the quota
on another person’s farm, prior to such
date, with consent of the owner. The
discount rate established by CCC will be
equal to the prime rate plus two
percentage points, rounded to the
nearest whole number (for .5 and above,
the rate will be rounded up).
Any producer may execute a
successor in interest contract (except
that the producer may not execute a
successor in interest contract for the
2005 TTPP payment) using the correct
CCC form, so long as the consideration
for the successor in interest contract is
greater than or equal to the discounted
value using the discount rate
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established by CCC, except that special
provision will be made for successor in
interest contracts between immediate
family members and persons who
purchased a tobacco marketing quota
prior to October 22, 2004 and, in
accordance with 7 CFR part 723, placed
the quota on another person’s farm,
prior to such date, with consent of the
owner. The discount rate established by
USDA will be equal to the prime rate
plus two percentage points, rounded to
the nearest whole number (for .5 and
above, round up). In order for a
successor in interest contract to be
effective for the successive year
payments, the successor must file such
contract no later than November 1 for
such contract to be effective for the
following year and successive year
payments. In no case will CCC approve
a successor in interest contract if the
producer is indebted to any agency of
the United States and would be subject
to the offset of payment provisions of
the Debt Collection Improvement Act of
1996.
Deadlines
In summary, this rule contains two
important time periods: (1) The program
enrollment period which begins on
March 14, 2005 and ends on June 17,
2005; and (2) the 60-calendar-day period
from March 30, 2005 to May 31, 2005,
which is the time in which a person not
identified in FSA records as a tobacco
quota holder or tobacco producer on a
specific farm may submit a written
claim under the program.
Late-filed applications will be
accepted. However, if a person makes
application after June 17, 2005, that
person will not receive the 2005 TTPP
payment. For subsequent payments,
late-filed applications must be filed by
November 1 in order to receive
payments January of the next year.
Applicants will not be eligible to receive
payments otherwise issued in previous
years.
Refunds of Importer Assessments
This final rule also provides for a
Subpart C—Miscellaneous Provisions,
so that CCC may set forth regulations
needed in the administration of tobaccorelated activities. This subpart contains,
at this time, one provision relating to
the manner in which refunds relating to
assessments paid in the 2004 and prior
marketing years by importers of fluecured and burley tobacco may be
submitted. CCC has allowed refunds to
be made under 7 CFR 1464.105. New 7
CFR 1463.201 provides that CCC will no
longer accept requests for refunds after
August 1, 2005 for flue-cured tobacco
and November 1, 2005 for burley
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tobacco. This action is necessitated by
the need to terminate the operation of
the tobacco price support programs and
to provide for the transfer of flue-cured
and burley tobacco pledged as collateral
for CCC price support loans to
cooperative marketing associations as
provided for in section 641 of the 2004
Act.
Removal of Previous Tobacco Program
Regulations
Effective November 1, 2005, this rule
also will remove 7 CFR parts 723 and
1464, which provide the regulations for
the tobacco marketing quota and price
support programs, because they will no
longer be needed after the termination
of the program, as required by the 2004
Act. Removal of the parts is delayed
until November 1, 2005 to allow
completion of program activities.
Clarification of Tobacco Transition
Assessment Program Regulations
This rule makes several clarifications
in the regulations governing the
Tobacco Transition Assessments
published February 10, 2005 (70 FR
7007). The definitions of class of
tobacco and market share are revised for
clarity; § 1463.7(c) is revised regarding
the division of class assessment to
individual entities; and § 1463.8(b) is
revised regarding the notification of
assessments.
As provided in § 1463.7(a), the
amount of a quarterly assessment owed
by a domestic manufacturer or importer
of tobacco products that must be
remitted to CCC by the end of such
quarter is based upon the application of
the manufacturer’s or importer’s
adjusted market share (which is such
entity’s share of the market in the
immediately preceding calendar year
quarter) to the amount of the national
assessment that has been allocated to
one of the six specified tobacco product
sectors under § 1463.5. The obligation of
the manufacturer or importer to make
the payment is determined by its actions
in the quarter immediately preceding
the quarter in which the payment is
due. Accordingly, this amount must be
remitted to CCC whether or not the
manufacturer or importer is engaged in
the removal of tobacco or tobacco
products into commerce in the calendar
year quarter in which it receives
notification of the amount of assessment
owed at the end of such quarter. Section
1463.7 has been revised by adding
paragraph (f) to make this provision
clearer.
Cost/Benefit Assessment
The 2004 Act addresses major
changes in the market for tobacco and
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the structure of the tobacco industry in
general. The 2004 Act repeals marketing
quotas, acreage allotments and price
support loan programs for tobacco.
Largely because of the CCC price
support program, domestic tobacco is
higher-priced than imported tobacco,
and to maintain demand the domestic
market has been isolated from cheaper
imports. Over the past several years,
import restrictions have been reduced
and demand for domestic tobacco
declined in favor of cheaper imports.
Thus, to maintain a balance between
supply and demand, formulas provided
in the 1938 Act reduced the amount of
tobacco that could be grown for the
domestic market. Between 1997 and
2002 there was a 50-percent decline in
marketing quotas. The continued
decline of quotas cast doubt on the
continued viability of the quota and
price support system, and elicited
nationwide support repeal of the
statutory authority for the program and
for compensation for the lost value of
tobacco quotas.
The number of farms growing tobacco
in the United States declined from
512,000 in 1954 to 56,977 in 2002.
Besides quota reductions, the decline in
farm numbers resulted from the lease
and transfer of quota between farms,
within counties and across county lines.
Also, innovation and technology have
reduced labor requirements and
changed the economies of scale for
tobacco farming in general.
CCC is required to dispose of
accumulated tobacco loan stocks. Any
losses associated with such disposition
are to be covered through assessments
against tobacco manufacturers and
importers. While the total amount of
CCC uncommitted stocks cannot be
known with certainty before the
conclusion of the marketing year,
uncommitted stocks amounted to about
261 million pounds on December 31,
2004. The 2004 Act requires that a
portion of the loan stocks of each kind
of tobacco be disposed of by the
associations, which have entered into
loan agreements with the CCC, in an
amount determined by dividing their
no-net-cost accounts by the list price of
the loan stocks. Any stocks not
transferred to the associations will be
sold by CCC. The total of payments to
quota owners and producers is about
$9.6 billion (discussed below), leaving
approximately $540 million of the total
$10.14 billion maximum allowed
assessments available to cover CCC
losses on loan stocks and other eligible
expenses. CCC will determine the list
price of the loan stocks based upon the
approved grade loan rate for green
weight tobacco. Then the amounts in
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the no-net-cost accounts will be divided
by this price to determine the quantities
to distribute to the associations.
The expected impacts on tobacco
quota holders, producers, and
production as a result of these
regulations are pervasive. Elimination of
the tobacco program leaves remaining
producers with no government price
support for future production. In the
absence of price support, tobacco
producers will be subject to lower prices
and increased price volatility. Although
actual results cannot be determined, it
is reasonable to assume that credit to
finance production may be more
difficult to obtain, and farmers will be
reluctant to produce tobacco without
written contracts from tobacco
manufacturers that, in order to mitigate
price risk, clearly establish the quantity
of tobacco to be purchased and the price
to be paid. Contract production, already
representing a large portion of U.S.
tobacco production, will likely increase.
In the short run, tobacco prices should
fall and the number of producers will
decline. Income from quota rental,
which was about $325 million in the
flue-cured producing area in 1997, will
be altogether eliminated. However,
considering that quota values have
declined in anticipation of additional
reductions or program elimination, the
$7-per-pound rate in the Act is in the
range of quota values estimated by
several research colleges. Payments to
quota owners, based upon known
payment rates and applicable quota
levels, are estimated at about $6.7
billion.
Tobacco producers eligible for
payments under the 2004 Act are
estimated to receive about $2.9 billion,
based upon the specified payment rate
and known quota amounts. However, it
is possible that, as a result of the
transition payments, tobacco producers
and quota owners may not receive the
remaining Phase II payments of about
$2.6 billion. Phase II payments were
established in July 1999 in the National
Tobacco Grower Settlement Trust
Agreement, which provided for
payments of $5.15 billion over 12 years
to compensate tobacco growers and
quota holders for reductions in tobacco
production and sales resulting from the
Master Tobacco Settlement reached in
November 1998. The Fair and Equitable
Tobacco Reform Act does not refer to
Phase II, and the ongoing litigation
regarding the agreements does not
involve the Federal Government.
However, the Phase II agreement
provides that if future agreements
provide compensation to producers for
quota reductions or losses in
production, then there is to be a dollar-
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17157
for-dollar offset against Phase II
payments.
Producers remaining in tobacco
production are likely to experience
increased efficiencies as a result of the
2004 Act. Removal of location
restrictions will facilitate consolidation
into larger and more efficient
operations, while quota rents will be
eliminated. While tobacco prices are
expected to fall by 25 percent or more
in the short run, over the longer term
U.S. tobacco production is expected to
recover from its recent downward trend.
With domestically grown tobacco
becoming available at lower prices,
there will be reduced incentives to
import foreign tobacco and U.S.-origin
tobacco will be more competitive in the
world market. U.S. tobacco prices
should begin to recover after a few years
and those producers remaining in the
sector should see U.S. tobacco area and
production increase well above levels of
recent years.
The impact of the tobacco transition
payment program on U.S. cigarette
consumption is expected to be minimal,
but cigarette consumption is expected to
continue to decline as smokers find it
increasingly difficult to smoke and more
restrictions are imposed on places
where they can smoke. The transition
payments will result in the collection of
approximately $10.14 billion from
tobacco manufacturers and importers
over a 10-year period, or about $1.014
billion annually. Manufacturers and
importers are expected to pass these
costs on to consumers of tobacco
products and increase sales prices.
Tobacco product demand is much more
inelastic than supply. The price
elasticity of demand for cigarettes is
between ¥0.4 and ¥0.75, meaning that
a 1-percent rise in the price of cigarettes
reduces consumption by an estimated
0.4 percent to 0.75 percent. The average
retail price of cigarettes is $3.8066 per
pack and a 4.8-cent-per-pack increase in
the price would equate to a 1.3-percent
rise in the retail price. Thus, consumers
are not expected to reduce consumption
of tobacco products considerably due to
the expected increases in tobacco prices
attributable to the tobacco transition
payments.
Regulatory Flexibility Act
Executive Order 12866
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA) does not
apply to this rule because neither the
Secretary of Agriculture nor CCC is
required by 5 U.S.C. 553 or any other
law to publish a notice of proposed
rulemaking for the subject matter of this
rule. Also, the rule imposes no
mandates as defined in UMRA.
This final rule has been determined to
be economically significant under
Executive Order 12866 and has been
reviewed by the Office of Management
and Budget (OMB). A cost-benefit
assessment was completed and is
summarized above.
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The Regulatory Flexibility Act is not
applicable to this rule because neither
the Secretary of Agriculture nor CCC is
required by 5 U.S.C. 553 or any other
law to publish a notice of proposed
rulemaking for the subject matter of this
rule.
Environmental Review
The environmental impacts of this
rule have been considered under the
National Environmental Policy Act of
1969 (NEPA), 42 U.S.C. 4321 et seq., the
regulations of the Council on
Environmental Quality (40 CFR parts
1500–1508), and FSA regulations for
compliance with NEPA, 7 CFR part 799.
An Environmental Evaluation was
completed and it was determined that
the proposed action does not have the
potential to significantly impact the
quality of the human environment and,
therefore, the rule is categorically
excluded from further review under
NEPA. A copy of the environmental
evaluation is available for inspection
and review upon request.
Executive Order 12778
This final rule has been reviewed in
accordance with Executive Order 12778.
This final rule preempts State laws that
are inconsistent with its provisions, but
the rule is not retroactive. Before any
judicial action may be brought
concerning this rule, all administrative
remedies must be exhausted.
Executive Order 12372
This program is not subject to
Executive Order 12372, which requires
intergovernmental consultation with
State and local officials. See the notice
related to 7 CFR part 3015, subpart V,
published at 48 FR 29115 (June 24,
1983).
Federal Assistance Program
The title and number of the Federal
assistance program as found in the
Catalog of Federal Domestic Assistance,
to which this rule applies, are:
Commodity Loans and Purchases—
10.051.
Unfunded Mandates
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Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Rules and Regulations
Small Business Regulatory Enforcement
Fairness Act of 1996
Section 642(c) of the 2004 Act
requires that the Secretary use the
authority in section 808 of the Small
Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104–
121 (SBREFA), which allows an agency
to forgo SBREFA’s usual 60-day
Congressional Review delay of the
effective date of a major regulation if the
agency finds that there is a good cause
to do so. Accordingly, this rule is
effective upon the date of filing for
public inspection by the Office of the
Federal Register.
Paperwork Reduction Act
Section 642(b) of the 2004 Act
requires that these regulations be
promulgated and the program
administered without regard to the
Paperwork Reduction Act. This means
that the information to be collected from
the public to implement these programs
and the burden, in time and money, the
collection of the information would
have on the public do not have to be
approved by the Office of Management
and Budget or be subject to the normal
requirement for a 60-day public
comment period.
Government Paperwork Elimination
Act
CCC is committed to compliance with
the Government Paperwork Elimination
Act and the Freedom to E-File Act,
which require Government agencies in
general, and the FSA in particular, to
provide the public the option of either
submitting information or transacting
business electronically to the maximum
extent possible. Because of the need to
publish the regulations for this program
quickly, the forms and other
information collection activities
required by participation in the TTPP
are not yet fully implemented in a way
that would allow the public to conduct
business with FSA electronically.
Accordingly, applications for this
program may be submitted at the FSA
county offices in person, by mail, or by
facsimile.
List of Subjects
7 CFR Part 723
Acreage allotments, Cigarettes,
Marketing quotas, Penalties, Reporting
and recordkeeping requirements.
7 CFR Part 1463
Agriculture, Agricultural
commodities, Acreage allotments,
Marketing quotas, Price support
programs, Tobacco, Tobacco transition
payments.
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Jkt 205001
7 CFR Part 1464
tobacco product that is removed into
domestic commerce by each such entity:
Loan programs—tobacco, Price
(1) For cigarettes and cigars, on the
support programs—tobacco, Reporting
number of cigarettes and cigars reported
and recordkeeping requirements.
on such reports;
I Accordingly, 7 CFR chapters VII and
(2) For all other classes of tobacco, on
XIV are amended as follows:
the number of pounds of those products.
(c) In determining the adjusted market
CHAPTER VII—FARM SERVICE AGENCY,
share of each manufacturer or importer
DEPARTMENT OF AGRICULTURE
of a class of tobacco products, except for
cigars, CCC will determine to the fourth
PART 723—[REMOVED]
decimal place an entity’s share of excise
I 1. Remove 7 CFR part 723.
taxes paid of that class of tobacco
product during the immediately prior
CHAPTER XIV—COMMODITY CREDIT
calendar year quarter. With respect to
CORPORATION, DEPARTMENT OF
AGRICULTURE
cigars, CCC will determine the adjusted
market share for each manufacturer or
PART 1463—2005–2014—TOBACCO
importer of a class of tobacco products
TRANSITION PROGRAM
based on the number of such products
removed into domestic commerce.
I 2. The authority citation for part 1463
(d) The amount of a quarterly
continues to read as follows:
assessment owed by a domestic
Authority: 7 U.S.C. 714b and 714c; and
manufacturer or importer of tobacco
Title VI of Pub. L. 108–357.
products that must be remitted to CCC
by the end of a calendar year quarter is
Subpart A—Tobacco Transition
based upon the application of the
Assessments
manufacturer’s or importer’s adjusted
market share to the amount of the
I 3. In § 1463.3, revise the definitions for
national assessment that has been
class of tobacco and market share to read
allocated to one of the six specified
as follows:
tobacco product sectors under § 1463.5.
As provided in § 1463.3, this adjusted
§ 1463.3 Definitions.
market share is determined by the
*
*
*
*
*
actions of such manufacturer or
Class of tobacco means each of the
importer in a prior calendar year
following types of tobacco and tobacco
products for which taxes are required to quarter. Accordingly, this amount must
be remitted to CCC whether or not the
be paid for the removal of such into
manufacturer or importer is engaged in
domestic commerce: cigarettes; cigars;
the removal of tobacco or tobacco
snuff; roll-your-own tobacco; chewing
products into commerce in the calendar
tobacco; and pipe tobacco.
year quarter in which it receives
*
*
*
*
*
notification of the amount of assessment
Market share means the share of each
owed to CCC.
domestic manufacturer and importer of
I 5. Revise § 1463.8(b)(5) and (b)(6) to
a class of tobacco product, to the fourth
read as follows:
decimal place, of the total volume of
domestic sales of the class of tobacco
§ 1463.8 Notification of assessments.
product in the base period. Such sales
*
*
*
*
*
shall be determined by CCC by using the
(b) * * *
total volume of such class of tobacco
(5) The volume of gross sales of each
product that is removed into domestic
class of tobacco that CCC has allocated
commerce in the base period.
to the domestic manufacturer or
*
*
*
*
*
importer of tobacco products for the
purposes of determining such entity’s
I 4. Amend § 1463.7 by revising
adjusted market share. The volume of
paragraphs (b) and (c) and adding
gross sales of each class of tobacco
paragraph (d) to read as follows:
allocated to such an entity shall
§ 1463.7 Division of class assessment to
correspond to the quantity of the
individual entities.
tobacco product that is removed into
*
*
*
*
*
domestic commerce by each such entity;
(6) The total volume of gross sales of
(b) For purposes of determining the
each class of tobacco that CCC has
volume of domestic sales of each class
allocated to a class of tobacco, within
of tobacco products and for each entity,
the gross domestic volume determined
such sales shall be based upon the
reports filed by domestic manufacturers for use in a fiscal year, that was used for
the purpose of determining a tobacco
and importers of tobacco with the
manufacturer’s or tobacco importer’s
Department of Treasury and the
adjusted market share. The total volume
Department of Homeland Security and
of gross sales of each such class of
shall correspond to the quantity of the
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tobacco shall correspond to the total
quantity of the tobacco product that is
removed into domestic commerce.
*
*
*
*
*
I 6. Amend part 1463 by adding
Subparts B and C, to read as follows:
Subpart B—Tobacco Transition Payment
Program
Sec.
1463.100 General.
1463.101 Administration.
1463.102 Definitions.
1463.103 Eligible quota holder.
1463.104 Eligible tobacco producer.
1463.105 Base quota levels for eligible
quota holders.
1463.106 Base quota levels for eligible
tobacco producers.
1463.107 Payment to eligible quota holders.
1463.108 Payment to eligible tobacco
producers.
1463.109 Contracts.
1463.110 Misrepresentation and scheme or
device.
1463.111 Offsets and assignments.
1463.112 Successor in interest contracts.
1463.113 Issuance of payments in event of
death.
1463.114 Appeals.
Subpart C—Miscellaneous Provisions
1463.201 Refunds of importer assessments.
Subpart B—Tobacco Transition
Payment Program
§ 1463.100
General.
(a) The Commodity Credit
Corporation (CCC) will make payments
to tobacco quota holders and tobacco
producers as provided in this subpart
with respect to farms for which a
tobacco marketing quota had been
established by the Farm Service Agency
(FSA). To be eligible for a payment,
such person must meet all provisions of
this part; submit to CCC an application
provided by CCC to enter into a contract
for payment; and submit other
information as may be required by CCC.
Payments will be made by CCC annually
over a 10-year period.
(b) As provided in this part, a tobacco
quota holder or tobacco producer who is
not the subject of an outstanding claim
established by the United States may,
under the terms and conditions
established by CCC and with the prior
approval of CCC, enter into a successor
in interest contract with another person
or entity. Upon approval by CCC, all
rights and obligations of the quota
holder or producer, with respect to
payments made by CCC under this part,
will be terminated and transferred to the
successor party.
(c) As provided in this part, a tobacco
quota holder or tobacco producer who
may, under the terms and conditions
established by CCC, and with the prior
approval of CCC, may assign the right to
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receive a payment to be made under this
part by executing an assignment as
provided in § 1463.111.
(d) Notwithstanding any other
provision of this chapter, the provisions
of 7 CFR parts 723 and 1464 shall not
be applicable to the 2005 and
subsequent crops and the 2005 and
subsequent marketing years.
§ 1463.101
Administration.
(a) The program will be administered
under the general supervision of the
Executive Vice President, CCC, and
shall be carried out by FSA State and
county committees (State and county
committees).
(b) State and county committees and
their representatives and employees
have no authority to modify or waive
provisions of this subpart.
(c) The State committee shall take any
action required by the regulations of this
subpart that has not been taken by the
county committee. The State committee
shall also:
(1) Correct, or require a county
committee to correct, any action taken
by such county committee that is not in
accordance with this subpart; or
(2) Require a county committee to
withhold taking any action that is not in
accordance with this subpart.
(d) No provision or delegation herein
to a State or county committee shall
preclude the Executive Vice President,
CCC, or designee, from determining any
question arising under the program or
from reversing or modifying any
determination made by a State or county
committee. Further, the Executive VicePresident, CCC, or designee, may
modify any deadline in this subpart to
the extent doing so is determined to be
appropriate and consistent with the
purposes of the program.
(e) A representative of CCC may
execute a contract for a transition
payment only under the terms and
conditions of this part, and as
determined and announced by the
Executive Vice President, CCC. Any
contract that is not executed in
accordance with such terms and
conditions, including any purported
execution prior to the date authorized
by the Executive Vice President, CCC, is
null and void and shall not be
considered to be a contract between
CCC and any person executing the
contract.
§ 1463.102
Definitions.
The definitions in this section shall
apply for all purposes of administering
the Tobacco Transition Payment
Program (TTPP) authorized by this
subpart.
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17159
Act means the Fair and Equitable
Tobacco Reform Act of 2004.
Actual marketings means tobacco that
was disposed of in raw or processed
form by voluntary or involuntary sale,
barter, or exchange, or by gift between
living persons.
Actual undermarketings means the
amount by which the effective quota is
more than the amount of tobacco
marketed.
Assignee means the person designated
by a tobacco quota holder or tobacco
producer on the correct CCC form to
receive a payment to be made by CCC
under this subpart.
Assignor means the owner of a farm,
or a producer on a farm, who has been
determined by CCC to be eligible for a
payment under this subpart and who
has elected to assign to another person
on the correct CCC form, the payment to
be made by CCC under this subpart.
Average production yield means, for
each kind of tobacco, other than burley
(type 31) and flue-cured (types 11–14),
the average of the production of a kind
of tobacco in a county, on a per-acre
basis, for the 2001, 2002, and 2003 crop
years. For quota holders only, if no
records are available to provide the
average production of a kind of tobacco
in a county, the average yield will be the
production yield established by the
National Agricultural Statistical Service
of the Department of Agriculture
(NASS) for the 2002 marketing year for
the applicable kind of tobacco.
Basic allotment means the factored
allotment plus and minus permanent
adjustments.
Basic quota means the factored quota
plus permanent adjustments.
Base Quota Level (BQL) means the
payment pounds as determined under
this subpart.
Calendar year means the twelvemonths from January 1 through
December 31.
Claim means any amount of money
determined by any Federal agency to be
owed by a tobacco quota holder or a
tobacco producer to the United States,
or any agency or instrumentality
thereof, that has been the subject of a
completed debt collection activity that
is in compliance with the Debt
Collection Improvement Act of 1996.
Considered planted means tobacco
that was planted but failed to be
produced as a result of a natural
disaster, as determined by CCC.
Contract means a Tobacco Transition
Payment Quota Holder Contract, a
Tobacco Transition Payment Producer
Contract, a Tobacco Transition Payment
Quota Holder Successor In Interest
Contract, or a Tobacco Transition
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Payment Producer Successor In Interest
Contract.
Contract payment means a payment
made under a contract entered into
under this subpart.
Dependent means an offspring child
who is under 18 years of age.
Disaster lease means, as approved by
FSA, a written transfer by lease under
certain natural disaster conditions of
flue-cured or burley tobacco when the
transferring farm has suffered a loss of
production due to drought, excessive
rain, hail, wind, tornado, or other
natural disasters. A disaster transfer of
flue-cured tobacco must have occurred
after June 30 and on or before November
15. A disaster transfer of burley tobacco
must have occurred after July 1 and on
or before February 16 of the following
calendar year.
Effective allotment means the basic
farm allotment plus or minus temporary
adjustments.
Effective quota means the current year
farm marketing quota plus or minus any
temporary quota adjustments.
Effective undermarketings means the
smaller of the actual undermarketings or
the sum of the previous year’s basic
quota plus pounds of quota temporarily
transferred to the farm for the previous
year.
Eligible quota holder means only a
person who, as of October 22, 2004, has
either a fee simple interest or life estate
interest in the farm for which FSA
established a farm basic marketing quota
for the 2004 marketing year. An eligible
quota holder does not include any other
person who: claims a lien, security
interest or other similar equitable
interest in the farm or in any personal
asset of the owner of the farm or a
producer on the farm; has a remainder
interest or any other contingent interest
in the farm or in any personal asset of
the owner of the farm or a producer on
the farm; or who may have caused any
such marketing quota to have been
transferred to the farm.
Eligible tobacco producer means an
owner, operator, landlord, tenant, or
sharecropper who shared in the risk of
producing tobacco on a farm where
tobacco was produced, or considered
planted, pursuant to a tobacco poundage
quota or acreage allotment assigned to
the farm for the 2002, 2003 or 2004
marketing years and who otherwise
meets the requirements in § 1463.104.
Experimental tobacco means tobacco
grown by or under the direction of a
publicly-owned agricultural experiment
station for experimental purposes.
Factored allotment means allotment
that has been factored to equate it to the
2002 basic allotment level.
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Factored quota means quota that has
been factored to equate it to the 2002
basic quota level.
Family member means a parent;
grandparent or other direct lineal
ancestor; child or other direct lineal
descendent; spouse; or sibling of a
tobacco quota holder or tobacco
producer.
Farm means a farm as defined in part
718 of this title.
Fiscal year means the twelve-month
period from October 1 through
September 30.
Marketing year means, for flue-cured
tobacco, the period beginning July 1 of
the current year and ending June 30 of
the following year. For kinds of tobacco
other than flue-cured, the period
beginning October 1 of the current year
and ending September 30 of the
following year.
NASS means the National
Agricultural Statistics Service of USDA.
New farm means a farm for which a
basic marketing quota was established
for the 2003 or 2004 year from the
national reserve that is set aside for such
purposes from the national marketing
quota established for the applicable year
for the kind of tobacco.
Overmarketings means the pounds by
which the pounds marketed exceed the
effective farm marketing quota.
Permanent quota adjustments means
adjustments made by FSA under part
723 of this title for:
(1) Old farm adjustments from
reserve;
(2) Pounds of quota transferred to the
farm from the eminent domain pool;
(3) Pounds of quota transferred to or
from the farm by sale; or
(4) Pounds of forfeited quota.
Secretary means the Secretary of the
United States Department of
Agriculture.
Share in the risk of production means
having a direct financial interest in the
successful production of a crop of
tobacco through ownership of a direct
share in the actual proceeds derived
from the marketing of the crop, which
share is conditional upon the success of
that marketing.
Successor party means the means the
person who has assumed all rights and
obligations of a quota holder or tobacco
producer arising under this part by
executing a TTPP contract.
Temporary quota adjustments means
adjustments made by FSA under part
723 of this title for:
(1) Effective undermarketings;
(2) Overmarketings from any prior
year;
(3) Reapportioned quota from quota
released from farms in the eminent
domain pool;
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(4) Quota transferred by lease or by
owner, for all kinds of tobacco except
flue-cured and cigar tobacco; except for
flue-cured disaster lease;
(5) Violations of the provisions of part
723 of this title and part 1464 of this
chapter.
Tobacco means the following kinds of
tobacco: Burley tobacco (type 31); cigarfiller and cigar binder tobacco (types 42,
43, 44, 53, 54, and 55); dark air-cured
tobacco (types 35 and 36), fire-cured
tobacco (types 21, 22 and 23); flue-cured
tobacco (types 11, 12, 13 and 14); and
Virginia sun-cured tobacco (type 37).
TTPP effective quota means effective
quota plus or minus temporary
adjustments because of disaster lease
and transfer and before adjustment to
the 2002 level for establishment of BQL.
United States includes any agency
and instrumentality thereof.
§ 1463.103
Eligible quota holder.
(a) CCC will make a payment under
this subpart to a person determined by
CCC to be an eligible quota holder, as
defined in § 1463.102.
(b) The wetlands and highly erodible
land provisions of part 12 of this title,
the controlled substance provisions of
part 718 of this title, and the payment
limitation provisions of part 1400 of this
chapter shall not be applicable to
payments made under this part to an
eligible quota holder.
§ 1463.104
Eligible tobacco producer.
(a) CCC will make a payment under
this subpart to a person determined by
CCC to be an eligible tobacco producer,
as defined in § 1463.102.
(b) The wetlands and highly erodible
land provisions of part 12 of this title
and the controlled substance provisions
of part 718 of this title shall be
applicable to payments made under this
part to an eligible tobacco producer.
However, the payment limitation
provisions of part 1400 of this chapter
shall not be applicable to payments
made under this part to an eligible
tobacco producer.
(c) For purposes of determining if an
eligible tobacco producer has shared in
the risk of producing a crop in the 2002,
2003, or 2004 crop years, CCC will
consider evidence presented by a
producer that includes, but is not
limited to: written leases; contracts for
the purchase of tobacco; crop insurance
documents; or receipts for the purchase
of items used in the production of
tobacco.
§ 1463.105 Base quota levels for eligible
quota holders.
(a) The BQL is determined separately
for each kind of tobacco for each farm
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for which a 2004 basic marketing year
quota was established under part 723 of
this title. Any marketing quota assigned
by FSA to a new farm in 2003 or 2004,
other than through transfer from another
farm, shall not be considered when
determining the BQL.
(b) For burley tobacco quota holders
BQL is established according to the
following table, except as adjusted
under paragraph (e) of this section:
(1) Farm BQL. The 2004 basic quota,
multiplied by the BQL adjustment factor
1.071295. (Note: The factor adjusts the
2004 basic quota to the 2002 basic quota
level.)
(2) Quota holder BQL. The farm BQL
multiplied by the quota holder’s
ownership share in the farm. (Note: In
the case of undivided tract ownership,
BQL must be distributed among the tract
quota holders by the tract owners.)
(c) For flue-cured tobacco quota
holders the BQL is established
according to the following table, except
as adjusted under paragraph (e) of this
section:
(1) Farm BQL. The 2004 basic quota,
multiplied by the BQL adjustment factor
1.23457. (Note: The factor adjusts the
2004 basic quota to the 2002 level.)
(2) Quota holder BQL. The farm BQL
multiplied by the quota holder’s
ownership share in the farm. (Note: In
the case of undivided tract ownership,
BQL must be distributed among the tract
quota holders by the tract owner.)
(d) For quota holders of all other
kinds of tobacco the BQL is established
according to the following table, except
as adjusted under paragraph (e) of this
section:
(1) Farm BQL. The basic allotment
established for the farm in 2002
multiplied by the county average
production yield. The following NASS
yields are to be used for any county
without production:
(i) Fire-cured (type 21)—1746 lbs.
(ii) Fire-cured (types 22–23)—2676
lbs.
(iii) Dark Air-cured (types 35–36)—
2475 lbs.
(iv) Virginia Sun-cured (type 37)—
1502 lbs.
(v) Cigar Filler/Binder (types 42–44,
54, 55)—2230 lbs.
(2) Quota holder BQL. The farm BQL
multiplied by the quota holder’s
ownership share in the farm. (Note: In
the case of undivided tract ownership,
BQL must be distributed among the tract
quota holders by the tract owner.)
(e)(1) CCC will divide the BQL for the
farm between the parties to the
agreement as CCC determines to be fair
and equitable, taking into consideration
the proportionate amounts of cropland
sold, if:
(i) On or before October 22, 2004, the
owner of a farm had entered into an
agreement for the sale of all or a portion
of a farm for which a farm marketing
quota was established for the 2004
marketing year; and
(ii) Such agreement had not been
fulfilled or terminated prior to that date;
and
(iii) The parties to the agreement are
unable to agree to the disposition of the
contract payment to be made with
respect to the farm.
(2) If, on or before October 22, 2004,
the owner of a farm had entered into an
agreement for the permanent transfer of
all or a portion of a tobacco marketing
quota and the transfer had not been
completed by such date, the owner of
the farm to which such quota was to be
transferred shall be considered to be the
owner of the marketing quota for the
purposes of this subpart. The BQL’s for
the transferring farm and the receiving
farm will be adjusted to reflect this
transfer.
(f) Any tobacco marketing quota
preserved under part 1410 of this
chapter as the result of the enrollment
of a farm in the Conservation Reserve
Program shall be included in the
determination of the BQL of the farm.
§ 1463.106 Base quota levels for eligible
tobacco producers.
(a) BQL is determined separately, for
each of the years 2002, 2003 and 2004,
for each kind of tobacco and for each
17161
farm for which a 2002 farm marketing
quota had been established under part
723 of this title.
(b) The BQL for producers of burley
tobacco is established as follows:
(1) The 2002-crop year BQL for burley
producers is the 2002 effective quota
pounds actually marketed, adjusted for
disaster lease and transfer, and
considered-planted undermarketings
and overmarketings. The BQL is then
multiplied by the producer’s share in
the 2002 crop to determine the
producer’s 2002 BQL. The adjustments
for disaster lease and transfer and
considered-planted undermarketings
and overmarketings are made as follows:
(i) Disaster-leased pounds are added
to the marketings of the transferring
farm and deducted from the marketings
of the receiving farm;
(ii) Considered-planted pounds are
added to the farm’s actual marketings,
and includes only undermarketings that
were not part of the farm’s 2003
effective quota.
(iii) Pounds actually marketed as
overmarketings and sold penalty-free
are added to the farm BQL after the BQL
adjustment factor of 1.12486 has been
applied to the overmarketed pounds.
(2) The 2003-crop year BQL for burley
producers is the 2003 effective quota
pounds actually marketed, adjusted for
disaster lease and transfer and
considered-planted undermarketings
and overmarketings, as follows:
(i) Disaster leases are added to the
marketings of the transferring farm and
deducted from the marketings of
receiving farm.
(ii) Considered-planted pounds are
added to the farm’s actual marketings,
and includes only undermarketings that
were not part of the farm’s 2004
effective quota.
(iii) Pounds actually marketed as
overmarketings and sold penalty-free
are added to the farm BQL after the BQL
adjustment factor of 1.071295 has been
applied to the overmarketed pounds.
(iv) After these adjustments the BQL
is calculated as follows:
Step
Calculation
1 .......
Subtract all 2002 undermarketings from the 2003 marketings, including undermarketings from the parent farm in any special tobacco
combinations. Leased pounds are apportioned undermarketing history by dividing the transferring farm’s undermarketings by the
transferring farm’s effective quota, before any temporary transfers, resulting in the percentage of undermarketings that were leased.
Multiply the 2003 marketings remaining after Step 1 times 1.12486 (the 2003-BQL adjustment factor).
Add the undermarketings that were subtracted in Step 1 to the sum of Step 2 to determine the farm 2003 BQL.
Multiply the sum from Step 3 times the producer’s share in the 2003 crop to determine the producer’s 2003 BQL.
2 .......
3 .......
4 .......
(3) The 2004-crop year BQL for burley
producers is the 2004 effective quota
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before disaster lease and transfer is
calculated as follows:
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Step
Calculation
1 .......
Subtract all 2003 undermarketings from the 2004 effective quota, including undermarketings from the parent farm in any special tobacco combinations. Leased pounds are apportioned undermarketing history by dividing the transferring farm’s undermarketings by
the transferring farm’s effective quota, before any temporary transfers, resulting in the percentage of undermarketings that were
leased.
Multiply the 2004 effective quota remaining after Step 1 times 1.071295 (the 2004 BQL adjustment factor).
Multiply the undermarketings that were subtracted in Step 1 times 1.12486 (the 2003 BQL adjustment factor).
Add the effective quota from Step 2 to the undermarketings in Step 3 to determine the farm 2004 BQL.
Multiply the sum from Step 4 times the producer’s share in the 2004 crop to determine the producer’s 2004 BQL.
2
3
4
5
.......
.......
.......
.......
(c) The BQL for producers of fluecured tobacco is established by year, as
follows:
(1) The 2002-crop year BQL for fluecured producers is the effective 2002
quota actually marketed, adjusted for
disaster lease and transfer and
considered-planted undermarketings
and overmarketings. The BQL is then
multiplied by the producer’s share in
the 2002 crop to determine the
producer’s 2002 BQL. Adjustments for
disaster lease and transfer and
considered-planted undermarketings
and overmarketings are calculated as
follows:
(i) Disaster-leased pounds are added
to the marketings of the transferring
farm and deducted from the marketings
of the receiving farm;
(ii) Considered-planted pounds are
added to the farm’s actual marketings,
and include only undermarketings that
were not part of the farm’s 2003
effective quota.
(iii) Pounds actually marketed as
overmarketings and sold penalty-free
are added to the farm BQL after the BQL
adjustment factor of 1.10497 has been
applied to the overmarketed pounds.
(2) The 2003-crop year BQL for fluecured producers is the 2003 effective
quota actually marketed, adjusted for
disaster lease and transfer and
considered-planted undermarketings
and overmarketings, as follows:
(i) Disaster leases are added to the
marketings of the transferring farm and
deducted from the marketings of the
receiving farm.
(ii) Considered-planted pounds are
added to the farm’s actual marketings,
and includes only undermarketings that
were in not part of the farm’s 2004
effective quota.
(iii) Pounds actually marketed as
overmarketings and sold penalty-free
are added to the farm BQL after the BQL
adjustment factor of 1.23457 has been
applied to the overmarketed pounds.
(iv) After these adjustments the BQL
is calculated as follows:
Step
Calculation
1 .......
Subtract all 2002 undermarketings from the 2003 marketings, including undermarketings from the parent farm in any special tobacco
combinations.
Multiply the 2003 marketings remaining after Step 1 times 1.10497 (the 2003 BQL adjustment factor).
Add the undermarketings that were subtracted in Step 1 to the sum of Step 2 to determine the farm 2003 BQL.
Multiply the sum from step 3 times the producer’s share in the 2003 crop to determine the producer’s 2003 BQL.
2 .......
3 .......
4 .......
(3) The 2004-crop year BQL for fluecured producers is the 2004 effective
quota before disaster lease and transfer.
The 2004 BQL is calculated as follows:
Step
Calculation
1 .......
Subtract all 2003 undermarketings from the 2004 effective quota, including undermarketings from the parent farm in any special tobacco combinations.
Multiply the 2004 effective quota remaining after Step 1 times 1.23457 (the 2004 BQL adjustment factor).
Multiply the undermarketings that were subtracted in Step 1 times 1.10497 (the 2003 BQL adjustment factor).
Add the effective quota from Step 2 to the undermarketings in Step 3 to determine the farm 2004 BQL.
Multiply the sum from Step 4 times the producer’s share in the 2004 crop to determine the producer’s 2004 BQL.
2
3
4
5
.......
.......
.......
.......
(d) The BQL for producers of cigar
filler and binder tobacco is established
by years, as follows:
(1) The 2002-crop year BQL for cigar
filler and binder tobaccos is calculated
as follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2004 farm base pounds
total.
Multiply any 2002 special tobacco combination acres times the 2002-equivalence factor of 1.000.
Multiply the sum from Step 2 times the farm’s average yield for 2001, 2002, and 2003 to get the 2002 farm special tobacco combination
pounds total.
Add the sum from Step 1 to the sum from Step 3 to get the 2004 farm BQL total.
Multiply the sum from Step 4 times the producer’s share in the 2002 crop to get the producer 2002 BQL.
2 .......
3 .......
4 .......
5 .......
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17163
(2) The 2003-crop year BQL for cigar
filler and binder tobaccos is calculated
as follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2003 farm base pounds
total.
Multiply any 2003 special tobacco combination acres times the 2003 BQL adjustment factor of 0.8929.
Multiply the sum from Step 2 times the farm’s average yield for 2001, 2002, and 2003 to get the 2003 farm special tobacco combination
pounds total.
Add the sum from Step 1 to the sum from Step 3 to get the 2003 farm BQL total.
Multiply the sum from Step 4 times the producer’s share in the 2003 crop to get the producer 2003 BQL.
2 .......
3 .......
4 .......
5 .......
(3) The 2004-crop year BQL for cigarfiller and binder tobaccos is calculated
as follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2004 farm base pounds
total.
Multiply any 2004 special tobacco combination acres times the 2004 BQL adjustment factor of 0.9398.
Multiply the sum from Step 2 times the farm’s average yield for 2001, 2002, and 2004 to get the 2003 farm special tobacco combination
pounds total.
Add the sum from Step 1 to the sum from Step 3 to get the 2004 farm BQL total.
Multiply the sum from Step 4 times the producer’s share in the 2004 crop to get the producer 2004 BQL.
2 .......
3 .......
4 .......
5 .......
(e) The BQL’s for producers of all
kinds of tobacco other than burley, flue-
cured and cigar filler and binder, are
established by year, as follows.
(1) The 2002-crop year BQL’s for these
kinds of tobaccos are calculated as
follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2002 farm base pounds
total.
Multiply any 2002 special tobacco combination acres times the farm’s average yield for 2001, 2002, and 2003 to get the 2002 special
tobacco combinations pounds total.
Add the sum from Step 1 to the sum from Step 2.
Multiply any 2002 acres leased to or from the farm times the farm’s average yield for 2001, 2002, and 2003 to get the 2002 lease
pounds total. Then, to the sum from either:
(i) Step 3, add pounds leased to the farm to get the farm 2002 BQL total
(ii)Step 3, subtract pounds leased from the farm to get the farm 2002 BQL total.
Multiply the result from Step 4 times the producer’s share in the 2002 crop to get the producer 2002 BQL.
2 .......
3 .......
4 .......
5 .......
(2) The 2003-crop year BQL’s for these
kinds of tobaccos are calculated as
follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2003 farm base pounds
total.
Multiply any 2003 special tobacco combinations acres times the applicable 2003 BQL adjustment factor:
(i) Fire-cured (type 21)—1.0000
(ii) Fire-cured (types 22–23)—.980392
(iii) Dark Air-cured (35–36)—.952381
(iv) Virginia Sun-cured (type 37) 1.0000
Multiply the sum from Step 2 times the farm’s average yield for 2001, 2002, and 2003 to get the 2003 farm special tobacco combination
pounds total.
Add the sum from Step 1 to the sum from Step 3.
Multiply any 2003 acres leased times the applicable 2003 BQL adjustment factor:
(i) Fire-cured (type 21) 1.0000
(ii) Fire-cured (types 22–23)—.980392
(iii) Dark Air-cured (35–36)—.952381
(iv) Virginia Sun-cured (type 37) 1.0000
Multiply the sum from Step 5 times the farm’s average yield for 2001, 2002, and 2003 to get the 2003 lease pounds total.
To the sum from Step 4 either:
(i) Add pounds from Step 6 leased to the farm to get the farm 2003 BQL total
(ii) Subtract pounds from Step 6 leased from the farm to get the farm 2003 BQL total.
2 .......
3 .......
4 .......
5 .......
6 .......
7 .......
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Step
8 .......
Calculation
Multiply the sum from Step 7 times the producer’s share in the 2003 crop to get the producer 2003 BQL total.
(3) The 2004-crop year BQL’s for these
kinds of tobaccos are calculated as
follows:
Step
Calculation
1 .......
Multiply the 2002 farm’s basic allotment times the farm’s average yield for 2001, 2002, and 2003 to get the 2004 farm base pounds
total.
Multiply any 2004 special tobacco combinations acres times the applicable 2004 BQL adjustment factor:
(i) Fire-cured (type 21) 1.0000
(ii) Fire-cured (types 22–23)—.951837
(iii) Dark Air-cured (35–36)—.94264
(iv) Virginia Sun-cured (type 37) 1.0000
Multiply the sum from Step 2 times the farm’s average yield for 2001, 2002, and 2003 to get the 2004 farm special tobacco combination
pounds total.
Add the sum from Step 1 to the sum from Step 3.
Multiply any 2004 acres leased times the applicable 2004 BQL adjustment factor:
(i) Fire-cured (type 21) 1.0000
(ii) Fire-cured (types 22–23)—.951837
(iii) Dark Air-cured (35–36)—.92464
(iv) Virginia Sun-cured (type 37) 1.0000
Multiply the sum from Step 5 times the farm’s average yield for 2001, 2002, and 2003 to get the 2004 lease pounds total.
To the sum from Step 4 either:
(i) Add pounds from Step 6 leased to the farm to get the farm 2004 BQL total
(ii) Subtract pounds from Step 6 leased from the farm to get the farm 2004 BQL total.
Multiply the sum from Step 7 times the producer’s share in the 2004 crop to get the producer 2004 BQL total.
2 .......
3 .......
4 .......
5 .......
6 .......
7 .......
8 .......
§ 1463.107
holders.
Payment to eligible quota
(a) The total amount of contract
payments that may be made to an
eligible quota holder shall be the
product obtained by multiplying:
$7.00 per pound × the BQL for the quota
holder as determined under § 1463.105
for each kind of tobacco
(b) During each of the fiscal years
2005 through 2014, CCC will make a
payment to each eligible quota holder in
an amount equal to 10 percent of the
total amount due under a contract
entered into under this subpart, except
that in the case an application was filed
after June 17, 2005, the applicant will
receive only the TTPP payments that
have not been made as of the date the
contract is approved. However, in order
for the contract participant to receive
the 2005 TTPP payment an application
to enter into a TTPP contract must be
filed no later than June 17, 2005. CCC
may, in its discretion, extend any
deadline set forth in this paragraph.
However, CCC will make the FY 2005
payment between June and September
of 2005, and subsequent payments will
be made in January, to the extent
practicable, of each FY.
§ 1463.108 Payment to eligible tobacco
producers.
(a) Subject to paragraph (b) of this
section, the total amount of contract
payments that may be made to an
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eligible tobacco producer shall be the
product obtained by multiplying:
$3.00 per pound × the BQL for the
producer determined under § 1463.106
for each kind of tobacco
(b) Payments to an eligible producer
shall be equal to:
(1) For an eligible producer that
produced tobacco that was marketed or
considered by CCC as planted under a
marketing quota in all of the 2002, 2003,
and 2004 marketing years, 100 percent
of the rate specified in paragraph (a) of
this section;
(2) For an eligible producer that
produced tobacco that was marketed or
considered by CCC as planted under a
marketing quota in any two of the 2002,
2003, and 2004 marketing years, 2/3 of
the rate specified in paragraph (a) of this
section; and
(3) For an eligible producer that
produced tobacco that was marketed, or
considered by CCC as planted under a
marketing quota in any one of the 2002,
2003, and 2004 marketing years, 1/3 of
the rate specified in paragraph (a) of this
section.
(c) During each of the fiscal years
2005 through 2014, CCC will make a
payment to each eligible producer in an
amount equal to 10 percent of the total
amount due under a contract entered
into under this subpart except that in
the case an application was filed after
June 17, 2005, the applicant will receive
only the TTPP payments that have not
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been made as of the date the contract is
approved. However, in order for the
contract participant to receive the 2005
TTPP payment, an application to enter
into a TTPP contract must be filed no
later than June 17, 2005. CCC may, in
its discretion, extend any deadline set
forth in this paragraph. However, CCC
will make the FY 2005 payment
between June and September of 2005,
and subsequent payments will be made
in January, to the extent practical, of
each FY.
§ 1463.109
Contracts.
(a) CCC will enter into a contract with
eligible tobacco quota holders and
producers. To the extent a person has
filed such a contract with CCC, but a
final administrative decision has not
been made with respect to such person’s
status as an eligible quota holder or
tobacco producer prior to the final
enrollment date, CCC will enter into
such a contract only upon the issuance
of a final determination of eligibility
and the passing of any deadline for any
administrative appeal under parts 780
and 11 of this title.
(b)(1) If contracts or other written
claims are provided to CCC by June 3,
2005, by two or more persons with
respect to the same tobacco BQL used to
calculate a program payment, CCC will
not issue such payment until CCC has
determined the eligibility status of each
claimant.
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(2) If CCC has made a payment to a
person after June 3, 2005, a person who
is not an eligible holder or producer, as
identified on FSA records, for such
farm, or claims to be an eligible tobacco
holder or producer and submits a
contract or other written claim with
CCC for the same quota used to issue the
initial payment, CCC will issue no
further payments for such farm until
CCC has determined the eligibility
status of each person who has submitted
a contract or other written claim for
such farm and the occurrence of the
repayment of the initial payment made
by CCC.
§ 1463.110
or device.
Misrepresentation and scheme
A person must refund all payments
received on all contracts entered into
under this subpart, plus interest as
determined in accordance with part
1403 of this chapter, and pay to CCC
liquidated damages as specified in the
contract, if CCC determines the person
has:
(a) Erroneously represented any fact
affecting a program determination made
in accordance with this subpart;
(b) Adopted any scheme or device
that tends to defeat the purpose of the
program; or
(c) Made any fraudulent
representation affecting a program
determination made in accordance with
this subpart.
§ 1463.111
Offsets and assignments.
(a) TTPP payments made to any
person under this subpart shall be made
without regard to questions of title
under State law and without regard to
any claim or lien against the tobacco
quota, tobacco marketing allotment, or
the farm for which a tobacco quota had
been established under part 723 of this
title by any creditor or any other person.
(b) The provisions of part 1404 of this
title shall not apply to this part.
(c) A quota holder or tobacco
producer who is eligible to receive a
payment under this part may assign a
payment, or a portion thereof, to be
made under this part to another person
using the correct CCC form. Such an
assignment will become effective upon
approval by CCC. In order to provide for
the orderly issuance of payments under
this part, CCC may limit, in its sole
discretion, the number of assignments
that may be made with respect to a
contract.
(d)(1) CCC will establish, after
consultation with the Department of the
Treasury, a discount rate that reflects
the value of any remaining payments
due under this part if such payments
were to be made as a lump sum
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payment in the current year. Unless
there is consideration for such contract
in an amount equal to or greater than
the discounted value of the payments,
subject to the assignment, based on the
discount rate established for such
payments by CCC, CCC will not approve
any assignment other than to:
(i) A family member; or
(ii) A party who had purchased a
tobacco marketing quota prior to
October 22, 2004 and had placed the
quota on a farm with the owner’s
consent prior to that date in the manner
that had been prescribed by FSA under
part 723 of this chapter.
(2) The discount rate established by
CCC will be determined by adding 200
basis points to the prime lending rate,
as determined by CCC. If this sum is a
fraction of a number, CCC will round
the discount rate to the nearest whole
number. Rounding of a half percent will
be to the next higher whole number.
(e) CCC will issue a payment to an
assignee only to the extent and amount
of payment that CCC would otherwise
have issued to the quota holder or
producer in the absence of the
assignment. In accordance with part
1403 of this title, any claim owed by the
assignor to the United States will be
deducted from any payment made
under this part prior to the issuance of
the payment to the assignee.
(f) CCC will report to the Internal
Revenue Service any payment assigned
under this section as income earned by
the assignor.
§ 1463.112
contracts.
Successor in interest
(a) A quota holder or tobacco
producer who is eligible to receive a
payment under this part, and for whom
a claim has not been established by the
United States, may enter into a
successor in interest contract with
another party using the correct CCC
form. Such successor in interest contract
will become effective upon approval by
CCC, and will not include the 2005
payment. Only one such successor in
interest contract may be entered into by
a quota holder or tobacco producer with
respect to a farm for each kind of
tobacco.
(b) Annually, CCC will establish, after
consultation with the Department of the
Treasury, a discount rate that reflects
the value of any remaining payments
due under this part if such payments
were to be made as a lump sum
payment in the current year. This
discount rate will be determined as
provided in § 1463.111(d)(2). Unless
there is consideration for such contract
in an amount equal to or greater than
the discounted value of the payments,
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17165
subject to the successor in interest or
contract, based on the discount rate
established for such payments by CCC,
CCC will not approve any succession in
interest contract other than to:
(1) A family member; or
(2) A party who had purchased a
tobacco marketing quota prior to
October 22, 2004 and had placed the
quota on a farm with the owner’s
consent prior to that date in the manner
that had been prescribed by FSA under
part 723 of this chapter.
(c) CCC will issue a payment, except
the 2005 payment, to a successor party
only if such party is otherwise in
compliance with all other applicable
regulations, which includes for
successors to producer contracts only
the wetlands and highly erodible land
provisions of part 12 of this chapter. In
accordance with part 1403 of this title,
any claim owed by the successor party
to the United States will be deducted
from any payment made under this part
prior to the issuance of the payment to
the successor party.
(d) CCC will report to the Internal
Revenue Service any payment made
under a successor in interest contract as
income earned by the successor party.
§ 1463.113
of death.
Issuance of payments in event
If a quota holder or tobacco producer
who is eligible to receive a payment
under this subpart dies, the right to
receive payments shall be transferred to
the estate of the quota holder or tobacco
producer unless such person is survived
by a spouse or one or more dependents,
in which case the right to receive the
payments shall be transferred to the
surviving spouse.
§ 1463.114
Appeals.
A person may obtain reconsideration
and review of any adverse
determination made under this subpart
in accordance with the appeal
regulations found at parts 11 and 780 of
this title.
Subpart C—Miscellaneous Provisions
§ 1463.201 Refunds of importer
assessments.
Assessments paid on imported fluecured or burley tobacco under sections
106A and 106B of the Agricultural Act
of 1949 with respect to imports in the
2004 and prior marketing years may be
refunded by CCC in accordance with the
provisions of 7 CFR 1464.105 that were
in effect prior to March 30, 2005, so long
as such request for refunds are filed in
accordance with such part no later than:
(a) August 1, 2005 for flue-cured
tobacco; and
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(b) November 1, 2005 for burley
tobacco.
PART 1464—[REMOVED]
I
7. Remove part 1464.
Signed at Washington, DC, March 29, 2005.
James R. Little,
Administrator, Farm Service Agency, and
Executive Vice-President, Commodity Credit
Corporation.
[FR Doc. 05–6455 Filed 3–30–05; 12:10 pm]
BILLING CODE 3410–05–U
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Agencies
[Federal Register Volume 70, Number 63 (Monday, April 4, 2005)]
[Rules and Regulations]
[Pages 17150-17166]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-6455]
[[Page 17149]]
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Part II
Department of Agriculture
-----------------------------------------------------------------------
Farm Service Agency
7 CFR Part 723
Commodity Credit Corporation
7 CFR Parts 1463 and 1464
-----------------------------------------------------------------------
Tobacco Transition Payment Program; Final Rule
Federal Register / Vol. 70, No. 63 / Monday, April 4, 2005 / Rules
and Regulations
[[Page 17150]]
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 723
Commodity Credit Corporation
7 CFR Parts 1463 and 1464
RIN 0560-AH30
Tobacco Transition Payment Program
AGENCY: Commodity Credit Corporation and Farm Service Agency, USDA.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule provides regulations for the Tobacco Transition
Payment Program (TTPP), as required by Title VI of the American Jobs
Creation Act of 2004 (the 2004 Act), ending the tobacco marketing quota
and price support loan programs. The TTPP will provide payments over a
ten-year period to quota holders and producers of quota tobacco to help
them make the transition from the federally-regulated program. This
rule also removes from the Code of Federal Regulations obsolete tobacco
program provisions at 7 CFR parts 723 and 1464.
DATES: Effective Date: This rule will be effective March 30, 2005,
except for the removal of 7 CFR parts 723 and 1464, which will be
effective November 1, 2005.
FOR FURTHER INFORMATION CONTACT: Ann Wortham, Tobacco Division, Farm
Service Agency (FSA), United States Department of Agriculture (USDA),
Stop 0514, 1400 Independence Ave., SW., Washington, DC 20250-0514.
Phone: (202) 720-2715; e-mail: ann.wortham@wdc.usda.gov. Persons with
disabilities who require alternative means for communication (Braille,
large print, audio tape, etc.) should contact the USDA Target Center at
(202) 720-2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Notice and Comment
Section 642(b) of the 2004 Act requires that these regulations be
promulgated without regard to the notice and comment provisions of 5
U.S.C. 553 or the Statement of Policy of the Secretary of Agriculture
effective July 24, 1971, (36 FR 13804) relating to notices of proposed
rulemaking and public participation in rulemaking. These regulations
are thus issued as final.
Background
General Overview
Sections 611 through 613 of the American Jobs Creation Act of 2004
(Pub. L. 108-357; the 2004 Act) repeal the tobacco marketing quota and
related price support programs authorized by Title III of the
Agricultural Adjustment Act of 1938 (the 1938 Act) and the Agricultural
Act of 1949. This action is effective at the end of the 2004 marketing
years established for the respective kinds of tobacco that are subject
to such quotas. The regulations used to administer the marketing quota
program are codified at 7 CFR part 723 and the price support loan
program regulations are codified at 7 CFR part 1464.
Sections 621 through 624 of the 2004 Act provide for transitional
payments to tobacco quota holders and producers. Eligible tobacco quota
holders and producers will receive payments under this program in 10
installments in each of the 2005 through 2014 fiscal years (FYs). To
the extent practical, the Commodity Credit Corporation (CCC) intends to
make the FY 2005 payment between June and September of 2005, and
subsequent payments during January of each FY.
Transition payments will be based on the Basic Quota Levels (BQLs)
determined for each farm, and then for quota holders' ownership shares
in the farm and producers' shares in the risk of producing quota
tobacco on the farm during the years 2002, 2003 and 2004. For example,
if a quota holder is the sole owner of a farm to which quota was
assigned for the 2002 marketing year, the BQL established for that farm
will also be the BQL for that quota holder. Similarly, if the quota
holder has only a one-third ownership share in the farm, that quota
holder's BQL will be one third of the BQL established for the farm.
Sections 625 through 627 of the 2004 Act provide for the
establishment of assessments on certain domestic manufacturers and
importers of tobacco products in order to fund the TTPP. The
regulations relating to the manner in which the assessment provisions
of the 2004 Act are to be administered are set forth in 7 CFR part 1463
subpart A.
TTPP contract payments are made by CCC and have the same
contractual sanctity as other CCC payments. Accordingly, while the
source of the funding is primarily derived from assessments levied upon
manufacturers and importers of tobacco products, the obligation arising
from these contracts that accrues to CCC is the same as for any other
CCC contract.
Eligible Quota Holders
Payments
Generally, this rule provides for payments to be made to persons
who owned farms on October 22, 2004 for which tobacco quota was
assigned for the 2004 marketing year. Payments to such persons, or
quota holders, are based on the marketing quota assigned to the farm
for the 2002 marketing year, as provided by 7 CFR part 723. The payment
rate is $7 per pound of eligible quota, to be paid in equal
installments over 10 years.
Generally, this rule also provides for payments to producers of
quota tobacco. Overmarketings and undermarketings play a part in
calculating burley and flue-cured producer BQL. They are both
conditions that are the result of an action in one year that cause
temporary quota adjustments the following year.
Overmarketings are tobacco pounds sold during a marketing year in
excess of a farm's effective marketing quota for that year. The excess
pounds of tobacco sold in one year are deducted from the next year's
marketing quota for that farm.
Undermarketings for burley or flue-cured tobacco are tobacco that
could have been sold during a marketing year but were not. There are
two categories of undermarketings: actual and effective. Actual
undermarketings are the pounds of tobacco by which the effective quota
is more than the pounds of tobacco marketed during a marketing year.
Effective undermarketings are the smaller of the actual undermarketings
or the sum of the previous year's basic quota on the farm plus pounds
that were temporarily transferred to that farm for the previous year.
The BQL calculation must consider in what year these over/under
pounds were originally assigned to a farm because under the former
tobacco program marketing quotas were adjusted each year by a national
factor determined by CCC to account for changes in supply and demand.
Because payments are to be based on 2002 quota levels, the quotas for
each year must be adjusted to the 2002 level. For example,
undermarketings that are carried forward from 2002 to 2003 are pounds
that were already at the 2002 level. Therefore, in calculating 2003 BQL
these 2002 undermarketings are deducted from the 2003 marketings; the
BQL factor is applied to the remaining 2003 marketings to bring them to
the 2002 level; and then the 2002 undermarketings are added back into
the process. The adjustment process is more fully described in the
Eligible
[[Page 17151]]
Quota Producers section of this Preamble.
The 2004 Act specifically addresses the situation where permanent
transfers of tobacco-marketing quota were initiated prior to October
22, 2004, but not completed as of that date. Accordingly, in the case
of the incomplete transfer of an entire farm, where the quota
distribution has not been agreed upon, CCC has determined that the
eligible tobacco quota holder will be considered to be the person
contractually bound to purchase the entire farm. Similarly, the 2004
Act provides that where there was in existence on October 21, 2004, an
agreement for the permanent transfer of the tobacco quota, but the
transfer was not completed by October 21, 2004, the owner of the farm
to which the tobacco quota was to be transferred will be considered to
be the eligible tobacco quota holder.
If a written agreement was initiated before October 22, 2004 for
the purchase of all or a portion of a farm, the transition payment will
be disbursed as specified in the agreement so long as the resulting
distribution is consistent with the 2004 Act. If a written agreement
was initiated before October 22, 2004 for the purchase of all or a
portion of a farm and the agreement specified the distribution of the
farm's tobacco quota and the parties to the agreement do not concur
about the manner in which such quota would be assigned to the different
portions of the farm, payments will be made in a fair and equitable
manner as determined by CCC taking into account any incomplete
permanent transfer of such quota. Where there was a sale of part of the
farm not yet completed by October 22, 2004, CCC will divide the
disputed quota taking into account the ratio of cropland on the unsold
portion of the farm to the cropland on the portion of the farm subject
to the purchase contract.
Disputes
In the event there is a dispute regarding the determination of
which persons are eligible quota holders on a farm, no payment to any
quota holder on that farm will be made until all parties have agreed or
until all administrative appeals have been exhausted. Also, if a farm
is determined eligible for a permanent tobacco quota and all or part of
that farm is sold after October 22, 2004, the tobacco quota attributed
to the owner of the farm as of October 22, 2004 cannot be transferred
for purposes of determining a TTPP payment. In addition, consistent
with the manner in which CCC administers other commodity programs, a
person who holds a life-estate interest in a farm with a tobacco quota
will be considered the owner of the farm in determining who is an
eligible tobacco quota holder. A person with a remainder interest, any
other contingent interest, or any equitable interest as a creditor or
otherwise in such farm or marketing quota will not be considered to be
an owner of the farm for purposes of determining a TTPP payment. If
such a person believes that a private sales transaction did not take
into account these statutory and regulatory provisions, a private
resolution of such a dispute must be undertaken by the parties to the
contract; neither FSA nor CCC will participate in the resolution of
such matter.
There may have been transfers of farms that were not reported to
FSA, or incomplete transfers of tobacco quotas and farms as of October
22, 2004. Accordingly, in order to ensure that only persons who meet
the requirements of the 2004 Act receive a TTPP payment, and to reduce
debt collection efforts with respect to persons who improperly
represented their eligibility status to CCC, CCC will require program
participants to make certain representations regarding whether the
tobacco quota or their farm had been transferred to another person.
This rule provides that if a person who is not the tobacco quota
holder for a farm, as identified in FSA records, submits a TTPP
contract or other written claim to CCC before May 31, 2005, no payments
will be made with respect to such farm until CCC has determined the
eligibility status of each claimant and any other person who may be
eligible to receive the payment. This 60-day period is intended to
provide an opportunity for anyone who should have reported to FSA under
7 CFR part 723, but did not (1) claim ownership in a farm or tobacco
quota or; (2) transfer ownership of a farm or tobacco quota. If a
contract or written claim is submitted to CCC after May 31, 2005, and
either, the first TTPP payment is made to the tobacco quota holder
identified in FSA records, or collected by CCC of FSA by administrative
offset or other action, additional payments will not be made on the
subject TTPP contract until CCC can determine the status of the
competing claimants. The rule also provides that if a contract or other
written claim is provided to CCC by May 31, 2005 by two or more persons
for the same tobacco quota used to calculate a TTPP payment, no payment
will be issued until CCC determines the eligibility status of each
claimant. Therefore, in anticipation of disputes concerning assignment
of a farm marketing quota for purposes of determining the TTPP payment,
any person who intends to enter into a TTPP contract is advised to
visit the USDA service center in the county where the farm is located
to make corrections or changes to records that relate to the farm.
Quota Holder Assignments and Successor in Interest Contracts
Any quota holder may assign the payment to another party, using the
correct CCC form, so long as the consideration for the assignment is
greater than or equal to the discounted value based on the discount
rate established by CCC, except that special provision will be made for
assignments between immediate family members and persons who purchased
a tobacco marketing quota prior to October 22, 2004 and, in accordance
with 7 CFR part 723, placed the quota on anther person's farm, prior to
such date, with consent of the owner. The discount rate will be
established by CCC at the prime rate plus two percentage points rounded
to the nearest whole number.
Any quota holder may execute a successor in interest contract for
their TTPP payments, except the 2005 payment, by using the correct CCC
form, and subject to the following conditions: (1) The quota holder
must not be subject to the payment offset provisions of the Debt
Collection Improvement Act of 1996 as a result of a debt to any agency
of the United States; (2) Consideration for the succession to TTPP
payments must be greater than or equal to the discounted value of the
remaining payment stream based on the discount rate established by CCC,
except that special provision will be made for assignments between
immediate family members and persons who purchased a tobacco marketing
quota prior to October 22, 2004 and, in accordance with 7 CFR part 723,
placed the quota on anther person's farm, prior to such date, with
consent of the owner; and (3) For payments to be issued the following
January for the 2006 and successive year payments, the successor must
file a successor in interest contract no later than November 1 of the
preceding year.
Once it has been determined that a tobacco quota holder is eligible
for a payment under this rule, and CCC has executed a TTPP contract
with such quota holder, the person may sell all or a portion of his
farm and still receive the TTPP payments. CCC will not execute a TTPP
contract with a person who was the buyer of the farm in a transaction
that took place after October 22, 2004 unless the seller who had
previously been determined by CCC to
[[Page 17152]]
be an eligible quota holder has executed a successor in interest
contract, using the correct CCC form, in which the seller transfers all
rights and obligations to the successor party, as approved by CCC.
Eligible Quota Producers
Generally, this rule provides for payments to persons who produced
a crop or part of a crop of tobacco subject to a marketing quota in one
or more of the 2002, 2003, and 2004-crop years. The Secretary will
establish a base quota level (BQL) for each producer based on the 2002
marketing year effective quota produced on the farm each of the years
2002, 2003 and 2004. Marketing quota temporarily leased to a farm under
disaster conditions will not be included in the receiving farm
producer's BQL. The total payment of $3 per pound of eligible quota is
to be paid at a rate of \1/3\ that rate, or $1 per pound, for each of
the years 2002, 2003 and 2004 in which the producer shared in the risk
of producing the quota tobacco.
Where two or more persons shared in the risk of producing the same
quota pound (for flue-cured and burley tobaccos only--effective
undermarketings) the pound shall not be included in the producer's BQL
for the year the effective undermarketing was suffered. Effective
undermarketings are carried forward from the year suffered to the
farm's next established marketing quota. These pounds were not factored
when determining the national basic quota for the applicable year under
7 CFR part 723.
Actual undermarketings (flue-cured and burley tobacco only) that
were not allowed to be carried forward to the farm's next established
quota may be included in the producer's BQL where suffered to the
extent the pounds were considered planted as defined under this
subpart.
For burley tobacco, effective undermarketing pounds that were
reduced under 7 CFR 723.206(c) in the 2004 marketing year will be
included in the 2003 marketing year producer's BQL to the extent the
quota was considered planted as defined under this subpart during the
2003 marketing year.
Overmarketings (flue-cured and burley only) exist when a farm
markets in excess of the farm's effective quota established under 7 CFR
part 723 and are deducted from the farm's next established marketing
quota. To the extent the farm marketed penalty-free, these quota pounds
will be included in the producer's BQL for the year in which the pounds
were actually marketed, except in the 2004 marketing year.
Overmarketings will be excluded from the 2004 marketing year producer's
BQL because these pounds were not deducted from the farm's next
established marketing quota.
For flue-cured and burley farms that temporarily leased quota
pounds from the farm during the marketing year under disaster
conditions these pounds will be included in the transferring farm's
producer BQL and reduced from the receiving farm's producer BQL for the
applicable year.
For tobaccos other than flue-cured and burley, marketing quotas
were established under 7 CFR part 723 in acreage allotments. The
acreage allotments will be converted to poundage quotas for purposes of
determining the producer's BQL. In order to convert 2002 basic
allotments established under 7 CFR part 723 to poundage quotas the
allotment established will be multiplied by the farm's three-year
average yield for the 2001, 2002 and 2003 crop years.
For all tobaccos for which temporary transfers of marketing quota
were allowed under 7 CFR part 723 the producer's BQL will be adjusted
to consider these pounds. An upward adjustment will be made to the
receiving farm producer's BQL and a downward adjustment will be made to
the transferring farm producer's BQL for each applicable year.
In order to calculate the producer's BQL for 2003 and 2004
marketing years, the BQL must be converted to the equivalent of the
2002 effective quota (flue-cured and burley) or the 2002 basic quota
(tobaccos other than flue-cured and burley) level. This conversion will
reverse the national marketing quota adjustments made by the Secretary
for each applicable year. For this reason each producer's BQL for 2003
and 2004 will be broken down between basic quota pounds (adjusted
annually by the Secretary) and effective undermarketing pounds (pounds
for which two or more persons may have been at risk). Basic quota
pounds will be adjusted using the BQL adjustment factor for the
applicable kind of tobacco as shown in Table 1. The adjustment factor
was determined for 2003 by dividing one by the national factor
determined by FSA under 7 CFR part 723 for 2003 and, for 2004 by
dividing one by the product of the national factor for 2003 times the
national factor for 2004. The BQL factor, when applied to the 2003 or
2004 basic quota, will equate those years' basic quotas to the 2002
basic quota level. Effective undermarketings in the 2003 marketing year
will not be adjusted because they were carried forward from the 2002
marketing year at the 2002 basic quota level. Effective undermarketings
for the 2004 marketing year will be adjusted to the 2002 basic quota
level using the 2003 adjustment factor shown in Table 1. These pounds
were adjusted in 2003 from the 2002 level and will be factored to the
2002 basic quota level.
For burley farms where temporary transfers (not including disaster
transfers) were approved, the receiving farm will be apportioned
undermarketing pound history by dividing the transferring farm's prior
year undermarketing pounds by the transferring farm's effective quota
(before any temporary transfers) to determine a factor for
apportionment of undermarketing pounds.
The receiving farm's share of undermarketing pounds will be
determined by multiplying the transferring farm's apportionment factor
by the receiving farms pounds leased from the transferring farm. The
result will be subtracted from the total pounds leased into the
receiving farm so the applicable BQL adjustment factor (Table 1) can be
applied. The adjusted undermarketings leased to the receiving farm will
be added to the receiving farm producer's BQL and subtracted from the
transferring farm producer's BQL.
Table 1.--National Factors and BQL Adjustment Factors
------------------------------------------------------------------------
Kind of Tobacco 2003 2004
------------------------------------------------------------------------
Burley (type 31)............. National Factor .889 1.05
BQL Adjustment \1\ \2\
Factor. 1.124860 1.071295
Flue-Cured (types 11-14)..... National Factor .905 .895
BQL Adjustment \1\1.104970 \2\
Factor. 1.234570
Fire-Cured (type 21)......... National Factor 1.00 1.00
BQL Adjustment \1\ 1.00 \2\ 1.00
Factor.
Fire-Cured (types 22-23)..... National Factor 1.02 1.03
[[Page 17153]]
BQL Adjustment \1\.980392 \2\.951837
Factor.
Dark Air-Cured (types 35-36). National Factor 1.05 1.03
Factor.
BQL Adjustment. \1\.952381 \2\.924640
Va Sun-Cured (type 37)....... National Factor 1.00 1.00
BQL Adjustment \1\ 1.00 \2\ 1.00
Factor.
Cigar Filler/Binder (types 42- National Factor 1.12 .95
44 and 54-55).
BQL Adjustment \1\.892900 \2\.939800
Factor.
------------------------------------------------------------------------
\1\ 2003 BQL adjustment factors were determined by dividing 1 by the
2003 national factor for the applicable kind of tobacco.
\2\ 2004 BQL adjustment factors were determined by dividing 1 by the
product of the 2003 national factor times the 2004 national factor for
the applicable kind of tobacco.
Examples of BQL calculations are illustrated below.
Farm Example 1
Example 1 shows the BQL calculation for a single flue-cured
producer for a farm that had no under-or over-marketings from a
previous year, no temporary transfers (disaster), and marketed the
entire effective quota for each of the years 2002, 2003 and 2004.
Farm Example 1.--Flue-Cured Tobacco Farm
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Basic Quota................................................ + 1,000 905 810
Effective Undermarketings (previous year).................. + 0 0 0
Overmarketings (previous year)............................. - 0 0 0
Lease Transfer To.......................................... + 0 0 0
Lease Transfer From........................................ - 0 0 0
Effective Quota............................................ = 1,000 905 810
Disaster Lease Transfer To................................. - 0 0 0
Disaster Lease Transfer From............................... + 0 0 0
TTPP Effective Quota (w/disaster leases)................... = 1,000 905 810
Actual Marketings.......................................... ... 1,000 905 810
Overmarketings............................................. ... 0 0 0
Actual Undermarketings..................................... ... 0 0 0
Effective Undermarketings.................................. ... 0 0 0
BQL Adjustment Factor...................................... x 1.000000 1.104970 1.234570
Farm BQL................................................... = 1,000 1,000 1,000
Producer Share............................................. x 1.000 1.000 1.000
-----------------
Total Payments......................................... = $1,000 $1,000 $1,000
----------------------------------------------------------------------------------------------------------------
Farm Example 2
Example 2 shows the BQL calculation for a single burley producer
for a farm that had temporary transfers (not disaster) in 2002, 2003
and 2004. This farm did not have any under-or over-marketings from a
previous year.
Farm Example 2.--Burley Tobacco Farm
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Basic Quota................................................ + 1,000 889 933
Effective Undermarketings (previous year).................. + 0 0 0
Overmarketings (previous year)............................. - 0 0 0
Lease Transfer To.......................................... + 0 0 0
Lease Transfer From........................................ - 500 500 500
Effective Quota............................................ = 500 389 433
Disaster Lease Transfer To................................. - 0 0 0
Disaster Lease Transfer From............................... + 0 0 0
TTPP Effective Quota (w/disaster leases)................... = 500 389 433
Actual Marketings.......................................... ... 500 389 433
Overmarketings............................................. ... 0 0 0
Actual Undermarketings..................................... ... 0 0 0
Effective Undermarketings.................................. ... 0 0 0
BQL Adjustment Factor...................................... x 1.000000 1.124860 1.071295
BQL........................................................ = 500 438 464
Producer share............................................. x 1.000 1.000 1.000
-----------------
Total Payments......................................... = $500 $438 $464
----------------------------------------------------------------------------------------------------------------
[[Page 17154]]
Farm Example 3:
Example 3 shows the BQL calculation for a single burley producer
for a farm that had undermarketings from a previous year. In this
example it is important to understand the separation of basic quota
pounds from undermarketing pounds that are necessary in order to
convert the 2003 or 2004 effective marketing quota to the applicable
2002 effective marketing quota level. As shown in this example the
burley farm's basic quota for 2002 was 1,000 pounds and effective
undermarketings (from 2001 marketing year) carried forward were 100
pounds. No temporary adjustments for leasing took place. The farm's
2002 effective quota was determined to be 1,100 pounds. The farm
actually marketed 1,025 pounds which resulted in 75 pounds of actual
undermarketings. Because the actual undermarketings are less than
effective undermarketings brought forward from the 2001 marketing
year all 75 pounds would be considered effective undermarketing in
determining the farm's 2003 effective quota. Since the 75 pounds of
effective undermarketings are included in both the 2002 and 2003
effective quota for the farm, the 75 pounds will be deducted from
the producers BQL determined for 2002. In this case the producer's
BQL for 2002 would be 1,025 pounds and the payment would be
calculated as 1,025 pounds BQL multiplied by $1, or $1,025 for the
producer with a 100-percent share in the 2002 crop.
In calculating the producer's BQL for the 2003 crop year the
farm's marketing quota must be divided between basic quota pounds
and undermarketings. This example shows the farm's basic quota was
reduced from the 2002 marketing year (1,000 pounds) to the 2003 (889
pounds) marketing year. The farm has previous year effective
undermarketings from 2002 (75 pounds). So that no pound is paid
twice, the farm's actual marketings will be considered as the
primary factor in determining the risk in production for the 2003
marketing year. Effective undermarketings will be deducted from the
actual marketings so that the appropriate BQL adjustment factor from
Table 1 can be applied to the basic quota. After adjusting the
actual marketings to the 2002 effective quota level, the farm's
adjusted marketing quota may, to the extent the quota was considered
planted under this subpart, be adjusted upward to include the
previous year effective undermarketing quota pounds in the
producer's BQL.
The 2003 BQL calculation was performed as follows: 2002
effective undermarketings brought forward to 2003 marketing quota
(75 pounds) are deducted from the farm's 2003 actual marketings (914
pounds). This is the necessary step to establish the farm's basic
quota pounds so they can be adjusted to the 2002 basic quota level
(839 pounds will be adjusted by the BQL adjustment factor of 1.12486
from Table 1). Once the 2002 basic quota level has been determined
(944 pounds) the results must be adjusted to include the 2002
effective undermarketings (75 pounds). In this example the
producer's BQL would be 1,019 pounds (944 pounds basic quota plus 75
pounds effective undermarketings) and the payment would be
calculated as 1,019 pounds BQL multiplied by $1, or $1,019 for the
producer with a 100-percent share in the 2003 crop.
In calculating the producer's BQL for the 2004 crop year the
farm's marketing quota at the 2002 effective quota level the farm's
effective quota must be divided between basic quota pounds and
undermarketings. This example shows the farm's basic quota was
increased from the 2003 marketing year (889 pounds) to the 2004 (993
pounds) marketing year, however the adjustment was still less than
the 2002 marketing year (1,000 pounds) established for the farm. The
farm's effective undermarketings from 2003 (50 pounds) will be
deducted from the farm's basic quota (933 pounds) in order to
convert the basic quota pounds to the 2002 basic quota level (933
pounds will be adjusted by the BQL adjustment factor of 1.071295 in
Table 1). Once the 2002 basic quota level has been determined (1,000
pounds) the results must be adjusted to include the 2003 effective
undermarketings (50 pounds will be adjusted by the BQL adjustment
factor of 1.12486 from Table 1 or 56 pounds). The producer's 2004
BQL would be 1,056 pounds (1,000 pounds basic quota plus 56 pounds
effective undermarketings) and the payment would be calculated as
1,056 pounds BQL multiplied by $1 or $1,056 for the producer with a
100 percent share in the 2004 crop. Since 2004 effective
undermarketings and overmarketings will not be considered in
establishing future year marketing quotas (program was repealed
beginning with the 2005 crop year by the 2004 Act) the actual
undermarketings suffered will be paid to the producer at risk during
2004 crop year on the farm. Similarly, had this farm overproduced
and marketed in excess of the 2004 effective quota penalty-free,
those pounds would not be considered in calculating the producer's
BQL for 2004 because they could not be deducted from the next
established marketing quota for the farm.
Farm Example 3.--Burley Tobacco Farm
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Basic Quota................................................ + 1,000 899 933
Effective Undermarketings (previous year).................. + 100 75 50
Overmarketings (previous year)............................. - 0 0 0
Lease Transfer To.......................................... + 0 0 0
Lease Transfer From........................................ - 0 0 0
Effective Quota............................................ - 1100 964 983
Disaster Lease Transfer To................................. - 0 0 0
Disaster Lease Transfer From............................... + 0 0 0
TTPP Effective Quota....................................... - 1100 964 983
Actual Marketings.......................................... ... 1025 914 983
Overmarketings............................................. ... 0 0 0
Actual Undermarketings..................................... ... 75 50 0
Effective Undermarketings.................................. ... 75 50 0
BQL Adjustment Factor...................................... x .............. 1.124860 1.071295
Farm BQL................................................... = 1,025 1,019 1,056
Producer share............................................. x 1.000 1.000 1.000
-----------------
Total Payments......................................... = $1,025 $1,019 $1,056
----------------------------------------------------------------------------------------------------------------
Farm Example 4
Example 4 shows the BQL calculation for a single flue-cured
producer for a farm that had a temporary transfer (disaster) each of
the years 2002, 2003 and 2004. This farm did not have any under- or
over-marketings from a previous year.
[[Page 17155]]
Farm Example 4.--Flue-Cured Tobacco Farm
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Basic Quota................................................ + 1,000 905 810
Effective Undermarketings (previous year).................. + 0 0 0
Overmarketings (previous year)............................. - 0 0 0
Effective Quota............................................ = 0 0 0
Disaster Lease to.......................................... - 0 0 0
Disaster Lease from........................................ + 1,000 905 810
TTPP Effective Quota (w/disaster leases)................... = 1,000 905 810
Actual Marketings.......................................... ... 0 0 0
Overmarketings............................................. ... 0 0 0
Actual Undermarketings..................................... ... 0 0 0
Effective Undermarketings.................................. ... 0 0 0
BQL Adjustment Factor...................................... x 1.0000 1.104970 1.234570
Farm BQL................................................... = 1,000 1,000 1,000
Producer share............................................. x 1.000 1.000 1.000
-----------------
Total Payments......................................... ... $1,000 $1,000 $1,000
----------------------------------------------------------------------------------------------------------------
Farm Example 5
Example 5 shows the BQL calculation for a single dark air-cured
producer for a farm that had a temporary transfer to the farm each
of the years 2002, 2003 and 2004.
Farm Example 5.--Dark Air-Cured Tobacco Farm
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Basic Allotment (acres).................................... + 3.52 3.70 3.81
Temporary Leased to........................................ + 1.00 1.00 1.00
Temporary Leased from...................................... - 0 0 0
Effective Allotment (acres)................................ = 4.52 4.70 4.81
BQL Adjustment Factor...................................... x 1.0000 1.0497 1.23457
Effective Allotment at the 2002 Level...................... = 4.52 4.48 4.45
Farm's 2001-03 Average Yield (lbs./acre)................... x 3,037 3,037 3,037
TTPP Effective Quota (Farm's Allotment Converted to Pounds) = 13,727 13,606 13,515
Farm BQL................................................... = 13,727 13,606 13,515
Producer Share............................................. x 1.000 1.000 1.000
-----------------
Total Payments......................................... = $13,727 $13,606 $13,515
----------------------------------------------------------------------------------------------------------------
Multiple Producers on a Farm
The 2004 Act provides that when more than one producer shared in
the risk of producing tobacco on a farm in one or more of the 2002,
2003, and 2004 crop years, the producer may divide the payment on the
farm in such manner as is fair and equitable. The producer must divide
the payment in the same manner as all other CCC farm program payments
are made by taking into consideration the degree to which a producer
was at risk in the production of the crop in each of those three years.
Subject to the preceding adjustment to reflect each producer's share in
the production of each of the three crop years, a producer who produced
tobacco in one of those years will receive \1/3\ of the payment
determined for the producers on the farm; a producer who produced
tobacco in two of those years will receive \2/3\ of the payment; and a
producer who produced tobacco in all three years will receive all of
the payment.
Disputes
In the event there is a dispute regarding the determination of
which persons are eligible quota producers on a farm, no payment to a
quota producer on such farm will be made until all parties have agreed
or until all administrative appeals have been exhausted.
Producer share information on the TTPP contract shall be obtained
from FSA-578 reported shares. Producers may change share percentages;
however all producers on the farm for the applicable year must agree
with the division of quota shares, not to exceed 100 percent. If
producers are unable to agree with the share percentages, no payments
to a quota producer on such farm will be made until all administrative
appeals have been exhausted.
Producer Assignments and Successor in Interest Contracts
Any producer may assign the payment to another party, using the
correct CCC form, so long as the consideration for the assignment is
greater than or equal to the discounted value using the discount rate
established by the CCC, except that special provision will be made for
assignments between immediate family members, and persons who purchased
a tobacco marketing quota prior to October 22, 2004 and, in accordance
with 7 CFR part 723, placed the quota on another person's farm, prior
to such date, with consent of the owner. The discount rate established
by CCC will be equal to the prime rate plus two percentage points,
rounded to the nearest whole number (for .5 and above, the rate will be
rounded up).
Any producer may execute a successor in interest contract (except
that the producer may not execute a successor in interest contract for
the 2005 TTPP payment) using the correct CCC form, so long as the
consideration for the successor in interest contract is greater than or
equal to the discounted value using the discount rate
[[Page 17156]]
established by CCC, except that special provision will be made for
successor in interest contracts between immediate family members and
persons who purchased a tobacco marketing quota prior to October 22,
2004 and, in accordance with 7 CFR part 723, placed the quota on
another person's farm, prior to such date, with consent of the owner.
The discount rate established by USDA will be equal to the prime rate
plus two percentage points, rounded to the nearest whole number (for .5
and above, round up). In order for a successor in interest contract to
be effective for the successive year payments, the successor must file
such contract no later than November 1 for such contract to be
effective for the following year and successive year payments. In no
case will CCC approve a successor in interest contract if the producer
is indebted to any agency of the United States and would be subject to
the offset of payment provisions of the Debt Collection Improvement Act
of 1996.
Deadlines
In summary, this rule contains two important time periods: (1) The
program enrollment period which begins on March 14, 2005 and ends on
June 17, 2005; and (2) the 60-calendar-day period from March 30, 2005
to May 31, 2005, which is the time in which a person not identified in
FSA records as a tobacco quota holder or tobacco producer on a specific
farm may submit a written claim under the program.
Late-filed applications will be accepted. However, if a person
makes application after June 17, 2005, that person will not receive the
2005 TTPP payment. For subsequent payments, late-filed applications
must be filed by November 1 in order to receive payments January of the
next year. Applicants will not be eligible to receive payments
otherwise issued in previous years.
Refunds of Importer Assessments
This final rule also provides for a Subpart C--Miscellaneous
Provisions, so that CCC may set forth regulations needed in the
administration of tobacco-related activities. This subpart contains, at
this time, one provision relating to the manner in which refunds
relating to assessments paid in the 2004 and prior marketing years by
importers of flue-cured and burley tobacco may be submitted. CCC has
allowed refunds to be made under 7 CFR 1464.105. New 7 CFR 1463.201
provides that CCC will no longer accept requests for refunds after
August 1, 2005 for flue-cured tobacco and November 1, 2005 for burley
tobacco. This action is necessitated by the need to terminate the
operation of the tobacco price support programs and to provide for the
transfer of flue-cured and burley tobacco pledged as collateral for CCC
price support loans to cooperative marketing associations as provided
for in section 641 of the 2004 Act.
Removal of Previous Tobacco Program Regulations
Effective November 1, 2005, this rule also will remove 7 CFR parts
723 and 1464, which provide the regulations for the tobacco marketing
quota and price support programs, because they will no longer be needed
after the termination of the program, as required by the 2004 Act.
Removal of the parts is delayed until November 1, 2005 to allow
completion of program activities.
Clarification of Tobacco Transition Assessment Program Regulations
This rule makes several clarifications in the regulations governing
the Tobacco Transition Assessments published February 10, 2005 (70 FR
7007). The definitions of class of tobacco and market share are revised
for clarity; Sec. 1463.7(c) is revised regarding the division of class
assessment to individual entities; and Sec. 1463.8(b) is revised
regarding the notification of assessments.
As provided in Sec. 1463.7(a), the amount of a quarterly
assessment owed by a domestic manufacturer or importer of tobacco
products that must be remitted to CCC by the end of such quarter is
based upon the application of the manufacturer's or importer's adjusted
market share (which is such entity's share of the market in the
immediately preceding calendar year quarter) to the amount of the
national assessment that has been allocated to one of the six specified
tobacco product sectors under Sec. 1463.5. The obligation of the
manufacturer or importer to make the payment is determined by its
actions in the quarter immediately preceding the quarter in which the
payment is due. Accordingly, this amount must be remitted to CCC
whether or not the manufacturer or importer is engaged in the removal
of tobacco or tobacco products into commerce in the calendar year
quarter in which it receives notification of the amount of assessment
owed at the end of such quarter. Section 1463.7 has been revised by
adding paragraph (f) to make this provision clearer.
Cost/Benefit Assessment
The 2004 Act addresses major changes in the market for tobacco and
the structure of the tobacco industry in general. The 2004 Act repeals
marketing quotas, acreage allotments and price support loan programs
for tobacco.
Largely because of the CCC price support program, domestic tobacco
is higher-priced than imported tobacco, and to maintain demand the
domestic market has been isolated from cheaper imports. Over the past
several years, import restrictions have been reduced and demand for
domestic tobacco declined in favor of cheaper imports. Thus, to
maintain a balance between supply and demand, formulas provided in the
1938 Act reduced the amount of tobacco that could be grown for the
domestic market. Between 1997 and 2002 there was a 50-percent decline
in marketing quotas. The continued decline of quotas cast doubt on the
continued viability of the quota and price support system, and elicited
nationwide support repeal of the statutory authority for the program
and for compensation for the lost value of tobacco quotas.
The number of farms growing tobacco in the United States declined
from 512,000 in 1954 to 56,977 in 2002. Besides quota reductions, the
decline in farm numbers resulted from the lease and transfer of quota
between farms, within counties and across county lines. Also,
innovation and technology have reduced labor requirements and changed
the economies of scale for tobacco farming in general.
CCC is required to dispose of accumulated tobacco loan stocks. Any
losses associated with such disposition are to be covered through
assessments against tobacco manufacturers and importers. While the
total amount of CCC uncommitted stocks cannot be known with certainty
before the conclusion of the marketing year, uncommitted stocks
amounted to about 261 million pounds on December 31, 2004. The 2004 Act
requires that a portion of the loan stocks of each kind of tobacco be
disposed of by the associations, which have entered into loan
agreements with the CCC, in an amount determined by dividing their no-
net-cost accounts by the list price of the loan stocks. Any stocks not
transferred to the associations will be sold by CCC. The total of
payments to quota owners and producers is about $9.6 billion (discussed
below), leaving approximately $540 million of the total $10.14 billion
maximum allowed assessments available to cover CCC losses on loan
stocks and other eligible expenses. CCC will determine the list price
of the loan stocks based upon the approved grade loan rate for green
weight tobacco. Then the amounts in
[[Page 17157]]
the no-net-cost accounts will be divided by this price to determine the
quantities to distribute to the associations.
The expected impacts on tobacco quota holders, producers, and
production as a result of these regulations are pervasive. Elimination
of the tobacco program leaves remaining producers with no government
price support for future production. In the absence of price support,
tobacco producers will be subject to lower prices and increased price
volatility. Although actual results cannot be determined, it is
reasonable to assume that credit to finance production may be more
difficult to obtain, and farmers will be reluctant to produce tobacco
without written contracts from tobacco manufacturers that, in order to
mitigate price risk, clearly establish the quantity of tobacco to be
purchased and the price to be paid. Contract production, already
representing a large portion of U.S. tobacco production, will likely
increase. In the short run, tobacco prices should fall and the number
of producers will decline. Income from quota rental, which was about
$325 million in the flue-cured producing area in 1997, will be
altogether eliminated. However, considering that quota values have
declined in anticipation of additional reductions or program
elimination, the $7-per-pound rate in the Act is in the range of quota
values estimated by several research colleges. Payments to quota
owners, based upon known payment rates and applicable quota levels, are
estimated at about $6.7 billion.
Tobacco producers eligible for payments under the 2004 Act are
estimated to receive about $2.9 billion, based upon the specified
payment rate and known quota amounts. However, it is possible that, as
a result of the transition payments, tobacco producers and quota owners
may not receive the remaining Phase II payments of about $2.6 billion.
Phase II payments were established in July 1999 in the National Tobacco
Grower Settlement Trust Agreement, which provided for payments of $5.15
billion over 12 years to compensate tobacco growers and quota holders
for reductions in tobacco production and sales resulting from the
Master Tobacco Settlement reached in November 1998. The Fair and
Equitable Tobacco Reform Act does not refer to Phase II, and the
ongoing litigation regarding the agreements does not involve the
Federal Government. However, the Phase II agreement provides that if
future agreements provide compensation to producers for quota
reductions or losses in production, then there is to be a dollar-for-
dollar offset against Phase II payments.
Producers remaining in tobacco production are likely to experience
increased efficiencies as a result of the 2004 Act. Removal of location
restrictions will facilitate consolidation into larger and more
efficient operations, while quota rents will be eliminated. While
tobacco prices are expected to fall by 25 percent or more in the short
run, over the longer term U.S. tobacco production is expected to
recover from its recent downward trend. With domestically grown tobacco
becoming available at lower prices, there will be reduced incentives to
import foreign tobacco and U.S.-origin tobacco will be more competitive
in the world market. U.S. tobacco prices should begin to recover after
a few years and those producers remaining in the sector should see U.S.
tobacco area and production increase well above levels of recent years.
The impact of the tobacco transition payment program on U.S.
cigarette consumption is expected to be minimal, but cigarette
consumption is expected to continue to decline as smokers find it
increasingly difficult to smoke and more restrictions are imposed on
places where they can smoke. The transition payments will result in the
collection of approximately $10.14 billion from tobacco manufacturers
and importers over a 10-year period, or about $1.014 billion annually.
Manufacturers and importers are expected to pass these costs on to
consumers of tobacco products and increase sales prices. Tobacco
product demand is much more inelastic than supply. The price elasticity
of demand for cigarettes is between -0.4 and -0.75, meaning that a 1-
percent rise in the price of cigarettes reduces consumption by an
estimated 0.4 percent to 0.75 percent. The average retail price of
cigarettes is $3.8066 per pack and a 4.8-cent-per-pack increase in the
price would equate to a 1.3-percent rise in the retail price. Thus,
consumers are not expected to reduce consumption of tobacco products
considerably due to the expected increases in tobacco prices
attributable to the tobacco transition payments.
Executive Order 12866
This final rule has been determined to be economically significant
under Executive Order 12866 and has been reviewed by the Office of
Management and Budget (OMB). A cost-benefit assessment was completed
and is summarized above.
Regulatory Flexibility Act
The Regulatory Flexibility Act is not applicable to this rule
because neither the Secretary of Agriculture nor CCC is required by 5
U.S.C. 553 or any other law to publish a notice of proposed rulemaking
for the subject matter of this rule.
Environmental Review
The environmental impacts of this rule have been considered under
the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et
seq., the regulations of the Council on Environmental Quality (40 CFR
parts 1500-1508), and FSA regulations for compliance with NEPA, 7 CFR
part 799. An Environmental Evaluation was completed and it was
determined that the proposed action does not have the potential to
significantly impact the quality of the human environment and,
therefore, the rule is categorically excluded from further review under
NEPA. A copy of the environmental evaluation is available for
inspection and review upon request.
Executive Order 12778
This final rule has been reviewed in accordance with Executive
Order 12778. This final rule preempts State laws that are inconsistent
with its provisions, but the rule is not retroactive. Before any
judicial action may be brought concerning this rule, all administrative
remedies must be exhausted.
Executive Order 12372
This program is not subject to Executive Order 12372, which
requires intergovernmental consultation with State and local officials.
See the notice related to 7 CFR part 3015, subpart V, published at 48
FR 29115 (June 24, 1983).
Federal Assistance Program
The title and number of the Federal assistance program as found in
the Catalog of Federal Domestic Assistance, to which this rule applies,
are: Commodity Loans and Purchases--10.051.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does
not apply to this rule because neither the Secretary of Agriculture nor
CCC is required by 5 U.S.C. 553 or any other law to publish a notice of
proposed rulemaking for the subject matter of this rule. Also, the rule
imposes no mandates as defined in UMRA.
[[Page 17158]]
Small Business Regulatory Enforcement Fairness Act of 1996
Section 642(c) of the 2004 Act requires that the Secretary use the
authority in section 808 of the Small Business Regulatory Enforcement
Fairness Act of 1996, Public Law 104-121 (SBREFA), which allows an
agency to forgo SBREFA's usual 60-day Congressional Review delay of the
effective date of a major regulation if the agency finds that there is
a good cause to do so. Accordingly, this rule is effective upon the
date of filing for public inspection by the Office of the Federal
Register.
Paperwork Reduction Act
Section 642(b) of the 2004 Act requires that these regulations be
promulgated and the program administered without regard to the
Paperwork Reduction Act. This means that the information to be
collected from the public to implement these programs and the burden,
in time and money, the collection of the information would have on the
public do not have to be approved by the Office of Management and
Budget or be subject to the normal requirement for a 60-day public
comment period.
Government Paperwork Elimination Act
CCC is committed to compliance with the Government Paperwork
Elimination Act and the Freedom to E-File Act, which require Government
agencies in general, and the FSA in particular, to provide the public
the option of either submitting information or transacting business
electronically to the maximum extent possible. Because of the need to
publish the regulations for this program quickly, the forms and other
information collection activities required by participation in the TTPP
are not yet fully implemented in a way that would allow the public to
conduct business with FSA electronically. Accordingly, applications for
this program may be submitted at the FSA county offices in person, by
mail, or by facsimile.
List of Subjects
7 CFR Part 723
Acreage allotments, Cigarettes, Marketing quotas, Penalties,
Reporting and recordkeeping requirements.
7 CFR Part 1463
Agriculture, Agricultural commodities, Acreage allotments,
Marketing quotas, Price support programs, Tobacco, Tobacco transition
payments.
7 CFR Part 1464
Loan programs--tobacco, Price support programs--tobacco, Reporting
and recordkeeping requirements.
0
Accordingly, 7 CFR chapters VII and XIV are amended as follows:
CHAPTER VII--FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE
PART 723--[REMOVED]
0
1. Remove 7 CFR part 723.
CHAPTER XIV--COMMODITY CREDIT CORPORATION, DEPARTMENT OF AGRICULTURE
PART 1463--2005-2014--TOBACCO TRANSITION PROGRAM
0
2. The authority citation for part 1463 continues to read as follows:
Authority: 7 U.S.C. 714b and 714c; and Title VI of Pub. L. 108-
357.
Subpart A--Tobacco Transition Assessments
0
3. In Sec. 1463.3, revise the definitions for class of tobacco and
market share to read as follows:
Sec. 1463.3 Definitions.
* * * * *
Class of tobacco means each of the following types of tobacco and
tobacco products for which taxes are required to be paid for the
removal of such into domestic commerce: cigarettes; cigars; snuff;
roll-your-own tobacco; chewing tobacco; and pipe tobacco.
* * * * *
Market share means the share of each domestic manufacturer and
importer of a class of tobacco product, to the fourth decimal place, of
the total volume of domestic sales of the class of tobacco product in
the base period. Such sales shall be determined by CCC by using the
total volume of such class of tobacco product that is removed into
domestic commerce in the base period.
* * * * *
0
4. Amend Sec. 1463.7 by revising paragraphs (b) and (c) and adding
paragraph (d) to read as follows:
Sec. 1463.7 Division of class assessment to individual entities.
* * * * *
(b) For purposes of determining the volume of domestic sales of
each class of tobacco products and for each entity, such sales shall be
based upon the reports filed by domestic manufacturers and importers of
tobacco with the Department of Treasury and the Department of Homeland
Security and shall correspond to the quantity of the tobacco product
that is removed into domestic commerce by each such entity:
(1) For cigarettes and cigars, on the number of cigarettes and
cigars reported on such reports;
(2) For all other classes of tobacco, on the number of pounds of
those products.
(c) In determining the adjusted market share of each manufacturer
or importer of a class of tobacco products, except for cigars, CCC will
determine to the fourth decimal place an entity's share of excise taxes
paid of that class of tobacco product during the immediately prior
calendar year quarter. With respect to cigars, CCC will determine the
adjusted market share for each manufacturer or importer of a class of
tobacco products based on the number of such products removed into
domestic commerce.
(d) The amount of a quarterly assessment owed by a domestic
manufacturer or importer of tobacco products that must be remitted to
CCC by the end of a calendar year quarter is based upon the application
of the manufacturer's or importer's adjusted market share to the amount
of the national assessment that has been allocated to one of the six
specified tobacco product sectors under Sec. 1463.5. As provided in
Sec. 1463.3, this adjusted market share is determined by the actions
of such manufacturer or importer in a prior calendar year quarter.
Accordingly, this amount must be remitted to CCC whether or not the
manufacturer or importer is engaged in the removal of tobacco or
tobacco products into commerce in the calendar year quarter in which it
receives notification of the amount of assessment owed to CCC.
0
5. Revise Sec. 1463.8(b)(5) and (b)(6) to read as follows:
Sec. 1463.8 Notification of assessments.
* * * * *
(b) * * *
(5) The volume of gross sales of each class of tobacco that CCC has
allocated to the domestic manufacturer or importer of tobacco products
for the purposes of determining such entity's adjusted market share.
The volume of gross sales of each class of tobacco allocated to such an
entity shall correspond to the quantity of the tobacco product that is
removed into domestic commerce by each such entity;
(6) The total volume of gross sales of each class of tobacco that
CCC has allocated to a class of tobacco, within the gross domestic
volume determined for use in a fiscal year, that was used for the
purpose of determining a tobacco manufacturer's or tobacco importer's
adjusted market share. The total volume of gross sales of each such
class of
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