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The Fair and Equitable Tobacco Reform Act of 2004 terminated the Federal tobacco program beginning with the 2005 season (July 2005 for flue-cured tobacco and October 2005 for all other types). As a result, marketing quotas, price supports, and geographic restrictions on the production and marketing of tobacco ended. Tobacco quota owners and producers were compensated for the changes brought about by the termination of the program. The cost of the buyout was borne by assessments levied on manufacturers and importers of tobacco products. Eligible tobacco quota holders received $7 per pound based on their basic quota at the 2002 marketing-year level. Producers of quota tobacco received up to $3 per pound based on their share of the risk in the 2002, 2003, and 2004 crops of quota tobacco.
Prior to 2005, the tobacco program operated through a combination of mandatory marketing quotas and nonrecourse loans tied to price supports. Marketing quotas limited the amount of tobacco each farmer could sell, which indirectly raised market prices. When producers approved Federal price support for tobacco, in referenda held every 3 years, they became subject to marketing quotas. The No-Net-Cost Tobacco Program Act in 1982 (P.L. 97-218) imposed an assessment on every pound of tobacco marketed to offset program costs.
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