Will increased NPM sales reduce the Phase II payments big tobacco companies make to tobacco farmers to compensate them for loss of tobacco quota due to the MSA?
No. The Phase II payments are the result of an agreement between the big four tobacco companies (Philip Morris, RJR, B&W, and Lorrilard.) These are the only MSA signatory companies that make these payments directly to farmers. NPMs (typically fourth-tiered priced products) rarely compete for customers who buy Big Tobacco’s first-tired priced products. Instead, NPMs tend to compete more with the lower priced MSA signatories (typically the third-tiered priced products in the tobacco industry.) The third-tiered priced products are more likely to compete with the big four companies, especially the second-tiered priced products produced by the big four. Anti-NPM legislation being passed by the states tends to increase market share for the lower priced MSA companies, but no significant impact on Phase II payments. In the long-run, anti-NPM legislation will actually hurt Phase II payments as the lower priced MSA signatories gain more strength and can more effectively compete with the big four
