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Tobacco Profile

Updated December 2012 by Diane Huntrods, AgMRC, Iowa State University.



Overview

Whether enjoyed in cigars or kreteks, snus or hookahs, cigarettes or beedis, dipped, chewed, or sniffed, tobacco is used by more than 1 billion people across the world (WHO). The addictive nicotine found in tobacco provides pleasure to its users by triggering the release of opioids and dopamine in the brain (Smoking).

Researchers are exploring medicinal and nutritional uses for tobacco, which has been identified by economists as one of the top ten crops grown in the United States according to its market value.

History

Tobacco (Nicotiana tabacum and Nicotiana rustica) is native to the Americas. Indigenous peoples used tobacco leaves for ceremonial and medicinal purposes for at least twenty-five centuries before dried tobacco leaves were handed to Christopher Columbus as a gift when he landed in the Caribbean.

It has been grown commercially in the United States as far back as 1612 when the European colonist John Rolf first planted seeds in Virginia for export to England (APVA, Breed). As early as 1619, Virginia regulated the sale of tobacco with its Inspection Act, which made tobacco warehouses one of the first businesses in the colonies to operate under government oversight.

Production soon expanded from Virginia into North Carolina, Maryland, Kentucky and Tennessee. It later moved into other states. By 1860, some type of tobacco was being raised in 12 states. Two years later, after the Civil War was underway, the federal government imposed an excise tax on tobacco.

By 1885, there were more than 7,000 tobacco factories across the country producing and exporting cigars, snuff, pipe tobacco and chewing tobacco. Cigarettes did not become an established product until the newly-created American Tobacco Company acquired the rights to a mass production cigarette maker, the Bonsack machine, in 1889.

Once mass production of tobacco products became possible, marketing became important in creating demand for this product. Inspired by the advertising methods used by Bull Durham in North Carolina, other tobacco manufacturers undertook similar campaigns with great success. The increased demand led to increased production, and by 1900 tobacco was being cultivated in 25 states (Greene).

Such extensive production led to wide swings in pricing and decreased production. With the Agricultural Adjustment Act of 1938, tobacco growers were issued marketing quotas to control supply by limiting the amount of tobacco grown. In return, farmers were guaranteed a price for their product above the cost of production. Depending on the manufacturers’ needs, quota could be revised (Tobacco Industry). The production and location restrictions imposed by the quota system prevented growers from increasing cost efficiencies through economies of scale or planting in alternative locations. However, these limitations did not prevent tobacco from being an important cash crop in many states. When domestic production was at its peak in 1954, tobacco was being grown on 512,000 farms. By 2002, that number had dropped to 56,977 (Capeheart 2004).

After more than 300 years of production in America, domestic tobacco use began to decline in the twentieth century. Concerns about its effects on health began to surface in the 1950s. Opportunities for public and private smoking became increasingly restrictive. Prices for the product grew as excise taxes were imposed, making tobacco one of the most heavily taxed agricultural commodities. As demand dropped, quota allotments consequently declined, which further limited production.

In 1998, the Master Settlement agreement between 46 United States Attorneys General and the major cigarette manufacturers allocated funds to reimburse states for medical costs associated with smoking-induced illnesses. It also put into place provisions to reduce under-aged smoking. Limitations were placed on advertising and tobacco trade organizations were disbanded. In a separate portion of the agreement (commonly referred to as Phase II), $5.15 billion was allocated to tobacco growers who were expected to experience a loss in production and sales as a result of the agreement (Capeheart 2001).

In October 2004, the U.S. Congress approved the Fair and Equitable Tobacco Reform Act as part of the American Jobs Creation Act. Under the Act, tobacco price supports, poundage quotas, acreage allotments and geographic restrictions on production were eliminated (Capeheart 2005). One of the aims of the buyout was to allow U.S. tobacco to become more competitive with world prices (Capeheart 2003).

Production

The six major classes of tobacco include flue-cured, air-cured, fire-cured, cigar filler, cigar binder and cigar wrapper (Tobacco: Background). Flue-cured tobacco accounted for 58 percent of tobacco production in 2011 and air-cured burley tobacco accounted for 29 percent (NASS). The majority of U.S. tobacco is used for cigarettes. Cigarettes account for about 95 percent of flue-cured tobacco and 90 percent of burley tobacco (Tobacco: Background). Dark air-cured and fire-cured tobaccos are used in snuff and chewing tobacco.

Tobacco production has decreased from more than 2 billion pounds in the 1970s to 601 million pounds in 2011, down 16 percent from 2010. In 2011, tobacco was grown on 324,830 acres, down 4 percent from a year ago. U.S. tobacco yields have been variable; they peaked in 1994 at 2,358 pounds per acre compared to a low of 1,811 pounds per acre in 1983. In 2011, yield per acre averaged 1,850 pounds, down 278 pounds from 2010. (NASS) The total value of tobacco production in 2011 was more than $1.1 billion. (NASS)

Tobacco is commercially harvested in 10 states. In 2011, North Carolina led in production by harvesting nearly 251.6 million pounds from 162,000 acres. Kentucky again ranked second, harvesting more than 172.1 million pounds of tobacco from 77,500 acres. At 160,000 acres, North Carolina also had the most acres of flue-cured tobacco, and Kentucky the most acreage of burley tobacco, 64,000 acres. Following these states in production were Virginia, Tennessee and South Carolina. (NASS)

Domestic tobacco production begins with tobacco seeds germinated in a greenhouse under strict environmental and disease controls. Established seedlings are then transplanted into the field where they are heavily fertilized and monitored and treated for disease and insect damage as needed.

Raising any type of tobacco is very labor-intensive. The average labor requirement for stalk cut tobacco such as burley is in excess of 200 hours/acre. In addition, each class of tobacco has unique growing and harvesting requirements. Cigar tobaccos are grown under cover to prevent insect damage and improve leaf texture. Flue-cured and cigar tobacco leaves are individually harvested from the bottom of the stalk up as they ripen which requires multiple trips through the field. The entire stalk of both fire-cured and air-cured tobacco is harvested with leaves intact.

All types are then housed in some type of structure because harvested tobacco must undergo a curing process before it is used. Temperature, humidity, and harvesting conditions all affect the crop’s final quality. To maintain peak curing conditions for cigar and air-fired tobaccos, this might require opening and closing doors to the structure in which the tobacco is housed for several weeks.  For fire-cured tobacco, temperature and smoke spread must be tightly controlled to ensure that the result is dark-fired, rather than burnt. Barns housing flue-cured tobaccos, which are cured by forced hot air, must be checked for CO2 levels to control the formation of nitrosamines in the finished leaf. (Reed)

In 2007, a total of 16,234 farms grew tobacco. The most common size of a tobacco farm was from 5.0 to 9.9 acres, with about 3,460 farms. Another 3,129 farms had 10 to 24.9 acres of tobacco production. While tobacco acreage is smaller in comparison to other field crops, its higher market value made tobacco the 8th highest valued field crop in 2005 behind corn, soybeans, hay, wheat, cotton, potatoes and rice (Tobacco Yearbook).

In 2006, production shifted within the southeast and beyond to the mid-Atlantic region. Some Pennsylvania producers are now growing burley after previously raising only cigar and air-cured Maryland leaf types; they produced 10.7 million pounds of burley in 2011 (Brown & Snell). In 2004, some flue-cured producers in North Carolina and other states began to grow burley as well. The switch to burley production is the likely result of changing world tastes in cigarettes (blends of both flue-cured and burley are gaining in popularity against all flue-cured or all dark tobaccos) and lower production costs (Capeheart 2006).

The land-grant institutions in the traditional tobacco-growing states have an extensive history of research into the cultivation of this crop. Publications are available from the following sites: Clemson University, North Carolina State University, University of Kentucky, University of Tennessee and Virginia Tech.

Demand

According to the Centers for Disease Control, an estimated 46 million people or 20.6 percent of all adults in the United States smoke cigarettes, which is down from 42 percent in the 1960s (Tobacco Facts). In addition to cigarettes, about 121.4 million pounds of smokeless tobacco were purchased in the United States in 2009.

Tobacco industry estimates of $80 billion in consumer expenditures in 2010 (Philip Morris USA) demonstrate that tobacco consumption is strong in spite of efforts to limit its use through labeling, taxes, smoking restrictions, usage regulation and education about its dangers.

Some analysts anticipate that smoking will become rare to nonexistent in the United States by 2046 (Tobacco Facts). However, even as tobacco consumption is dropping in wealthy nations, it is increasing in developing nations. In India, tobacco is available in many forms and is used by both children and adults. The Chinese are both the world’s dominant producer and consumer of tobacco.

Marketing

Tobacco marketing methods have shifted away from auction markets to contract markets and many tobacco warehouses have closed as a result. Direct contracting with tobacco growers allows manufacturers to better influence production to meet their needs (Capeheart 2002).

Tobacco companies are not soliciting new growers at this time. However, recent production shortfalls may result in companies seeking new growers or offering higher prices. Currently more than 30 companies or brokers purchase tobacco. Information on tobacco receiving stations may be found at The Center for Tobacco Grower Research at the University of Tennessee.

Price

Adjusted for inflation, the grower price of tobacco has decreased steadily since the 1980s. Since 1997, tobacco prices have remained under $2 per pound. The wholesale price of cigarettes has continued upwards while export price remained constant. In 2011, the national average for tobacco was $1.87 per pound, up $0.085 from the previous year. (NASS).

Exports

The United States has been both the world’s largest importer of tobacco leaf and at the same time the largest exporter of cigarettes (Tobacco Trade). The high dollar value of exports and imports makes tobacco one of the leading U.S. agricultural crops. However, the U.S. share of world tobacco trade has decreased from over 25 percent in the late 1960s to less than 10 percent in 2003.

In 2011, the United States exported nearly $1.15 billion in tobacco, a two percent decrease from 2010. The three top destinations for U.S. tobacco were Switzerland, Mexico and China. Exports to Switzerland and Mexico experienced double digit increases that year, while exports to China saw double digit declines.  (FAS)

In recent years, the share of U.S. production exported has increased to record high levels. In 2004, an estimated 47 percent of production was destined for export. A greater share of burley tobacco than flue-cured tobacco has been exported in recent years.

Imports

In 2011, the United States imported $752.07 million in tobacco and related products. The top countries shipping tobacco to the United States were Brazil, Turkey and Canada.  (FAS)

The share of foreign tobacco in U.S. cigarettes has steadily increased in the last four decades and continues to rise. U.S. manufacturers blend low-quality import tobacco with domestic leaf to achieve a desirable blend at a lower cost. The steady increase in imports is due mainly to cheaper world market prices for tobacco (Capeheart 2002).


Works Cited

Association for the Preservation of Virginia Antiquities (APVA).

Breed’s Collection of Tobacco History Sites.

Brown, Blake and Will Snell, U.S. Tobacco Situation and Outlook, 2011.

Capeheart, Tom, Long-Lived Tobacco Program to End, Amber Waves, Economic Research Service (ERS), USDA, 2005.

Capeheart, Tom, Tobacco Industry Downsizing, Restructuring, Agricultural Outlook, ERS, USDA, 2002.

Capeheart, Tom, Trends in US Tobacco Farming. ERS, USDA, 2004. 

Capeheart, Tom, Trends in the Cigarette Industry After the Master Settlement Agreement, ERS Electronic Outlook Reports, 2001.

Capeheart , Tom, U.S. Tobacco Sector Regroups, Amber Waves, ERS, USDA, 2006.

Capeheart, Tom,  U.S. Tobacco Industry Responding to New Competitors, New Challenges, Amber Waves, ERS, USDA, 2003.

Global Agricultural Trade System, Foreign Agricultural Service, USDA.

Greene, Randall Elisha, The Leaf Sellers: A History of US Tobacco Warehouses 1619 to the Present. The Burley Auction Warehouse Association, Inc., 1996.

National Agricultural Statistical Service (NASS), USDA.

Philip Morris USA

Reed, T. David,  2008 Flue-cured Tobacco Production Guide.

Smoking Cigarettes Affects Brain Like Heroin; Heroin, Morphine, Nicotine Affect 'Feel-Good' Brain Chemicals in Similar Way, Web MD.

Snell, Will,  Burley Tobacco Situation and Outlook. 2011.

The Tax Burden on Tobacco: Historical Compilation 2004, Southern Legislative Conference (SLC), 2002.

Tobacco Facts.

Tobacco: Background, ERS, USDA.

Tobacco and the Economy, ERS, USDA.

Tobacco Yearbook Data Tables, ERS, USDA, 2007.

 


Other Resources
The Changing Tobacco User’s Dollar, ERS, USDA, 2004.

New Federal Tobacco Product Tax Rate Increases, Tobacco Free Kids.

Smoking and Tobacco Use, Centers for Disease Control and Prevention.

State Cigarette Excise Tax Rates & Rankings, Tobacco Free Kids.

Statistical Database-Agriculture, Food and Agricultural Organization (FAO), United Nations.

Tobacco Costs and Returns Data,  ERS, USDA.

 

 

Links checked March 2014

 

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