Tobacco Profile
Updated January 2012 by J.S. Isaacs
Created May 2007, revised July 2011, January 2012
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 highly-addictive nicotine found in tobacco provides pleasure to its users by triggering the release of opioids and dopamine in the brain (Smoking). Although researchers are exploring medicinal and nutritional uses for tobacco, this problematic crop is primarily used in a wide array of nicotine delivery systems condemned by the World Health Organization as the leading global cause of preventable death. It is also identified by economists as one of the top ten crops grown in the U.S. by 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 discretionary product. Inspired by the creative 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 (FETRA) 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 63 percent of tobacco production in 2009 and air-cured burley tobacco accounted for 26 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.
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 (Types). 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)
Recent US production history Tobacco production has decreased from more than 2 billion pounds in the 1970s to 720 million pounds in 2010. Between 2004 and 2005, following the quota buyout, tobacco production decreased by 20 percent, with U.S. production of flue-cured tobacco falling by 33 percent and production of burley tobacco falling by 26.5 percent. (NASS)
In 2010, tobacco was grown on 337,450 acres. 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 2010, yield per acre was 2,133 pounds and the average price per pound was $1.77. The total value of tobacco production in 2010 was $1.3 billion. (NASS)
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. (NASS ) 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).
Tobacco is harvested in 23 states. In 2010, North Carolina led in production by harvesting 352.6 million pounds from more than 168,000 acres. Kentucky ranked second that year, harvesting 181.7 million pounds of tobacco from 85,200 acres. At 166,000 acres, North Carolina also had the most acres of flue-cured tobacco and Kentucky the most acreage of burley tobacco, 72,000 acres. Following these states in production were Tennessee, Virginia and South Carolina. (NASS)
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).
Further production information 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: North Carolina State University, University of Kentucky, University of Tennessee, Virginia Tech, and Clemson University.
Demand
According to the Centers for Disease Control (CDC), 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 1960’s (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 U.S. 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. (Snell)
An exception to this is Brazil, which has actively pursued tobacco control for the past twenty years. They have made use of graphic images to demonstrate the possible results of tobacco use and promoted cessation programs that have led to a decrease in smoking from 34% of adults in 1989 to 15% last year. (Brazil)
Anti-tobacco media campaigns are currently being assessed by WHO in an attempt to improve their efficiency. More than 28% of the world’s population has been exposed to strong campaigns and citizens of another 30 countries have had exposure to some elements of such an effort (WHO). In addition, the Framework Convention on Tobacco Control (FCTC) of the World Health Organization, adopted in May 2003, is the first international legal instrument designed to promote multilateral cooperation and international action to reduce the growth and spread of tobacco use. (Tobacco Facts)
Marketing
Tobacco marketing methods have shifted away from auction markets to contract markets and many tobacco warehouses have closed as a result (SLC). 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. The greatest decrease in price occurred between 1984 and 1986. Since 1997, tobacco prices have remained under $2 per pound. U.S. prices for burley tobacco are competitive on the world market (Capeheart 2006). The wholesale price of cigarettes has continued upwards while export price remained constant. In 2010, the national average for tobacco was $1.75/lb.
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 1960’s to less than 10 percent in 2003.
In 2010, the United States exported $1.2 billion in tobacco, a marked decrease from the more than $6.6 billion in tobacco and tobacco products the United States exported in 1996. The two leading destinations for U.S. tobacco are Belgium and China.
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 2010, the United States imported $1.4 billion in tobacco and related products. The leading countries exporting to the United States include the Dominican Republic, Brazil and Canada.
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).
Brazil and tobacco use: a hard nut to crack. Bulletin of the World Health Organization, November 2009.
Breed’s Collection of Tobacco History Sites.
Brown, Blake and Will Snell. U.S. Tobacco Situation and Outlook, October 2011.
Capeheart, Thomas. Long-Lived Tobacco Program to End, Amber Waves, ERS, USDA, 2005.
Capeheart, Thomas. Tobacco Industry Downsizing, Restructuring, Agricultural Outlook, January-February 2002, ERS USDA.
Capeheart, Tom. Trends in US Tobacco Farming. ERS, USDA, November 2004.
Capeheart, Tom. Trends in the Cigarette Industry After the Master Settlement Agreement, ERS Electronic Outlook Reports, 2001.
Capeheart , Thomas C. Jr. U.S. Tobacco Sector Regroups, Amber Waves, ERS, USDA, 2006.
Capeheart, Thomas C. Jr. U.S. Tobacco Industry Responding to New Competitors, New Challenges, Amber Waves, ERS, USDA, 2003.
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.
Reed, T. David. 2008 Flue-cured Tobacco Production Guide.
Snell, Will. Burley Tobacco Situation and Outlook. Feb 1, 2011.
The Tax Burden on Tobacco: Historical Compilation 2004, Southern Legislative Conference (SLC), 2002.
Tobacco: Background. ERS, USDA.
Tobacco Trade, ERS, USDA.
Tobacco Yearbook Data Tables, ERS, USDA, 2005.
WHO report on the global tobacco epidemic, 2011: Warning about the dangers of tobacco.
Other resources
North Carolina State University
Clemson University
The Changing Tobacco User’s Dollar, Economic Research Service (ERS), USDA, 2004.
Global Agricultural Trade System, Foreign Agricultural Service, USDA.
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.
Tobacco Quota Buyout, CRS Report for Congress.
