The Economics of Tobacco in the USA

The tobacco industry in the USA is privatized; however, the Burley Tobacco Growers Cooperative Association uses the government's help. The cooperative, with 150,000 members and established in 1941, is able to borrow funds from the government to advance loans to burley growers in amounts based on certain qualities and characteristics of the tobacco being marketed. All loans are repaid (10). Buyers are willing to pay higher prices based on the quality of the different types of burley tobacco and the government distorts these prices by implementing policy tools to support domestic farm incomes or to improve their tobacco's competitive position (34). The cooperative administers the price support program for burley tobacco type 31 in Kentucky, Ohio, Indiana, Missouri and West Virginia (10).
    The USA produces the highest quality burley tobacco in the world plus is the largest producer and exporter (34).
  • The basic quota was 453 million pounds, down 28.8% from 638 million pounds in 1998.
  • Cigarette exports and production for the domestic market are declining with production at about 665 billion pieces, down from 714 billion pieces in 1998.
  • Exports are declining at about 200 billion cigarettes, down from 229 billion in 1998.
  • Production for the domestic market was about 433 billion cigarettes, down from 465 billion in 1998 (8).
Tobacco Plants
Tobacco Flower Tobacco farmers sell their crop through warehouse auctions, where federal graders set a minimum price per pound that farmers are guaranteed to receive for their tobacco. The warehouses handle, store and market the tobacco to commercial buyers, who process the crop to resell to cigarette manufacturers. However, United Tobacco Co (Wilson, NC) bought tobacco directly from farmers instead of going to warehouse auctions in order to sell it to foreign cigarette manufacturers (the majority of its customers) at a premium (25).
  • Tax per pack of cigarettes (in US dollars, 1995): 0.582
  • Tobacco tax revenue (in billions): 5.852158382 (39)
    Research using the data from the September 1985 Current Population Survey indicated:
  • The higher the smokeless tobacco excise tax rates, the lower probability of smokeless tobacco use.
  • The higher the cigarette excise tax rate, the higher probability of smokeless tobacco use.

    Laws restricting smoking have no apparent effect on smokeless tobacco use (29).

The economy is showing signs of the slowing tobacco market in its products. Smokeless cars (cars without ashtrays and lighters) came into production with Chrysler in 1995 with the Cirrus and Dodge Stratus sedans (3). Even teenagers are switching to cell phones. Researchers say that the cell phone is a competitor to cigarettes in the market for products that offer teenagers adult style (36). Chrysler Cirrus

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