Economics of Alcohol and Tobacco - U.s. Tobacco Productionand Consumption

Farming Trends

Sparked by the invention of the cigarette-making machine, which made cigarettes cheaper and faster to manufacture, tobacco production in the United States grew from about three hundred million pounds in the mid-1860s to over a billion pounds by 1909. By the mid-1940s tobacco production topped two billion pounds as cigarette consumption continued to grow.

During the 1960s changes in tobacco preparation and the introduction of new machinery increased the amount of tobacco production per acre, although the number of tobacco farms dropped from about 512,000 in 1954 to approximately 89,706 in 1997. After 1998, acreage devoted to tobacco and the value of production began to decline steadily. The number of acres used to grow tobacco fell from 1.5 million in 1954 to 717,620 in 1998 to 416,210 in 2003. The 2003 harvest produced 831.2 million pounds of tobacco, valued at about $1.6 billion, down from a recent high of $3.2 billion in 1997. (See Table 7.1.)

In 2003 North Carolina led in tobacco production, followed by Kentucky, Tennessee, South Carolina, Georgia, and Virginia. (See Table 7.2.) Tobacco plays a major role in the agricultural economies of the leading half-dozen tobacco-producing states.

Every five years, the U.S. Bureau of the Census performs a census of farming and agriculture. In 2002 (the most recent year available) the national average value of tobacco sold per farm was $28,420, down from $32,700 in 1997.

Value and Income

In 2002 tobacco crops had a value of approximately $1.7 billion in cash receipts. (See Table 7.3.) Preliminary U.S. Department of Agriculture (USDA) figures about the 2002 tobacco crop indicate it represented 0.90% of all cash receipts from crops and 1.75% of all farm commodities.

Tobacco is a very labor-intensive crop to produce. Brazilian researchers estimate that it takes up to three thousand person-hours per year to grow one hectare of tobacco. (A hectare is about 2.5 acres.) Vegetables, by comparison, take about one-tenth the labor to grow. Although tobacco pays more per hectare than any other commonly grown farm crop, more than half of tobacco growers cannot earn enough as tobacco farmers due to high costs for labor. They must also work at other jobs to support themselves and their families.

Manufacturing

The Economic Research Service of the USDA estimates that in 2004 American factories produced

TABLE 7.2
Tobacco: area, yield, and production, by states, 2001-03
SOURCE: "Table 2-45. Tobacco: Area, Yield, and Production, by States, 2001-2003," in Agricultural Statistics, U.S. Department of Agriculture, National Agricultural Statistics Service, 2004, http://www.usda.gov/nass/pubs/agr04/04_ch2.pdf (accessed March 7, 2005)

TABLE 7.3
Cash receipts from farm marketings and tobacco, 1993-2002 SOURCE: "Table 23. Cash Receipts from Farm Marketings and Tobacco, 1993-2002," in Tobacco Briefing Room, U.S. Department of Agriculture, Economic Research Service, September 2004, http://www.ers.usda.gov/Briefing/Tobacco/Data/table23.pdf (accessed March 7, 2005)

495 billion cigarettes, of which 125 billion were shipped to other countries. (See Table 7.4.) This is down from a peak output of 754.5 billion cigarettes produced by American factories in 1996. Exports were high that year as well: 243.9 billion cigarettes.

Tobacco Consumption

Cigarette smoking in the United States has been dropping almost every year since 1963, when per capita consumption reached a record high of 4,345 cigarettes. Preliminary USDA figures estimated the 2004 per capita cigarette consumption of the population eighteen years old and older at 1,791 cigarettes. (See Table 7.5.)

Per capita consumption of all tobacco products generally decreased during the period shown in Table 7.5, from 4.67 pounds in 1995 to 3.89 pounds in 2004. Per capita consumption of large cigars by males, however, increased during the period, jumping from nearly 27.5 large cigars and cigarillos (small cigars) per adult male in 1995 to slightly over 37.5 in 2004. The highest consumption was

TABLE 7.4
Cigarette output, removals, and consumption, 1985-2004
SOURCE: Adapted from Thomas C. Capehart, "Table 1. Cigarettes: U.S. Output, Removals, and Consumption, 1950-2004," in Tobacco Situation and Outlook Yearbook, U.S. Department of Agriculture, Economic Research Service, December 2004, http://www.ers.usda.gov/publications/so/view.asp?f=specialty/tbs-bb/ (accessed March 7, 2005)

TABLE 7.5
Per capita consumption of tobacco products (including overseas forces), 1995–2004 Per capita 18 years and over Per male 18 years and over
SOURCE: "Table 7. Per Capita Consumption of Tobacco Products in the United States (Including Overseas Forces), 1995-2004," in Tobacco Briefing Room U.S. Department of Agriculture, Economic Research Service, September 2004, http://www.ers.usda.gov/Briefing/Tobacco/Data/table07.pdf (accessed March 7, 2005)

in 2001, at slightly more than 40.5 large cigars and cigarillos per adult male.

Consumer Spending on Tobacco

Americans spent an estimated $86.6 billion on tobacco products in 2003, the second-highest amount in the past decade and a 77% increase over 1993 spending. (See Table 7.6.) The majority (94% or $81 billion) was spent on cigarettes. This was slightly less than 1% of all disposable personal income. Although consumption of cigarettes has declined over the past few years, expenditures (after adjustment for inflation) have increased due to increasing cigarette prices.

TABLE 7.6
Expenditures for tobacco products and disposable personal income, 1993-2003
SOURCE: "Table 21. Expenditures for Tobacco Products and Disposable Personal Income, 1993-2003," in Tobacco Briefing Room, U.S. Department of Agriculture, Economic Research Service, September 2004, http://www.ers.usda.gov/Briefing/Tobacco/Data/table21.pdf (accessed March 7, 2005)

The U.S. Bureau of Labor Statistics, in Consumer Expenditures in 2002 (published in 2004), reported that the average American family spent $320 on tobacco products and supplies in 2002. In 2000 the average spent was $319 and, in 2001, $308.

Exports

In 2004, 125 billion cigarettes were exported to well over one hundred countries. From 1996 to 2004, cigarette exports fell by about 120 billion pieces. (See Table 7.4.) Most of the cigarettes exported went to Japan (54.9 billion), Iran (13.4 billion), and Saudi Arabia (8.3 billion). Other major importers of American cigarettes were Israel (3.9 billion), Lebanon (3 billion), Kuwait (1.5 billion), Hong Kong (1.4 billion), the United Arab Emirates (1.4 billion), and Taiwan (1.2 billion). (See Table 7.7.) Many of the importers in these countries then export these cigarettes to other countries.

Imports

According to the Tobacco Situation and Outlook Yearbook, published by the U.S. Department of Agriculture's Economic Research Service in December 2004, the United States imported 638.2 million pounds of unmanufactured tobacco in 2003, up from the 516.8 million pounds imported in 2001.