SIC 0132

This classification covers establishments primarily engaged in the production of tobacco.

NAICS Code(s)

111910 (Tobacco Farming)

Industry Snapshot

This industry is composed of small U.S. farms that grow and sell tobacco to cigarette companies and other tobacco product retailers. In 2001, the farm value of U.S. tobacco crops reached $1.9 billion, according to the U.S. Department of Agriculture (USDA). The links between tobacco and several serious diseases, such as cancer and emphysema, first suggested in the 1960s and confirmed in the 1990s, have posed serious threats to the industry. Into the early 2000s, criminal and civil lawsuits against cigarette manufacturers focused public attention on the role of the tobacco industry in promoting health-threatening products and contributed to diminishing demand for tobacco. Increased exports of foreign-grown tobacco also affected American growers. However, changes in federal regulations and in harvesting and processing techniques have somewhat mitigated the uncertain future of tobacco farming.

Organization and Structure

Small farms, particularly in the southeastern regions of the United States, grow most of the nation's tobacco. The total number of farms producing tobacco in the United States dropped from 512,000 in the mid-1950s to roughly 89,700 in the late 1990s, at which time the number classified as tobacco farms—organizations deriving at least 50 percent of sales from tobacco—dropped to about 65,800. Though tobacco farms have increased in size since the 1950s, their average size remains relatively small in comparison to other types of farms.

The major tobacco growing states are North Carolina, Kentucky, and Tennessee. With South Carolina, Virginia, and Georgia, they produce more than 90 percent of the tobacco grown in the United States. In all, 17 states grow appreciable acreage of tobacco. Establishments from North Carolina and other states compete with each other at tobacco auctions, where major tobacco companies purchase their crops.

Flue-cured tobacco is produced in the southeastern Coastal Plain and the Piedmont region from Virginia to Florida. This variety of tobacco is by far the greatest component (about 95 percent) used in American cigarettes. Flue-cured is also the kind of tobacco most used in exported products. Fire-cured, or Class 2, tobacco is produced in central and western Virginia, Tennessee, and Kentucky. This tobacco has broad, dark green leaves, which are heavily drooping and gummy to the touch. After curing they are light to dark brown and strong in flavor. Class 2 tobacco is principally used in snuff in the United States, but it is also used for cigar manufacture and chewing tobacco in other countries. All other American tobacco is air-cured and is principally used in cigars, except for the light air-cured and Maryland types. Burley is currently grown in Kentucky and Tennessee and to a lesser extent in Ohio, Indiana, Virginia, West Virginia, and North Carolina. Major cigar tobacco districts include New England, Pennsylvania, Ohio, Wisconsin, Georgia, and Florida.

Priming and stalk cutting are the two methods of harvesting used in tobacco production. Three methods of curing—flue-curing, fire-curing, and air-curing—are used. Curing barns are typically 18 to 20 feet tall. Ventilators permit the flow of ambient air around suspended stalks of stalk-cut tobacco or around suspended leaves of flue-cured and cigar wrapper tobacco. Supplemental heat is used on air-cured tobacco during inclement weather. Before tobacco is suitable for consumption, it must be fermented and aged, which brings the tobacco leaves to their peak color and aroma and eliminates harsh or bitter taste. Finally, most tobacco products in the United States have various amounts of sweeteners, flavorings, or humectants added to increase or modify their natural flavor and aroma.

Background and Development

As one of the first native crops to be commercially grown and marketed, tobacco has long been a key crop in the American South. Historical records indicate that commercial cultivation of the crop began as early as 1612. In the eighteenth century, tobacco became such a coveted item that it was being used as legal tender for payment of wages, taxes, and debts. In fact, it had become the greatest single source of wealth in Virginia, Maryland, and North Carolina at that time. Until cotton became king in 1803, tobacco was rated as the nation's most valuable export commodity.

A large part of this wealth was generated by the huge international market that quickly developed. In 1614, there were 7,000 tobacco shops in London alone. In 1617, Virginia was shipping 20,000 pounds of the product to England; by 1628, this number increased to 500,000 pounds and, in 1638, 1.4 million pounds. By 1771, England and Scotland were, collectively, importing about 102 million pounds of tobacco from the Chesapeake colonies in the New World. This is a remarkable amount of export considering that the product was being shipped by wooden, wind-driven ships that had to overcome severe transportation obstacles to complete delivery. More than 150 years later, 590 million pounds of tobacco were being shipped overseas from the United States, half of this still passing through the Virginia ports.

In the early part of the nineteenth century, tobacco began to lose its place as the premier export to the Old World. More of it began to be consumed at home. Farmers and other consumers took to the pipe along with their chewing habits. As snuff became more and more associated with British dandyism, pipe smoking took first place as the desired mode of tobacco consumption.

The quality of most tobacco during antebellum years was poor compared to today's standards. In New England, a harsh, narrow leaf called "shoe-string" was produced. The South grew a dark, heavy "shipping leaf" that was quite different from the light, sweet Bright tobacco raised today. This all changed in 1864 with White Burley, a strain of tobacco that was remarkable for its capacity to absorb sugar and flavoring, which was first produced at this time. Burley was first grown prodigiously in Ohio; today it is predominantly a product of Kentucky and Tennessee. The effect of Burley on the industry cannot be overestimated. It revolutionized smoking and the chewing industry after the Civil War and had an equally strong impact on the cigarette industry during World War I.

A significant part of the industry's history has to do with the search for superior tobacco products abroad. This search was primarily focused on Cuba and Mexico. A large part of this focus was due to the popularity of Cuban cigars in America. Cigar imports from the Antilles reached the 4 million mark by 1811. A booming cigar industry sprang up in Havana during this time and has not abated since.

Cigars achieved their prominence as a symbol of aristocracy during the "Brown Decades," after the Civil War. Also during this era, modern cigarettes began to appear on the scene. All cigarettes were initially "roll-your-own." It was not until 1866 that tailored cigarettes were produced in America and England. These also were hand-rolled, since the modern machine-produced methodology for cigarette manufacture had not yet been invented. These cigarettes were also larger than the cigarettes common at the beginning of the twenty-first century and were often made from Turkish tobacco grown in Greece, Bulgaria, and Turkey. New York, with its preponderance of immigrants and large pool of inexpensive labor, served as a central site of cigarette production and mass consumption.

Though tobacco has historically been a labor-intensive crop, averaging as much as 300 hours of labor per acre, new techniques for producing, harvesting, and curing have reduced labor and permitted increased acreage per farm. Flue-cured tobacco, once tied by hand, is now marketed as loose leaf. The introduction of mechanical harvesters also reduced labor, as did the shift from sheets to bales. Successful growth of tobacco also requires a good supply of well-developed seedlings for transplanting. On American farms, these are usually produced in a cold frame covered with cheesecloth, plastic, or glass. The tobacco seeds are sprinkled on top of the soil and then tamped firmly into the ground. A high state of fertility and adequate soil moisture must be maintained throughout the growing season to ensure vigorous production. Tobacco crops are also regularly attacked by fungi, bacteria, viruses, and a number of other harmful parasites that must be combated by raising disease-resistant crops. Without such varieties of tobacco, the industry would not be viable in certain areas of the United States.

Despite these difficulties, tobacco remains relatively lucrative for small farmers. It is the most profitable crop in the southeastern region of the United States, generating relatively high prices per acre. In Kentucky, for example, tobacco comprised only 1 percent of farmland in 1992 but generated 40 percent of net farm returns and, in 1994, each acre of tobacco grown in the United States for domestic use generated more than $43,000 in state and Federal excise taxes at the retail level. Estimates suggest that, for farmers, one acre of tobacco can net between $1,200 and $1,500 compared to about $75 per acre for corn or soybeans. For this reason, many tobacco farmers continue to resist pressure to shift from tobacco to other crops, though demand for tobacco has declined significantly and continued price supports are far from certain. From 1981 to 1997, U.S. tobacco production declined about 20 percent, and cigarette consumption fell about 24 percent. During the past two decades, America's share of the world tobacco market has also declined. Because of a Clinton administration tariff proclamation in 1995, imports into the country increased about 27 percent. The import of less-expensive cigarettes composed of foreign-grown tobacco also had a negative impact on domestic industry sales.

By the late 1990s, changing attitudes toward smoking forced the cigarette industry to change the way it sold cigarettes. Though the link between the inhalation of tobacco smoke and such diseases as heart disease, cancer, and emphysema was first publicized in 1964 in a report to the U.S. surgeon general, tobacco companies successfully evaded for decades any legal responsibility for producing and marketing a dangerous product. But this avoidance ended in 1998 when the leading U.S. tobacco companies agreed to pay $206 billion to 46 states to settle a plethora of suits filed to recover Medicaid money states spent to treat smoking-related diseases. Individual and class action suits also resulted in massive damage payments, and, in October 1999, the nation's largest cigarette maker, Philip Morris, admitted that scientific evidence shows that smoking causes lung cancer.

The impact of this admission and judgments of liability in smoking-related deaths weakened tobacco companies' financial performance and contributed to reduced demand for American tobacco. In 1998, U.S. cigarette consumption dropped seven percent from the previous year, and production declined six percent during the same period. Exports also fell, declining seven percent in 1999. Though cigar consumption rose by a staggering 50 percent from 1993 to 1997, price increases on cigarettes and tax hikes served to further reduce demand for tobacco.

Quotas for 1999 were reduced by 29 percent for Burley tobacco and 17 percent for flue-cured, with the effective quote for 1999 nearly 20 percent lower than the previous year. Tobacco farmers expected to harvest about 650,000 acres of tobacco in 1999—about 11 percent less than in 1998.

In 1999, tobacco farmers pushed for receipt of $328 million from a proposed $7.4 billion farm aid package. Though legislators from tobacco states argued that tobacco growers had a right to be compensated, like other farmers, for lost income, others argued that the government should not be involved in helping tobacco farmers produce a crop associated with major health risks.

Government Legislation. The U.S. government became involved in the tobacco industry in the 1930s, when its main purpose was to stabilize tobacco prices. Designating tobacco as a basic, storable commodity, the Agricultural Adjustment Act of 1933 resulted in cash payments to tobacco farmers who restricted production. Although the legislation was found unconstitutional several years later, substitute legislation authorized payments to farmers who followed soil conservation guidelines. Because of the need of buyers and producers for uniform standards on which to base marketing decisions, Congress enacted the Tobacco Inspection Act of 1935, thereby setting the framework for the development of tobacco grade standards. The Act also enabled the daily distribution of daily price reports for each grade and authorized the Secretary of Agriculture to designate tobacco auction markets, where growers would receive mandatory inspection of their tobacco. The Agricultural Act of 1938 called for marketing quotas for specific types of tobacco.

Legislation had become extremely tight in the late 1990s. When plans were made in 1996 to authorize the Food and Drug Administration (FDA) to classify nicotine as a drug, leading tobacco-growing states argued that ensuing new regulations would severely impact Virginia's $5 billion tobacco industry (of which $175 million went to farmers), and result in a loss of jobs, loss of tax base, reduced ability to finance schools and other government services, as well as jeopardizing sporting and cultural events sponsored by brand name tobacco products. On the other hand, studies by anti-smoking groups predicted exactly the opposite, suggesting that lost jobs and revenues would be more than compensated for by new jobs and industry. The FDA, for one, argued that its restrictions would have a relatively minor effect on U.S. tobacco sales and cost just 2,500 agricultural jobs. Though tobacco companies first resisted FDA regulation of tobacco, in 1998 they agreed to cooperate with the Clinton administration's efforts and accept FDA regulation. Later that year, however, a federal court ruled that the FDA did not have the legal authority to regulate tobacco, reserving this power for Congress.

Tobacco growers and legislators have disagreed on how to respond to declining demand for U.S. tobacco. While a provision of the 1998 legal settlement requires cigarette makers to pay $5.1 billion to compensate growers for decreased demand, farmers in many states complain that this amount is only a fraction of what they need. During the late 1990s Senator Wendell Ford of Kentucky introduced a bill to compensate tobacco farmers $4 a year for every pound of quota lost, while keeping the present quota and price support system intact. Senate Agriculture Committee Chair Richard Lugar, in contrast, argued that federal regulation makes tobacco growing less competitive. His proposal, costing about $15 billion, sought to buy out existing quotas and phase out federal price supports. The Lugar bill also proposed to provide tobacco-producing regions with $300 million in aid.

Current Conditions

By 2003 the tobacco industry continued to face a number of significant challenges, including a weak economic climate and falling demand. According to the U.S. Department of Agriculture (USDA), the lion's share of U.S. tobacco is produced for cigarettes. The domestic consumption of cigarettes fell more than 1 percent in 2002, following similar decreases in 2001 and 2000. At the same time, Bureau of Labor Statistics data revealed that cigarette prices were increasing. Prices climbed eight percent in 2001 and were expected to increase by this same percentage in 2002.

USDA estimates indicate that 886.0 million pounds of tobacco were produced in 2002, down approximately 105 million pounds from 2001. The total number of tobacco acres planted decreased four percent in 2002, reaching 434,310 acres. Due in part to disease and poor weather, yields also decreased in 2002, falling from 2,293 pounds per acre in 2001 to 2,040 pounds per acre in 2002. That year, about 94 percent of tobacco was produced for the manufacture of cigarettes. The next largest market for U.S. tobacco was cigars, accounting for some two percent of crops. The remainder of crops included fire- and aircured tobacco used for other purposes.

In the early 2000s legislation continued to play an important role in the tobacco industry. Senator Max Cleland of Georgia introduced the Aid to Tobacco-Dependent Communities Act of 2002. In the U.S. House of Representatives, Congressman Ernie Fletcher of Kentucky introduced the Tobacco Equity Elimination Act of 2002 in conjunction with a number of other U.S. representatives from Georgia, Kentucky, North Carolina, and Tennessee. According to an article by Wayne Harr in FarmProgress , both bills proposed to "buy out tobacco quota while maintaining a restructured tobacco program." In addition, each piece of legislation was "gathering support from tobacco and non-tobacco groups over bills introduced earlier, which called for a buyout of quota and FDA regulations but did not retain any type of tobacco program." In addition to these two bills, the Farm Security and Rural Investment Act of 2002—which provided higher levels of government support for farmers in general—also had implications for tobacco farmers.

America and the World

Despite increased competition from other nations, the United States remained a fixture in the international tobacco trade during the early 2000s, leading in the categories of cigarette exports and tobacco leaf imports. In the first nine months of 2002, tobacco imports surged 23 percent, reaching 458 million pounds. However, high U.S. prices hindered tobacco exports. Exports were expected to fall 15 percent in 2002, dropping from 411 million pounds in 2001 to 360 million pounds.

Although global tobacco leaf production increased in the mid-1990s, reaching 14 billion pounds and accounting for 40 percent of the tobacco used in the United States, the effects of new legislation and decreasing demand have been felt by tobacco growers world wide. Reacting to lower market prices and predictions of increased stocks, other nations have reduced plantings.

In recent years, international tobacco advertising regulations greatly affected the major countries around the world, as well as in the United States. Canada, for example, banned cigarette vending machines and tobacco brands' sponsoring of sporting events. In Norway, an existing law banning tobacco advertisements became stricter by including indirect advertisements. Tobacco advertising in Poland was banned on private and state radio and television media, and the European Union dealt a severe blow to the European tobacco industry when it banned advertising and sponsorship, to begin in 2002. The World Health Organization (WHO) and the World Bank have also instituted tobacco control initiatives. Tobacco growers, representing about 33 million workers worldwide, are making plans to develop a global alliance to advocate for their interests.

Further Reading

Economic Research Service, U.S. Department of Agriculture. "Briefing Room, Tobacco: Trade." 12 December 2000. Available from .

——. "Cigarette Consumption Continues to Slide." Tobacco-Summary, 21 April 1999.

——. "Key Topics, Tobacco," 8 July 2002. Available from .

——. Tobacco Yearbook, 18 December 2002. Available from .

——. U.S. Tobacco Farming Trends, 1999. Available from .

Edgecliffe-Johnson, Andrew. "Tobacco Stocks Hit by Ruling." The Financial Times, 21 October 1999.

"Growers' Association Meets WHO." World Tobacco, March 1999.

Harr, Wayne. "New Tobacco Buyout Bills Get Broad Support." FarmProgress, 2002. Available from .

L'Heureux, Dave. "Quota Losses May Bring Lawsuit from South Carolina Tobacco Growers." Knight-Ridder/Tribune Business News, 21 October 1999.

Meier, Barry. "Philip Morris Admits Evidence Shows Smoking Causes Cancer." New York Times, 13 October 1999.

"Senate Seeks to Aid Tobacco Growers." USA Today, 6 August 1999.

Solman, Paul. "Tobacco Crop Falls as Cigarette Sales Drop." The Financial Times, 22 October 1999.

"Tobacco Companies Make Payment to States." Tobacco Retailer, June 2002.

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