U.S. Tobacco Sector Regroups
Thomas
Capehart
Ken Hammond, USDA
The USDA tobacco program, a fixture
in Southeast agriculture since the 1930s, was terminated
at the end of the 2004 crop year. With the 2005/06
crop year underway, the tobacco sector is entering
a new era of minimal government intervention. Growers
and buyers of tobacco are adapting to changes triggered
by the lifting of the restrictions, including a
27-percent decline in production.
During the first post-program crop year, tobacco acreage
decreased by 25 percent to 298,020 acres, the lowest
level since before the Civil War. Tobacco production
declined to 640 million pounds, the lowest level since
1879. Although precise figures are not available, industry
sources report that the number of producers has dropped
by more than half. Still, many remaining tobacco growers
expanded operations. Some minor tobacco types, such
as Northern Wisconsin cigar binder and Virginia sun-cured,
are not being produced at all for the first time in
over 100 years.
Following the lifting of geographical restrictions
imposed by the program, tobacco production remains
emphatically a Southeastern crop, although production
of some types has shifted within the Southeast and
even to the mid-Atlantic region. Pennsylvania producers
who had previously planted cigar and Maryland leaf
types are now growing burley for the first time.
Some flue-cured producers in North Carolina and
other States, where only flue-cured tobacco was
grown, are adding burley to their crop mix.
The switch to burley is influenced by increased
global demand due to changing world tastes in cigarettes.
American-blend cigarettes, which contain both flue-cured
and burley leaf, have replaced indigenous cigarette
types containing either all flue-cured or all dark
tobaccos. Higher global demand for burley has spurred
production increases in a number of countries, including
Brazil and Argentina, but U.S. burley remains a
force in the world market. In addition, production
costs are lower for burley, which is air cured,
than for flue-cured, which is cured under heat provided
by natural gas.
With the end of the tobacco program, U.S. tobacco
production is likely to decline for a few more years.
After this adjustment period ends, U.S. producers
will be fewer in number, but they will be more competitive
in domestic and world markets than previously. As
prices fall, demand for U.S. tobacco will increase,
and in the long run, production should slowly increase
as well.
Tobacco
Situation and Outlook Yearbook, by Thomas Capehart,
TBS-2005, USDA,
Economic Research Service, December 2005.
ERS Briefing Room on Tobacco.
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