Elizabeth Davis
This month tobacco growers will receive their last checks from the Transitional Tobacco Payment Program, a government program. The loss of this safety net will create a free market. Although tobacco use has decreased in the United States, the market overseas is growing, meaning that the $1.5 billion yearly profit for U.S. tobacco may increase.
North Carolina tobacco farms currently produce more tobacco than ever before in the state’s history due to the deregulation of the tobacco market in the United States, according to Blake Brown, a professor in agriculture and resource economics and author of a paper titled “U.S. Tobacco Situation and Outlook.”
Tobacco production was restricted in the 1930s during President Franklin D. Roosevelt’s New Deal program. In this program, the government set a maximum amount of tobacco that farmers were allowed to grow in order to restrict the supply and keep prices of tobacco slightly higher.
“This quota on tobacco production lead to U.S. farmers becoming less competitive when compared to unregulated farmers, such as those in Brazil, who could charge less for the tobacco they grew,” Brown said.
In 2004, this regulation ended when The Fair and Equitable Tobacco Reform act was passed. The main component of this legislation was the Tobacco Transition Payment Program, commonly known as the “tobacco buyout,” which effectively deregulated the U.S. tobacco industry.
The Fair and Equitable Tobacco Reform Act made the tobacco market in the U.S. completely free and provided buyout checks to compensate farms for any loss in revenue.
“A free market is one in which there is no government intervention in the price or production of a product,” Brown said.
Although the deregulation of the tobacco market took away the industry’s safety net in a sense, it hasn’t hindered North Carolina’s tobacco production.
According to Brown, when the legislation was enacted, tobacco production moved to different areas of the country.
“Tobacco production moved to Eastern North Carolina following the deregulation because it is one of the most cost-effective areas to grow tobacco in the country,” Brown said.
The number of tobacco farms in the U.S. has steadily decreased over the past decade. From 2002 to 2012, the number of tobacco farms in the U.S. decreased by 72 percent. Specifically within North Carolina, the number of tobacco farms declined by 66 percent.
This sizeable decrease in the number of farms is because many smaller farms are being consolidated into larger farms.
“Large farms have won due to the fact that they have remained competitive in the world market,” Brown said.
U.S. cigarette consumption shrunk from 2012 to 2013 by 5.8 percent, which is a statistically greater drop than in previous years, according to Brown.
“Cigarette consumption in the United States has declined on average 2 to 3 percent every year since 1981 due to health concerns, rising excise taxes, smoking prohibitions on where it is legal to smoke and the social stigma of smoking,” Brown said.
Courtney Lukens, a part-time junior studying communication, said she isn’t surprised by the decline in cigarette consumption.
“I think less people are smoking now because of e-cigs and other alternatives to regular cigarettes,” Lukens said.
One theory for this shrinking market is that smokers are using vaping methods as a complement to traditional cigarettes. Because electronic cigarettes, or e-cigarettes, do not release any actual smoke, a consumer is able to use the product indoors and other places where it is not legal to smoke traditional cigarettes.
E-cigarettes involve a nicotine solution that is heated by a small battery and turned into a vapor, which the user inhales.
Lukens said the increased use in e-cigarettes has both good and bad implications.
“This may be bad for some farmers; however, it is good that Americans are smoking less,” Lukens said.
As markets are declining in the U.S., Asian markets, specifically the Chinese market, have continued to grow steadily. U.S. Exports to China specifically have increased from 59.8 million pounds in 2012 to 73.9 million pounds in 2013.
North Carolina is the largest flue-cured tobacco-producing state in the nation, which is the primary ingredient in cigarettes
This flue-cured tobacco mixed with burley and Oriental tobaccos creates what is called an “American blend.”
This style of cigarette is growing in popularity around the world, specifically in China. Although Americans are consuming less, the demand is still high in many other corners of the world.
The increase in exportation of tobacco is benefitting all tobacco farms across the state, according to Brown.
Although all counties in North Carolina have benefited from either increased tobacco production, buyout checks or both, there are specific areas of North Carolina that are more cost effective than others. The counties, in which these cost-effective areas are found—specifically Eastern North Carolina—are the counties that are seeing the most growth in their economies.