The Changing Political Environment for Tobacco—Implications for Southern Tobacco Farmers, Rural Economies, Taxpayers, and Consumers

Abstract

The farm level economic implications of the political turmoil surrounding tobacco are examined. Tobacco ranks first in crop receipts in the Southeastern United States. Free market advocates typically want to eliminate the tobacco program because of its cartellike nature. Health advocates want to maintain the program because it limits tobacco production. Cigarette manufacturers tolerate the program because of the political support they receive from program stakeholders. The effects of cigarette price increases with and without a program are examined. Whether or not the program is maintained in the face of declining tobacco demand has significant implications for Southern agriculture.

Tobacco‐Control Policies in Tobacco‐Growing States: Where Tobacco Was King

“…Second, throughout the 1990s, both policymakers and the general public increasingly discussed ending the tobacco price support program . ‐95 Adding to the farmers’ growing discontent, in 2000 Philip Morris began circumventing the quota system by contracting directly with farmers to buy tobacco before the auction, at a pre‐agreed price rather than the federally controlled auction system, which increased risk for farmers .…”

A discrete‐time hazard analysis of the exit of burley tobacco growers in Tennessee, North Carolina, and Virginia

“…From 1997 to 2004, the national marketing quotas for flue‐cured and burley tobacco fell by 51% and 62%, respectively (Capehart, 2005) with the price of domestic tobacco increasing to as much as 2–3 times higher than that of the foreign tobacco (Womack, 2003) and the quota rental and lease costs accounting for as much as one‐third of production costs (Serletis and Fetzer, 2008). Given this cost‐price structure, Brown et al (1999) concluded that domestic tobacco growers were vulnerable to the continuation of the federal tobacco program. Also, and importantly, the President's Commission on “Improving Economic Opportunity in Communities Dependent on Tobacco Production while Protecting Public Health” released a report in 2001, in large part attributing the problem to the federal tobacco program and calling for a comprehensive overhaul of the tobacco production and marketing system (President's Commission, 2001).…”

The U.S. Tobacco Buyout: A Partial and General Equilibrium Analysis

“…In the late 1990s, several costly lawsuits were brought against tobacco companies. These lawsuits produced court settlements that included the limitation of cigarette advertising as well as an agreement for the tobacco industry to pay states in excess of $200 billion over 25 years (Brown, Snell, and Tiller, 1999).…”

“…. Total demand elasticity estimates for U.S. burley and flue-cured tobacco are 20.53 and -1.75, respectively, according to Brown, Snell, and Tiller (1999). Serletis and Fetzer (2008) estimate demand elasticities for flue-cured ranging fromÀ0:72 to À1:24 and demand elasticities for burley ranging from À0:03 to À0:11.…”