TOBACCO April 7, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- TOBACCO Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. TBS-230. Please note that this release contains only the text of TOBACCO-- tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS- NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #TBS, $19/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Tobacco Situation and Outlook. Commercial Agriculture Division, Economic Research Service, U.S. Department of Agriculture, April 1995, TBS-230. Contents: Tobacco Products U.S. Exports and Imports U.S. Tobacco Leaf Situation and Outlook Flue-Cured Burley Southern Maryland Fire-Cured Dark Air-Cured Cigar Tobacco Statistical Summary Special Article U.S. Tobacco Farming Trends Principal Contributor: Verner N. Grise (202) 219-0890 FAX (202) 219-0042 Special Article: Verner N. Grise Database Coordinator, Graphics and Table Design: Fannye Lockley-Jolly Design & Layout: Wynnice Napper Word Processing: Betty Barrett, Lorie Thomas Approved by the World Agricultural Outlook Board. Summary released April 3, 1995. The summary of the next Tobacco Situation and Outlook is scheduled for release June 14, 1995. Summaries and full Situation and Outlook reports may be accessed electronically through the USDA CID System. For details, call (202) 720-9045. The Tobacco Situation and Outlook is published in April, June, September, and December. See back cover for subscription information. Summary In early March, U.S. tobacco growers indicated intentions to increase this year's plantings about 3 percent to 692,000 acres. Despite a large carryover of 1994-crop tobacco, a 16-percent increase in the flue-cured basic quota boosted planting intentions 10 percent to 396,000 acres in 1995. Burley tobacco acreage is expected to decline 5 percent even though basic quota was increased 1 percent. The acreage decline results from large farm carryover and a smaller effective quota. There is a potential for the largest share of burley quota to be used since the mid-1980's. Even with a larger acreage, a crop with average yields would decline about 5 percent from 1994's 1.59 billion pounds. Despite a smaller off-farm carryin, the 1995/96 supply of tobacco will likely change little from the current season. Price supports in 1995 will rise 1.4 cents for flue-cured and 1.1 cents for burley. Price supports for other types are up from 1.7 to 3.5 cents per pound. Before the marketing season begins, USDA sets grade loan rates for the various kinds of tobacco receiving support. Flue-cured and burley no-net-cost assessments will be lower in 1995 for producers and purchasers. On January 1, 1995, off-farm stocks of U.S.-grown leaf were up 3 percent, and stocks of imported leaf were up 7 percent from a year earlier. With an anticipated increase in domestic use that more than offsets reduced leaf exports, total use of U.S.-grown tobacco in 1994/95 may increase from a year earlier. Consequently, October 1, 1995 carryover stocks of all U.S.-grown tobacco will probably decline. Cigarette output rose 10 percent last year to 726 billion units, the largest since 1981 and the second highest ever. Domestic use stabilized, and exports were up. U.S. smokers consumed an estimated 485 billion cigarettes in 1994, about the same as a year earlier. However, annual consumption per adult declined 1 percent to 2,514 cigarettes. Both total and per capita consumption are expected to decline this year because of expected higher retail prices, increased restrictions and prohibitions on smoking, adverse publicity, health concerns, and reduced social acceptance. The value of U.S. leaf and tobacco product exports in 1994 rose 20 percent to a record $6.7 billion because of an increase in volume and prices of tobacco products. The value of exports exceeded imports (arrivals) by $5.8 billion. The record export surplus was up 45 percent from the year earlier. Cigarette exports rose 13 percent to 220 billion, but exports of unmanufactured leaf fell 5 percent to 434 million pounds (571 million pounds, farm sales weight). Export leaf volume may fall further in 1995 because of ample foreign supplies at lower prices, and reduced consumption in some major U.S. markets. The quality of the 1995 flue-cured crop will be an important influence on exports late in the calendar year. In 1994, unmanufactured tobacco imports (arrivals) fell 27 percent to 584 million pounds. The reduction reflects reduced cigarette leaf and stem imports. Imported leaf accounted for about 26 percent of total U.S. leaf stocks on January 1, 1995, a little more than a year earlier. Consumption of cigars and snuff rose in 1994, while consumption of smoking and chewing tobacco fell. Use of cigars and snuff may increase in 1995, but use of other tobacco products may decline further. Disappearance of U.S.-grown flue-cured tobacco in the current marketing year is forecast up from last year's 792 million pounds. Domestic use is expected to increase more than enough to offset reduced exports. Disappearance in 1994/95 will likely exceed 1994/95 marketings, so the carryover of domestic flue-cured tobacco on July 1, 1995, may decline from the 1.3 billion pounds of a year earlier. Production in 1995 may increase from 1994's 870 million pounds. Disappearance of U.S.-grown burley tobacco in 1994/95 is expected to increase from 1993/94's 552 million pounds, with added domestic use. Burley sales this season totaled 573 million pounds, 9 percent less than last season. The U.S. burley carryover next October 1 may decline about 2 percent from a year earlier. USDA set this season's burley marketing quota at 549 million pounds, 1 percent above last year. However, the 1995 effective quota, which reflects last year's over- and under-marketings, totals about 576 million pounds, 30 million pounds less than last season. Individual farm acreage allotments were reduced 15 percent for dark air-cured and Virginia fire-cured tobacco, 7 percent for Kentucky-Tennessee fire-cured tobacco, and 5 percent for Virginia sun-cured tobacco. The allotments were steady for Wisconsin binder and Ohio filler growers and for Puerto Rican cigar filler growers. Acreage allotments unused in recent years were adjusted downward. Prices for the 1994 crop were mixed. Maryland and cigar prices were up, but fire-cured and dark air-cured prices were down. Tobacco Products Domestic Cigarette Use Stable; Exports Rise U.S. cigarette consumption stabilized in 1994, following declines for 10 consecutive years. Consumption remained about the same because lower retail prices more than offset the effects of prohibitions and restrictions on where people can smoke, antismoking activity, such as publicity about relationships between smoking and health, and declining social acceptance of cigarette smoking. Cigarette retail prices in 1994 averaged lower than in 1993 because in August 1993, manufacturers reduced prices of premium brand cigarettes by about one-fourth. Americans smoked an estimated 485 billion cigarettes in 1994, about the same as 1993 (table 1). Some consumers returned to premium brand cigarettes because of lower prices. Economy brands' share of the market fell from 37 percent to 33 percent in 1994. Exports rose 13 percent to 220 billion cigarettes. Shipments to Belgium- Luxembourg (a transshipment point to other European destinations), the largest export destination, rose 40 percent and accounted for much of the increase in shipments. Shipments to Japan, the second largest destination, also rose by 2 percent. With the increase in exports and stable domestic consumption, U.S. cigarette production rose an estimated 10 percent to 726 billion units, the highest since 1981 and the second highest ever. In 1995, domestic consumption may decline a little as some states raise taxes, and smoking restrictions and prohibitions increase. Per capita consumption will continue to decline. Last year, per capita use by persons 18 and over averaged 2,514 cigarettes, down from 2,538 in 1993 and the lowest since 1941 (table 2). Cigarette exports could rise further this year if demand for U.S. cigarettes in East European and Asian countries continues to grow. The annual Economic Research Service (ERS) survey of manufacturers indicated that filter-tip cigarette production rose to 97.9 percent of total output in 1994 from 97.7 percent in 1993. The gain was concentrated in the 80- and 85- millimeter filter-tip size, which made up about 62 percent of 1994 output (table 3). Cigarette Prices Fell Last year, manufacturers did not change wholesale cigarette prices. Because prices were reduced in August 1993, the annual average retail price of cigarettes fell 3.5 percent in 1994, but may increase modestly in 1995. Eight States raised taxes an average of 15.6 cents a pack of 20 in 1994. State cigarette tax rates weighted by packs taxed averaged 30.7 cents a pack in October 1994, 2.8 cents above a year earlier. Washington's tax is scheduled to jump to 81.5 cents a pack on July 1 and become the highest in the Nation, and South Dakota's tax will rise 10 cents to 33 cents a pack on July 1. Several other states have proposed increases for 1995. The Federal excise tax remains at 24 cents per pack. Health Care Bills Would Increase Federal Cigarette Tax The 104th Congress convened in January and several cigarette tax increase bills have been introduced. However, Congress may not vote on any of these bills this year. A bill (S.168) entitled "Affordable Health Care for All Americans Act" would establish a universal health care system. Cigarette excise taxes would be increased $1.50 per pack to $1.74 to help finance health care for low-income persons and small businesses. Another bill (S.308) entitled "Health Partnership Act of 1995" would increase access to, control costs, and improve the quality of health care through health insurance reform, medical research, and reduction in fraud and abuse. Cigarette excise taxes would increase $1.00 per pack to $1.24 to help finance the health care reform. Large tax increases would also occur for other tobacco products. Another bill (H.R. 1200) entitled "American Health Security Act of 1985" would increase cigarette taxes 21 cents per pack and would increase taxes on other tobacco products. Workplace Smoking Prohibition Activities The Occupational Safety and Health Administration of the U.S. Department of Labor, obtained public comments on proposed rules that would prohibit workplace smoking unless properly ventilated separate smoking sections are provided. Public hearings on the proposed regulations were begun in September 1994 and continued through March 1995. Maryland is initiating one of the most stringent workplace smoking prohibitions in the Nation. It will prohibit smoking in virtually every indoor workplace, restaurants and bars are excepted. Maryland's prohibitions use workplace safety laws as the basis for classifying secondhand smoke as a danger employees should be protected against. Litigation Activities The State of Florida recently filed a $1.4-billion lawsuit against U.S. cigarette manufacturers over health-care costs of welfare recipients with smoking related illnesses. Three other states--Minnesota, Mississippi, and West Virginia--have filed similar suits against tobacco companies. However, Florida's suit is the first that is backed by State law that restricts tobacco manufacturers use of the defense that smokers understand health risks and choose to smoke. Also, a Louisiana judge recently certified a class action lawsuit against cigarette companies. The suit claims that cigarette companies knew nicotine was addictive and manipulated nicotine in cigarettes to keep people addicted to smoking. Cigar Smoking Increases; Smoking Use Declines Use of large cigars (including cigarillos), rose for the first time in 24 years in 1994. Last year, U.S. smokers used about 2.29 billion large cigars, 7 percent more than a year earlier. Production of small cigars, those using less than 3 pounds of tobacco per 1,000, rose to 1.41 billion pieces, 10 percent above 1993. Overall cigar use may rise further. Smoking tobacco consumption last year totaled about 14.7 million pounds, 4 percent below 1993. Sales (including imports) of pipe tobacco (the major category) declined, but roll-your-own cigarettes remained stable (table 8). Smokeless Use Mixed In 1994, total smokeless tobacco use rose (table 5). Moist snuff consumption rose enough to offset declines in loose leaf chewing, dry snuff, and plug chewing. Part of the rise in snuff consumption probably results from substitution of this product because of increased smoking restrictions. U.S. Exports and Imports U.S. Trade Balance Rises The United States is among the largest tobacco leaf exporters and is the leading importer. During 1960-64, the United States exported about 30 percent of its tobacco output, but by 1989-93, exports averaged 38 percent of leaf production. Nevertheless, the U.S. share of world leaf exports fell from 28 percent in 1970 to about 11 percent in 1993. U.S. exports of unmanufactured tobacco and tobacco products were valued at $6.7 billion in calendar 1994, 20 percent above 1993 and a record high. The figure includes unmanufactured tobacco worth $1.3 billion and products valued at $5.36 billion. The volume of manufactured exports rose, but the volume of unmanufactured exports fell. The unit value of both manufactured and unmanufactured exports rose. Tobacco export value rose 20 percent from the previous year because of increased cigarette volume, higher cigarette prices, and higher leaf prices. The declared value of cigarette exports rose 27 percent to $4.96 billion. The share of cigarettes going to Asian countries fell from 58 percent to 51 percent, while the share going to European countries rose from 35 to 42 percent. The Bureau of the Census recorded 113 countries as destinations in 1994. U.S. tobacco general imports (arrivals) fell 45 percent in value to $843 million, and the trade surplus rose to $5.8 billion, or 45 percent above a year earlier and the largest ever. The previous record trade surplus was $5.7 billion in 1990 (table 10). Leaf Tobacco Exports Decline U.S. exports of unmanufactured tobacco in 1994 were 5 percent under a year earlier at 434 million pounds (196,794 metric tons) (table 11), the lowest in 7 years. A decrease in shipments to Europe more than offset an increase in shipments to Asia. On a farm-sales weight basis, exports dropped 8 million pounds to 571 million. Exports of flue-cured, burley, and Maryland fell. Shipments of Kentucky- Tennessee dark fire-cured, Virginia fire- and sun-cured, cigar leaf, and other unmanufactured leaf rose. European markets, which typically buy more than half of U.S. leaf, reduced their purchases 8.5 percent. Asian markets (including Middle Eastern countries) increased their purchases 2 percent, following a reduction the previous year. U.S. leaf exports may decline a little more in 1995, partly depending on the quality of the upcoming flue-cured crop. Ample world supplies, much lower- priced than in the United States, and reduced or slower growth of cigarette sales in several countries are reducing U.S. export prospects. For the 13th time in 14 years, Japan was the leading buyer of U.S. tobacco in 1994, followed by Germany, the 1988 leader. Japan and Germany increased purchases a little in 1994. If normal shipping patterns prevail, similar amounts will likely be shipped to these countries in 1995. The Netherlands and Turkey were the third and fourth largest markets. Turkey rose from 15th place 4 years ago due to the popularity of a locally produced blended cigarette. Thailand was the fifth largest market, Taiwan the sixth, Denmark the seventh and the United Kingdom fell from fifth to eighth. Sales to the United Kingdom are somewhat below those of a decade ago because of declining cigarette sales and a shift toward purchasing cheaper tobacco elsewhere. Other major markets included Spain, Italy, Belgium, and Hong Kong. The export volume of flue-cured tobacco fell slightly. Flue-cured export value was unchanged at 58 percent of total U.S. unmanufactured exports. Europe reduced its takings 8 percent, but Asia took 4 percent more. Burley exports fell 4 percent on smaller purchases by Europe. Maryland exports fell after an increase the year before. Kentucky-Tennessee fire-cured exports rose for the second year in a row. Virginia fire- and sun-cured exports rose after declining a year earlier. Imports Down Total duty-paid imports of tobacco for consumption fell 47 percent in 1994 to 538 million pounds. Cigarette leaf imports fell sharply. Imports for consumption represent withdrawals from bond and duty-paid releases for immediate manufacture upon arrival. The United States imported less cigarette leaf and scrap, cigar leaf and scrap, and stems. Part of the decline reflects withdrawals from bond in late 1993 ahead of requirements that importers pay no-net-cost and marketing assessments on imported leaf after January 1, 1994. Cigarette leaf imports fell 49 percent, with big declines in all three leaf categories--Oriental, flue-cured, and burley. Stemmed flue-cured fell 54 percent, Oriental leaf fell 52 percent, and stemmed cigarette leaf, not specially provided for (mostly burley), fell 35 percent. The big decline in cigarette leaf imports followed increases in 4 consecutive years. Imports declined in 1994 because manufacturers faced stiff penalties if they exceeded 25 percent foreign content of total leaf and stems in U.S.- manufactured cigarettes. Also, ample stocks of foreign-grown leaf were on hand. General imports (direct entry plus placements in bonded warehouses for later factory use) fell 27 percent in 1994. The decline occurred in all the cigarette leaf categories, cigar scrap, and stems. Cigar leaf and cigarette scrap arrivals were up. U.S. stocks of imported cigarette tobacco were higher on January 1, 1995, than a year earlier (table 15). Flue-cured stocks rose 22 percent, and burley stocks rose 10 percent. Oriental stocks fell 2 percent. Higher imported flue- cured and burley leaf stocks reflect reduced use due to domestic content provisions. Cigar leaf stocks fell 10 percent. Import Restrictions Update A dispute settlement panel has determined that the 75 percent domestic content provisions for U.S. cigarette manufacturers is inconsistent with the General Agreement on Tariffs and Trade (GATT). A provision in the Omnibus Budget Reconciliation Act of 1993 (OBRA) specified that beginning January 1, 1994, U.S. cigarette manufacturers use at least 75 percent U.S.-grown tobacco in cigarettes to avoid certain additional assessments. In 1993, about 45 percent of tobacco used in U.S. cigarettes was imported (30 percent imported flue- cured and burley and 15 percent Oriental tobacco). In order to comply with this law, domestic manufacturers had to consider sharply reducing import share in their blends, or shift portions of their output to overseas factories. Implementing legislation for the GATT Uruguay Round contains provisions ending the domestic content provisions once the President proclaims a Tariff Rate Quota (TRQ) on certain tobaccos. The TRQ is being negotiated in conformance with existing GATT requirements and would be a GATT-consistent alternative to the domestic content provisions of the OBRA. The Office of the United States Trade Representative held a public hearing on establishment of a TRQ on certain imported tobaccos on April 4. U.S. Tobacco Leaf Situation and Outlook 1/ Domestic Supplies Increase Despite a smaller 1994 crop, the larger carryover increased the supply of domestic leaf for the marketing year (July-June for flue-cured and October- September for burley and other kinds) to 3.94 billion pounds, 1 percent above a year earlier. On January 1, 1995, domestic leaf supplies were 3 percent above a year earlier. However, by the end of the current marketing year, stocks may be about 3 percent below the 2.47 billion pound carryover on July 1, 1994 (October 1 for burley and other kinds). 1/ All quantities in this section are in farm sales-weight unless otherwise noted. With larger quotas, growers are expected to increase flue-cured acreage 10 percent but reduce burley acreage 5 percent. With average yields, U.S. production could total 1.5 billion pounds, 5 percent below last year. Including on-farm holdings, marketings of flue-cured are expected to increase 15 percent (table 25). Burley marketings are expected to decline about 4 percent. Production of fire-cured, dark air-cured, Maryland, and cigar tobacco all will likely be lower. All tobacco types other than Maryland, Pennsylvania filler, Connecticut binder, shade-grown wrapper, and Perique are under quotas. Individual Kentucky-Tennessee fire-cured allotments were reduced 7 percent, and individual Virginia fire-cured allotments were reduced 15 percent in 1995. Individual Virginia sun-cured allotments were reduced 5 percent, and individual dark air-cured allotments were reduced 15 percent. Cigar filler and binder allotments were unchanged. Also, Puerto Rican cigar filler allotments were unchanged at zero acres. Acreage allotments unused in recent years were adjusted downward. USDA's Prospective Plantings report indicated that growers plan to set 692,000 acres of tobacco in 1995, 3 percent more than a year ago. Last year, intentions were about 2 percent more than the final harvested acreage. During 1990-93, intentions were within 1 percent of the final harvested acreage, and should be close again this year. Costs Expected To Rise Production and marketing costs of flue-cured tobacco will probably increase in 1995 as costs of most inputs likely will rise. Total costs (excluding land, quota, and the no-net-cost and marketing assessments) are expected to rise 2 to 4 percent from a year ago. Variable costs are expected to rise a similar amount. With higher quota levels, quota rental rates may have stabilized. Since lease and transfer of flue-cured quotas were eliminated in 1988 (except when a farm experiences a natural disaster), growers have used other options to obtain quotas. These options include: (1) cash or share renting the quota and growing the tobacco on the farm to which the quota is established; (2) purchasing quota; and (3) combining more than one farm into a single farming unit. To combine farms, the operator must have complete control over the entire farm operation. Also, the same accounting system and management must be used on all tracts. Furthermore, the rental agreement must last more than 1 year and include a rotation of one or more program, allotment, or other crops among tracts. Since 1991, burley growers can both lease and transfer and purchase quota within counties throughout the belt. Furthermore, since 1991, Tennessee growers can lease and transfer burley quota across county lines within the state. Price Supports and Assessments in 1995 Price supports are available to eligible growers through government loans to producer associations. To be eligible, producers must pay assessments to the no-net-cost account established by the associations. For flue-cured and burley tobaccos, producers and buyers share these assessments. Growers of other kinds pay the full amount. In addition, since 1991, growers and purchasers of tobacco under the price support program are required to pay a marketing assessment. Grower and buyer contributions equal to 1 percent of the loan rate are divided equally. Growers must also certify that any pesticides applied to the tobacco crop were EPA-approved and used according to label directions. To obtain price support for flue-cured tobacco, USDA requires growers to designate a warehouse where they intend to sell the tobacco. Growers of flue-cured tobacco approved marketing quotas on their next three crops in a mail referendum on January 9-12. Growers of burley approved marketing quotas on their next three crops during February 27-March 2. Virginia sun-cured, Pennsylvania filler, Connecticut binder, and Maryland growers voted for or against marketing quotas in referenda on March 27-30. Virginia sun-cured growers approved marketing quotas, so price supports will be available for their 1995, 1996, and 1997 crops. However, growers of Maryland, Pennsylvania filler, and Connecticut binder (51-52), again turned down marketing quotas. Growers of Virginia fire-cured, Kentucky-Tennessee fire-cured, Kentucky-Tennessee dark air-cured, Wisconsin and Ohio filler and binder, and Puerto Rican filler, approved marketing quotas for the 1995 crop in previous referenda. Under the Omnibus Budget Reconciliation Act of 1990, the marketing assessment has been set at 1.597 cents per pound for flue-cured and 1.725 cents for burley (divided equally for growers and purchasers). The marketing assessment ranges from 1.101 cents per pound for Wisconsin binder to 1.518 cents for Kentucky-Tennessee dark fire-cured tobacco (table 20). Marketing assessments total 1 percent of the applicable price support level and are divided equally between growers and purchasers. The no-net-cost assessment for 1995 has been set only for flue-cured and burley tobacco. The 1995 flue-cured assessment totals 0.0015 cent per pound for producers and 1.0015 cents per pound for purchasers. The burley assessment totals 0.1375 cent for both producers and purchasers. The Agricultural Act of 1949, as amended in 1986, requires that producers and purchasers share equally in no-net-cost assessments, to the extent possible, in maintaining the no-net-cost account for 1985 and subsequent crops of flue- cured and burley tobacco. The flue-cured purchaser assessment is more than the producer assessment because purchasers did not pay assessments for the 1985 crop of flue-cured and burley tobacco, and additional purchaser assessments are needed to equalize contributions of the two groups for flue- cured. No-net-cost assessments for the other kinds of tobacco are expected to be announced soon. USDA has set the 1995 flue-cured support level at $1.597 per pound, 1.4 cents above 1994, and the burley support at $1.725, 1.1 cents above 1994. The price support for flue-cured and burley equals the amount for the preceding year, adjusted by changes in the 5-year moving average of market prices, excluding the highest and lowest (two-thirds weight) and changes in a cost-of-production index (one-third weight). For other types, maximum support rates continue to be based on changes in the average of the parity index during the 3 previous years compared with 1959. But loan associations can request reduced support if warranted by market conditions. Supports for other kinds of tobacco are up 1.6 to 2.4 percent in 1995. Tobacco Tested for Pesticides Pesticide use has been restricted on U.S. tobacco for many years. The Food Security Act of 1985 extended the adherence standards. It requires USDA to inspect U.S.-produced flue-cured and burley tobacco for improper use of pesticides. The pesticide residue sampling program for 1994 emphasized testing for proper use of maleic hydrazide (MH) on flue-cured tobacco. The program revealed that MH residues fell from 117 parts per million (ppm) in 1993 to 103 ppm in 1994. Residue levels of MH have fallen in recent years because of educational efforts and new sucker control strategies. Burley test results are not available. Crop Insurance Required To Receive Price Support The Federal Crop Insurance Reform Act of 1994 requires all farmers to buy "catastrophic" crop insurance at a rate of $50 a crop in order to receive price supports, including tobacco. Farmers with multiple crops pay a maximum of $200 if their farm is limited to one county. The new program replaces Federal disaster relief programs. Advisory Committee on Tobacco Holds Several Meetings A Congressionally appointed advisory committee on tobacco that includes grower, warehouse, manufacturer, and exporter representatives was established to explore ways to improve the efficiency and competitiveness of the U.S. tobacco industry. The committee was established in connection with discussions leading to a commitment by manufacturers to buy about 300 million pounds of flue-cured and 400 million pounds of burley 1990-93 loan stocks over a 7-year period. The committee has met several times and is expected to report its recommendations in the near future. Flue-Cured Disappearance Likely To Increase Total disappearance of U.S.-grown flue-cured tobacco (types 11-14) will likely increase this season from last season's 792 million pounds (table 25). During the first half of the marketing year (July-December 1994), domestic disappearance was 33 percent above a year earlier. Domestic use may be higher during January-June 1995 than a year earlier because of higher cigarette production and bulk smoking exports. Consequently, domestic use for the marketing year will increase from last season. Flue-cured exports during the first 7 months of this marketing season are below last season, with European countries taking a little more but Asian countries taking less. July-January exports of 206 million pounds were down 4 percent from the previous year and 30 percent below 2 years ago. Exports during the last 8 years have remained below the 1984-86 average because of reduced demand, ample supplies of foreign leaf, and a change in the classification that manufacturers declare for exports of processed or semi- processed blends. Manufacturers began declaring the blends as manufactured tobacco products in the mid-1980's, rather than as flue-cured leaf. January- June 1995 leaf exports will likely decline from a year earlier, and will be somewhat lower for the entire July 1994-June 1995 marketing year. Carryover May Decline Marketings in 1994 were below this season's expected disappearance. Consequently, the flue-cured carryover on July 1, 1995, is projected to decline from the 1,298 million pounds of 1994. Manufacturers and dealers increased purchases from loan stocks a little in calendar 1994, however, only 17.9 million pounds were sold in calendar 1994. But, sales have picked up because in early December 1994, manufacturers agreed to purchase about 300 million pounds of pre-1994 loan stocks during the next 7 years. During July 1994-February 1995, 181.2 million pounds of tobacco (174 million pounds in February alone) were sold from loan (stabilization), compared with 18.6 million pounds a year earlier. By March 1, unsold loan stocks had fallen 29 percent from a year earlier. Crop Projected To Rise in 1995 The basic flue-cured quota is up about 16 percent, and effective quota is about 15 percent higher. Subtracting net overmarketings gives an effective quota of about 922 million pounds. The change from last year's effective quota ranged from a 14.5-percent increase in the old and middle belts of North Carolina and Virginia, to an 18.5-percent increase in the Georgia-Florida belt. Based on the effective quota, larger marketings are expected in 1995. According to the March planting intentions, 396,000 acres will be grown, 10 percent above last year. On this acreage, a normal yield would produce about 890 million pounds, about 96 percent of effective quota. However, with available quota and substantial farm carryover, growers will probably market about 925 million pounds. In 1994, growers marketed 101 percent of poundage quota. In 1992 and 1993, growers marketed 100 percent of poundage quotas. The projected flue-cured marketings, plus anticipated carryover, indicates that the 1995/96 supply is expected to rise from the 2.11 billion pounds available in the current marketing year. This represents about 2.6 years' use, and is above traditional benchmark levels. Foreign Situation Canadian flue-cured auction markets closed March 15, 1995. The volume of flue-cured tobacco sold through the Ontario Flue-cured Growers Board during the 1994/95 season totaled 129.6 million pounds, down 17 percent from last season. The average price was Can$1.63 (US$1.03) per pound, compared with Can$1.44 (US$1.04) per pound a year earlier. Zimbabwe's flue-cured production in 1994 was about 373 million pounds, down 23 percent from 1993. Prices averaged US$0.78 a pound, 22 cents above a year earlier. The higher price reflects lower production and some drawdown in world supplies. Indications are that 1995 production may increase to around 400 million pounds. Brazil's output of flue-cured tobacco in 1995 will increase from last year's 694 million pounds. However, production will likely remain well below the 944 million pounds produced in 1993. Brazil's reduced output stems from a drop off in prices, lower domestic consumption, and uncertainty about U.S. imports of Brazilian leaf. Burley Basic Quota Up, But Production May Decline The 1995 basic quota for burley tobacco totals 549 million pounds, 1 percent above 1994. Marketings in 1994/95 from the 1994 crop and 1993 carryover tobacco totaled about 573 million pounds, 9 percent below 1993. (Some burley was not marketed because of insufficient quota). Allowing for overquota and underquota marketings last season brings the 1995 effective quota to about 576 million pounds, 30 million less than a year earlier. This year's support has been set at $1.725 per pound, 11.6 cents below the 1994/95 average market price. Around March 1, farmers said they intended to set about 5 percent less acreage than last year. Preliminary data indicate that last year growers marketed 95 percent of their effective quota, the highest percentage since 1985. They marketed 87 percent in 1993/94 and 84 percent in 1992/93. Of the two major growing states, undermarketings are somewhat greater in Tennessee than in Kentucky. In 1994/95, Tennessee marketed about 82 percent of its quota, compared with 100 percent in Kentucky. However, the Tennessee percentage rose in 1994 as 19 million pounds of quota were leased and transferred across county lines, the 4th year this was permitted. With normal yields, 1995 production will reach 545 million pounds, down 5 percent from 1994 marketings. In addition, carryover from the 1994 crop boosts the amount of available tobacco, but quota might be sufficient to market only about 550 million pounds this year, resulting in a smaller supply. Supply Increases in 1994/95 The 1994/95 domestic supply was 1.59 billion pounds on October 1, up 1 percent from a year earlier (table 25). The supply equals about 2.7 times the estimated disappearance, about the traditional bench-mark level but somewhat above the ratio of recent years. By last October 1, the total carryover held by manufacturers and dealers had declined 16 percent, but stocks held by loan cooperatives more than doubled. The two grower loan associations took 54.7 million pounds of the 1994 crop, about 9.5 percent of grower marketings. About 232 million pounds of the 1993 crop, and 142 million pounds of the 1992 crop were placed under loan. The big decline in loan takings in 1994 reflects stronger demand because of stable U.S. cigarette consumption, rising cigarette exports, and some substitution of U.S.-grown for foreign-grown leaf. Manufacturers agreed to purchase all pre- 1994 loan stocks during the next 7 years. With higher cigarette output in 1994/95 and substitution of domestic grown for foreign-grown leaf, domestic burley use will probably increase. U.S. burley exports may decline a little from the 152 million pounds of 1993/94. Japan and Germany are the leading importers. World burley production fell in 1994 because declines in Brazil, Argentina, Malawi, South Korea, the Philippines, Thailand, Mexico, and the United States more than offset increases in Italy and China. Despite smaller output, ample supplies, much at lower prices, hinders 1994/95 burley export prospects. Crop Volume and Value Down The volume and value of 1994/95 marketings fell, despite higher prices. Quality was a little higher than a year earlier. The proportion designated as fine and good quality rose. Tan and reddish tan tobacco constituted 79 percent of sales. The proportion of leaf grades was about the same as a year earlier. Auction prices for the 1994 crop (including resales) averaged $1.841 per pound--about 2.5 cents higher than a year earlier. Fine quality flyings, lugs, and leaf averaged 1 to 5 cents above the support price, while nondescript and mixed grades averaged 40 to 55 cents above support. Prices of poorer quality mixed and nondescript tobacco were higher than a year earlier. All markets opened on November 21, 1994, and the season ended in early March 1995. Similar to most years, prices fell a little when markets reopened after the Christmas holidays. USDA Revises Burley Tobacco Grade Standards On February 6, the U.S. Department of Agriculture announced that it is amending the regulations for the official grade standards of type 31 burley tobacco to require that bale weight in a lot of burley tobacco not exceed, on average, 100 pounds. Currently, there is no restriction on bale weight for burley tobacco. The limit will be imposed to reduce spoilage and improve the desirability of U.S. burley tobacco Southern Maryland Prices Higher Maryland auctions for the 1994 crop of Southern Maryland (type 32) opened March 14 and is scheduled to close April 6. During the first 3 weeks of sales, prices averaged 14 cents per pound more than a year earlier because of a better quality crop and reduced 1994 world production of light air-cured tobacco. For the 1993 crop (marketed mostly in 1994), growers received $1.42 cents a pound--5 cents less than the year before. Prices in Maryland averaged $1.51, 16 cents lower, but prices in Pennsylvania averaged $1.25, 14 cents higher. The 1994 Maryland crop sold in Pennsylvania has largely been auctioned at prices averaging a little less than a year earlier. Since quotas do not apply, Maryland tobacco does not receive price support. In a 1982 referendum, growers rejected USDA grading and its required fee. Supply Increases Despite a smaller acreage, growers produced a 1994 crop 400,000 pounds larger than the previous season. About 36 percent of total Maryland production was in Pennsylvania. Production was lower in Maryland but higher in Pennsylvania. The Agriculture and Food Act of 1981 mandated penalties for growing and marketing Maryland tobacco in quota areas. However, quotas do not apply to Pennsylvania seedleaf tobacco and, since seedleaf prices are lower, seedleaf growers have switched to producing Maryland tobacco. The supply for marketing year 1994/95 is larger than that of 1993/94. Last season's use of 17.3 million pounds was about 2.1 million pounds below 1993 production (table 28). Farmers' March intentions indicate slightly larger acreage, but with normal yields, the 1995 crop will be smaller than last season. Despite prospects for smaller production, the increased carryin may increase the supply for 1995/96. Fire-Cured Prices Lower With a larger and poorer quality crop than the previous year, this year's auction prices for Virginia fire-cured (type 21) fell about 6 percent. A larger and little lower quality crop, reduced Kentucky-Tennessee auction prices. However, prices remained relatively strong because of the growing demand for moist snuff. Farm purchases of types 22-23 fell, but prices paid at the farm rose from a year earlier. Loan associations took considerably more tobacco than a year earlier. Through March 30, auction prices for types 22-23 averaged $1.96, about 17 cents lower than the season average a year earlier. Most grade prices were lower. About 3 percent of the type 22-23 crop (1.1 million pounds) was placed under loan in sales through March 30, the most since 1987. Auctions for Kentucky-Tennessee (types 22-23) began January 18 and ended in early April. About 40 percent of the crop was sold on farms for prices ranging from $2.20 to $2.80 per pound. This season's auction prices ranged from $2.40 per pound for the best wrapper and heavy leaf grades to $0.50 a pound for N2 (nondescript). A somewhat larger, poorer quality crop lowered prices of Virginia type 21. When sales ended on January 11, the volume had risen 26 percent. With the larger crop, growers placed 22.3 percent of the crop under loan, compared with only 0.6 percent last season. Loan placements were the highest since 1986. The crop consisted of considerably more low quality and less fair quality or better tobacco. Less mixed and green color tobacco was sold, with more medium and dark brown offerings. Output of snuff, which constitutes the principal domestic use of fire-cured tobacco, rose during October-December, and is expected to increase during January-September 1994. Leaf exports were up. After declining in 1993, foreign fire-cured production rose in 1994. For the 1994/95 season, total use may increase because of higher domestic use and exports. Farm Acreage Allotments Down Individual farm allotments were reduced 7 percent for Kentucky-Tennessee fire- cured and were reduced 15 percent for Virginia fire-cured. Farms that had not planted or received planted credit for at least 75 percent of the farm's acreage allotment had their allotment adjusted downward. This year's U.S. allotment totals 16,501 acres for Kentucky-Tennessee fire-cured and 1,316 acres for Virginia fire-cured. Acreage harvested as a share of allotments in 1994 totaled 91 percent in Kentucky, 93 percent in Tennessee, and 87 percent in Virginia, compared with 91, 95, and 88 percent respectively, in 1993. When compared with effective allotments (allows for productivity adjustments on leased-in acres) the percentages are somewhat higher. In 1995, acreage is projected to fall 6 percent in Kentucky and Tennessee but to decline 11 percent in Virginia, which would be a 7-percent decline for the three states. Weaker prices for the 1994 crop, and smaller allotments, probably caused the reduced acreage intentions. Dark Air-Cured Supplies Stable; Prices Mixed Auction prices for the 1994 crop averaged 10 cents a pound higher for Green River (type 36) but 3.5 cents a pound lower for One Sucker (type 35) and 5 cents lower for Virginia sun-cured (type 37). About one-fourth of the One- Sucker crop was sold in the country (at the farm) for prices of up to $2.25 per pound for leaf grades. Changes in grade prices from the year earlier varied for the three types. With a better quality crop, the overall average price rose slightly. This season's supply of dark air- and sun-cured tobacco totals 35.7 million pounds, about 0.1 million more than last season (table 30). Most dark air- cured tobacco goes into plug and twist chewing. Output of both plug and twist chewing fell in 1994. Disappearance of dark air-cured tobacco may fall short of the 1994 crop, thus increasing the size of the October 1 carryover. National Acreage Allotments Down Acreage allotments for growers of types 35-37 will decline from a year earlier. Total allotments for 1995 of types 35-36 equal 4,270 acres, 15 percent below last year. Virginia sun-cured, at 100 acres, declined slightly from last season. Growers of dark air-cured tobacco may set about 11 percent less acreage this year than last. Production will decline if yields are normal. Despite higher carryin stocks, the 1995/96 supply may decline from the 35.7 million pounds of 1994/95. Cigar Tobacco Prices Stable to Higher Most cigar tobacco producers received as high or higher prices for their 1994 crop as a year earlier. Most cigar leaf had been sold by early March. No Wisconsin binder tobacco was placed under loan because of the smaller crop. Due to strong demand, prices averaged about $1.15 per pound for Pennsylvania filler tobacco and $1.45 per pound for Wisconsin binder. Prices of Connecticut binder (types 51-52) exceeded the $3.00 per pound of a year earlier. Connecticut binder prices have risen in recent years because loan stocks have been liquidated, production has been down, and crops have been of good quality. The Agricultural Statistics Board will release season-average prices and production data for the 1994 crop on May 11, 1995. Overall, price support levels for this year's crop of cigar tobacco will rise 1.6 percent. Again this season, there are no price supports for Pennsylvania filler (type 41), Connecticut binder (types 51-52), or shade-grown tobacco (type 61). No-net-cost and tobacco marketing assessments totaled 1 cent per pound for cigar binder type 54 and 14.5 cents per pound for cigar binder type 55 in 1994. However, assessments will likely be suspended in 1995 because of the smaller 1994 crop, stronger demand, and recent loan stock purchase commitments by manufacturers. High no-net-cost assessments for cigar filler types 42-44 and 46 have essentially eliminated production of these kinds. Supplies Decline Total supplies of U.S. and Puerto Rican cigar tobacco for this season are down 10 percent from the previous season. Both production and carryin were down. Cigar filler and binder supplies fell 13 and 10 percent, respectively, while wrapper supplies rose 23 percent. More foreign cigar tobacco arrived in the United States in 1994 than a year earlier. Cigar leaf arrivals were up, but cigar scrap arrivals were down. However, stocks of foreign cigar tobacco fell. On January 1, 1995, foreign leaf stocks totaled 70.5 million pounds, down 11 percent from a year earlier, and about 4 million pounds below 1994's use. Domestic Use May Rise Until last year, demand for domestically produced cigar filler and binder had declined as demand for loose-leaf chewing and cigars fell. Use rose in 1994 as production of cigars rose, and loose leaf chewing tobacco production declined somewhat less than the 2 previous years. However, cigar leaf users continue to obtain most of their requirements from imports. Last year, about 77 percent of tobacco used to make cigars and loose-leaf chewing tobacco was foreign-grown. With higher use of cigars and a slowdown in the decline in loose leaf chewing tobacco, U.S. cigar leaf use may rise for the second consecutive season. Use will probably exceed 1994 production, so carryover may fall from the 54 million pounds available in 1994/95. Cigar Filler Acreages Lower; Binder About Unchanged For most farms growing cigar filler and binder tobacco (types 42-44 and 53- 55), USDA held this year's acreage allotments the same as a year earlier. The total acreage allotment was reduced 2 percent because of adjustments for farms that have underplanted their acreage in recent years. For Puerto Rico's cigar filler (type 46), the national acreage allotment was set at zero because of a lack of demand for this type. Based on March planting intentions, cigar-type acreage is expected to decline about 8 percent from last year despite stable quotas and relatively strong demand. Assessments have not been set for the 1995 Wisconsin crop, but they will likely be suspended because all loan stocks have been sold. Pennsylvania filler acreage is expected to decline about 17 percent but binder acreage is expected to increase slightly. Connecticut binder (types 51-52) is expected to increase 3 percent, but Wisconsin binder (types 54-55) acreage probably will be about unchanged because of stable allotments and prices. Shade-grown wrapper acreage will likely increase slightly and production may remain about the same if yields are normal. Overall, cigar tobacco production in 1995/96 is expected to decline about 10 percent from last year's crop. Combined with smaller carryover, supplies likely will be smaller. Special Article U.S. Tobacco Farming Trends Verner N. Grise Abstract: The number of farms growing tobacco in the United States dropped from 512,000 in 1954 to 124,000 in 1992. Of these, 91,000 were classified as tobacco farms in 1992 because tobacco comprised at least 50 percent of sales. About 7.1 acres of tobacco were grown per tobacco farm. These farms averaged only 35 acres of harvested cropland and 126 acres of total land. Sales from tobacco farms averaged $29,000. Sixty-two percent of tobacco farms were full- owner, 26 percent part-owner, and 12 percent tenants. Wide variation exists in farm characteristics by state and type of tobacco grown. Keywords: Tobacco farms, tobacco acreage, farm characteristics. Introduction Tobacco production in the United States grew from about 300 million pounds in the mid-1860's to over a billion pounds in 1909. Production continued to climb and topped 2 billion pounds in the mid-1940's as cigarette consumption grew. Production spread to several regions, and appreciable acreage is now grown in 17 of the 50 States. However, location of production has changed little since the inception of the tobacco production control program. 2/ Data in this article were largely compiled from the 1992 and previous U.S. Censuses of Agriculture, U.S. Department of Commerce, Bureau of the Census. This article updates "U.S. Tobacco Farming--Trends and Current Status," Tobacco Situation and Outlook report, TS-211, June 1990, pp. 28-32. * Agricultural Economist, Commercial Agriculture Division, Economic Research Service, USDA. Methods of producing, harvesting, and preparing tobacco for market have been slow to change. However, during the 1960's, there was a switch to looseleaf preparation of flue-cured for market and the adoption of labor-saving harvesting techniques. During the 1970's and early 1980's, burley also shifted to looseleaf. These changes have permitted increased acreage per farm, although production has declined, and fewer farms grow tobacco. This article reports changes in numbers of growers and summarizes characteristics of tobacco farms. Farms Producing Tobacco The number of farms growing tobacco in the United States fell by 388,000 to 124,000 from 1954 to 1992--a 76-percent drop (table A-1). In North Carolina, the major flue-cured state, the drop was 88 percent, from 150,000 to 18,000. Units consolidated because provisions enacted in 1961 permitted lease and transfer of quota within counties (abolished in 1987 except under emergency conditions), and legislation in 1982 permitted sale of quotas within counties. Furthermore, new technologies, such as bulk barns and mechanical harvesters, greatly reduced labor requirements. A shift to selling all flue-cured untied in the late 1960's, also hastened the consolidation in quotas and the reduction of farms growing tobacco. The number of producers in Kentucky, the major burley producing state, has declined significantly but not as dramatically as in flue-cured producing states. The decline in the number of burley producers has been slower because labor-reducing technologies have not been adopted as rapidly. There has been little mechanization of the burley harvest, and only since the late 1970's has it been sold looseleaf in bales. In 1954, 29 percent of the farms that grew tobacco were in North Carolina. By 1992, the percentage had fallen to 14 because the number of growers plunged 88 percent from 150,000 to 18,000. On the other hand, 27 percent of the farms that grew tobacco were in Kentucky in 1954, compared with 48 percent in 1992, because the relative decline from 136,000 to 59,000 producers was considerably smaller than in North Carolina. Similar changes occurred in the other flue- cured and burley producing states. In 1992, tobacco per farm averaged 6.7 acres. The average grew from 2.7 acres in 1959 (table A-2). Still, the averages tend to hide the diversity in tobacco growing. For example, in 1992, average acreage per farm varied from 2.1 in West Virginia to 33.9 in Connecticut (table A-3). Acreage varies by type of tobacco grown, tenure arrangements, topography, technology, competing crops, and availability of labor. Characteristics of Tobacco Farms The Census of Agriculture does not provide detailed information about all farms selling tobacco, only those termed "tobacco farms." A place is considered a tobacco farm only if tobacco makes up at least 50 percent of its sales. In 1992, 91,000 of the 124,000 farms that grew tobacco were classified as tobacco farms. These accounted for 73 percent (up from 64 percent in 1987) of the farms growing tobacco, and 78 percent of total production (table A-4). About 82 percent of the tobacco farms were located in Kentucky, Tennessee, and North Carolina. These states and Georgia, South Carolina, and Virginia had 92 percent of the tobacco farms and a similar proportion of total production. These six states are used for state comparisons in the remainder of this article. Tobacco farms are relatively small. They averaged 126 acres of land but only 35 acres of harvested cropland in 1992. Tobacco farms are about one-fourth the size of the average U.S. farm. A fifth of the cropland--7.1 acres--was used to produce tobacco. About 14,500 pounds of tobacco were produced per farm. Tobacco acreage per farm varied significantly among states. Virginia tobacco farms averaged 62 acres of land, whereas Georgia averaged 402. In Tennessee, tobacco farms averaged only 15 acres of cropland harvested, compared with 177 in South Carolina. Burley producing states grew smaller acreages than other tobacco producing states. Tobacco on Tennessee farms (mainly burley) averaged only 3.4 acres but 27 acres in South Carolina (a flue-cured State). The value of all farm products sold from tobacco farms averaged $29,100. However, the average ranged from $12,800 in Tennessee to $134,700 in Georgia. Tobacco sales varied from $10,300 in Tennessee to $97,300 in Georgia. Also, there was considerable difference among states in the value of land and buildings, the market value of machinery and equipment, and expenditures for inputs per farm (table A-4). Sixty-two percent of U.S. tobacco farms are operated by full-owners, 26 percent by part-owners, and 12 percent by tenants. Full-ownership was highest in burley producing states where acreages are smaller, while part-owners and tenants were more prevalent in the flue-cured states (table A-5). Only 3 percent of the farm operators were nonwhite. South Carolina had the highest percentage of nonwhite operators and Kentucky and Tennessee the lowest. Fifty-six percent of farm operators reported some off-farm work. The proportion varied from 33 percent in Georgia to 67 percent in Kentucky. Greater off-farm work occurred in burley producing states because of their smaller tobacco acreage. The average age of tobacco growers in the United States in 1992 was 52.8 years. The average age of operators was the greatest in Virginia and the lowest in Kentucky. About 32 percent of the operators were 44 or younger and 24 percent were 65 and older. Changes Since 1987 The number of U.S. farms that grew tobacco fell only 9 percent from 1987 to 1992 compared with a 23-percent decline the previous 5 years. The decline occurred because sale of flue-cured quota was permitted beginning in 1982 and this, together with mechanization that accommodates larger, more efficient operations, has resulted in greater consolidation of flue-cured quotas. Sales of quotas has also been permitted for burley since 1991. However, the rate of decline in farms growing tobacco slowed because tobacco production rose 45 percent from 1987 to 1992. Consequently, more efficient growers expanded production without replacing less efficient ones. Tobacco farms were somewhat larger in 1992 than in 1987. Acreage rose because of increased quotas and farm consolidation. Value of land and buildings rose 27 percent. Value of products sold rose 56 percent because of increased tobacco acreage and higher prices. The proportion of tobacco farms operated by full-owners fell; the proportion operated by part-owners rose, particularly in flue-cured states. The proportion of nonwhite operators remained at 3 percent. About 56 percent of operators work off the farm. The average age of the tobacco farm operator is rising. They averaged 52.8 years of age in 1992, 0.7 year older than in 1987. The 55-and-older group is growing, and the 54-and-under group is declining. Although many farm operators are working off the farm, the proportion fell in all six states. The decline occurred because farms became larger. Conclusions The number of farms growing tobacco declined rapidly during the last 40 years. However, after the rate of decline increased from 1982 to 1987, it has slowed the last 5 years. The trend to fewer and larger farms will continue, but the rate of change will depend on several factors: technology; policies and programs affecting tobacco; U.S. and world consumption of tobacco; and alternative crop and off-farm income opportunities for tobacco growers. END-END-END