Tobacco Growers in U.S. Brace for Competition

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Beginning in October, the remaining tobacco farmers in the U.S. will be completely exposed to supply and demand laws.

The last buyout checks that total more than $916 million will go out during October to more than 425,000 tobacco farmers as well as landowners.

These are the last group of holdovers from a quota and price support system that guaranteed minimum prices for nearly all of the 20th century. This helped sustain a way of life that had started in Virginia over 400 years ago, when tobacco became Jamestown Colony’s biggest cash crop.

Makers of cigarettes must pay over $10 billion to compensate growers for giving up their quotas. Growers received another $5 billion from businesses as part of the 1998 settlement of lawsuits over costs of health care related to smoking.

When the final checks have been cashed, the surviving growers will no longer receive anything monetarily. They will be forced to find their own profits in a global market that is tremendously competitive.

However, those remaining in the business currently are thriving as many are producing more leaf than in many years and enjoying prices that are much higher.

Many growers accepted the money and left the industry, figuring without the guaranteed profits there was little reason to remain in the dying industry. The amount of tobacco farms fell from 124,200 during 192 to only 16,234 in 2007, the year of the last crop census.

However, the tobacco crop in the U.S.is worth close to $1.5 billion, which is the same as 10 years ago, with production currently stable and with growth of less than 2% during the past five years.

While there have been local economies suffer across the tobacco country of the U.S., cigarette makers are still highly profitable. They compete for a market that is dwindling, but get higher prices with less costs of production using high-speed new equipment in manufacturing.

Making a 20-cigarette pack costs only 27 cents and they currently are selling for over $5.80 per pack on average. Even after taking out taxes, there is plenty of profit left over.

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