Unit 1:
History & Economics of Tobacco

Title Page

Introduction

Unit 1
• What is Tobacco?

• History of Tobacco

• Economics of Tobacco

• Reading & Writing Activities: Finding Important Facts/Details

Unit 2

Unit 3

Unit 4

Unit 5

Unit 6

Bibliography

Economics of Tobacco

Economics deals with the making and selling of products and services to consumers. Products are things like chewing tobacco, cigarettes, televisions, houses, and cars. Services include medical care, education, and insurance. Consumers are the people like ourselves who buy or receive the products and services.

The U.S. has a capitalist economic system. Under this system, one or more people get together and form a company to make and sell something. They do this to make money. The money that they make after paying off their bills or expenses is called profit. In other words, a profit is the money they have for themselves after paying rent, salaries, utility bills (electricity, gas, telephone) and buying machines/computers and any other equipment they need to make their product and run their business.

When companies sell more than they spend, they make a profit. Selling their products to other countries is called exporting. The product that is sold is called an export. Buying from other countries is called importing, and what U.S. companies buy is called an import. For example, if Ford Motor Company buys steel from Japan to make a car, it is importing a product. Steel is the import. When Ford sells its cars to Brazil, it is exporting. Cars are the exports.

When companies or governments export more than they import, they have a trade surplus. A trade surplus is another way of saying a profit. On the other hand, when they import more than they export, they have a trade deficit. A deficit means a debt or money owed to someone else.

Throughout history, tobacco companies have had a trade surplus. That is one big reason why they have been important to the economy of the U.S. In 1992 the tobacco industry reported a $5.65 billion dollar trade surplus. In the first half of 1992, tobacco exports were $2 billion more than imports. The taxes that the tobacco companies pay provide a lot of money for the U.S. government. In 1992, Philip Morris alone paid $4.5 billion in taxes. This makes it the largest tax payer in the U.S.

Credit: Copyright © 1994 by The New York Times Company. Reprinted by permission. "How Do They Live With Themselves?" Roger Rosenblatt, The New York Times Magazine, 3/20/94

Tobacco companies export their products (cigarettes, cigars, chewing tobacco) to at least 146 countries around the world. They sell to Hong Kong, Saudi Arabia, United Arab Emigrates, Turkey, South Korea, Singapore, China, Russia, and many more countries. In 1992 Philip Morris sold 11 billion cigarettes to Russia alone.

One of the reasons tobacco growing is so profitable is because its costs are so low. There are only about 800,000 people working in the tobacco industry. There are 136,000 tobacco farms in more than 16 states.

The making or manufacturing of cigarettes is almost completely automated. It is done by machines without people. Machines crush and clean tobacco leaves and add chemicals like nicotine. They also roll cigarettes, put on filters, cut them to length, and then package them.

All of the six U.S. companies producing cigarettes are large and powerful. They are so strong that not even all the medical reports of the health dangers of smoking and all the laws restricting smoking and advertising have been able to weaken them. They are still able to make big profits by buying up other non-tobacco companies in the U.S. and by selling and making cigarettes outside the country. For example, Philip Morris bought Miller Beer and Kraft General Foods, and R.J. Reynolds bought the Nabisco Food Group and General Entertainment Corporation.

Tobacco Companies: The Companies They Own & The Products They Make

Credit: Dr. Joel Dunnington, Tobacco Almanac, 1993

We can see the power of the tobacco companies by reading about what happened to Greg Louganis, an Olympic diver.

The Greg Louganis Story

The U.S. government and the tobacco companies help each other. Since 1964 all the Surgeon Generals of the U.S. have talked and written about the health dangers of cigarettes. Still, cigarettes are made, advertised, and sold. The tobacco industry gives thousands of dollars to help cover the costs of political campaigns of people running for political office. These are people who want to be elected or reelected as Senators, Representatives, Vice-President, and President. In turn the politicians help the tobacco industry.

One way politicians help is continuing the tobacco price support system. Under the price support system, tobacco can only be grown on a certain number of government-approved farms. The government gives farms special, low interest loans to help cover the costs of growing tobacco. The U.S. Department of Agriculture allows a certain amount of tobacco to be grown each year. This is called a quota. It also sets a minimum price for tobacco. When the farmer takes his/her tobacco to the market, any tobacco not sold one cent above the government price is bought by grower cooperatives and stored to be sold another year.

Read More:

The Greg Louganis Story

When Ronald Reagan was campaigning for President in 1980, he wrote the following letter: