production expenditures usually equal about one-fourth of the cash receipts from the tobacco crop. So the outlay for the 1977 crop was about $145 million. Virtually all the Kentucky tobacco crop is sold to manufacturers, dealers, and exporters at 221 warehouses at 32 auction markets. Lexington is the largest tobacco market in the United States with 24 warehouses and its accounts for about 20 percent of Kentucky's sales. Warehouses employ numerous actioneers, handlers, weighers, bookkeepers, and clerks to move tobacco quickly through the sales. The auction season length varies from year to year but burley markets open in late November and the season ends for fire-cured sometime in March. MANUFACTURING Tobacco and tobacco products is the third leading manufacturing industry in Kentucky, ranking after electrical and electronic equipment and food. Value added to production of about $496 million is about 9 percent of the total for Kentucky's total manufactured products. This figure represents the value created in products by Kentucky's manufacturers, not counting such costs as materials, supplies and fuels. Among the States, Kentucky ranks third in value added by tobacco manufacture. Most of Kentucky's value added is in 3 cigarette plants in Louisville, but the more numerous steaming and redrying plants are an important processing step. Kentucky also has a cigar factory and 5 plants for chewing and smoking tobacco. In Kentucky, 17 redrying plants operated in 1972 and employed about 1,600 employees with an annual payroll of about $9 million. In manufacturing, burley is used principally for blending with other tobaccos in cigarettes. The heavier, darker leaves usually are used for smoking tobaccos. Fire-cured leaf is used chiefly in the manufacture of snuff, specialty cigars, smoking tobacco, and dark cigarettes in a few countries. Dark air-cured tobacco is also used in every form of smoking. For burley, the chief kind of tobacco grown in Kentucky, about 80 percent of the crop is used in U.S. cigarettes, 5 percent in other tobacco products, and about 15 percent of the crop is exported. A larger share of fire and dark types goes overseas. Cigarettes acount for about four-fifth's of the tobacco consumed in the United States. Only 3 States manufacture cigarettes and Kentucky ranks third after North Carolina and Virginia in cigarette production. Kentucky's cigarette factories product about 20 percent of the Nation's cigaretes and employ about 9,500 with an annual payroll of $26 million. In terms of Kentucky's employment, tobacco products plants have about 12,000 employees, or about 4 percent of those working in manufacturing. As a share of value of output, labor cost is low relative to other industries because of a very high degree of mechanization in tobacco plants. FARM AND MANUFACTURING VALUE COMBINED The value of tobacco production by farmers and value added in manufacture accounted for by tobacco and tobacco products ($795 million-1972) represents about one-tenth of the value of goods produced in Kentucky ($7.7 billion). Measured by employment, tobacco farming, in terms of full time jobs, and manufacturing accounts for about 4 percent of Kentucky's employment of 1.3 million. However, the total number receiving income from tobacco is substantially larger because of the seasonal nature of farm production, selling, and redrying operations. EXPORTS About 18 percent of the Kentucky tobacco crop is exported to foreign countries as unmanufactured tobacco. Value is about $112 million. The remainder is used by domestic manufacturers, but tobacco products exports, principally cigarettes, represent additional foreign trade so the Kentucky leaf and leaf equivalent in product exports represent about 25 percent of the crop. TAXES Tobacco is heavily taxed by the United States government and State and local government. Federal, State, and local governments tobacco taxes represent about 36 percent of consumer expenditures for tobacco products. Virtually all the taxes are collected on cigarettes. Nationally, excise taxes are about 3 times the amount U.S. farmers receive from the tobacco they produce. Historically, taxes on cigarettes are levied with Federal rates fixed on a per thousand basis and State and local governments on a per pack basis. The current Federal tax rate is $4 per thousand or 8 cents per package of 20. State cigarette taxes averaged 12.8 cents per pack in late 1977. Taking into account the tobacco contained in cigarettes, the tax rate is equivalent to $5.90 per pound of cigarettes. Comparable rates on other tobacco products are substantially lower. With a relatively low tax of 3 cents per pack, Kentucky received about $22 million in tobacco taxes this past fiscal year, or about 1.2 percent of State tax revenues. Kentucky smokers' cigarette purchases included $63 million in Federal excise taxes (paid by manufacturers). ECONOMIC IMPORTANCE OF TOBACCO IN KENTUCKY1 (By D. Milton Shuffett)2 The most important aspect of tobacco as an economic commodity in Kentucky is its importance as a source of cash farm income. Cash receipts from farm marketing of tobacco in Kentucky have been about $500 million during recent years, and tobacco sales account for fore than 50 percent of the receipts from crops and nearly one-third of total cash receipts from farm marketings in most years. Quotas for tobacco in Kentucky for 1978 are about 407 million pounds for burley and approximatelly 26.500 acres for dark fire-cured and dark air-cured types. Allotments were held by 143,000 burley growers and nearly 23,000 dark tobacco producers. In terms of people sharing in the returns from farm sales of tobacco, it is estimated that the average number of families involved in the production of each allotment is approximately 1.5. Consequently, more than 250,000 families share in the production and the returns from the state's tobacco group. In producing tobacco, farmers are involved with out-of-pocket cash costs for cover crops, plant bed materials, insecticides, fuel, chemicals, gasoline for machinery, machine repair expenditures, and hired labor. Producers usually spend, on the average, about 35 cents per pound for direct cash costs involved in producing tobacco. Indirect expenses associated with barns, sticks, depreciation on machinery and equipment, and miscellaneous overhead costs would run another 35 cents per pound, on the average. At a cost of 70 cents per pound for production costs (excluding family labor and land and quota use), the average expenditure of Kentucky tobacco producers for production supplies would amount to approximately $325 million per year. These expenditures reflect direct purchases from local businesses and labor and contribute substantially to the economy in local areas where tobacco is produced. The average labor requirement per acre of tobacco produced and marketed is approximately 300 hours. Kentucky's tobacco production furnishes employment equivalent to approximately eight million man days per year. This would be the equivalent of about 39,000 full-time jobs per year. Approximately twothirds of the labor used in burley production is family labor and one-third is hired labor. Nevertheless, if tobacco production were not available as a source of employment to hired and family workers, these workers would need to find alternative jobs; nonfarmjobs for the most part. Tobacco marketing is carried out through more than 200 looseleaf tobacco warehouses located in 30 market centers throughout the state. Investment in the marketing facilities is estimated to average about $300,000 per warehouse, with a total investment in first marketing facilities of about $60 million. Producers pay approximately $25 million per year for marketing of the crop; this marketing cost goes for buying supplies and equipment for the warehouses,. hiring labor for handling the crop in the warehouse floors, advertising, etc., and represents money generated and spent in the local market centers. Kentucky has 11 stemming and redrying facilities for processing tobacco for storage after it is sold on the looseleaf warehouse floors. These facilities 1 Data were assembled from secondary sources including USDA Reports, Kentucky State Department of Agriculture Reports, and publications from the Tobacco Institute. In cases where data were not available, estimates are those made by the author. 2 Professor and Vice Chairman, Department of Agricultural Economics, University ofTM Kentucky, Lexington, Ky. normally hire local people and represent an important source of employment and income for the area. In addition to sales warehouses and redrying facilities, tobacco marketing involves considerable economic activity in the process of transporting tobacco crops from the farms to warehouse floors, from warehouses to stemming and redrying facilities, and from redryers to storage facilities where the tobacco is aged until it is ready for use in manufacturing. Approximately 56,000 production workers are involved in the tobacco manufacturing industry in the United States. More than 10,000 production workers are employed in tobacco manufacturing establishments located in Kentucky. In addition to manufacturing workers, large numbers of employees are used in the storage, merchandising and distribution of tobacco products after they are manufactured. There are nearly 3,000 wholesale firms and about 1.35 million retail firms that handle tobacco products in the United States. Many of these firms are located in Kentucky because of the production and manufacturing industry in the state. The manufacturing industry has implications for many segments of the economy through the purchase of such supplies as cellophane, aluminum foil, printed packages and cartons and paper. It is estimated that in the nation more than 1.5 million businesses share in the tobacco trade and in supplying equipment, transportation, advertising, mechandising, and services. An important part of Kentucky's tax revenue comes from tobacco products and the tobacco industry. In fiscal year 1976-77, Kentucky collected $22.2 million in excise taxes and from sales of tobacco products. This is in addition to sales taxes and state and local property taxes collected on farmland with higher value due to tobacco allotments and on warehouses, manufacturing plants, and storage warehouses and facilities. Tobacco allotments have an important impact on farmland values in many areas of the state. It is estimated that the average value of a burley tobacco quota is approximately $3 per pound (farms with quotas sell for an additional $3 for each pound of burley allotment). Kentucky's 423 million pounds of burley quota in 1977 had the effect of increasing farmland values in the state by approximately $1.2 billion-an important contributor to land values and assessment for local tax purposes. In summary, agriculture, agribusiness, and state and local governments are heavily dependent on tobacco production, marketing, manufacturing, and distribution as a source of employment, income, and tax revenue. ECONOMIC CONTRIBUTIONS OF BURLEY TOBACCO TO THE ECONOMY OF (By D. Milton Shuffett)1 The attached tables provide estimates of a part of the nonfarm economic activity associated with burley tobacco production in Kentucky counties. The estimates were made by using 1978 quotas and average costs for the various categories of inputs shown, and by assuming that yields per acre were the same for all counties. While actual costs and yields will vary between counties, the data should provide reasonable estimates for determining the impact of tobacco on the local economy. Some categories of costs are not included in the estimates because they are minor relative to total costs or may not be used by all producers. For example, plastic and cotton covers, fuel for curing, irrigation costs, custom operations and crop insurance were not included. Marketing costs were excluded because marketing does not always occur in the county where the tobacco is produced. In using the estimates for an individual county, the data shown could be adjusted upward or downward for added cost items in production, marketing costs, and any transportation, redrying, green-prizing, of manufacturing that may occur in the county. 1 Professor and Vice Chairman, Department of Agricultural Economics, College of Agriculture, University of Kentucky, September 1978. 2 Costs of Producing Burley Tobacco, 1976, Verner Grise, ESCS, USDA, March 1978. |