U.S. Cigarette Companies: Friend Or Foe Of The American Tobacco Farmer?


U.S. Cigarette Companies: Friend Or Foe Of The American Tobacco Farmer?

by Ross Hammond

As the cigarette companies start their latest public relations offensive highlighting the plight of the American tobacco farmer, I thought it important to highlight the role these same companies have played in encouraging more and more tobacco to be grown overseas.

U.S. CIGARETTE COMPANIES HAVE BEEN INCREASING THEIR USE OF FOREIGN TOBACCO. Between 1990 and 1993, tobacco leaf imports to the U.S. more than doubled to over 1 billion pounds, and between 1995 and 1996 rose over 21 percent. According to the USDA, "The main reason for this surge was the rising popularity in the United States and abroad for low and mid-priced cigarette brands (discounts). To meet this demand, manufacturers imported an increasing amount of lower cost foreign tobacco."

US CIGARETTE COMPANIES' OVERSEAS PLANTS HAVE STEPPED UP THEIR EFFORTS TO PROCURE TOBACCO ABROAD RATHER THAN IMPORT AMERICAN TOBACCO. A majority of the tobacco that U.S. cigarette companies purchase overseas comes from three large U.S. companies that dominate the global trade in tobacco leaf -- Universal Corporation, Dimon Inc. and Standard Universal Corporation. According to a report in the Washington Post, in many countries the tobacco leaf companies get downpayments from the U.S. cigarette companies to deliver a set amount of leaf. In other countries, U.S. cigarette companies have actually set up joint ventures with these leaf merchants to boost tobacco production.

A few examples:

  • In the early 1990s, Universal Corporation and Philip Morris jointly purchased a newly privatized tobacco processing company from the Kazakhstan government.

  • Universal recently set up a joint venture with RJ Reynolds in Azerbaijan, where it will develop and boost production of Azerbaijani leaf.

  • Philip Morris recently entered into a joint venture with the Chinese National Tobacco Corporation to grow Virginia leaf for use in the production of Marlboros for both domestic (Chinese) consumption and for export.

  • BAT's July 1997 purchase of Mexico's biggest cigarette company for $1.7 billion (BAT's biggest purchase ever), was in part motivated by the fact that the company sees "considerable opportunities" to export tobacco leaf from Mexico, "particularly because the country is outside the U.S. import quota," says a Reuters report.

    Then there is the scandal involving Brown & Williamson's efforts (along with DNA Plant Technology) to develop a tobacco plant with twice the normal amount of nicotine. Between 1990 and 1994, B&W imported nearly 8 million pounds of the genetically altered tobacco (code-named Y-1) to the United States for use in its brands, including Pall Malls and Lucky Strikes. Company spokesman Mark Smith says that while the company has stopped growing and importing Y-1 (itself a questionable statement) it will continue to put it in their cigarettes until the existing stockpile of 3.5 million pounds is used up some time in 1999. The U.S. Justice Department, which filed criminal charges against B&W and DNA, charges that on numerous occasions, employees of Brown & Williamson and DNA smuggled Y-1 and other tobacco seeds to Brazil and other countries -- Nicaragua, Honduras, Chile, Nigeria, Costa Rica, Argentina, Zimbabwe and Canada -- in violation of the tobacco seed export law.

    Maybe it's time we challenge the notion that the fate of the American tobacco farmer and the U.S. cigarette companies are intertwined.


    Sources:
    • Economic Research Service, U.S. Department of Agriculture, _Tobacco_, 16 September 1997
    • Tom Capehart, _U. S. Tobacco Import Update_, Economic Research Service, USDA, September 1997
    • Frank Swoboda and Martha Hamilton, "The Largest Independent Tobacco Merchants Are Based in Va. but Their Growth Is Abroad", _Washington Post_, 7 July 1997
    • Amy Wilson, _The Tobacco Industry 1998 Edition_, Investor Responsibility Research Center
    • Jeff Daeschner, "B.A.T Mexico buy Seals LatAm Presence," _Reuters_, 22 July 1997
    • "Justice Uproots 'Crazy Tobacco': Prosecutors Target High-Nicotine Leaf," _Washington Times_, 8 January 1998.


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