Tobacco Industry Research Paper

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The tobacco industry’s main tobacco products are smoking tobacco (including cigarettes, cigars, and pipe tobacco), chewing tobacco, and snuff. The use of cigarettes as a means of consuming tobacco is relatively recent, beginning around the start of the twentieth century. Six states in the United States produce most of the U.S. tobacco: Georgia, Kentucky, North Carolina, South Carolina, Tennessee, and Virginia. Internationally, the United States is in somewhat of a unique position in that it is simultaneously a big tobacco-producing and a big tobacco-consuming country. On one hand, some countries, such as Malawi and Zimbabwe, produce tobacco at low costs but consume relatively little. On the other hand,the European Union (EU) and Japan are heavy tobacco consumers but relatively little tobacco is grown there. About 100 countries produce tobacco, but Brazil, China, India, Malawi, Turkey, the United States, and Zimbabwe together produce over 80 percent of the world’s tobacco. China is the biggest producer of tobacco, while the United States is the biggest tobacco exporter in the world. In 2002, unfinished tobacco and tobacco product exports contributed $1.7 billion to the U.S. trade balance (Capehart 2001).

Tobacco use across the globe remains significant. According to the World Health Organization (WHO), globally, approximately half the men and about a tenth of women smoke. Smoking in developing nations has been increasing faster than that in the developed world. Since the 1960s, governments across the world have tried to control cigarette consumption (smoking) using various measures. Most governments now have some sort of anti-smoking policies in place. Initially these policies were driven by concerns regarding the health of smokers, while more recently the health of nonsmokers (dangers of second-hand smoke) has also become a concern.

Smoking-Control Measures

Generally policy makers have used both price and non-price measures to combat smoking. Whereas there is now a relatively good understanding of the effectiveness of tobacco control policies in developed nations, understanding of the effectiveness of such policies in developing nations is not so good. In addition, smoking behaviors of different population subgroups are slowly being understood. Price measures are primarily based on reducing smoking using higher cigarette prices driven by higher taxes. The responsiveness of cigarette demand to cigarette tax increases is at the heart of how effective tax-based smoking control policies can be. The effectiveness of price measures, however, may be limited by the habit-forming nature of cigarettes and their low price responsiveness of demand. Conversely, demand unresponsiveness provides greater opportunities for tax revenue generation by governments. Relatively speaking the few studies of developing countries have largely found a higher demand responsiveness implying that dollar-for-dollar, there may be greater smoking reduction opportunities in developing nations than in developed countries (Jha and Chaloupka 2000; U.S. Department of Health and Human Services 2000). Nonprice smoking control measures include numerous initiatives such as cigarette advertising bans (Saffer and Chaloupka 2000), health warnings on cigarette packages, and territorial restrictions (such as workplace and public-place smoking bans and restrictions on sales of tobacco products to minors).

In 1964 the U.S. Surgeon General issued a report warning about the negative health effects of smoking. While the United States was at the forefront of legislating smoking-related health warnings beginning in 1965, other countries have since enacted more restrictive requirements. There has been a ban on the broadcast advertising of cigarettes in the United States since 1971. In 1998, forty-six states in the United States and the key cigarette/smokeless tobacco products producers signed a master settlement agreement (MSA) to reimburse states for costs imposed due to negative health effects of smoking. The main provisions of the MSA include cash payments to the states, advertising restrictions, support for antismoking measures, and disbanding of tobacco-industry trade organizations. Payments were also to be made to tobacco growers to compensate them for the decrease in the tobacco demand (Capehart 2001; Viscusi 2002). In 2003 the WHO drafted a framework convention on tobacco control that included numerous restrictions on the sale and marketing of tobacco products.

Effectiveness Of Smoking-Control Policies

The extent of the effectiveness of these policy measures remains to be seen. Further, in spite of the stringent restrictions imposed by the various measures, technological advances, especially the spread of the Internet, make it virtually impossible to effectively regulate the marketing and sale of tobacco products. Effectiveness may be improved by comprehensive tobacco control policies in which lawmakers pay attention to consumption substitutability among tobacco products as more effective control policies are enacted on one product. At the macro level policy makers face the dilemma of replacing export revenues generated by tobacco products with other revenues. So how can curbs on domestic sales of tobacco be reconciled with encouragement of tobacco exports? The long-term future of the tobacco industry seems somewhat uncertain given all the attention and resources being devoted to smoking control. However, the habit-forming nature of their products, huge industry cash reserves, and the ability to launch newer tobacco products seem to promise a very long tobacco-control road.


  1. Capehart, Thomas C. 2001. U.S. Tobacco Industry Responding to New Competitors, New Challenges. Amber Waves: The Economics of Food, Farming, and Natural Resources, and Rural America. U.S. Department of Agriculture, Economic Research Service.
  2. Chaloupka, Frank J., and Kenneth E. Warner. 2000. The Economics of Smoking. In Handbook of Health Economics. 1, eds. Anthony J. Culyer and Joseph P. Newhouse, 1539–1627. Amsterdam: Elsevier.
  3. Gallet, Craig A., and J. A. List. 2003. Cigarette Demand: A Meta-Analysis of Elasticities. Health Economics 12 (10): 821–835.
  4. Jha, Prabhat, and Frank J. Chaloupka. 2000. Tobacco Control in Developing Countries. Oxford: Oxford University Press.
  5. Saffer, Henry, and Frank J. Chaloupka. 2000. Tobacco Advertising: Economic Theory and International Evidence. Journal of Health Economics. 19 (6): 1117–1137.
  6. S. Department of Health and Human Services, U.S. Public Health Service. 2000. Reducing Tobacco Use: A Report of the Surgeon General. Washington, DC: U.S. Government Printing Office.
  7. Viscusi, W. Kip. 2002. Smoke-Filled Rooms: A Postmortem on the Tobacco Deal. Chicago: University of Chicago Press.

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