98-506 E
CRS Report for Congress
Received through the CRS Web
The U.S. Tobacco Industry in Domestic and World
Markets
June 9, 1998
Edward Knight
Specialist in Industrial Organization and Corporate Finance
Economics Division
Patricia C. Ayers
Head, Business Section
Congressional Reference Division
Gerald Mayer
Economic Analyst
Economics Division
Congressional Research Service ˜ The Library of Congress
ABSTRACT
This report examines the manufactured tobacco products industry in U.S. and world markets .
It reviews the financial performance of the dominant U.S. cigarette companies. It als o
examines recent trends in world cigarette production, consumption, and exports. The repor t
examines the potential for U.S. companies to expand cigarette sales in foreign markets .
Finally, the report provides brief coverage of the smokeless tobacco and cigar industries. Th e
report will be updated as new information or issues warrant.
The U.S. Tobacco Industry in Domestic and World Markets
Summary
This report examines the operations, production, and sales of the U.S .
manufactured tobacco products indust ry, both domestically and abroad. Americans
spent an estimated $51.9 billion on tobacco products in 1997, or just under 1% o f
their disposable income. Of this amount, $48.7 billion (or 94%) was spent o n
cigarettes, $2.2 billion on smokeless and smoking tobacco, and $0.9 billion on cigars.
Cigarette production in the United States is largely concentrated in the ha nds of
three firms: Philip Morris, RJR Nabisco, and Brown & Williamson. These firm s
accounted for about 90% of total production in 1996. Domestic sales of major U.S.
firms (namely, Philip Morris and RJR Nabisco) grew very little over the period 1992 -
1996. International sales, on the other hand, increased more rapidly during thi s
period, indicating that these firms are giving high priority to increasing cigarette sale s
abroad, given the diminished growth potential of the U.S. market in recent years .
Cigarette production in the United States registered only a slight gain (0.2%) ove r
1992-1997. However, cigarette consumption on a per capita basis declined by about
9%. The U.S. share of world production of cigarettes declined from 13.4% t o
12.6% over the period 1992-1997. The U.S. share of world exports also decline d
from 26% to 21% in the same period.
China is by far the largest producer of cigarettes in the world; the second larges t
producer is the United States. In 1997 China produced an estimated 1.7 trillio n
pieces, almost two and one h alf times the 720 billion pieces produced in the United
States. The United States is by far the largest cigarette exporting nation in the world,
with exports in 1997 estimated about 217 billion pieces, or 21% of the world total.
China is the largest consumer market in the world, with over 300 million smoker s
consuming 1.7 trillion cigarettes in 1997. Its market, however, i s basically closed to
foreign exporters. China’s desire to become a member of the World Trad e
Organization, eventually could lead to an openi ng of its market to cigarette imports.
Like the cigarette industry, the smokeless tobacco industry (including th e
production of snuff and chewing tobacco) is highly concentrated among a few f irms:
U.S. Tobacco Company, Conwood Company, and Pinkerto n Tobacco Company. In
1996 the companies accounted for abut 83% of total industry sales. The production
of chewing tobacco declined by 16% over the 1992-1997 period while the output of
snuff products increased by 11%. This rise was due entirely to the increase in th e
output of moist snuff products. Consumption patterns were also similar in this period :
the use of snuff products showed moderate gains of 7%, while chewing tobacc o
sharply declined by 25%. The annual consumption of smokeless products on a per
capita basis is quite small compared to the use of cigarettes — about 1 pound fo r
smokeless and 4 pounds for cigarettes.
The U.S. cigar industry is primarily composed of four companies. Th e
production of cigars in the United States increased by almost 25% from 1992 to 1997 .
Imports of large cigars account for a relatively large share of U.S. consumption .
Most imports of large cigars consist of premium cigars. This report will be updated
as new information or issues warrant.
This report is a shortened version of CRS Report 98-506 E: The U.S. Tobacco
Industry in Domestic and World Markets, by Edward Knight, et al. 41 p.
Contents
Composition and Performance of the Domestic Cigarette Industry
. . . . . . . . . . . 1
Major Producers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Domestic Market Shares of U.S. Cigarette Producers . . . . . . . . . . . . . . . . . . 2
Financial Performance of Major U.S. Cigarette Producers
. . . . . . . . . . . . . . 3
Indicators of Cigarette Industry Performance
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
World Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Involvement of Major Cigarette Manufacturers in World Markets
. . . . . . . . . . . 15
Current Setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Cigarette Sales by Brand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Emerging and Potential Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
China: The World’s Leading Consumer of Cigarettes . . . . . . . . . . . . . 17
Other Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
International Activities of Major U.S. Companies:
Philip Morris and RJR Nabisco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Other Tobacco Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Smokeless Tobacco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Cigars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Major Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
List of Figures
Figure 1. Domestic Market Shares of U.S. Cigarette Producers, 1997 . . . . . . . . . 3
Figure 2. Philip Morris Sales, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 3. Philip Morris Profits, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 4. RJR Nabisco Sales, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 5. RJR Nabisco Profits, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Figure 6. U.S. Per Capita Cigarette Consumption, 1992-97 . . . . . . . . . . . . . . . . . 6
Figure 7. U.S. Cigarette Production and Exports as a Share of
World Production and Exports, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Figure 8. World's Top Cigarette Producing Countries, 1997
. . . . . . . . . . . . . . . . 9
Figure 9. World's Top Cigarette Consuming Countries, 1997
. . . . . . . . . . . . . . . 9
Figure 10. World's Top Cigarette Exporting Countries, 1997
. . . . . . . . . . . . . . 10
Figure 11. U.S. Cigarette Exports by Destination, 1997 . . . . . . . . . . . . . . . . . . . 10
Figure 12. Leading Cigarette Brands Worldwide, 1996 . . . . . . . . . . . . . . . . . . . 16
Figure 13. U.S. Production of Smokeless Tobacco Products, 1992-97
. . . . . . . 22
Figure 14. U.S. Per Capita Consumption of Tobacco Products,
Persons 18 and Over, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Figure 15. U.S. Per Capita Consumption of Tobacco Products,
Males 18 and Over, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
List of Tables
Table 1. Domestic Market Shares of U.S. Cigarette Producers, 1993-97
. . . . . . . 3
Table 2. Financial Performance of Major U.S. Producers, 1992-97 . . . . . . . . . . . 4
Table 3. Selected Statistics on Cigarette Production and
Sales in the United States, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 4. Selected Statistics on World Cigarette Markets, 1992-97
. . . . . . . . . . . 8
Table 5. World’s Top Cigarette Producing Countries, 1992-97 . . . . . . . . . . . . . 11
Table 6. World’s Top Cigarette Producing Countries, 1992-97 . . . . . . . . . . . . . 11
Table 7. World's Top Cigarette Consuming Countries, 1992-97
. . . . . . . . . . . . 12
Table 8. World's Top Cigarette Consuming Countries, 1992-97
. . . . . . . . . . . . 12
Table 9. Top Cigarette Exporting Countries, 1992-97
. . . . . . . . . . . . . . . . . . . . 13
Table 10. Top Cigarette Exporting Countries, 1992-97
. . . . . . . . . . . . . . . . . . . 13
Table 11. U.S. Cigarette Exports by Destination, 1992-97 . . . . . . . . . . . . . . . . . 14
Table 12. U.S. Cigarette Exports by Destination, 1992-97 . . . . . . . . . . . . . . . . . 14
Table 13. Percentages of Total Company Volume by Region, 1996
. . . . . . . . . 16
Table 14. Leading Cigarette Brands Worldwide by Volume, 1996
. . . . . . . . . . 17
Table 15. Market Shares of Philip Morris Cigarette Sales
in Selected Countries, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 16. Market Shares of RJR Nabisco Cigarette Sales,
in Twelve Key Foreign Markets, 1997
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Table 17. U.S. Smokeless Tobacco Products:
Production by Category, 1992-97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table 18. U.S. Per Capita Consumption of Tobacco Products, 1992-97
. . . . . . 23
Table 19. U.S. Production and Exports of Smokeless Tobacco, 1992-97
. . . . . 25
Table 20. The U.S. Cigar Market, 1992-97
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table A5. World’s Top Cigarette Producing Countries, 1992-97
. . . . . . . . . . . 32
Table A6. World’s Top Cigarette Producing Countries, 1992-97
. . . . . . . . . . . 33
Table A7. World's Top Cigarette Consuming Countries, 1992-97 . . . . . . . . . . . 34
Table A8. World's Top Cigarette Consuming Countries, 1992-97 . . . . . . . . . . . 35
The U.S. Tobacco Industry in Domestic and
World Markets
This report examines the operations, production and sales of the U.S .
manufactured tobacco products industry, both domestically and abroad. The analysi s
focuses mainly on the domestic cigarette industry, but also reviews the smokeles s
tobacco industry (which includes snuff and chewing tobacco) as well as the ciga r
industry. The information used in this report was obtained from readily availabl e
(published) government and private sources. The time periods analyzed vary ,
depending on the availability of data . A summary of the major findings is provided
on pages 28-30.
In 1997, the U.S. tobacco industry produced an estimated 720 billion cigarettes ,
3.8 billion cigars, and 121.3 million pounds of chewing tobacco and snuff. American s
spent an estimated $51.9 billion on tobacco products in 1997, or just under 1% o f
their disposable income. Of this amount, $48.7 billion (or 94%) was spent on a n
estimated 480 billion cigarettes, $2.2 billion on smoking tobacco and smokeles s
tobacco, and $0.9 billion on cigars. 1 This report is a shortened version of CRS Repor t
98-506 E: The U.S. Tobacco Industry in Domestic and World Markets, by Edward
Knight, et. al. 41 p.
Composition and Performance of the
Domestic Cigarette Industry
The domestic cigarette industry is highly concentrated. It is essentiall y
composed of three major companies—Philip Morris, RJR Nabisco, and Brown &
Williamson/BAT—with a combined domestic market share of 90%. Lorillard/Loew s
and the Liggett/Brooke Group hold a combined market share of less than 10%.
Major Producers
Philip Morris Companies Inc. is a holding company whose principal wholly -
owned subsidiaries engage in the manufacture and sale of consumer products. Phili p
Morris Inc. (PM Inc.) conducts the manufacture, marketing and sales of cigarettes in
the United States. Its leading premier brands are Marlboro, Benson & Hedges, Merit,
Virginia Slims, and Parliament; its discount brands are Basic and Cambridge. Philip
Morris International Inc. (PMI) is the largest privately owned cigarette producer in
the world. Its leading international brands are Marlboro, L&M, Philip Morris, Bond
Street, Chesterfield, Lark, Parliament, Merit, and Virginia Slims.
1 U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing
Room. Available on the Internet at http://www.econ.ag.gov/briefing /tobacco (as of May 7,
1998).
CRS-2
PM Inc. employs 20,000, with nine manufacturing facilities in Kentucky, Nort h
Carolina and Virginia. PMI, employing 12,000 outside the United States, ha s
ownership, leasing, or interest rights in 52 manufacturing facilities in 29 countries.
RJR Nabisco Holdings Corporation conducts its tobacco business through its
wholly-owned subsidiaries, R. J. Reynolds Tobacco Company (RJRT) and R.J .
Reynolds International (Reynolds Intl.). Its leading premier brands are Winston,
Doral, Camel, Salem, and Vantage. Its discount brands include Monarch, More,
Now, Best Value, Sterling, Magna and Century. The leading brands of Reynolds Intl .
are Winston, Camel and Salem.
RJRT, with 9,000 employees, has manufacturing facilities in North Carolina .
Reynolds Intl. employs 16,000 workers in 22 countries at wholly-owned or joint -
venture manufacturing facilities and at another 20 locations through licensin g
agreements.
Brown & Williamson is a wholly owned U.S. subsidiary of the UK compan y
BAT Industries PLC, a manufacturer of tobacco products and provider of financial
services. Its premier brands include Lucky Strike, Carlton, and Kool. In 1994 BAT
acquired American Brands’ subsidiary American Tobacco, including its Lucky Strike
and Pall Mall brands. In 1997, American Brands completed its divestiture of al l
tobacco interests by selling its UK-based Gallaher Group tobacco subsidiary to BAT .
Brown & Williamson employs 4,800, with manufacturing facilities in Kentuck y
and North Carolina. It also has offices i n Hong Kong, Malaysia, Japan and the UK.
Lorillard Tobacco Company is a subsidiary of Loews Co rporation. Its premier
brands include Newport, Kent, Old Gold and True. In 1977, Lorillard sold the rights
to its cigarette brands’ trademarks outside the United States to BAT. Lorillar d
employs 3,500. Its manufacturing and research facilities are located in Greensboro,
N.C.
Liggett Group Inc. is a subsidiary of Brooke Group Ltd. of Miami, Florida .
Liggett’s headquarters are located in Durham, North Carolina. Its brands include :
L&M, Eve, Chesterfield, and Lark. In 1978 Liggett sold the rights to its cigarett e
brands’ trademarks outside the United States to Philip Morris Companies. Ligget t
has 570 employees with manufacturing facilities in Texas and North Carolina. As o f
1996, Liggett had acquired 95% of the stock of Liggett-Ducat—a Russian joint stoc k
company manufacturing cigarettes.
Domestic Market Shares of U.S. Cigarette Producers
As noted earlier, the domestic cigarette industry is largely dominated by three
firms. Figure 1 shows that, in 1997, four U.S. cigarette makers held 98% of the U.S .
cigarette market. The largest share was held by Philip Morris, at 49.1%, followed b y
RJR Nabisco (at 24.2%), Brown a nd Williamson/BAT (at 16.1%), and Lorillard (at
8.7%).































































CRS-3
Table 1 below shows the marke t Figure 1. Domestic Market Shares
shares for U.S. producers over the perio d
of U.S. Cigarette Producers, 1997
1993-1997. The market share held by Phili p
Morris increased from 42.2% to 49.1% over
this period. RJR Nabisco’s share, on th e
other hand, declined from 30.6% to 24.2%
of total U.S. retail sales. Brown &
Williamson’s share declined slightly, from
17.7% to 16.1%. The fourth larges t
producer, Lorillard, saw its share increas e
from 7.1% to 8.7%.
Table 1. Domestic Market Shares of U.S. Cigarette
Producers, 1993-97
(Percent of total U.S. retail sales)
Company
1993
1994
1995
1996
1997
Philip Morris
42.2
44.8
46.1
47.8
49.1
RJR Nabisco
30.6
26.7
25.7
24.6
24.2
Brown & Williamson/BAT
17.7
18.7
18.0
17.2
16.1
Lorillard
7.1
7.5
8.0
8.4
8.7
Other
2.4
2.3
2.2
2.0
1.9
Total
100.0
100.0
100.0
100.0
100.0
Source: Standard and Poor’s Industry Surveys, September 11, 1997. p. 5.
Financial Performance of Major U.S. Cigarette Producers
Table 2 below contains data on sales and profits of the three major cigarett e
producers owned and operated in the United States. Brown & Williamson, the other
major U.S. producer, is a wholly-owned subsidiary of BAT, a British company .
Comparable data on this firm are not readily available.
Figures 2 and 3 show that, overall, Philip Morris Companies, Inc. registered
impressive gains in sales and profit s over the 1992-1997 period. Tobacco sales rose
sharply from $25.7 billion to $39.8 billion (or 55%), while total operating profit s
increased by $650 million (or 9%). This success, however, was driven solely b y
strong gains in sales by its international operations. Domestic sales increase d
modestly from $12.0 billion to $13.5 billion (or 12%), b ut domestic profits declined
from $5.2 billion to $3.3 billion (a decrease of 37%). International tobacco sales, on
the other hand, increased from $13.7 billion in 1992 to $26.3 billion (or 93%) in 1997 .
Likewise, profits from international sales rose sharply, increasing from $2.0 billion t o
$4.6 billion (or 128%).








































































































































































CRS-4
Table 2. Financial Performance of Major U.S. Producers, 1992-97
(Millions of dollars)
Company
1992
1993
1994
1995
1996
1997
Philip Morris Companies,
Inc.
Sales:
 Domestic
12,010
10,227
11,110
11,493
12,462
13,485
International
13,667
15,746
17,561
20,823
24,087
26,339
Total
25,677
25,973
28,671
32,316
36,549
39,824
Operating Profits
 Domestic
5,185
2,808
3,302
3,740
4,206
3,267
International
2,018
2,360
2,877
3,453
4,078
4,592
Total
7,203
5,168
6,179
7,197
8,263
7,859
RJR Nabisco Holdings Corp.
 Sales
R.J. Reynolds Tobacco
6,165
4,949
4,570
4,480
4,551
4,895
Reynolds International
2,862
3,130
3,097
3,234
3,623
3,428
Total
9,027
8,079
7,667
7,714
8,174
8,323
Operating Profits
 R.J. Reynolds Tobacco
1,704
453
1,085
954
1,084
na
Reynolds International
537
413
716
546
761
na
Total
2,241
866
1,801
1,500
1,845
1,023
Loews Corporation
 Lorillard
Sales
2,185
1,909
1,916
2,081
2,239
2,417
Operating Profits
524
341
348
385
444
363
Notes: na = not available
Source: Recent annual reports of individual companies, and Moody’s Industrial Manual, 1995 and
1997.
Figure 2. Philip Morris Sales,
Figure 3. Philip Morris Profits,
1992-97
1992-97




















































































































































CRS-5
Figures 4 and 5 show that the sales and profits performance of the tobacc o
operations of RJR Nabisco Holding Corp. contrasted markedly with that of Philip
Morris. Total domestic sales decreased from $6.2 billion in 1992 to $4.9 billion in
1997 (a drop of 21%). From 1992 to 1996, profits on domestic sales dropped from
$1.7 billion to $1.1 billion (a decrease of 36%). International sales, on the other hand ,
increased from $2.9 billion to $3.4 billion (or 20%) between 1992 and 1997, while
profits on internatio nal sales increased from $537 million to $761 million (or 42%)
between 1992 and 1996. The gains on the international front, however, were no t
sufficient to offset the declines from domestic operations over the period .
Consequently, total sales and profits from the tobacco operat ions of RJR were lower
in 1997 than in 1992 (down by 8% and 54%, respectively).
Figure 4. RJR Nabisco Sales,
Figure 5. RJR Nabisco Profits,
1992-97
1992-97
It is apparent from these data that both Philip Morris and RJR Nabisco are giving
high priority to increasing cigarette sales abroad, given the diminishing growt h
potential of the U.S. market in recent years. This trend will be discussed in mor e
detail below.
Lorillard Tobacco Company, the third company owned and operated in th e
United States, experienced only a slight gain in sales over the 1992-1997 period, fro m
$2.2 billion to $2.4 billion (or 11%). Profits, on the other hand, decreased from $52 4
million to $363 million over the same period (a decline of 31%). As noted earlier, thi s
company in the 1970s sold the foreign production rights of its cigarette brands ’
trademarks to a British firm, BAT Industries PLC.
Indicators of Cigarette Industry Performance
From statistics compiled by the U. S. Departments of Agriculture and Labor, on e
can obtain a relatively good understanding of cigarette industry performance ,
domestically and internationally, over the past several years. These indicators o f
industry performance offer interesting insights regarding patterns of growth i n
domestic production, consumption, employment, and earnings of workers. They als o















































CRS-6
provide information on cigarette markets abroad relating to production, consumptio n
and exports.
U.S. Markets
Table 3 below contains selected data on the performance of the cigarette industr y
over the period 1992-1997. The major characteristics of industry performance durin g
this period are as follows:

! Cigarette production in the United States totaled 719.6 billion pi eces in 1997,
which is only 0.2% above the 718.5 billion pieces produced in 1992. Hence,
2
domestic production has grown very little over this period.
! Total cigarette consumption in the United States declined over this period ,
falling from 500 billion to 480 billion pieces (or 4%) from 1992 to 1997.
! On a per capita basis, consumptio n
Figure 6. U.S. Per Capita
declined from 2,647 pieces in 199 2
Cigarette Consumption, 1992-97
to 2,399 in 1997, representing a
decline of 9.4%. This trend i
3
s
shown in Figure 6.
! Consumer expenditures fo r
cigarettes (after adjustment fo r
inflation) remained largel y
unchanged over the period 1992 -
1997, averaging $44.6 billion a year .
! Total employment of productio n
workers in the industry experienced
a steady decline from 33,600 in 199 2
to 27,800 in 1997, a decline of 5,800 workers, or 17.3%. (According to one
estimate, in 1995 there were 502,210 jobs directly involved in growing ,
manufacturing, and distributing tobacco products in the United States. 4)
! Workers in the industry are well paid. Average hourly earnings (in curren t
dollars) increased from $20.67 in 1992 to $24.76 in 1997, representing a n
increase of 20% over the period. During the same period such earnings for al l
production workers in the private nonfarm sector of the economy increase d
from $10.57 to $12.26, for an increase of about 16%.
2 The data on U.S. production include production of U.S. and foreign firms in the Unite d
States, as reported by the U.S. Department of Agriculture.
3 Calculations of per capita consumption of cigarettes are based on size of the adult
population, 18 years and over.
4 Tobacco Dollars and Jobs. Tobacco Situation and Outlook. TBS-39. Septembe r
1997. p. 41.
CRS-7
! From fiscal years 1992 to 1997, federal excise tax revenues from cigarett e
sales increased by 13.9%, from $5,043 million to $5,743 million. Over th e
same period, state excise tax rev enues on cigarette sales increased by 20.4%,
from $5,924 to $7,134 million. Overall, $12.9 billion in revenues wer e
obtained from federal and state excise taxes on cigarettes in 1997.
Table 3. Selected Statistics on Cigarette Production and
Sales in the United States, 1992-97
1992
1993
1994
1995
1996
1997
U.S. cigarette production (billions of pieces)
718.5
661.0
725.6
746.5
755.4
719.6
U.S. cigarette consumption (billions of
pieces)
500 485 486 487 487 480
U.S. per capita cigarette consumption






(cigarettes/adult)
2,647
2,543
2,524
2,505
2,482
2,399
U.S. consumer expenditures for cigarettes
(billions of dollars):
Current dollars:
45.8
46.2
44.5
45.8
47.2
48.7
Constant (1992) dollars: a
45.8
44.4
44.5
44.6
44.6
44.0
Employment (in thousands)
33.6
30.4
30.3
28.8
28.2
27.8
Average hourly earnings (current dollars)
20.67 21.04 23.38 24.46 24.64 24.76
Average hourly earnings for all production
workers in the private nonfarm sector
(current dollars)
10.57 10.83 11.12 11.43 11.81 12.26
World production of cigarettes (billions of






pieces)
5,363
5,230
5,478
5,605
5,709
5,727
U.S. cigarette production as a percent of total
world production (percent)
13.4
12.5
13.2
13.3
13.2
12.6
Federal cigarette excise tax revenues, fiscal
years (millions of dollars)
5,043 5,528 5,600 5,717 5,679 5,743b
State cigarette excise tax revenues, fiscal
years (millions of dollars)
5,924 6,045 6,506 7,051 7,122 7,134
Notes: na = not available.
Sources: U.S. Department of Agriculture. Economic Research Service. Tobacco Situation and
Outlook Report, recent issues; U.S. Department of Agriculture. Foreign Agriculture Service ,
Tobacco: World Markets and Trade, recent issues; U.S. Department of Agriculture. Economi c
Research Service. Tobacco Briefing Room. Available on the Internet a t
http://www.econ.ag.gov/briefing/
tobacco (as of May 7, 1998); U.S. Department of Agriculture .
Foreign Agriculture Service. E-ma il to authors. May 11, 1998; U.S. Department of Labor. Bureau
of Labor Statistics. Employment and Earnings, recent issues; and Tobacco Institute. The Tax
Burden on Tobacco, v. 32, January 1998. p. 5, 8.
a The current dollar amounts for consumer expenditures for cigarettes were deflated using th e
Consumer Price Index for all Urban Consumers (CPI-U) for tobacco products.
Estimated.
b
World Markets






















































CRS-8
Table 4 below provides selected data on world cigarette markets, covering th e
period 1992-1997. The major characteristics of these markets are as follows:
! World cigarette production grew at a moderate rate during this period ,
increasing from 5,363 billion pieces in 1992 to 5,727 billion pieces in 1997, a n
increase of 6.8%.
! By comparison, U.S. cigarette production increased by only 0.2% over th e
period.
! Consequently, the U.S. share o f
Figure 7. U.S. Cigarette
world production declined slightl y
Production and Exports as a
from 13.4% to 12.6% over th e
Share of World Production and
period. This trend is shown i n
Exports, 1992-97
Figure 7.
! From 1992 to 1997, world cigarett e
consumption increased by 192 billio n
cigarettes (or 3.8%), while U.S .
consumption declined by 20 billio n
cigarettes (or 4.0%).
! Over the 5-year period, worl d
exports increased by 30.7%, whil e
U.S. exports grew by only 5.3%.
! The share of w orld cigarette exports
accounted for by cigarettes produced by firms in the United States decline d
from 26% to 21% between 1992 and 1997. See Figure 7.
Table 4. Selected Statistics on World Cigarette Markets, 1992-97
1992
1993
1994
1995
1996
1997
World cigarette production
(billions of pieces)
5,363
5,230
5,478
5,605
5,709
5,727
U.S. cigarette production
(billions of pieces)
718.5
661.0
725.6
746.5
755.4
719.6
U.S. share of world production
(percent)
13.4
12.5
13.2
13.3
13.2
12.6
World Cigarette Consumption
(billions of pieces)
5,104
5,122
5,184
5,254
5,292
5,296
U.S. Cigarette Consumption


(billions of pieces)
500
485
486
487
487
480
World cigarette exports (billions
of pieces)
804
780
1,157
988
1,093
1,051
U.S. cigarette exports (billions


of pieces)
206
195
220
231
244
217
U.S. share of world cigarette
exports (percent)
26
25
19
23
22
21
U.S. cigarette exports as share of
U.S. production (percent)
29
30
30
31
32
30






































































































































CRS-9
Source: U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing Room.
Available on the Internet at http://www.econ.ag.gov/briefing/tobacco (as of May 7, 1998); U.S .
Department of Agriculture. Foreign Agriculture Service. E-mail to authors. May 11, 1998.
! From 1992 to 1996, U.S. cigarette exports as a percent of U.S. productio n
increased from 29% to 32%, before dropping to 30% in 1997. This genera l
trend indicates that domestic manufacturers are placing increasing emphasis o n
expanding their markets abroad. Exports increased from 206 billion pieces i n
1992 to 217 billion pieces in 1997.
Tables 5-12 and Figures 8-11 below provide additional data on leading worl d
cigarette markets on a country-by-country basis.
! The People’s Republic of China is b y
Figure 8. World's Top Cigarette
far the largest producer of cigarettes
Producing Countries, 1997
in the world. In 1997 (see Table 5),
(Percent of world total)
China produced an estimated 1,72 2
billion cigarettes, almost two and on e
half times the level produced in th e
United States (720 billion cigarettes) .
Japan ranked a distant third at 25 5
billion pieces, followed closely b y
Germany, Indonesia, and Brazil. I n
197, these leading producin g
countries accounted for almost 60%
of total world production (s ee Table
6), with China and the United States
together producing b y far the largest
share: 43%; China’s share wa s
30.1% and that for the United States was 12.6%. See Figure 8. As shown in
Table 6, neither of these countries experienced any significant changes in thei r
shares of world production over the 1992-1997 period.
! China is also the largest consumer o f
Figure 9. World's Top Cigarette
cigarettes in the world. In 1997 (see
Consuming Countries, 1997
Table 7), China consumed a n
(Percent of world total)
estimated 1,679 billion cigarettes .
China was followed by the Unite d
States (480 billion), Japan (31 6
billion), the Russian Federation (23 0
billion), Indonesia (1 88 billion), and
Germany (151 billion). Thes e
countries consumed almost 58% o f
total world consumption. Se e
Figure 9. Among these countries ,
from 1992 to 1997 the share o f
world consumption increased only i n
the Russian Federation an d
Indonesia. See Table 8.



























































































































































CRS-10
! The United States is by far th e
Figure 10. World's Top Cigarette
largest cigarette exporting nation i n
Exporting Countries, 1997
the world, with exports in 1997 o f
(Percent of world total)
217 billion pieces, or 20.7% of th e
world total (see Figure 10). The
other major exporters include th e
Netherlands, United Kingdom ,
Germany, Brazil, and Singapore .
These six countries accounted fo r
64% of total world ex ports. Despite
its dominant position as worl d
producer, total exports from China i n
1997 amounted to o nly an estimated
60 billion pieces, or about 5.7% o f
the world total (see Tables 9 and
10).
! The world market share of United States exports, desp ite its dominance as an
exporter, has declined significantly from 26% in 1992 to 21% in 1997 (se e
Table 10).
! The largest destinations for U.S .
Figure 11. U.S. Cigarette Exports
exports are Japan (68 billion pieces)
by Destination, 1997
and Belgium (49 bi llion pieces). 5
(Percent of U.S. total)
See Table 11. These two countrie s
account for 54% of U.S. export s
(see Figure 11). U.S. exports t o
China, which is by far the larges t
market for cig arettes, are negligible.
In China, cigarettes are produced by
a national monopoly and there ar e
severe restrictions on cigarett e
imports. In 1997, China importe d
about 17 billion pie ces or only 2.4%
of total world imports. 6
! From 1992 to 1997, the increase i n
cigarette production in some countries was mainly for export (i.e., Brazil ,
United Kingdom, Netherlands, and Bulgaria). In other countries, the in crease
in production was primarily for domestic consumption (i.e., China, Indonesia ,
Russian Federation, Turkey, and India). See Tables 5, 7, and 9.
5 U.S. exports by destination provide an indication of how many U.S. produce d
cigarettes are shipped to each country. These figures do not show how many of thes e
cigarettes are actually consumed in each country. Some may be subsequently shipped fro m
these countries to other markets in the world.
6 World Tobacco. January 1998. p. 8.
CRS-11
Table 5. World’s Top Cigarette Producing Countries, 1992-97
(Billions of pieces)
1992
1993
1994
1995
1996
1997
China
1,644
1,675
1,710
1,735
1,721
1,722
United States
719
661
726
747
755
720
Japan
297
289
269
263
271
255
Germany
222
208
221
221
218
218
Indonesia
153
162
177
186
197
208
Brazil
154
149
164
174
182
190
Russian Federation
148
146
138
141
150
175
United Kingdom
127
117
115
156
170
170
Netherlands
81
84
88
101
111
115
Turkey
70
78
94
100
109
112
India
87
88
89
95
102
107
Poland
87
100
98
101
95
93
South Korea
97
97
91
88
93
93
SUBTOTAL
3,884
3,855
3,980
4,106
4,175
4,177
Other Countries a
1,478
1,445
1,498
1,500
1,533
1,550
WORLD TOTAL
5,363
5,300
5,478
5,605
5,709
5,727
See notes to table 6.
Table 6. World’s Top Cigarette Producing Countries, 1992-97
(Percentages of world total)
Country
1992
1993
1994
1995
1996
1997a
China
30.7%
31.6%
31.2%
31.0%
30.1%
30.1%
United States
13.4%
12.5%
13.2%
13.3%
13.2%
12.6%
Japan
5.5%
5.5%
4.9%
4.7%
4.7%
4.4%
Germany
4.1%
3.9%
4.0%
3.9%
3.8%
3.8%
Indonesia
2.9%
3.1%
3.2%
3.3%
3.5%
3.6%
Brazil
2.9%
2.8%
3.0%
3.1%
3.2%
3.3%
Russian Federation
2.8%
2.8%
2.5%
2.5%
2.6%
3.1%
United Kingdom
2.4%
2.2%
2.1%
2.8%
3.0%
3.0%
Netherlands
1.5%
1.6%
1.6%
1.8%
1.9%
2.0%
Turkey
1.3%
1.5%
1.7%
1.8%
1.9%
2.0%
India
1.6%
1.7%
1.6%
1.7%
1.8%
1.9%
Poland
1.6%
1.9%
1.8%
1.8%
1.7%
1.6%
South Korea
1.8%
1.8%
1.7%
1.6%
1.6%
1.6%
SUBTOTAL
72.4%
72.7%
72.7%
73.2%
73.1%
72.9%
Other Countries a
27.6%
27.3%
27.3%
26.8%
26.9%
27.1%
WORLD TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Note: Sorted by 1997 production.
Source: U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing Room.
Available on the Internet at http://www.econ.ag.gov/briefing/tobacco (as of May 7, 1998); U.S .
Department of Agriculture. Foreign Agriculture Service. E-mail to authors. May 11, 1998 .
Percentages in Table 6 were calculated by CRS from Table 5.
CRS-12
Table 7. World's Top Cigarette Consuming Countries, 1992-97
(Billions of pieces)
1992
1993
1994
1995
1996
1997
China
1,622
1,643
1,656
1,686
1,680
1,679
United States
500
485
486
487
487
480
Japan
340
333
321
317
337
316
Russian Federation
193
185
177
211
207
230
Indonesia
130
140
161
165
178
188
Germany
153
146
150
152
151
151
Brazil
128
119
109
119
119
110
India
85
86
88
94
101
106
South Korea
102
103
98
99
103
103
Turkey
75
83
95
97
99
100
Italy
88
92
97
88
87
93
Poland
96
104
95
101
92
89
United Kingdom
89
95
95
91
89
88
SUBTOTAL
3,601
3,613
3,628
3,707
3,730
3,732
Other Countries a
1,502
1,509
1,556
1,547
1,562
1,564
WORLD TOTAL
5,104
5,122
5,184
5,254
5,292
5,296
See notes to table 8.
Table 8. World's Top Cigarette Consuming Countries, 1992-97
(Percentages of world total)
1992
1993
1994
1995
1996
1997
China
31.8%
32.1%
31.9%
32.1%
31.7%
31.7%
United States
9.8%
9.5%
9.4%
9.3%
9.2%
9.1%
Japan
6.7%
6.5%
6.2%
6.0%
6.4%
6.0%
Russian Federation
3.8%
3.6%
3.4%
4.0%
3.9%
4.3%
Indonesia
2.6%
2.7%
3.1%
3.1%
3.4%
3.5%
Germany
3.0%
2.8%
2.9%
2.9%
2.9%
2.9%
Brazil
2.5%
2.3%
2.1%
2.3%
2.2%
2.1%
India
1.7%
1.7%
1.7%
1.8%
1.9%
2.0%
South Korea
2.0%
2.0%
1.9%
1.9%
1.9%
1.9%
Turkey
1.5%
1.6%
1.8%
1.8%
1.9%
1.9%
Italy
1.7%
1.8%
1.9%
1.7%
1.6%
1.8%
Poland
1.9%
2.0%
1.8%
1.9%
1.7%
1.7%
United Kingdom
1.7%
1.9%
1.8%
1.7%
1.7%
1.7%
SUBTOTAL
70.6%
70.5%
70.0%
70.6%
70.5%
70.5%
Other Countries a
29.4%
29.5%
30.0%
29.4%
29.5%
29.5%
WORLD TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Note: Sorted by 1997 consumption.
Source: U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing Room.
Available on the Internet at http://www.econ.ag.gov/briefing/tobacco (as of May 7, 1998); U.S .
Department of Agriculture. Foreign Agriculture Service. E-mail to authors. May 11, 1998 .
Percentages in Table 8 were calculated by CRS from Table 7.
CRS-13
Table 9. Top Cigarette Exporting Countries, 1992-97
(Billions of pieces)
Country
1992
1993
1994
1995
1996
1997
United States
206
195
220
231
244
217
Netherlands
74
73
80
82
111
113
United Kingdom
56
49
310
85
137
108
Germany
78
71
84
85
82
82
Brazil
26
30
55
54
63
80
Singapore
36
54
54
50
59
70
China
30
42
54
63
59
60
Bulgaria
39
23
40
61
44
55
Hong Kong
90
78
82
74
80
46
Switzerland
18
18
24
27
27
23
Indonesia
23
23
16
21
19
20
France
8
6
8
9
12
15
Venezuela
11
12
15
18
15
15
Japan
14
15
15
17
12
12
Turkey
2
4
0
3
11
12
SUBTOTAL
710
691
1,058
881
973
929
Other Countries
94
89
99
107
120
122
WORLD TOTAL
804
780
1,157
988
1,093
1,051
See notes to table 10.
Table 10. Top Cigarette Exporting Countries, 1992-97
(Percentages of world total)
Country
1992
1993
1994
1995
1996
1997
United States
25.6%
25.0%
19.0%
23.4%
22.3%
20.7%
Netherlands
9.2%
9.4%
6.9%
8.3%
10.2%
10.8%
United Kingdom
6.9%
6.2%
26.8%
8.6%
12.5%
10.3%
Germany
9.6%
9.1%
7.2%
8.6%
7.5%
7.8%
Brazil
3.2%
3.8%
4.7%
5.5%
5.8%
7.6%
Singapore
4.5%
6.9%
4.7%
5.1%
5.4%
6.7%
China
3.8%
5.4%
4.7%
6.3%
5.4%
5.7%
Bulgaria
4.9%
2.9%
3.5%
6.2%
4.0%
5.2%
Hong Kong
11.2%
10.0%
7.1%
7.5%
7.3%
4.4%
Switzerland
2.3%
2.3%
2.1%
2.7%
2.5%
2.2%
Indonesia
2.9%
2.9%
1.4%
2.1%
1.8%
1.9%
France
1.0%
0.7%
0.7%
0.9%
1.1%
1.4%
Venezuela
1.3%
1.5%
1.3%
1.8%
1.4%
1.4%
Japan
1.7%
2.0%
1.3%
1.8%
1.1%
1.2%
Turkey
0.3%
0.5%
0.0%
0.3%
1.0%
1.1%
SUBTOTAL
88.3%
88.7%
91.4%
89.2%
89.0%
88.4%
Other Countries
11.7%
11.3%
8.6%
10.8%
11.0%
11.6%
WORLD TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Note: Sorted by 1997 exports.
Source: U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing Room.
Available on the Internet at http://www.econ.ag.gov/briefing/tobacco (as of May 7, 1998); U.S .
Department of Agriculture. Foreign Agriculture Service. E-mail to authors. May 11, 1998 .
Percentages in Table 10 were calculated by CRS from Table 9.
CRS-14
Table 11. U.S. Cigarette Exports by Destination, 1992-97
(Billions of pieces)
Country
1992
1993
1994
1995
1996
1997
Japan
58
56
57
62
68
68
Belgium
53
51
72
71
62
49
Lebanon
6
5
9
10
12
10
Russian Federation
9
5
7
4
17
10
Cyprus
4
2
7
7
9
10
Saudi Arabia
8
10
9
10
9
9
Korea, South
4
4
5
7
6
7
Singapore
4
7
7
7
8
6
Turkey
8
6
1
0
3
6
Hong Kong
18
11
7
7
6
4
Ukraine
1
0
0
0
2
3
Israel
2
2
3
4
3
3
Taiwan
3
3
3
2
2
3
Malaysia
0
0
0
0
0
2
Panama
1
1
2
2
2
2
Paraguay
2
3
2
2
2
2
Kuwait
1
2
2
2
2
2
United Arab Emirates
7
8
4
3
2
2
Morocco
2
2
2
2
2
2
SUBTOTAL
190
178
199
202
218
201
Other Countries
16
17
21
30
26
16
WORLD TOTAL
206
195
220
231
244
217
See notes to table 12.
Table 12. U.S. Cigarette Exports by Destination, 1992-97
(Percentages of world total)
Country
1992
1993
1994
1995
1996
1997
Japan
28.1%
28.4%
25.8%
26.7%
27.8%
31.2%
Belgium
25.9%
26.2%
32.6%
30.9%
25.3%
22.4%
Lebanon
2.8%
2.7%
3.9%
4.4%
4.8%
4.8%
Russian Federation
4.3%
2.7%
3.3%
1.6%
7.0%
4.7%
Cyprus
1.9%
1.1%
3.0%
3.2%
3.9%
4.6%
Saudi Arabia
3.7%
4.9%
4.1%
4.2%
3.8%
4.3%
Korea, South
1.9%
2.3%
2.2%
2.9%
2.6%
3.3%
Singapore
1.9%
3.3%
3.4%
3.2%
3.3%
2.7%
Turkey
3.7%
3.1%
0.3%
0.0%
1.1%
2.7%
Hong Kong
8.6%
5.6%
3.3%
2.9%
2.5%
2.0%
Ukraine
0.4%
0.1%
0.0%
0.0%
0.8%
1.6%
Israel
1.1%
1.3%
1.5%
1.6%
1.3%
1.5%
Taiwan
1.4%
1.5%
1.4%
0.7%
0.9%
1.3%
Malaysia
0.2%
0.1%
0.1%
0.1%
0.1%
1.1%
Panama
0.7%
0.7%
0.7%
0.8%
1.0%
1.1%
Paraguay
1.1%
1.3%
0.9%
1.0%
0.8%
1.0%
Kuwait
0.7%
0.9%
0.8%
0.8%
0.8%
0.9%
United Arab Emirates
3.3%
4.0%
2.0%
1.4%
0.7%
0.8%
Morocco
0.8%
0.9%
1.1%
0.8%
0.7%
0.8%
SUBTOTAL
92.3%
91.3%
90.5%
87.2%
89.2%
92.8%
Other countries
7.7%
8.7%
9.5%
12.8%
10.8%
7.2%
WORLD TOTAL
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Note: Sorted by 1997 exports.
Source: U.S. Department of Agriculture. Foreign Agricultural Service. E-mail to authors. March
6, 1998. Percentages in Table 12 were calculated by CRS from Table 11.
CRS-15
Involvement of Major Cigarette Manufacturers
in World Markets
As shown above, the consumption of cigarettes in the United States has decline d
in recent years, while consumption worldwide has increased. Therefore, the financia l
prospects for U.S. cigarette producers may depend, in part, on the their ability t o
increase cigarette sales abroad. This section examines the world cigarette market an d
reviews efforts of the two largest U.S. cigarette producers—Philip Morris Companies ,
Inc. (PM) and RJR Nabisco (RJR)—to increase foreign production and sales.
The world cigarette market can be described in terms of matur e
markets—Western Europe and North America—and emerging or developin g
markets—Asi a and the Pacific, Central and Eastern Europe, Latin America and the
Caribbean, and Africa, the Middle East and Central and South America (AMESCA) .
According to industry analyst J. Jessup of the British brokerage firm UBS Limited,
... mature ciga rette markets are characterized by stable pricing, high consumer
spending power, high manufacturing efficiencies, few competitors, hig h
regulation but low litigation risks, and declining consumption.... The key feature s
of the highest margin markets of North America and Western Europe are high
consumer spending power and relative price stability.
...Developing ma rkets offer a competitive pricing environment, low consumer
spending, uneven manufacturing capabilities, many competitors, a mixe d
regulatory response but with low litigation risks, and a high consumption rate.
In the near future, Jessup suggests that a “pluralistic market” will emerge
...in many Eastern European and Asian markets, with the fou r
multinationals [RJR, PMI, BAT and Rothmans] having substantial but no t
dominant positions, and a number of smaller players also competin g
aggressively for market share. 7
Current Setting
Table 13 shows that both Philip Morris and RJR Nabisco have a well-establishe d
presence in world markets. RJR dominates the North American market, while PM
has a large presence in both North America and Western Europe. PM, RJR, and BA T
compete on a relatively equal basis in Central and Eastern Europe, while BAT and
Rothmans have large shares in the AMESCA region. Rothmans holds the larges t
share in the Asia Pacific market, while BAT is the largest player in the Latin Americ a
market. BAT has recently enhanced its position in the latter
Table 13. Percentages of Total Company Volume by Region, 1996
7 Jessup, J. (Dec. 1, 1997). British American Tobacco-A Review of Growth Prospects
[Online]. Available: Dialog: File 563.



























































CRS-16
Philip
RJR
Region
BAT
Morris
Nabisco
Rothmans
North America
17%
27%
55%
10%
Western Europe
7%
25%
13%
35%
Central & Eastern Europe
11%
12%
13%
5%
Asia-Pacific
15%
16%
7%
25%
AMESCA
25%
12%
8%
24%
Latin America
25%
8%
4%
1%
Totals
100%
100%
100%
100%
Source: Jessup, J. (Dec. 1, 1997). British American Tobacco-A Review of Growth
Prospects [Online]. Available: Dialog: File 563.
market with the acquisition of Cigarrera La Moderna, which has over 50% of th e
Mexican market. 8
Cigarette Sales by Brand. Among
Figure 12. Leading Cigarette
premium brand cigarettes, Marlboro ,
Brands Worldwide, 1996
produced by Philip Morri s, was the leading
(Percent of world total)
brand sold worldwide in 1996. I t
represented 38.5% of the total volume o f
1,189 billion pieces accounted for by the 12
leading brands sold in the world market .
See Figure 12.
As shown in Table 14 below, Phili p
Morris also has three other bran d
names—L&M, Prima, and Bond St.—in th e
top 12 leading brands, bringing its tota l
market share to 53%. RJR Nabisco wit h
two brands—Winston an d Camel—holds a
12.5% share, bringing the U.S. market shar e
of the premium brand market to over 65%. The British firm BAT Industries PL C
claims a share of 11.4%. Together these three American and British firms account fo r
about 77% of the world market for premium brand cigarettes.
Emerging and Potential Markets
Given their already dominant position in the U.S. market, the future prospects
for PM and RJR may depend, in large part, on their ability to increase sales in foreig n
markets. Much of the potential for growth may lie in emerging markets.
Between 1992 and 1997, the largest increases in cigarette consumption occurre d
in Indonesia (an increase of 58 billion cigarettes), China (up 57 billion), the Russian
Federation (up 37 billion), Turkey (up 25 billion), and India (up 21 billion). Se e
Table 7 above.
8 Jessup, J. p. 13.
CRS-17
Table 14. Leading Cigarette Brands Worldwide by Volume, 1996
Volume (billions
of sticks) and
Brand Name
Percentage of
Main Manufacturer
Ranking
Volume
Marlboro
458 (38.5%)
Philip Morris
1
Mild Seven
143 (12.0%)
Japan Tobacco
2
Winston
86 (7.2%)
RJR Nabisco
3
L&M
85 (7.2%)
Philip Morris
4
Gudang Garam
80 (6.7%)
Gudang Garam
5
Camel
63 (5.3%)
RJR Nabisco
6
Derby
55 (4.6%)
BAT
7
Prima
54 (4.6%)
Philip Morris
8
Cleopatra
47 (3.9%)
Eastern Tobacco
9
Benson & Hedges
45 (3.8%)
BAT/Gallaher/PM
10
Bond St.
37 (3.1%)
Phillip Morris
11
State Express 555
36 (3.0%)
BAT
12
Total
1,189 (100%)
—
—
Source: Jessup, J. (Dec. 1, 1997). British American Tobacco-A Review of Growth Prospects
[Online]. Available: Dialog: File 563.
China: The World’s Leading Consumer of Cigarettes. China is the world’s
largest consumer market for cigarettes, with over 300 million smokers consuming 1. 7
trillion cigarettes in 1997. Its market, however, is “formally closed to foreign tobacc o
companies, but grow ing pressure...and China’s likely accession to the World Trade
Organization could open the market.” 9 Consequently, if this large market should ope n
to foreign imports of cigarettes, it could offer substantial potential for U.S . and other
foreign firms to expand their markets in China.
The state-owned tobacco company, China National Tobacco Corporatio n
(CNTC), employs 10 million Chinese farmers in growing leaf tobacco, over 500,00 0
industrial workers, and 3 million retailers. 10 Both RJR and Philip Morris, throug h
joint ventures established in 1988 and 1993 respectively, have a very small portion o f
the China market, which they would like to expand as the domestic demand fo r
Western brands continues to grow. There are also “informal channels” through whic h
independent traders purchase premium brands of the major internationa l
manufacturers and smuggle them into the country. “Estimates put the number o f
smuggled cigarettes at 50 billion annually, compared with an official import quota o f
700 million.”11 Allowed foreign imports are assessed a 65% tax per pack o n
cigarettes.
The potential for market expansion in China is considered to be immense, despit e
existing barriers. China is planning to restructure its tobacco industry by closing or
9 Financial Times, July 3, 1997, p. 36.
10 The Independent [a British newspaper] , Aug. 26, 1997, p. 8.
11 The Independent, October 19, 1997, p. 1.
CRS-18
merging about 70 small tobacco companies over the next five years.
This propose
12
d
consolidation is equivalent to 40% of the state-owned tobacco businesses. China ha s
recently boosted exports, doubling their volume from 30 billion pieces in 1992 to 60
billion in 1997 (see Table 9 above). China is seeking assistance from international
leaf tobacco merchants to improve their leaf qua lity. Based on our discussions with
U.S. Department of Agriculture officials, there are several factors affecting the qualit y
of cigarette tobacco in China. These include: handling and curing processes, as wel l
as weather and soil conditions. As China improves the quality of its cigarettes b y
upgrading its manufacturing and tobacco leaf growing and curing processes, it will b e
better positioned to compete against potential foreign competition in its domesti c
cigarette market and in international markets.
Other Markets. On a smaller scale, other developing markets offer a potenti al
for increased cigarette sales by U.S. producers. As noted above, in recent year s
cigarette consumption has increased noticeably in Indonesia, the Russian Federation ,
Turkey, and India. Other large consumers of ciga rettes include Japan, Brazil, South
Korea, Italy, and Poland (see Table 7 above).
For several reasons, U.S. cigarette manufacturers may be able to expand sales
in foreign markets. In some countries, rising incomes have increased the demand fo r
cigarettes. In certain developing areas, there is a relatively high per capit a
consumption of cigarettes. And the world demand for American-style cigarettes has
increased. On the other hand, in several countries, the tobacco industry i s
predominantly state-owned (e.g., Indonesia, South Korea, Turkey, Italy, Spain ,
Thailand, Cuba, and Vietnam). But as some of these industries are privatize d and as
barriers to trade are lowered, the investment and sales opportunities for America n
producers will likely expand. 13
International Activities of Major U.S. Companies:
Philip Morris and RJR Nabisco
This section provides information on the international sales and production of
cigarettes by the international subsidiaries of two American Companies: Philip Morri s
Companies Inc. and RJR Nabisco Holding Corporation. The wholly-owne d
subsidiaries of these two companies are Philip Morris International and Reynold s
International, respectively.
Based on reviews of the 1996 and 1997 annual report s
of both of these holding companies and their 10-K financial reports to the Securities
and Exchange Commission (SEC) for 1997, it is apparent that both companies ar e
interested in expanding their sales of cigarettes in markets abroad. Furthermore ,
available information indicates that, in recent years, Philip Morris has gained marke t
share worldwide.
12 South China Morning Post, August 22, 1997, p. B4.
13 Jessup has argued that, through direct investment, an increase in trade barriers woul d
improve the position of the multinational producers, relative to smaller manufacturers .
Jessup, British American Tobacco-A Review of Growth Prospects.
CRS-19
In its 1997 Annual Report, Philip Morris states that it sold 711.5 billio n
cigarettes outside the United States in 1997, up 7.8% over 1996 (660 billio n
cigarettes) . This total, however, includes both exports from the United States an d
shipments from its plants, affiliates, and licensees located abroad. An inquiry wa s
made to Philip Morris to obtain data on exports to determine how many cigarette s
were actually produced by its operations abroad. The company responded that they
no longer publish this information. Nonetheless, according to an earlier Annual
Report for 1995, Philip Morris International exported 164.1 billion cigarettes in 1995 .
When this amount is subtracted from its total international shipments of 593.2 millio n
in 1995, the total volume of cigarettes produced and shipped outside the Unite d
States amounted to 429.1 billion. This amount was considerably above the tota l
produced within the United States in 1995, which was 385.9 billion (221.8 billion in
domestic shipments plus exports of 164.1 billion).
Exports accounted for 28% of Philip Morris's total international shipments o f
593.2 billion units in 1995. The firm's total international shipments amounted t o
about 12% of the total world cigarette market (about 5 trillion cigarettes). In its 1997
Annual Report, Philip Morris reported that its international shipments in 1997 (711. 5
billion cigarettes) accounted for about 13.6% of the world market (5.2 trillio n
cigarettes), which is 1.6 percentage points above the level achieved in 1995.
In its 1996 Annual Report, Philip Morris includes information on its marke t
shares of cigarette sales in selected countries for 1996. These shares are shown i n
Table 15 below. According to these figure s, it has market shares of 20% or more in
17 selected countries, including the United States. Its largest share is in Argentina
(60.5%), followed by Hong Kong (56.9%), Italy (53.9%), United States (47.8 %) and
Switzerland (45.6%). This information was not included in its 1997 Annual Report.
A review of the recent annual reports of RJR Nabisco and the 1997 10-K repor t
submitted to the SEC found no information on total international sales of the compan y
on a unit basis for 1996 or 1997. The company did state, however, that it s
international volume of cigarette sales increased by 1% i n 1997, compared to a 10%
gain in 1996. 14
In its latest annual report, RJR included information showing its 1997 market
shares for cigarette sales in selected countries. These figu res are shown in Table 16
below. Its market shares are considerably lower that those achieved by Philip Morris .
RJR’s largest market share is in Russia (21%), followed by Romania (19%) an d
(Malaysia (17%).
In 1997, RJR's total international shipments minus its exports from the U.S .
amounted to 162.4 billion cigarettes. 15 This sales volume plus 35.6 billion in U. S.
exports brings total international sales to 198 billion. When this figure is added to th e
company’s total shipments of 117 billion pieces within the United States, tota l
shipments by the firm in 1997 amounted to 315 billion pieces. Thus, in 1997, RJR
14 1997 Annual Report, p. 21; 1996 Annual Report, p. 31.
15 Public Relations Department. RJ Reynolds. Fax to authors. May 8, 1998.
CRS-20
Table 15. Market Shares of Philip Morris Cigarette Sales
in Selected Countries, 1996
Country
Market Share
Argentina
60.5%
Hong Kong
56.9%
Italy
53.9%
United States
47.8%
Switzerland
45.6%
Germany
41.2%
Singapore
40.5%
Puerto Rico
36.7%
Belgium/Luxembourg
34.4%
Netherlands
31.9%
Hungary
30.2%
France
30.1%
Austria
26.5%
Phillippines
24.5%
Portugal
24.0%
Greece
23.1%
Spain
21.7%
Turkey
19.2%
Sweden
17.2%
Japan
16.6%
Malaysia
9.7%
Korea
6.3%
Source: Philip Morris: 1996 Annual Report. p. 11.
Table 16. Market Shares of RJR Nabisco Cigarette Sales,
in Twelve Key Foreign Markets, 1997
Country
Market Share
Russia
21%
Romania
19%
Malaysia
17%
Canada
12%
Netherlands
12%
Japan (imports)
11%
Greece
10%
Turkey
9%
France
9%
Spain
9%
Switzerland
8%
Germany
5%
Source: RJR Nabisco: 1997 Annual Report. p. 24.
CRS-21
shipped more cigarettes from its overseas operations (162.4 billion) than from it s
domestic operations (152.6 billion).

Moreover, according to its 1995 Annual Report, almost 80 percent of its tota l
volume of international shipments was produced by it operations abroad. According
to its 1997 Annual Report, this percentage had risen to 82 percent, indicating tha t
RJR has expanded foreign operations in recent years. In its 1996 Annual Report, the
company stated t hat it commanded about 4 percent of the world cigarette market in
1996. This is considerably below the 13.6 percent world market share claimed b y
Philip Morris in its 1997 Annual Report. RJR did not include a figure on its share o f
the world market for 1997 in its 1997 Annual Report.
Other Tobacco Products
In addition to cigarettes, tobacco products include smokeless tobacco and cigars .
This section provides an overview of these industries.

Smokeless Tobacco
Smokeless tobacco products include dry and mo ist snuff and chewing tobacco.
Like the cigarette industry, this industry is quite concentrated. The firms that have
the largest market shares in this industry are U.S. Tobacco Company (37.9%) ,
Conwood Company L.P. ( 23.2%), and Pinkerton Tobacco Company (28.1%). Thes e
firms together accounted for 83% of total U.S. production in the industry in 1996 .
Other firms in the industry include: National Tobacco Company (9.2% market share) ,
Swisher International Group, Inc. (6.8%), Brown & Williamson (0.5%), and R.C .
Owen Company of Tennessee, Inc. (0.4%).
16 Brief descriptions of the principal firm s
in the industry follow.
U.S. Tobacco Company Inc. is the holding company for U nited States Tobacco
Company (USTC) and through its subsidiaries manufactures and markets variou s
consumer products and entertainment services. USTC is the world’s leading produce r
of moist smokeless tobacco, with sales of 46 million pounds in 1996. UST C
employed 4,467 workers in 1996 and has manufacturing facilities in Illinois, Kentuck y
and Tennessee.
Conwood Company L.P. is a limited partnership which manufactures moist an d
dry snuff and loose leaf, plug and twist chewing tobacco. Estimated 1996 sales wer e
28 million pounds. The firm reported 1,000 employees in 1997. Its manufacturing
facilities are in Kentucky, North Carolina, and Tennessee.
Pinkerton Tobacco Company, Inc. is a Virginia subsidiary of Swedish Matc h
North America , which is owned by Swedish Match, AB of Stockholm. Operations
of Pinkerton and Swedish Match include the manufacture of chewing tobacco ,
16 Information obtained from: Wheat, First Securities, Inc. The Smokeless Tobacco
Industry in 1996, April 24, 1997. [Online] Available: Dialog: File 563.


















































CRS-22
smoking tobacco, and moist snuff. Pinkerton reported sales of 26 million pounds fo r
1996; total employment was 400.
National Tobacco Company, L. P. is a limited partnership engaged i n
manufacturing chewing tobacco. This former branch of Lorillard employs 27 0, with
1996 total sales of 11.2 million pounds.
Swisher International Group Inc. is a subsidiary of Hay Island Holdin g
Corporation. It manufactures cigars, chewing tobacco, and snuff . Estimated 1996
sales were 8.2 million pounds. It has 1,050 employees and has manufacturin g
facilities in Florida and West Virginia.
Brown & Williamson is a major U.S. producer of cigarettes, producing abou t
633 thousand pounds of smokeless tobacco prod ucts in 1996. (See page 2 above for
more information on this firm.)
R.C. Owen Company of Tennessee, Inc. is a subsidiary of RCO Holdin g
Company, which through its subsidiaries manufactures chewing and smoking tobacc o
and redrys and stores tobacco. Estimated 1996 sales for R.C. Owen were 48 7
thousand pounds; total employment was 80 workers.
Tables 17 and 18 below provide data on production and consumption figures
for the industry over the period 1992-1997.
! The production of chewing tobacc o
Figure 13. U.S. Production of
declined from 68.7 million pounds in
Smokeless Tobacco Products,
1992 to an estimated 57.4 millio n
1992-97
pounds in 1997, or a decrease o f
about 16%. See Figure 13.
! Total production of snuff product s
increased over the period from 57. 5
million pounds to 63.9 millio n
pounds, for an increase of 11% .
This increased production was du e
entirely to increased production o f
moist snuff. The production of dr y
snuff continued to decline in thi s
period. See Figure 13.
! The consumption pattern for smokeless tobacco exhibited a mixed pattern ove r
the period. The consumption of chewing tobacco among male adults decline d
sharply by 25%. See Figure 14 below. In contrast, per capita consumption
of snuff products among all adults (calculations based on total number o f
persons 18 years and older) increased by 7%. See Figure 15 below.
Table 17. U.S. Smokeless Tobacco Products:
CRS-23
Production by Category, 1992-97
(Millions of pounds)
Chewing
Snuff
Year
Tobacco
Dry
Moist
Total
1992
68.7
6.6
50.9
57.5
1993
64.4
5.9
53.2
59.1
1994
62.5
5.6
53.9
59.5
1995
62.6
5.6
54.6
60.2
1996
61.1
4.0
57.5
61.5
1997a
57.4
4.2
59.7
63.9
SOURCES: U.S. Department of Agriculture. Economic Research Service .
Tobacco: Situation and Outlook Report. TBS-239. USDA, Washington ,
September 1997. p. 8. U.S. Department of Agriculture. Economic Researc h
Service. Supplemental Tables. Available on the Internet at: http://mann77.
mannlib.cornell.edu/reports/erssor/specialty/tbs-bb/1997 (as of March 23, 1998).
a Estimated.
Table 18. U.S. Per Capita Consumption
of Tobacco Products, 1992-97
(Pounds)
Males 18 Years and Over
Persons 18 Years and Over
Large
Chewing
Smoking
Cigars and
All Tobacco
Year
Tobaccoa
Tobaccoa
Cigarillos Cigarettesb
Snuffa
Products
1992
0.8
0.2
0.4
4.6
0.29
5.3
1993
0.7
0.2
0.4
4.7
0.30
5.4
1994
0.7
0.2
0.4
4.2
0.32
4.9
1995
0.7
0.1
0.5
4.2
0.31
4.7
1996
0.6
0.1
0.5
4.2
0.31
4.7
1997c
0.6
0.1
0.5
4.0
0.31
4.6
NOTES: The figures include U.S. overseas forces. Calculations of per capit a
consumption of cigarettes are based on size of the adult population, 18 years and over .
Data are not compiled for persons under the age of 18.
SOURCES: U.S. Department of Agriculture. Economic Research Service. Tobacco:
Situation and Outlook Report. TBS-239. USDA, Washington, September 1997. p. 5 .
U.S. Department of Agriculture. Economic Research Service. Supplemental Tables.
Available on the Internet at: http://mann77.mannlib.cornell.edu/reports/erssor/specialty/
tbs-bb/1997/ (as of March 23, 1998).
a Finished product weight. Smoking tobacco consists mainly of pipe tobacco and tobacco for
rolled cigarettes.
b Unstemmed processing weight.
c Preliminary.




































































































CRS-24
Figure 14. U.S. Per Capita
Figure 15. U.S. Per Capita
Consumption of Tobacco
Consumption of Tobacco
Products, Males 18 and
Products, Persons 18
Over, 1992-97
and Over, 1992-97
! Per capita consumption of smokeless tobacco products is smaller than pe r
capita consumption of cigarettes. In 1997, the per capita consumption o f
chewing tobacco among adult males was 0.6 pounds, while the per capit a
consumption of snuff and cigarettes among all adu lts was 0.3 pounds and 4.0
pounds, respectively. See Figures 14 and 15.
Table 19 below shows that exports of smokeless tobacco products accounte d
for a very small share of total ind ustry production in the United States during 1992-
1997.
UST Inc., the dominant domestic producer of moist smokeless tobacco products ,
conducts only an ins ignificant amount of business outside of the United States, due
mainly to low per-capita consumption levels for its products in most internationa l
markets. However, UST continues to consider diversification efforts abroad in it s
long-range plans. 17
Based on the data shown in Table 19, exports of tota l
smokeless tobacco products (including both chewing tobacco and snuff) exhibited a
marked increase from 0.7 million pounds in 1992 to 2.3 million pounds in 1997 .
Despite this growth in exports, these amounts account for a very small share of total
U.S. production of chewing tobacco and snuff.
Cigars
Cigars manufacturers produce three categories of cigars: pr emium cigars, large
cigars, and little cigars. Premium cigars are hand-made of entirely natural, long fille r
tobacco with a natural leaf wrapper and retail for $1 to more than $25 dollars. Large
cigars are machine-made with chopped filler tobacco and may have either a natural
leaf or a reconstituted tobacco wrapper. These generally retail for under $1 dollar.
17 S &P Industry Surveys, September 11, 1997, p. 11.
CRS-25
Table 19. U.S. Production and Exports
of Smokeless Tobacco, 1992-97
Total Production of Chewing
Exports of Chewing
Exports as a
Tobacco and Snuff
Tobacco and Snuff
Percent of Total
Year
(millions of pounds)
(millions of pounds)
Production
1992
126.2
0.7
0.5%
1993
123.5
0.8
0.6%
1994
122.0
1.5
1.2%
1995
122.8
1.9
1.5%
1996
122.6
1.9
1.6%
1997a
121.3
2.3
1.9%
SOURCES: U.S. Department of Agriculture. Economic Research Service. Tobacco: Situation and
Outlook Report. TBS-239. USDA, Washington, September 1997. p. 8. U.S. Department o f
Agriculture. Economic Research Service. Supplemental Tables. Available on the Internet at :
http://mann77.mannlib.cornell.edu/reports/erssor/specialty/tbs-bb/1997/ (as of March 23, 1998) .
U.S. Department of Agriculture. Foreign Agri cultural Service. E-mail to authors. March 24, 1998.
a Estimated.
Little (or small) cigars are machine-made from cut filler tobacco with a reconstitute d
tobacco wrapper and a filter; they weigh less than three pounds per thousand. 18
In 1997, an estimated 3.8 billion cigars were produced in the United States. Thi s
volume represented an increase of almost 25% over 1992 production of 3.1 billion
cigars. See Table 20 below. The United States produces more large (includin g
premium) cigars than small cigars. In 1997, 61% of the cigars produced in the Unite d
States were large cigars. Only 4.3% of the large cigars produced were exported. By
comparison, in 1997, 30% of the cigarettes produced in the United States wer e
exported.
In contrast to cigarettes and smokeless tobacco, cigar imports account for a
relatively large share of cigar consumption in the United States. In 1997, 16% of th e
large cigars consum ed in the United States were imported. This percentage was up
from 5% in 1992. Most of the increase in the volume of large cigar imports can be
accounted for by a rise in demand for premium cigars. An estimated 99% of al l
premium cigars sold in the United States are handrolled outside the United States .
Thus, the fast-growing demand for premium cigars is dependent on imports. 19 The
majority of premium cigar imports are from the Dominican Republic, Honduras ,
18 Wheat, First Securities, Inc. The Cigar Industry in 1996, March 21, 1997. [Online]
Available: Dialog: File 563.
19 Merrill Lynch Capital Markets. Tobacco/Cigar Industry, January 14, 1998. [Online ]
Available: Dialog: File 563.
CRS-26
Jamaica, Nicaragua, and Mexico, with the Dominican Republic and Hondura s
providing over 80% of all premium imports. 20
Table 20. The U.S. Cigar Market, 1992-97
Small Cigars
Large/Premium Cigars
Exports as a
Percent of
Year Production
Imports
Production
Exports
Imports Consumption Production
(Millions of cigars)
1992
1,310
4.7
1,741
76
111
2,219
4.4%
1993
1,280
6.5
1,795
67
127
2,138
3.7%
1994
1,410
6.3
1,942
74
146
2,337
3.8%
1995
1,430
11.2
2,058
94
195
2,568
4.6%
1996
1,502
19.3
2,013
105
320
3,031
5.2%
1997a
1,476
33.5
2,324
101
576
3,555
4.3%
Sources: U.S. Department of Agriculture. Economic Research Service. Tobacco Briefing Room.
Available on the Internet at http://www.econ.ag.gov/briefing/tobacco (as of May 7, 1998). U.S .
International Trade Commission. USITC Trade Database. Available on the Internet a t
http://dataweb.usitc.gov (as of May 22, 1998).
a The figures for large cigars are estimates.
The outlook for the cigar industry, according to s everal industry analysts, is for
continued growth, especially in the premium and large cigar sectors. Characteristics
of a likely cigar purchaser, according to 1996 Mediamark Rese arch data, are a white
male, age 18-44, with a high school or college education. He would be employed full -
time and have a household with children pre sent. Cigar smokers would be found in
all regions of the country, although slightly fewer in the South. 21
The cigar industry is primarily composed of four companie s with major market
shares in the three cigar production categories (i.e., large, premium, and little cigars) ,
and the balance spread among 13 smaller companies. The top four--Swishe r
International Group, Inc., General Cigar Holdings, Inc., Consolidated Cigar Holdings ,
Inc. and Havatampa, Inc.--account for approximately 80% of indust ry sales.22 Brief
descriptions of these companies follow:

Swisher International Group, Inc. is a subsidiary of Hay Island Holding s
Corporation, manufacturing cigars, chewing tobacco and s nuff. Swisher dominates
the little cigar market, with 46% of the 1997 market share; Swisher Sweets is the
leading name brand little cigar. Swisher claims 26% of the market share of the large
cigars domestic market and 6% of the premium market. Swisher manufactures mor e
than five million large and little cigars daily at its Jacksonville, Florida facility whic h
they believe “is the most automated cigar manufacturing facility in the United States. ”
20 Wheat, The Cigar Industry,
21 Wheat, The Cigar Industry.
22 Merrill Lynch, Tobacco/Cigar Industry.
CRS-27
Their premium brands are produced in the Dominican Republic, Honduras an d
Nicaragua. According to their 1997 10-K filing document, the company “is th e
leading exporter of American made cigars....esti mates that its products are available
in over 70 countries worldwide. During 1997, approximately 3.5% of the Company’ s
revenues were derived from export sales and roya lties.” As of December 31, 1997,
Swisher had approximately 1,340 full-time employees. 23
General Cigar Holdings, Inc., through its principal operating subsidiary Genera l
Cigar Co., is the largest U. S. manufacturer and marketer of brand name premiu m
cigars with a 1996 sales volume of 41.6 million units. General Cigar “believes its
Macanudo brand is the top selling premium cigar bra nd sold in the U.S.” They also
manufacture large cigars , but do not compete in the little cigars sector. Genera l
Cigar employs approximately 6,000, plus an additional 1,000 seasonal workers, at it s
subsidiary Villazon & Company manufacturing facility in Tampa, Florida, as well a s
facilities in Honduras, Jamaica, and the Dominican Republic. While at present their
international sales are “not material”, corporate plans are “to increase its internationa l
presence...focus its efforts in the United kingdom, Germany, France, Spain, China,
Russia and certain countries in South America, as well as duty free market s
worldwide.” General Cigar has recently received approval to market and sell it s
products in China and has already “begun distributing premium and mass marke t
cigars in China.” 24
Consolidated Cigar Holdings, Inc., which is itself a subsidiary of Mafc o
Consolidated Group, Inc., operates as a holding company for Consolidated Ciga r
Corporation of Ft. Lauderdale, Florida. Consolidated Cigar Corp . manufactures and
distributes cigars, smoking pipe tobacco, and a variety of smokers’ accessories. I t
competes in all 3 sectors of the cigar industry with manufacturing facilities at its 6
subsidiaries in Florida, Puerto Rico, Honduras, the Dominican Republic, and Jamaica .
As of December 31, 1996, Consolidated Cigar reported approximately 4,00 0
employees. 25
Havatampa Inc. is a subsidiary of Tabacalera SA of Madrid, Spain, reported to
be the world’s largest cigar manufacturer. The Tampa, Florida company competes
in the large and little cigar sectors with a 24% and 10% market share, respectively.
According to the executive vice president of Havatampa, Tommy Morgan, “th e
purchase by Spanish cigar manufacturer Tabacalera SA, finalized in ear ly December
[1977], will most likely result in Havatampa entering the premium and mid-rang e
markets.” Manufacturing facilities are
26
in Florida and Alabama with approximatel y
800 employees.
23 Swisher International Group, Inc., [Form 10-K for 1997 filed with the Securities &
Exchange Commission] March 28, 1998. Available on the Internet a t
http://sec.gov/edgarhp.htm.
24 General Cigar Holdings, Inc., [From 10-K for 1997 filed with the Securities &
Exchange Commission] February 27, 1998. Available on the Internet a t
http://sec.gov/edgarhp.htm.
25 Consolidated Cigar Holdings., 1st Quarter/1998. [Online] Available: Dialog: File 519 .
26 New Owner Has Havatampa Eyeing Premiums. US Distribution Journal. January
1998. p. 40.
CRS-28
Major Findings
This review and analysis of the domestic and international operations, productio n
and sales of the U. S. tobacco industry over the period 1992-1997 has produced a
number of significant findings. These include the following:
! Cigarette production in the United St ates is largely concentrated in the hands
of three firms: Philip Morris, RJR Nabisco, and Brown & Williamson. Thes e
firms accounted for about 90% of total production in 1997.
! Domestic sales of major U.S. firms (namely, Philip Morris and RJR N abisco)
grew very little over the period 1992-1997. International sales, on the other
hand, increased more rapidly during this period, indicating that these firms ar e
giving high priority to increasing cigarette sales abroa d, given the diminished
growth potential of the U.S. market in recent years.
! The profit performance of three domestically owned and operated U.S .
companies showed differing patterns during the period 1992-1997. For Phili p
Morris, profits from its cigarette operations increased by 9 percent, du e
entirely to an 128 percent increase in profits from its international operations
which was offset by a 37 percent decline in do mestic profits over this period.
Profits from the cigarette operations of RJR Nabisco declined by 54 percent
over the period, due entirely a very substantial decline in profits on domestic
sales. Lorillard also experien ced a substantial decline in profits (down 31%)
over this period.
! Cigarette production in the Unite d States registered only a slight gain (0.2%)
over 1992-1997. However, cigarette consumption on a per capita basi s
declined by about 9%.
! Total employment of production workers in the domestic cigarett e
manufacturing industry decreased by 5,800 workers, or 17.3% over 1992 -
1997.
! Despite these employment trends, workers in the industry are well paid .
Average hourly earnings of workers in the industry amounted to $24.76 i n
1997, which is markedly above the $12.26 average earned by all production
workers in the private nonfarm sector of the economy.
! From fiscal years 1992 to 1997, federal excise tax revenues from cigarett e
sales increased by 13.9%, fr om $5,043 million to $5,743 million, while state
excise tax revenues rose by 20.4%, from $5,924 to $7,134 million. Tota l
revenues from these sources amounted to $12.9 billion in 1997.
! The U.S. share of world production of cigarettes declined from 13.4% t o
12.6% over the period 1992-1997. The U.S. share of world exports als o
declined from 26% to 21% in the same period. On the other hand, U.S .
cigarette exports as a percent of U.S. production increased from 29% t o
30%.
CRS-29
! A review of the annual reports of Philip Morris Companies Inc. and the RJR
Nabisco Hold ing Corporation for 1996 and 1997 shows that the subsidiaries
of these companies--Ph ilip Morris International and Reynolds International
--are both very interested in expanding their operations abroad. Philip M orris
sold 711.5 billion cigarettes ou tside the United states in 1997, up 7.8 percent
over 1996 (660 billion units). Moreover the amount of cigarettes produce d
outside the United States substantially exceed the total cigarettes produce d
domestically. Reynolds International has reported that its sales outside th e
United States increased by 1% in 1997, compared to a 10 percent gain in 1996 .
! The People’s Republic of China is b y far the largest producer of cigarettes in
the world; the second largest producer is the United States. In 1997 Chin a
produced an estimated 1.7 trillion pieces, almost two and one half times the
720 billion pieces produced in the United States. Japan ranks a distant third
at 255 billion pieces, followed closely by Germany, Indonesia, and Brazil .
These leading producing countries in the same year accounted for close t o
60% of total world production.
! Despite their dominance in the world market, neither China nor the Unite d
States experienced any significant changes in their shares of world productio n
over the 1992-1997 period.
! The United States is by far the largest cigarette export ing nation in the world,
with exports in 1997 estimated at about 217 billion pieces, or 21% of th e
world total. The other major exporters include the Netherlands, Unite d
Kingdom, Germany, Brazil, and Singapore.
! The largest markets for U.S. exports are Japan—68 billion pieces—an d
Belgium—49 billion pieces. These two countries accounted for about 54% o f
U.S. exports in 1997. U.S. exports to China, by far the world’s largest marke t
for cigarettes, are negligible.
! China is also the largest consumer market in the world, with over 30 0 million
smokers consuming 1.7 trillion cigarettes in 1997. Its market, however, i s
basically closed to foreign exp orters. China’s desire to become a member of
the World Trade Organization, eventually could lead to an opening of it s
market to cigarette imports. This could offer substantial potential for U.S. an d
other foreign firms to expand their markets in China. RJR and Philip Morris,
through joint ventures established in 1988 and 1993 re spectively, have a very
small portion of the China market, which they would like to expand as th e
domestic demand for high quality Western brands continues to grow.
! On a smaller scale, other developing markets offer a potential for increase d
cigarette sales by U.S. producers. In recent years, cigarette consumption has
increased noticeably in Indonesia, the Russian Federation, Turkey, and India.
Other large consumers of cigarettes include Japan, Brazil, South Korea, Italy,
and Poland.
CRS-30
! There are several reasons why major U.S. cigarette manufacturers ar e
expanding their sales in the world market: the increasing world demand for
American-style cigarettes, high per-capita cigarette consumption in developin g
markets, and rising incomes. Currently, both Philip Mor ris and RJR Nabisco
have a well-established presence in world markets.
! In the premium brand market, the Marlboro brand, produced by Philip Mo rris
is the leading cigarette brand sold worldwide. Other brands produced by this
firm—L&M, Prima, and Bond St.— are also big sellers, giv ing Philip Morris
about 53% of the market served by the 12 leading brands sold by U.S. an d
other foreign firms. Winston and Camel, produced by RJR Nabisco, hol d
12.5% of the world market for leading brands, bringing the U.S. mark et share
of the premium brand market to over 65%.
! Like the cigarette industry, the smokeless tobacco industry (including th e
production of snuff and chewing tobacco) is highly concentrated among a fe w
firms: U.S. Tobacco Company, Conwood Company and Pinkerton Tobacc o
Company. In 1997 the companies accounted for abut 83% of total industr y
sales.
! The production of chewing tobacco declined by 16% over the 1992-199 7
period while the output of snuff products increased by 11%. This rise was du e
entirely to the increase in the output of moist snuff products. Consumption
patterns were also similar in this period: the use of snuff products showe d
moderate gains of 7%, while chewing tobacco sharply declined by 25%. The
annual consumption of smokeless products on a per-capita basis is quite smal l
compared to the use of cigarettes—about 1 pound for smokeless and 4 pound s
for cigarettes.
! Cigar production in the United States increased by almost 25% from 1992 to
1997. In contrast to cigarettes and smokeless tobacco, imports account for a
relatively large share of cigar consumption in the United States. In 1997, 16 %
of the large cigars consumed in the United States were imported. M ost of the
increase in the volume of large cigar imports can be accounted for by a rise in
demand for premium cigars. An estimated 99% of all premium cigar s sold in
the United States are handrolled outside the United States The U.S. ciga r
industry is primarily composed of four companies with major marke t
shares—Swisher International Group, Inc., General Cigar Holdings, Inc ,
Consolidated Cigar Holdings, Inc. and Havatampa, Inc.
CRS-31
Sources
The sources used in preparing this report include the following:
U.S. Department of Agriculture. Foreign Agricultural Services. Selected data
from World Cigarette Production and Trade Data, available on the
Internet at http://www.fas.usda.gov/tobacco/circular/9708/index.htm.
U.S. Department of Agriculture. Economic Research Service. Selected data
from the Tobacco Briefing Room. Available on the Internet at
http://www.econ.ag.gov/briefing/tobacco.
U.S. Department of Labor. Bureau of Labor Statistics. Employment and
Earnings.
Industry and corporate data and information were obtained from a variety of
publically available resources, including: corporate annual reports and
SEC filing documents, including latest 10-Ks.
Standard & Poor’s Industry Surveys.
Moody’s Industrial Manual: 1997, Moody’s International Manual: 1997.
Hoover’s Handbook of American Business: 1998.
Dialog : Dun & Bradstreet Market Identifiers: 1998 file covering 14 million
U.S. businesses, D&B Global Linkages: 1998 file with 4.2 million
businesses.
Dialog: Files: U.S. and International Trademarkscan files.
Dialog: File 563: ICC International Business Research file—provides market
research and brokerage reports.
U.S. International Trade Commission. USITC Trade Database. Available on
the Internet at http://dataweb.usitc.gov.
In addition, news and industry publications were searched online via
NEXIS and Dialog. NEXIS files included major national and international
newspaper and wire services. Dialog covered 55 files with international
newspaper and industry sources.