Government regulation will harm domestic sales, but thriving exports will spur growth
Los Angeles, CA (PRWEB) April 09, 2013
The effects of the 2005 federal deregulation continue to linger over the Tobacco Growing industry. The initial removal of production quotas and price supports caused revenue and employment to crash; about a third of tobacco farmers exited the industry. Without government support, small and otherwise unprofitable farmers left the industry, decreasing the number of establishments at an annualized rate of 5.3% over the five years to 2013. The remaining 6,589 farms represent growers with large operations and established international reputations; therefore, they have garnered substantial profit growth. “Over the five-year period, average profit margins have increased as a share of revenue,” says IBISWorld industry analyst Agiimaa Kruchkin. “The once-controlled industry has found its place as an international supplier of tobacco.”
In 2013, IBISWorld expects Tobacco Growing industry revenue to increase 8.5% to $1.4 billion, indicating the start of a recovery from a substantial drop in 2010 and 2012. In 2010, industry revenue took a hit when domestic farmers were called on to help recover world food grain shortages resulting from severe weather conditions. During the year, the amount of planted tobacco declined and industry revenue dropped 16.6%. As a result, revenue is expected to fall overall at an average annual rate of 3.4% in the five years to 2013. “Revenue was also constrained by stringent restrictions on the downstream market for tobacco products,” adds Kruchkin. “Similarly, health-conscious Americans are cutting back on smoking, decreasing the domestic level of demand.”
Tobacco farming has a very low concentration of ownership; there are several thousand operators within the industry, none of which have substantial market power. This low concentration is primarily attributable to tough competition from within and outside the United States with respect to supply, so no single farmer can influence the market as a whole. However, concentration has increased due to the exit of many farmers from the industry. As such, industry revenue has been shared among fewer producers, although still too many to capture a measurable share of the total tobacco farming market.
IBISWorld expects the industry's reliance on international sales to drive revenue upward during the five years through 2018. Due to the significance of trade, the expected slow growth in the trade-weighted index over the five years to 2018 will benefit the industry. As the US dollar gains only minimal value, US tobacco leaf will remain price competitive, which will support sales and profit growth. IBISWorld forecasts that the industry will continue to grow over the next five years; however, because of the government's efforts to curb smoking levels, domestic conditions will become increasingly difficult. For more information, visit IBISWorld’s Tobacco Growing in the US industry report page.
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IBISWorld industry Report Key Topics
Farms in this industry grow tobacco leaf. Tobacco farmers purchase inputs, such as fertilizers, agricultural chemicals, pesticides, plant seeds, plant bulbs and curing fuel, from farm supply and other wholesaling industries. The tobacco leaf is exported or sold to domestic tobacco product manufacturers.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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