The Economic Impact of Tobacco Production in Appalachia 

Lawrence E. Wood 

Appalachian Regional Commission 

November 1998
 

1 

Introduction

Tobacco production is critical to the economies of many Appalachian communities. 

However, various circumstances, including tobacco-related health concerns, growing 

competition from overseas tobacco producers, and proposed federal legislation, could 

cause tobacco production in Appalachia to substantially decrease in the next few years. 

Many of the largest tobacco-producing counties in the Appalachian Region are 

considered “distressed” by the Appalachian Regional Commission (ARC). In light of the 

growing number of threats to tobacco production in Appalachia, it is important to 

understand the economic significance of tobacco to many Appalachian communities and 

to consider alternatives to tobacco production in the Appalachian Region in the future. 

Tobacco Production in the United States and Appalachia 

Tobacco is the seventh largest cash crop in the United States. It is the most valuable crop 

on a per-acre basis and is significantly more lucrative than other crops (USDA National 

Agricultural Statistics Service 1998). For example, crops such as wheat, hay, soybeans, 

and corn all average $500 or less in gross receipts per acre, while tobacco averages 

approximately $4,000 in gross receipts per acre. Tobacco’s high per-acre value generates 

a significant share of the incomes of many tobacco growers. Though tobacco is grown in 

about 20 states, North Carolina and Kentucky account for approximately 65 percent of 

total U.S. production, and four other states (Tennessee, Virginia, South Carolina, and 

Georgia) produce approximately 25 percent of all U.S. tobacco. 

There are six major kinds of tobacco grown in the United States. Two types—flue-cured 

and burley—account for approximately 93 percent of total production (Womach 1996). 

Both flue-cured and burley tobacco are primarily used for cigarettes. More than 50 

percent of all tobacco produced in the U.S. is flue-cured tobacco, most of which is grown 

on the flat lands of eastern North Carolina and South Carolina, where the topography 

allows harvesting by machine. A relatively limited amount of flue-cured tobacco is 

grown in Appalachia. Burley tobacco accounts for 40 percent of total U.S. tobacco 

production, and Appalachian states grow most of the burley produced in the U.S.—

Kentucky grows more than 60 percent of the country’s burley tobacco, and Tennessee 

produces about 20 percent. North Carolina, Ohio, Virginia, and West Virginia also grow 

significant amounts of burley tobacco (see Table 1). 

• In 1997, 97 percent of total U.S. burley tobacco production was in 

Appalachian states, and ARC counties produced approximately 

half of the nation’s burley tobacco. 

• In 1997, 71 distressed counties produced burley tobacco, 

accounting for close to 18 percent of the nation’s total burley 

tobacco production (see maps). 
 

2 

• In 1992, gross earnings from burley tobacco in distressed counties 

exceeded $181 million, and more than 19,000 farms in distressed 

counties produced tobacco (see Table 2). 

The Federal Tobacco Program 

Farms in Appalachia typically produce only three to five acres of tobacco. Such limited 

production is due to a variety of factors, including topographic constraints, burley 

tobacco production’s labor-intensive methods, and, most important, the federal 

government’s quota and price support program. During the 1930s, the era of the Great 

Depression and a time of extreme price volatility for many agricultural products, the 

federal government adopted agricultural policies that included price supports and 

mandatory supply controls for several major crops, including tobacco. The tobacco 

program was designed primarily to support and stabilize tobacco prices, guaranteeing a 

certain level of income for tobacco farmers. In general, the program assigns marketing 

quotas that act as a supply control mechanism. It also requires the federal government to 

guarantee prices to tobacco farmers. The program effectively limits production to areas 

where tobacco is currently and has historically been grown. While flue-cured and burley 

tobacco are both grown under the auspices of the federal program, other types of tobacco 

are not. Every three years producers of individual types of tobacco vote on whether or not 

to continue the program as it pertains to their type of tobacco. Burley producers have 

always voted in favor of continuing the federal program for burley. 

For some types of tobacco, quotas are on an acreage allotment basis; for burley, however, 

quotas limit the pounds of tobacco that quota holders can produce. The burley quotas 

range from a few pounds to as much as 200,000 pounds, with average quotas around 

3,000 pounds. While burley quotas limit pounds produced, they are actually tied to the 

land. In other words, burley quota holders can only grow tobacco on land to which the 

quotas have been assigned, and if a parcel of land is sold, the quota is sold along with it. 

Quota holders have the right to either grow tobacco or lease the rights to grow tobacco 

(on the same land) to another farmer. Large penalties for selling burley tobacco not 

grown under the quota system serve as an effective restraint to growing burley tobacco 

without owning or leasing a quota. In general, burley quota holders in Appalachia earn 

money from tobacco in one of two ways: either by growing tobacco on land that has been 

assigned a quota, or by leasing the land to another farmer. 

Tobacco Income and Employment 

Because of tobacco’s high per-acre value, farming three or four acres of tobacco can 

provide significant earnings. Per acre, net tobacco receipts are generally one-third of 

gross receipts. However, in Appalachia, tobacco farms are more likely to be family 

operated, with much of the tobacco planting, harvesting, and drying done by family 

members with limited mechanization. As a result, the net receipts per acre are often much 

higher—as much as half of gross receipts, or approximately $2,000. Thus, a family 

growing three acres of burley tobacco in Appalachia could net $6,000 annually from 

tobacco production. Most burley tobacco farmers work off-farm and/or have other farm 
 

3 

enterprises; nonetheless, tobacco earnings are a critical source of income to most burley 

tobacco farmers. While trends towards consolidation of tobacco quotas have continued in 

Appalachia and in other tobacco-growing states since the 1980s, small, family-owned 

farms are still the typical producers of burley tobacco in the Appalachian Region. 

It is estimated that 30 to 40 percent of all burley tobacco is grown on leased land. Those 

who lease their quotas earn anywhere from one-tenth to one-third of the gross earnings 

from burley produced on their land. Thus, quota holders can earn a few thousand dollars 

a year by simply leasing their quotas. Many quota holders in Appalachia are elderly 

residents who no longer farm tobacco and rely upon earnings from leasing quotas as an 

important source of income. In all Appalachian states except for Tennessee, tobacco 

quotas can only be leased to residents of the same county. Thus, most earnings from 

burley tobacco production remain within the county in which the tobacco is produced. 

Indeed, receipts from tobacco are not only a critical source of income to quota owners 

and farmers, they are important to local communities as well. Several counties in 

Appalachia derive between five and seven percent of their total personal income from 

burley tobacco farming, and some earn as much as 10 percent. Furthermore, tobacco 

production helps support local dealers and manufacturers who supply products such as 

chemicals, fertilizers, and fuel, and income received by farmers and quota owners is spent 

on goods and services, generating revenues for local retail and service operations. 

Kentucky is especially reliant on tobacco farming and would be particularly hard hit by a 

decline in tobacco production. The state’s agricultural economy is the most tobaccodependent in the nation. According to the University of Kentucky’s Department of 

Agricultural Economics, every $1 million of tobacco production contributes $3.6 million 

to the Kentucky economy through direct, indirect, and induced effects (Snell 1996). 

Kentucky’s Long-Term Policy Research Center, established by the Kentucky General 

Assembly in 1994, recently identified 15 counties in the state that are particularly reliant 

on tobacco production (Armstrong-Cummings 1996): 13 of the counties are in 

Appalachia, and 12 are considered distressed by ARC (see Table 3). In 1992, gross 

earnings from tobacco production in these counties ranged from $2.9 million to $13.2 

million dollars (see Table 2). In that same year, there were approximately 39 distressed 

counties in the Appalachian Region earning more than $1 million in gross receipts from 

burley tobacco (see Table 2). 

Though essential to jobs and local economies in Appalachia, tobacco farming is actually 

only a small part of a large, complex, multi-billion-dollar industry. Tobacco farming is 

the tobacco industry’s least profitable sector. Tobacco companies do not profit any more 

from tobacco grown in Appalachia than they would from tobacco grown elsewhere; thus, 

their commitment to the Appalachian tobacco farmer or quota holder is dubious. The 

value of domestically grown tobacco represents only two cents of the domestic retail 

tobacco dollar. Considerable value is added to tobacco through manufacturing and 

wholesale and retail marketing. Value added in manufacturing accounts for the biggest 

share of the retail tobacco dollar—about 38 cents. Wholesale and retail marketing adds 

27 cents, and approximately 26 cents of the tobacco dollar is collected by state, federal, 

and local governments as excise tax revenue (Gale 1997). 
 

4 

Tobacco wholesalers employ approximately 60,000 people throughout the country 

(USDA Economic Research Service 1995) but provide only 3,800 jobs in Appalachia. 

Tobacco manufacturing is limited to a few cities, primarily Richmond, Virginia, 

Winston-Salem, North Carolina, and Louisville, Kentucky; though many tobacco 

manufacturing jobs are located in Appalachian states, only 4,000 of the approximate 

25,000 jobs in tobacco manufacturing (USDA Economic Research Service 1998) are in 

the ARC region. 

Threats to Burley Tobacco Production in Appalachia 

Various circumstances could have a detrimental impact on the future of burley tobacco 

farming in Appalachia. Perhaps the most important factor will be the federal 

government’s decision either to continue or to abolish the federal quota and price support 

program. Without this program, tobacco prices would become more volatile, which 

would likely drive a lot of small tobacco farmers out of business. Moreover, quota 

holders would lose their current monopoly on tobacco production. In general, many 

small-scale tobacco farms in Appalachia would not be economically competitive, and 

tobacco production would likely increase outside of Appalachia, where it would be 

cheaper to produce. Many Appalachian communities would suffer a tremendous loss of 

income. 

Some changes have been made to the federal tobacco price support program since its 

inception in the 1930s. An important change came in 1982, when, under the threat of 

legislative dissolution of the program, Congress passed the No-Net-Cost Tobacco 

Program Act. This legislation shifted the financial burden for tobacco program losses 

from the federal government to growers. The no-net-cost rule silenced some of the critics 

who had accused the federal government of subsidizing tobacco production. Even though 

taxpayer costs are now relatively small, the association between the use of tobacco 

products and health concerns has galvanized public opinion against continued 

government support of tobacco production. There are currently 50 bills in Congress that 

address tobacco issues, some of which threaten to end the federal support program. One 

proposal, a bill introduced by Senator Richard Lugar (S. 1313), would end the federal 

quota and price support program in 1999. 

Flue-cured tobacco growers are generally in favor of ending the program. If the program 

is eliminated, many of the farms that currently grow flue-cured tobacco would probably 

further consolidate and become more mechanized, increasing production and profits. 

Burley tobacco producers and quota holders, especially those in Appalachia, are 

generally against ending the federal quota program—many of the smaller burley farms in 

the Appalachian Region would probably no longer find tobacco production economically 

viable if the program were eliminated. All current proposals contain substantial levels of 

compensation for both growers and quota owners if the federal program is abolished. 

Most analysts agree that while initial compensation for tobacco farmers would be 

significant, ending the quota program would have long-term negative impacts on many 

rural Appalachian communities. 
 

5 

While legislation may be the biggest threat to tobacco production in the Appalachian 

Region, other factors also contribute to its uncertain future in Appalachia: 

• Growing awareness of tobacco-related health concerns is lowering 

domestic cigarette consumption. 

• Rising cigarette costs are also lowering domestic consumption, and 

litigation in several states against the tobacco companies and the 

possibility of expensive settlements could result in tobacco 

companies’ raising the price of cigarettes further. 

• The quality of foreign burley is improving, and the costs of 

producing burley overseas are significantly cheaper than the costs 

of growing it in the United States. Increasing competitiveness of 

foreign tobacco has continued to erode U.S.-grown tobacco’s share 

of the world supply. 

• Tobacco leaf imports to the United States increased from 400 

million pounds in 1990 to more than one billion pounds in 1993; 

import levels remain high but steady. In reaction to the surge in 

imports, Congress enacted a domestic content law that was later 

declared illegal by GATT. Congress then passed a Tariff Rate 

Quota that has continued to help protect domestic tobacco 

producers. The loss of such protection or future international trade 

agreements could result in increased imports of foreign tobacco 

(Capehart, U.S. Tobacco Import Update, 1997). 

• Advances in technology and agricultural science continually 

expand production per acre and make tobacco production more 

profitable for larger producers, making it costly for small farmers 

to compete. 

The Future of Burley Tobacco in Appalachia 

While tobacco production has not been enough to pull many communities in Appalachia 

out of distressed status, it has helped sustain many communities whose economies would 

undoubtedly be much worse were it not for tobacco. Many communities that rely on 

tobacco production currently have relatively few off-farm opportunities. In general, 

counties in or adjacent to urban areas are in a better position to survive the loss of 

tobacco income, while those in more isolated rural areas are exceptionally vulnerable. If 

tobacco production significantly declines in such rural areas, local economies could 

suffer dramatically—many distressed counties in the ARC region would suffer the most. 

Current trends suggest that burley tobacco production in the ARC region will decline in 

the near future: even if the federal government program continues, there is reason to 

believe that market forces will erode the profitability of producing tobacco in Appalachia. 
 

6 

A few organizations, including the Commodity Growers Cooperative Association, the 

Burley Tobacco Growers Cooperative Association, and various state and university 

agricultural agencies and services, have begun exploring alternatives to tobacco 

production in the Appalachian Region. The USDA has researched alternative agricultural 

crop production in the Appalachian Region for a number of years. High-revenue crops 

such as fruits, vegetables, hemp, and horticultural products may provide viable 

alternatives for some farmers currently producing tobacco. While some farmers in the 

Appalachian Region have experimented with new crops, few have found economically 

equivalent replacements for tobacco. 

Currently, infrastructure to support alternative crops is insufficient. Nevertheless, it is 

doubtful that any crop can replace the income generated by burley tobacco production in 

Appalachia, either on a per-farm, county, or regional basis. If the tobacco program is 

abolished, the federal government will likely compensate tobacco growers and quota 

holders; current estimates suggest that they could receive as much as $18 billion. It is 

important to begin considering how such money might be spent: there will be a real need 

for economic alternatives in tobacco-producing areas, whether in the form of alternative 

crops or something completely outside of the agricultural sector. Economic opportunities 

in the service and manufacturing sectors should be thoroughly explored. 

To summarize, in light of the above findings, ARC may want to consider any or all of the 

following policy options as ways to address potential tobacco-related impacts: 

• Help distressed counties, through the existing Area Development Program, 

to identify viable, long-term diversification options, including crop 

diversification or economic opportunities for business expansion, 

recruitment, or start-up in the manufacturing and service sectors. 

• Advocate for the interests of the Region, particularly those of distressed 

counties that may be affected by any potential tobacco settlement 

legislation. 

• In the event of the passage of tobacco legislation, play an advisory role for 

the Region in determining how to deploy any set-aside funding for 

economic diversification in tobacco-growing regions. 

It is important to begin considering such options now, as already-distressed communities 

in the Appalachian Region could become even more impoverished in the near future if 

tobacco production significantly declines. 
 

7 

Table 1: Burley Tobacco Production in Appalachia (1997) 

State 

ARC 

Counties 

Producing 

Burley 

Distressed 

Counties 

Producing 

Burley 

Total State 

Production 

(pounds) 

Total ARC 

County 

Production 

(pounds) 

State Total 

as % 

of U.S. 

Production 

% of State 

Production 

in ARC 

Counties 

% of State 

Production 

in Distressed 

Counties 

AL 1 0 33,893 33,893 - 100% - 

GA 4 0 128,852 128,852 - 100% - 

KY 45 36 556,733,824 186,311,902 63% 33% 18% 

NC 23 2 37,243,567 37,241,189 4% 100% 3% 

OH 16 9 29,994,040 29,886,886 3% 99% 42% 

TN 49 10 177,374,903 129,491,787 20% 73% 12% 

VA 15 5 39,690,800 38,990,052 6% 98% 36% 

WV 20 9 7,772,634 7,772,634 1% 100% 52% 

TOTAL 173 71 848,972,513 429,857,195 97% 51% 19% 

Tobacco production is based on 1997 USDA data. Percentages have been rounded. 

Distressed county status is based upon ARC fiscal year 1999 distressed county status. 
 

8 

Table 2: Burley Tobacco Production in Distressed Counties 

More than 99 percent of the tobacco grown in the following distressed counties is burley tobacco. 

Total Pounds of Tobacco Grown in Distressed Counties (1997): 157,081,350 

Earnings from Tobacco in Distressed Counties (Gross - 1992): $181,829,000 

Farms Growing Tobacco in Distressed Counties (1992): 19,820 

Average Tobacco Earnings Per Farm in Distressed Counties (Gross - 1992): $9,174 

County 

Lincoln, KY 

Pounds 

8,861,644 

Gross 

Earnings 

$13,150,000 

Farms 

Growing 

Tobacco

1,088 

% of 

Crop 

Receipts

80% 

Tobacco 

Earnings 

Per Farm 

$12,086 

Casey, KY 8,246,341 $9,858,000 1,133 82% $8,701 

Bath, KY 8,086,475 $12,742,000 714 90% $17,846 

Adams, OH 7,623,029 $8,594,000 976 64% $8,805 

Lee, VA 7,256,522 $7,761,000 970 91% $8,001 

Lewis, KY 6,497,420 $8,329,000 792 88% $10,516 

Russell, VA 6,113,927 $6,604,000 792 94% $8,338 

Morgan, KY 5,350,363 $6,594,000 676 93% $9,754 

Carter, KY 5,098,715 $6,283,000 749 90% $8,389 

Monroe, KY 4,898,901 $6,779,000 715 81% $9,481 

Rockcastle, KY 4,578,721 $5,369,000 655 89% $8,197 

Russell, KY 4,564,992 $6,116,000 796 77% $7,683 

Hancock, TN 4,525,757 $4,688,000 605 94% $7,749 

Jackson, KY 4,372,407 $5,456,000 661 84% $8,254 

Johnson, TN 4,369,967 $3,808,000 692 84% $5,503 

Cocke, TN 4,353,956 $4,640,000 654 63% $7,095 

Wayne, KY 3,985,062 $5,094,000 635 67% $8,022 

Clay, KY 3,686,629 $3,955,000 450 88% $7,740 

Gallia, OH 3,442,597 $4,092,000 425 73% $9,628 

Cumberland, KY 3,409,307 $4,428,000 502 88% $8,821 

Elliott, KY 3,147,882 $3,330,000 462 94% $7,208 

Clinton, KY 2,963,762 $4,027,000 549 80% $7,335 

Wolfe, KY 2,812,207 $3,502,000 420 92% $8,338 

Pickett, TN 2,765,001 $2,041,000 248 88% $8,230 

Clay, TN 2,678,610 $2,781,000 365 89% $7,619 

Magoffin, KY 2,654,603 $2,110,000 357 92% $5,910 

Owsley, KY 2,389,233 $2,869,000 301 96% $9,532 

Rowan, KY 2,381,166 $2,999,000 396 84% $7,573 

Lincoln, WV 2,321,360 $1,162,000 184 87% $6,315 
 

9 

County Pounds 

Gross 

Earnings 

Farms 

Growing 

Tobacco

% of 

Crop 

Receipts

Tobacco 

Earnings 

Per Farm 

Estill, KY 2,188,191 $2,961,000 354 82% $8,364 

Menifee, KY 1,956,792 $2,993,000 327 94% $9,153 

Breathitt, KY 1,823,249 $1,733,000 229 93% $7,568 

McCreary, KY 1,762,795 * * * * 

Mason, WV 1,417,568 $1,384,000 264 25% $5,242 

Campbell, TN 1,417,129 $1,455,000 233 84% $6,245 

Knox, KY 1,400,503 $1,537,000 215 81% $7,149 

Powell, KY 1,320,970 $1,757,000 212 84% $8,288 

Johnson, KY 1,186,415 $904,000 133 79% $6,797 

Scioto, OH 1,174,523 $1,551,000 143 23% $10,846 

Lawrence, KY 1,167,855 $1,463,000 219 88% $6,680 

Fentress, TN 1,076,662 $773,000 124 27% $6,234 

Graham, NC 962,754 $540,000 88 82% $6,136 

Lee, KY 882,114 $812,000 128 81% $6,344 

Whitley, KY 871,123 $994,000 130 74% $7,646 

Meigs, TN 715,302 $574,000 76 52% $7,553 

Buchanan, VA 510,380 $326,000 61 84% $5,344 

Pike, OH 408,325 $280,000 43 6% $6,512 

Leslie, KY 218,112 (D) 12 * * 

Dickenson, VA 200,827 $132,000 28 (D) $4,714 

Swain, NC 154,298 $87,000 15 15% $5,800 

Perry, KY 131,906 $71,000 14 29% $5,071 

Wise, VA 128,291 $69,000 20 25% $3,450 

Wirt, WV 125,736 $50,000 14 3% $3,571 

Boone, WV 83,267 $15,000 7 28% $2,143 

Monroe, OH 82,012 $60,000 13 4% $4,615 

Roane, WV 68,722 $82,000 14 23% $5,857 

Scott, TN 39,175 $15,000 8 6% $1,875 

Meigs, OH 32,051 (D) 4 * * 

Logan, WV 20,482 18,000 4 * * 

Raleigh, WV 18,086 (D) 2 * * 

Bell, KY 17,045 (D) 2 * * 

Harlan, KY 16,105 $21,000 3 18% $7,000 

Athens, OH 16,051 $5,000 3 * $1,667 

Floyd, KY 14,502 $4,000 4 1% $1,000 

Grundy, TN 11,267 $2,000 3 * $667 
 

10 

County Pounds 

Gross 

Earnings 

Farms 

Growing 

Tobacco

% of 

Crop 

Receipts

Tobacco 

Earnings 

Per Farm 

Letcher, KY 6,623 (D) 1 * * 

Vinton, OH 6,529 (D) 2 * * 

Ritchie, WV 4,129 (D) 1 * * 

Summers, WV 3,332 (D) 1 * * 

Martin, KY 2,502 (D) 2 * * 

Morgan, OH 1,094 * 0 * * 

* Data inconsistent, unavailable, or suppressed. 

(D) Figure withheld to avoid disclosing data for individual farms. 

USDA pound data is from 1997; all other data is 1992 data from the U.S. Department of Agriculture Census of Agriculture 

(most recent available data for all categories). Production in 1992 and 1997 was virtually identical. Distressed county status is 

based upon ARC fiscal year 1999 distressed county status. 
 

11 

Table 3: Kentucky Distressed Counties with High 

Dependence on Tobacco Income 

County 

ARC 

County 

Distressed 

County 

Tobacco as % 

of Total Personal 

Income 

Poverty 

Rate (%) 

 

Bath * * 9.9 27.3 

Casey * * 7.0 29.4 

Clinton * * 4.9 38.1 

Cumberland * * 6.5 31.6 

Elliott * * 7.1 38 

Fleming * 9.2 25.4 

Hart 9.3 27.1 

Jackson * * 5.3 38.2 

Lewis * * 5.9 30.7 

Lincoln * * 5.5 27.2 

Menifee * * 6.1 35 

Metcalfe 10 27.9 

Morgan * * 6.1 38.8 

Owsley * * 7.5 52.1 

Wolfe * * 6.1 44.3 

Sources: ARC; data from Karen Armstrong-Cummings, Challenges Facing Kentucky’s Agricultural Economy; and “Kentucky 

Counties Particularly Dependent on Tobacco” as identified by Kentucky’s Long-Term Policy Research Center, 1997. 

Distressed county status is based upon ARC fiscal year 1996 distressed county status. 
 

12 

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