Establishments in this industry classification are primarily engaged in the stemming and redrying of tobacco or in manufacturing reconstituted tobacco. Establishments that sell leaf tobacco as merchants, wholesalers, agents, or brokers, and which may also be engaged in stemming tobacco, are classified in SIC 5159: Farm Product Raw Materials, Not Elsewhere Classified. Leaf tobacco warehouses that also may be engaged in stemming tobacco are classified in SIC 4221: Farm Product Warehousing and Storage.
Other Tobacco Product Manufacturing
Tobacco Stemming and Redrying
Starting in the late 1990s, tobacco processors—like the tobacco industry as a whole—faced an uncertain outlook in the United States. Domestic cigarette consumption was down, owing to higher prices, tougher restrictions on smoking in public places, greater awareness of the health risks of tobacco use, and declining social acceptance. At 388 billion cigarettes in 2004, U.S. consumption continued to decline steadily—at a rate of about 2 percent annually since the 1990s. Cigarette companies were roundly criticized for promoting smoking among teenagers and tough rules went into effect to reduce teen smoking. Thousands of tobacco farmers, whose families had often been in the business for generations, were shifting out of the product and into other crops, such as cotton.
In 1998, the Master Settlement Agreement (MSA) was signed, finally settling years of litigation against the tobacco industry for various alleged wrongs, including a conspiratorial misrepresentation to consumers about the true health risks of cigarette smoking. The type of leaf tobacco used for cigarettes accounted for the vast majority of tobacco sales (93-95 percent), with cigar leaf accounting for another 2 percent, and the remaining dark tobaccos (used mostly for chewing) constituting the remainder. As of 2005, all quotas and subsidies in the tobacco industry ceased, and because of high federal and excise taxes, the domestic industry began to import more tobacco than it grew. This necessarily impacted the tobacco stemming and redrying sector of the tobacco industry.
The global processing and distribution of tobacco is dominated by three companies—Universal Corp., DIMON Inc., and Standard Commercial Corp.—that have large operations in the important tobacco-growing regions of the world. These companies buy the farmers' tobacco at auction (common in the United States) or contract to buy tobacco from the farmer. In certain overseas markets where the firms have contracted to buy the farmers' entire crop, they will often provide financial and technical assistance as well to ensure the tobacco's quality. In the United States most of the processors' tobacco purchases at auction are made to fill specific orders from the major domestic and overseas cigarette producers, with whom they often have relationships extending over many years.
After purchase, the tobacco is processed to meet the specific needs of the cigarette manufacturer, whose representatives are frequently at the processor's facilities to monitor the work on their orders. At the factory the tobacco is reclassified according to grade; blended to meet customer requirements regarding color, body, and chemistry; and threshed to remove the stem from the leaf (although some tobacco is processed in whole leaf form). The processed tobacco is redried to remove excess...