Quarterly import demand for North American flue-cured tobacco

Abstract

Decreases in the North American market share of flue-cured tobacco exports indicates that producers on this continent have entered into an era of competition from foreign flue-cured tobacco exporters. In order to understand this problem and obtain additional information on the factors influencing importation of North American flue-cured tobacco, quarterly import demand equations were estimated for the three major importers of North American flue-cured leaf--Japan, West Germany and the United Kingdom. Factors hypothesized to affect import demand in these countries included: import price of North American leaf (own price), import prices of leaf produced in selected non-North American countries (competing prices), price of cigarettes in the importing country, inventories on hand in the importing country, the exchange rate between U.S. dollars and the importing country's currency, and tariffs placed on the imported tobacco. At mean variable values, imports of North American flue-cured tobacco were found to be highly elastic with respect to own price changes. West German and United Kingdom imports were inelastic with respect to competing price changes. Variables accounting for manufacturer inventories and for seasonality were also significant. The high own-price elasticities encountered in this study suggest that North American flue-cured export revenues would rise if prices charged to importing countries were lowered. One method of accomplishing this would be discontinuance of the- tobacco allotment-quota and price support programs. There is insufficient evidence to support the contention that export revenues are affected by exchange rates, foreign tariff levels or cigarette prices.