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One reason for this is because the Tobacco industry benefits enormously from manufacturing economies of scale. Take for example Reynolds American's (mentioned i

One reason for this is because the Tobacco industry benefits enormously from manufacturing economies of scale. Take for example Reynolds American's (mentioned in the article) largest manufacturing facility in Tobaccoville, near their HQ in Winston-Salem. The Tobaccoville plant is capable of producing 110 billion cigarettes a year¹, and employs just ~1,200 people². Let's say the average revenue per cigarette pack is $5, and there are 20 cigarettes in a pack. That works out to $0.25 revenue per cigarette. The Reynolds Tobaccoville plant is capable of producing $27.5 billion in revenue alone ($0.25 x 110 billion), for a labor cost of roughly 90 million (1,200 x $75,000). 1. http://www.nytimes.com/1987/08/23/business/what-s-new-in-tobacco-in-tiny-tobaccoville-a-giant-plant.html http://www.nytimes.com/1987/08/23/business/what-s-new-in-tob... 2. http://www.journalnow.com/business/business_news/local/update-reynolds-to-create-jobs-in-tobaccoville-to-expand-vuse/article_cc60b98c-e283-11e3-ac51-001a4bcf6878.html http://www.journalnow.com/business/business_news/local/updat...

QAPereo 9y ago
They also have giant emerging markets around the world, far more numerous than Canada, the US, and Western Europe. If history is a guided then generations of tobacco execs can strike it rich by killing people, before the gig is up. Edit: Reply: Indonesia meanwhile... China controls about 41% of the global market, but Asia Pacific market overall is 64%. That’s... a lot. Then there’s India... Africa... Still it is true that China is the number 1 in the world in terms of both production and consumption.
- seanmcdirmid 9y ago
  Many of hose markets are extremely protected. The tobacco industry in China for example is completely local, growing in Yunnan and driving smoking policy as a bunch of SOEs.
- topmonk 9y ago
  > If history is a guided then generations of tobacco execs can strike it rich by killing people, before the gig is up. You know, some people like cigarettes, despite the health effects. No one is "killing" you, if you decide to use a product even though you are aware of the risks.
  - QAPereo 9y ago
    Such people are a minority of smokers around the world, and given how addictive nicotine is, probably fooling themselves. The average smoker is in the Asia Pacific region, India, Indonesia, and Africa, and is impoverished. In those regions as elsewhere, socioeconomic class and education correlate with the lowest numbers of smokers.
    - topmonk 9y ago
      > Such people are a minority of smokers around the world, and given how addictive nicotine is, probably fooling themselves Do you have statistics on that? Sounds a little suspect. > The average smoker is in the Asia Pacific region, India, Indonesia, and Africa, and is impoverished. Another vague statistic. I'm really curious, where'd you get it? >In those regions as elsewhere, socioeconomic class and education correlate with the lowest numbers of smokers. Poor people like different things than rich people? So what?
      - QAPereo 9y ago
        So you do like “obscure statistics” after all! Good! https://www.tobaccofreekids.org/assets/global/pdfs/en/Global_Cigarette_Industry_pdf.pdf https://www.tobaccofreekids.org/assets/global/pdfs/en/Global... Your turn.
        topmonk 9y ago
        > So you do like “obscure statistics” after all! Good! No, I just don't like people claiming a bunch of truths, with no data to back it up. Also, don't dump a bunch of propaganda on me and expect me to dig through it looking to verify your claims. Show me where in that does it say that the average smoker is "impoverished". Or that a majority of smokers around the world don't like to smoke, and are doing it simply because they are addicted.
      - mlazos 9y ago
        The implication here is that a lack of education leads to a misunderstanding of the risks of smoking. Whether that implication is true or not doesn’t really matter though, you don’t agree that the notion of “choice” hardly matters when a substance as addictive as nicotine is involved?
deleted 9y ago
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Alex3917 9y ago
Tobacco is also subsidized, so the government is effectively paying Americans to smoke.
- teej 9y ago
  Except for the $5+ tax per pack. What a ridiculous assertion.
  - throwawayjava 9y ago
    A more accurate statement might be that the government is paying people to produce cigarettes.
    - Alex3917 9y ago
      If buying a pack of cigarettes costs less than it would without the subsidies, then you're effectively getting free money every time you smoke.
      - Clubber 9y ago
        It's not even close. If the government didn't do any subsidizing or taxing, cigarettes would be much cheaper. The magnitude would vary depending on state or country.
    - bmmayer1 9y ago
      So, let me get this straight. The government pays people to produce them, then charges people to smoke them?
      - throwawayjava 9y ago
        Basically, yes. But it's not quite that clear cut. Tobacco growers receive farm subsidies [1], which isn't a tobacco-specific subsidy, but also isn't a "whoops didn't mean those farms" accident [2]. Tobacco products are then (heavily) taxed. Also, it's actually that the federal government pays people to grow tobacco and the state governments tax people to consume tobacco. And the federal subsidies are much lower than the state taxes. It's still a weird situation, and subsidies probably shouldn't be paid to farms producing tobacco. But the sort of corruption that makes this nonsense possible is totally legal in America, so. [1] https://farm.ewg.org/top_recips.php?fips=00000&progcode=tobacco https://farm.ewg.org/top_recips.php?fips=00000&progcode=toba... [2] http://thehill.com/blogs/floor-action/senate/301645-senate-rejects-amendment-to-end-tobacco-farm-subsidies http://thehill.com/blogs/floor-action/senate/301645-senate-r...
Bromskloss 9y ago
> the Tobacco industry benefits enormously from manufacturing economies of scale. I was expecting the rest of the comment to be an explanation of why this is so, but I feel that it really just restated, with specific numbers, the claim that they do indeed make a large amount of money (or at least revenue) per employee.
jldugger 9y ago
Crayola also has like 1,200 employees manufacturing packs of paper wrapped tubes of product for 5 bucks a pop. What about cigarettes is more beneficial for economies of scale?
- skybrian 9y ago
  A much larger market. Nobody buys crayons or even school supplies every day.
  - bgia 9y ago
    Exactly. And nobody gets addicted to crayons.
    - jacoblambda 9y ago
      marines?
    - mikeash 9y ago
      I beg to differ. Still, feeding a crayon addiction is much cheaper, since they’re multi-use.
- cjhveal 9y ago
  I'd hazard that the difference is in the demand for the products. The total addressable market for crayons is likely much smaller, and would be more quickly saturated if you were to ramp up production. Cigarettes have killer recurring revenue and the demand for them is highly inelastic.
- flogic 9y ago
  Cigarettes are literally dried up leaves. Their customers light the product on fire and then buy more the next day. Given that as a viable business model, how do you not make ridiculous quantities of money?
  - TylerE 9y ago
pxeboot 9y ago
In low tax states, cigarettes retail for less than $5/pack. Manufacturers are likely only getting $3-4/pack, but your point still stands.
- selectodude 9y ago
  Duty free pricing is about $3.75/pack. I imagine they sell them wholesale for $2.50.
megaman22 9y ago
Is the revenue per pack $5? In some jurisdictions, a pack of cigs costs less than that, and in others double or more. The biggest component in the price of tobacco appears to be sin taxes.
- Clubber 9y ago
  I was thinking governments are probably the largest profiters of tobacco products though taxes. >Their data estimates that taxes make up 42.5% of the cost of a pack of cigarettes in the US, compared to 82.2% in the United Kingdom, which has the highest cigarette taxes. https://en.wikipedia.org/wiki/Cigarette_taxes_in_the_United_States https://en.wikipedia.org/wiki/Cigarette_taxes_in_the_United_...
  - jacobduchen 9y ago
    In the short term yes, in the long term governments lose money due to chronic diseases caused by tobacco
    - metaphor 9y ago
      > in the long term governments lose money due to chronic diseases caused by tobacco I don't follow how governments lose money in the long. Could you elaborate?
      - polskibus 9y ago
        Smoking tobacco kills taxpayers. Illnesses caused by smoking are expensive to treat.
      - deleted 9y ago
        [deleted]
      - jacobduchen 9y ago
        I think these estimates from the CDC are pretty conservative. In the US, EVERY YEAR: "Smoking-related illness in the United States costs more than $300 billion each year. Nearly $170 billion for direct medical care for adults More than $156 billion in lost productivity, including $5.6 billion in lost productivity due to secondhand smoke exposure" https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm https://www.cdc.gov/tobacco/data_statistics/fact_sheets/econ... OFF-TOPIC A major way (the only way?) to curb tobacco usage is to simply increase taxes on tobacco usage, but politicians/bureaucracy prefers the short-term tobacco tax revenue. Cool article about Chinese tobacco tax rev: https://www.bloomberg.com/news/articles/2014-12-12/the-chinese-government-is-getting-rich-selling-cigarettes https://www.bloomberg.com/news/articles/2014-12-12/the-chine...
tryingagainbro 9y ago
Revenue is meaningless in this case. Taxes and taxes and taxes make most of the sale. It's like someone listing as revenue Boeing jet sales when they only get $1000 for each sale.

QAPereo 9y ago

They also have giant emerging markets around the world, far more numerous than Canada, the US, and Western Europe. If history is a guided then generations of tobacco execs can strike it rich by killing people, before the gig is up. Edit: Reply: Indonesia meanwhile... China controls about 41% of the global market, but Asia Pacific market overall is 64%. That’s... a lot. Then there’s India... Africa... Still it is true that China is the number 1 in the world in terms of both production and consumption.

seanmcdirmid 9y ago
Many of hose markets are extremely protected. The tobacco industry in China for example is completely local, growing in Yunnan and driving smoking policy as a bunch of SOEs.
topmonk 9y ago
> If history is a guided then generations of tobacco execs can strike it rich by killing people, before the gig is up. You know, some people like cigarettes, despite the health effects. No one is "killing" you, if you decide to use a product even though you are aware of the risks.
- QAPereo 9y ago
  Such people are a minority of smokers around the world, and given how addictive nicotine is, probably fooling themselves. The average smoker is in the Asia Pacific region, India, Indonesia, and Africa, and is impoverished. In those regions as elsewhere, socioeconomic class and education correlate with the lowest numbers of smokers.
  - topmonk 9y ago
    > Such people are a minority of smokers around the world, and given how addictive nicotine is, probably fooling themselves Do you have statistics on that? Sounds a little suspect. > The average smoker is in the Asia Pacific region, India, Indonesia, and Africa, and is impoverished. Another vague statistic. I'm really curious, where'd you get it? >In those regions as elsewhere, socioeconomic class and education correlate with the lowest numbers of smokers. Poor people like different things than rich people? So what?
    - QAPereo 9y ago
      So you do like “obscure statistics” after all! Good! https://www.tobaccofreekids.org/assets/global/pdfs/en/Global_Cigarette_Industry_pdf.pdf https://www.tobaccofreekids.org/assets/global/pdfs/en/Global... Your turn.
      - topmonk 9y ago
        > So you do like “obscure statistics” after all! Good! No, I just don't like people claiming a bunch of truths, with no data to back it up. Also, don't dump a bunch of propaganda on me and expect me to dig through it looking to verify your claims. Show me where in that does it say that the average smoker is "impoverished". Or that a majority of smokers around the world don't like to smoke, and are doing it simply because they are addicted.
    - mlazos 9y ago
      The implication here is that a lack of education leads to a misunderstanding of the risks of smoking. Whether that implication is true or not doesn’t really matter though, you don’t agree that the notion of “choice” hardly matters when a substance as addictive as nicotine is involved?

deleted 9y ago

[deleted]

Alex3917 9y ago

Tobacco is also subsidized, so the government is effectively paying Americans to smoke.

teej 9y ago
Except for the $5+ tax per pack. What a ridiculous assertion.
- throwawayjava 9y ago
  A more accurate statement might be that the government is paying people to produce cigarettes.
  - Alex3917 9y ago
    If buying a pack of cigarettes costs less than it would without the subsidies, then you're effectively getting free money every time you smoke.
    - Clubber 9y ago
      It's not even close. If the government didn't do any subsidizing or taxing, cigarettes would be much cheaper. The magnitude would vary depending on state or country.
  - bmmayer1 9y ago
    So, let me get this straight. The government pays people to produce them, then charges people to smoke them?
    - throwawayjava 9y ago
      Basically, yes. But it's not quite that clear cut. Tobacco growers receive farm subsidies [1], which isn't a tobacco-specific subsidy, but also isn't a "whoops didn't mean those farms" accident [2]. Tobacco products are then (heavily) taxed. Also, it's actually that the federal government pays people to grow tobacco and the state governments tax people to consume tobacco. And the federal subsidies are much lower than the state taxes. It's still a weird situation, and subsidies probably shouldn't be paid to farms producing tobacco. But the sort of corruption that makes this nonsense possible is totally legal in America, so. [1] https://farm.ewg.org/top_recips.php?fips=00000&progcode=tobacco https://farm.ewg.org/top_recips.php?fips=00000&progcode=toba... [2] http://thehill.com/blogs/floor-action/senate/301645-senate-rejects-amendment-to-end-tobacco-farm-subsidies http://thehill.com/blogs/floor-action/senate/301645-senate-r...

Bromskloss 9y ago

> the Tobacco industry benefits enormously from manufacturing economies of scale. I was expecting the rest of the comment to be an explanation of why this is so, but I feel that it really just restated, with specific numbers, the claim that they do indeed make a large amount of money (or at least revenue) per employee.

jldugger 9y ago

Crayola also has like 1,200 employees manufacturing packs of paper wrapped tubes of product for 5 bucks a pop. What about cigarettes is more beneficial for economies of scale?

skybrian 9y ago
A much larger market. Nobody buys crayons or even school supplies every day.
- bgia 9y ago
  Exactly. And nobody gets addicted to crayons.
  - jacoblambda 9y ago
    marines?
  - mikeash 9y ago
    I beg to differ. Still, feeding a crayon addiction is much cheaper, since they’re multi-use.
cjhveal 9y ago
I'd hazard that the difference is in the demand for the products. The total addressable market for crayons is likely much smaller, and would be more quickly saturated if you were to ramp up production. Cigarettes have killer recurring revenue and the demand for them is highly inelastic.
flogic 9y ago
Cigarettes are literally dried up leaves. Their customers light the product on fire and then buy more the next day. Given that as a viable business model, how do you not make ridiculous quantities of money?
- TylerE 9y ago

pxeboot 9y ago

In low tax states, cigarettes retail for less than $5/pack. Manufacturers are likely only getting $3-4/pack, but your point still stands.

selectodude 9y ago
Duty free pricing is about $3.75/pack. I imagine they sell them wholesale for $2.50.

megaman22 9y ago

Is the revenue per pack $5? In some jurisdictions, a pack of cigs costs less than that, and in others double or more. The biggest component in the price of tobacco appears to be sin taxes.

Clubber 9y ago
I was thinking governments are probably the largest profiters of tobacco products though taxes. >Their data estimates that taxes make up 42.5% of the cost of a pack of cigarettes in the US, compared to 82.2% in the United Kingdom, which has the highest cigarette taxes. https://en.wikipedia.org/wiki/Cigarette_taxes_in_the_United_States https://en.wikipedia.org/wiki/Cigarette_taxes_in_the_United_...
- jacobduchen 9y ago
  In the short term yes, in the long term governments lose money due to chronic diseases caused by tobacco
  - metaphor 9y ago
    > in the long term governments lose money due to chronic diseases caused by tobacco I don't follow how governments lose money in the long. Could you elaborate?
    - polskibus 9y ago
      Smoking tobacco kills taxpayers. Illnesses caused by smoking are expensive to treat.
    - deleted 9y ago
      [deleted]
    - jacobduchen 9y ago
      I think these estimates from the CDC are pretty conservative. In the US, EVERY YEAR: "Smoking-related illness in the United States costs more than $300 billion each year. Nearly $170 billion for direct medical care for adults More than $156 billion in lost productivity, including $5.6 billion in lost productivity due to secondhand smoke exposure" https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm https://www.cdc.gov/tobacco/data_statistics/fact_sheets/econ... OFF-TOPIC A major way (the only way?) to curb tobacco usage is to simply increase taxes on tobacco usage, but politicians/bureaucracy prefers the short-term tobacco tax revenue. Cool article about Chinese tobacco tax rev: https://www.bloomberg.com/news/articles/2014-12-12/the-chinese-government-is-getting-rich-selling-cigarettes https://www.bloomberg.com/news/articles/2014-12-12/the-chine...

tryingagainbro 9y ago

Revenue is meaningless in this case. Taxes and taxes and taxes make most of the sale. It's like someone listing as revenue Boeing jet sales when they only get $1000 for each sale.