This analysis of stability in the U.S. tobacco industry examines the causes and consequences of variability of tobacco prices, quantities, input demands, total revenues, costs, and net revenues. I focus on the role of the U.S. tobacco program and the effects of regulatory change. The first step is to describe briefly the industry and the program. Some information about recent patterns of prices and other variables is then presented.

The tobacco program kept variability of the real price of tobacco at a minima for decades. From 1950 through 1983 the coefficient of variation (c.v.) of the price of tobacco was only about 4 percent, as compared to a c.v. of around 20 percent, for other major field crops. But this history does not tell the full story. The output price stability was accompanied by considerable variability in effective quota levels, total revenue, quota lease rates, and returns to quota.

Estimates of supply and demand elasticities, storage costs, and inherent variability of demand suggest that with no program, price and revenue variability in U.S. tobacco would have remained considerably loner than that in other camodities.

The last five years have been a unique period of regulatory instability in tobacco. Program risk as exhibited in sales prices for 114 quota has been high. Changes instituted in 1986 seem to have returned stability to the program. However, the risk of a major price decline or other major program change seems to have remained.

This paper does not provide a definitive analysis of the Impact of the U.S. tobacco program on stability in the tobacco industry. The detailed research upon which to build such analysis has not been done.