Withdrawals of large cigars, based on sales of revenue stamps, January 1948 compared with January 1947

Mr. REGENSBURG. It is significant that in that 6-month period, sales of cigars retailing at 15 cents and up were off in excess of 25 percent and cigars retailing between 6 and 8 cents were off approximately 40 percent for this period. Furthermore, over-all consumption was off in excess of 4 percent.

Figures for January and February show the continuance of this trend and cigars retailing between 8 and 15 cents, which the Treasury Department denominates as class E, commence for the first time to show a substantial decline in consumption. I mention this category last because the bulk of production in the cigar industry today is concentrated in class E and in it is represented the former prewar 5-cent cigar. Further significance must be attributed to the fact that this class represents cigars manufactured mainly from domestic cigar leaf tobacco.

A study of these tables reveals that the long-term projection trend of the cigar industry is again downward and the first resistance to higher price in cigars has now been manifested in a complete falling off in consumption of all cigars. Consumption of cigars does not bear a direct relationship to national income but rather lags behind.

The CHAIRMAN. Will you undertake to explain why that is falling off?

Mr. REGENSBURG. I will do that, sir.

Cigar consumption declines before a recessive period and lags behind a rise in national income. This statement is supported by graphs prepared by statisticians of the Tobacco Division of the Department of Agriculture which I should like to offer for the record.

The CHAIRMAN. It will be received and inserted in the record at this point.

(The graphs referred to appear on p. 316.)

Mr. REGENSBURG. Those were used by Charles E. Gage, the Director of the Tobacco Branch of the Department of Agriculture, at an address given by him in New York City on January 31, 1947. Mr. Gage, in his address said:

All of this leads to the generalization that manufacturers of medium- to highpriced cigars are hit hardest and earliest by hard times and are last to recover from them. When spending money is plentiful, cigar smokers become attracted to better and better cigars. When hard times come knocking at the door, many of them shift to lower-priced cigars or either shift to other tobacco products, and once they have become accustomed to them they stay with them for an appreciable period beyond the time when increased income would permit them to go back to higher-priced smokes.

BUSINESS ACTIVITY AND VOLUME OF TAX PAID WITHDRAWALS OF LARGE CIGARS CLASSIFIED ACCORDING TO RETAIL PRICE

*COMPONENTS: PRODUCTION OF BITUMINOUS COAL, GENERATION OF ELECTRICAL POWER, OUTPUT OF PETROLEUM
PRODUCTION OF STEEL, TOTAL FREIGHT CAR LOADINGS AND LOADINGS OF MISCELLANEOUS FREIGHT
ANEW CLASSIFICATION NOV. 1, 1942

+ ESTIMATED

I think that covers the question you asked me, Senator. During the depression they went off cigars and went to other smoking tobacco, cigarettes, and stayed long after their incomes had increased to permit them to go back.

They simply do not go back.

In its present plight, brought about by the falling off in consumption of all cigars, the cigar industry has attempted, but to no avail, to make adjustments in its price structure. With high costs of basic raw materials, high excise taxes, labor, freight, and packaging materials, the industry finds itself between the upper and nether millstone. It cannot increase prices of its finished product because of an already existing consumer resistance, and must of necessity continue to absorb further increases in such costs at a time when the industry is considering the necessity for reducing its prices.

The CHAIRMAN. How does consumer resistance become effective? Mr. REGENSBURG. It becomes effective in lessening the sales of the industry at large. There is a downward trend in the consumption of cigars on an over-all basis in all price classes, showing that the consumer even in good times has not gone back to cigars in the former volume.

1920 was the peak year. The consumption of cigars since that time has steadily declined year after year, with the exception of the war period, when there was a slight recovery, and now that recovery, which was had due to the abnormally high national income, has begun to slough off again.

Senator BUSHFIELD. Do you not think that is partly due to custom, that is, a man becomes accustomed to certain tobacco?

Mr. REGENSBURG. I think that is so, the fashionability of vogue for cigar smoking.

Senator BUSHFIELD. Yes.

Mr. REGENSBURG. I believe that has something to do with it.
Senator BUSHFIELD. I think that is an important feature.

The CHAIRMAN. Is it your idea that the Congress should promote the use of cigars?

Mr. REGENSBURG. No; that is not my thought at all, Senator. It is simply anything that would further accelerate the decline or hurt the traditional industry should be cautiously approached.

Senator AIKEN. How many cigars are there in a pound of tobacco? Mr. REGENSBURG. The average cigar weighs about 20 pounds of tobacco per thousand.

Since 1937 the cigar industry has had to face steadily mounting costs. There are three major factors in the cost element of cigars: (1) Leaf tobacco, (2) labor, and (3) revenue taxes.

Using 1939 as the basis for comparison, the average cost for 1946 per pound of tobacco showed an increase of 186 percent, labor costs 58 percent, and revenue taxes 268 percent. Fixed increases in major costs have resulted in an over-all-cost increase of 125 percent, using 1946 over 1939 figures.

Senator THYE. Mr. Regensburg, how much of the cost of a 15-cent cigar is tobacco?

Mr. REGENSBURG. Well, 40 percent of the retail price, about 50 percent of the wholesale price is about approximate.

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Senator AIKEN. What percent of the retail price?

Mr. REGENSBURG. 40 percent of the retail price.

Senator AIKEN. Of the retail price?

Mr. REGENSBURG. Approximately 40 percent. Is that correct? Mr. BERMAN. Your question was what percent of the total cost represents raw material?

Senator THYE. That is right.

Mr. BERMAN. That would be about 50 percent.

Senator THYE. 50 percent would be the actual tobacco cost?

Mr. BERMAN. When you speak of how many pounds of tobacco are used in the cigar, that weight is processed weight and not farm weight. The original farm weight is probably closer to 40 percent.

Senator AIKEN. That is about twice as much.

Mr. BERMAN. It is about twice as much.

Senator AIKEN. About half of the leaf comes out?

Mr. BERMAN. Comes out in one stage or another.

Senator HOEY. About what cost of the 15-cent cigar is tax?

Mr. BERMAN. The tax on 15-cent cigars is $10.

Mr. REGENSBURG. That is a cent a piece.

Senator HOEY. Would you say that 72 cents goes to tobacco, say 50 percent?

Mr. REGENSBURG. That is about right, sir.

Mr. BERMAN. That tax originally was $5 a thousand. When we spoke of the 5-cent cigar we paid $2 a thousand and that cigar today is in the 9- or 10-cent range and we pay $10 a thousand.

Senator HOEY. You are getting away from what the late Vice President Tom Marshall said: "What this country needs is a good 5-cent cigar."

Mr. BERMAN. We are keenly aware of the fact that we are in a period where prices are bound to go down and there are certain conditions that we face for which we ask your consideration which will enable us to bring the cigar prices down, but as I have indicated to you, we have formerly paid a tax of $2 for a nickel cigar and are today paying the equivalent of $10 a thousand for the nickel cigar. The nickel cigar has today risen to 9 or 10 cents.

Senator AIKEN. What percent of the 9-cent cigar is tobacco?

Mr. BERMAN. Your range is in the neighborhood of 50 percent? I use that as an over-all picture.

Senator AIKEN. That would make the price of tobacco $1.871⁄2 a pound. Say you get 40 pounds of tobacco farm weight to make a thousand cigars, that is 25 cents a pound. That is a pound of tobacco to make 25 cigars, and if there is 712 cents, 50 percent represented, if 15 cents is the average price, that would bring it up to $1.871⁄2 a pound for tobacco.

Mr. BERMAN. In that tobacco you have Connecticut wrapper which would average for a 15-cent cigar over $5 a pound.

Senator AIKEN. What is the lowest-price tobacco you use in it? Mr. BERMAN. The lower price in this 15-cent cigar would be your Havana.

Mr. REGENSBURG. We use shade wrappers that average about $6 a pound. We use 22 pounds on the average for the 15-cent cigar. That is $15 for the wrapper.

Senator AIKEN. What is the cheapest tobacco you use?

Mr. REGENSBURG. That is uniform.

Senator AIKEN. You think that $1.87 would be about the average price for tobacco?

Mr. BERMAN. For the 15-cent cigar that sounds approximately cor

rect.

Senator AIKEN. Is that just the part you use or the entire leaf?

Mr. BERMAN. You have three grades of leaf in that cigar. You have the wrapper leaf, the binder leaf, and the filler.

Senator AIKEN. What does the filler cost?

Mr. BERMAN. The filler costs one-half and would run about $1.80 a pound. So your figures are approximately correct, Senator. Senator AIKEN. Yes. What would that represent as a farm price? From whom do you buy it?

Mr. REGENSBURG. You see, when you talk about 15-cent cigars, our 15-cent cigars contain 100 percent Havana fillers, but that is not typical of the industry. I think if you were to take the 9-cent cigar, for example, you would find it more typical of the industry at large. The CHAIRMAN. Are the tobacco growers doing anything to encourage the increase in production?

Mr. REGENSBURG. I do not think they are, Senator, seeking to increase production because they have been faced with a set of problems of their own, such as fertilizers, cottonseed meal, shed space, and so forth that have been peculiar to the growing industry, so that the increases in production have been limited in the past 5 years. Would

you not say that?

Mr. BERMAN. I did not quite get that.

Mr. REGENSBURG. Senator Capper asked if the growers had done anything to stimulate the production of tobacco, domestic tobacco. Mr. BERMAN. They have attempted, in cooperation_with_the Department of Agriculture, to meet the requirements of the industry. During the war period, of course, like all others, we were faced with manpower and related problems.

Also, during the war period approximately 25 percent of the output of the cigar industry was taken over by the armed forces for shipment to the men both in this country and overseas.

Senator AIKEN. What is the difference between the cigar wrapper type 61 and 62? According to the figures submitted by the Bureau of Agricultural Economics, cigar wrapper type 61 has a present parity price of 16 cents.

Mr. BERMAN. One is Connecticut shade-grown wrapper, and type 62 is Georgia-Florida.

Senator AIKEN. 62 is?

Mr. BERMAN. Yes, sir.

Senator AIKEN. That has a present parity price of 99 cents a pound, whereas the cigar wrapper type 61 is less than 16 cents a pound." That does not sound reasonable.

Mr. BERMAN. There is a mistake on that report. That should read $1.59, Senator.

Senator AIKEN. They have the period in the wrong place. I was wondering who was raising cigar wrappers for 16 cents a pound. Mr. BERMAN. Incidentally, the "209" should read $2.09; the "221" should read $2.21; and the "59" should read $1.59.

Senator AIKEN. With those changes, your testimony sounds more reasonable.