Tobacco and tobacco growers put North Carolina on the map. Since the colonial era, the economy was fueled primarily by agriculture, and for the past century tobacco was North Carolina's key product. Farming and industry in the state were built around the crop, and two of the four largest cities developed as company towns for the world's largest tobacco companies.
In the 17th and 18th centuries, North Carolina's economy was dwarfed by Virginia and South Carolina, states that developed more diverse industries, such as cotton and rice. Farms in North Carolina were disadvantaged by the quality of soil in the coastal plains, which was unsuitable for growing grain on a large scale, and most farmers scraped by at subsistence levels until the mid-19th century. Many of these "yeoman" farmers produced some tobacco, but the quality was poor, and very little was exported. In contrast to other southern states, large plantations were rare, and agriculture was less dependent on slave labor than in the Deep South — a condition that made North Carolinians reluctant to join the other states of the Confederacy.
Ironically, the innovation that led the state to become a tobacco-growing powerhouse came from a slave, a man named Stephen who worked on the farm of Captain Abisha Slade. While curing a batch of tobacco in a smoky barn, he let the wood fire go out, and quickly restarted it with charcoal. The intense heat cured the tobacco quickly, turning it a vivid yellow. When this "brightleaf" (or flue-cured) tobacco was sold, it proved appealing to smokers, and within a decade, flue-cured tobacco became one of the most common varieties in production. The rapid curing process was also particularly well-suited for tobacco grown in the sandy soil of the coastal plains. Suddenly, farms that were producing other crops turned to tobacco.
At the same time, tobacco users' tastes were changing. In the 17th and 18th centuries, most of the crop was processed into snuff or heavily flavored pipe tobacco. The 19th century saw the development of a new fad in tobacco consumption: the cigarette became popular in Spain, where Turkish tobacco was readily available. The new flue-cured tobacco produced in North Carolina was similar, but cost much less for American and British consumers. Sensing a vast business opportunity, American growers began processing their own tobacco in small factories. These businesses thrived, prompting the development of improved transportation and trading centers in the burgeoning cities of Durham (serving growers in the eastern part of the state) and Winston (serving the western regions).
North of Durham, a small farmer named Washington Duke opened a small factory on his homestead, producing loose tobacco for rolling cigarettes. Through an intense marketing effort, Duke managed to earn substantial profits from a relatively small output of flue-cured tobacco. With his son James Buchanan "Buck" Duke, he later moved the business to downtown Durham, close to the tobacco warehouses where small farmers sold their crops. Duke's biggest rival was W.T. Blackwell and Company, which marketed a popular "Spanish" blend of tobacco that later gained fame under the trade name Bull Durham.
While a handful of large farms produced much of the state's crop during this period, small farmers were able to survive because of the increasing popularity of tobacco. Smoking became a truly national habit during the Civil War, when both Union and Confederate armies were supplied with regular rations of tobacco. Soldiers from around the country developed a taste for the brightleaf variety, creating a nationwide demand in the 1870s. Manufacturers responded by building larger factories, employing thousands of workers and spurring the rapid industrialization of Durham and Winston.
Smoking began to replace chewing as the preferred means of consuming tobacco, and cigars and cigarettes came to be seen as stylish accessories. In 1880, manufacturers based in North Carolina produced 2 million pre-rolled cigarettes, each of them rolled by hand. Each of the largest manufacturers sought to mechanize the rolling process, but met with little success until 1884, when Washington and Buck Duke signed an exclusive contract to use a machine designed by James Bonsack. Using Bonsack's machine, the Dukes were able to produce more cigarettes than all their competitors combined.
Determined to broaden the scope of his business, Buck Duke invested heavily in advertising and promotion, cementing his company's place as the market leader. By 1890, five firms accounted for 90 percent of the cigarette market. Duke persuaded his rivals to merge, forming the American Tobacco Company, which controlled the majority of the world tobacco trade until it was broken up under a Supreme Court antitrust ruling in 1911. The five companies that emerged from that reorganization — R.J. Reynolds, American Tobacco, Lorillard, Liggett and Myers and the British-American Tobacco Company — continued to dominate the market for decades.
Growing was still dominated by larger farms, but demand was so great that even small farmers were able to make profits with tobacco. Sharecropping and tenant farming became common among people who owned no land. Large numbers of African-Americans in the eastern part of the state farmed in this manner, paying a portion of each year's crop as "rent" to large landowners. As late as 1923, nearly half of the state's farmers were tenants.
During the Great Depression, farmers tried to compensate for lowered prices by producing more tobacco, leading to even lower prices. The federal government responded by providing subsidies for farmers. In 1938, a quota system was instituted, establishing strict limits on how much each farm could produce, and providing government-sponsored price supports.
Farming and manufacturing recovered quickly with the onset of World War II, as soldiers were once again supplied with cigarette rations. Postwar prosperity also boosted demand for cigarettes, which grew until the early 1960s, when concerns about the dangers of smoking became a major public health issue. The US Surgeon General issued a report in 1964 arguing that smoking caused lung cancer and a host of other medical problems.
Over the next four decades, as the number of American smokers declined steadily and restrictions on public smoking increased, the large manufacturers began cutting costs and laying off large numbers of workers and relocating their factories to less expensive areas. American Tobacco left Durham in 1987, and R.J. Reynolds moved its corporate headquarters away from Winston-Salem in 1989. Both companies made steep cuts at production facilities throughout the 1990s. In 2000, the last cigarette manufacturer, Liggett and Myers, left Durham. The most profitable market for cigarettes in the past decade has been in Asia, and American companies have invested heavily in overseas factories to lower their costs.
As demand for domestically produced tobacco flagged, the federal quotas were also diminished, leading many farmers to cease growing tobacco. The quota system ended in 2005, as part of a $10 billion package to end federal price supports for tobacco growers. The Tobacco Transition Payment Program (TTPP) will provide farmers a series of annual payments, starting in 2005 and continuing until 2014. This program also ends all restrictions on tobacco farmers, but analysts predict that the majority of growers will cease growing tobacco.