tobacco supply & trade - who · case study - ukraine privatization of domestic monopoly after...

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Ayda A. Yurekli, PhD Coordinator, Tobacco Control Economics

Tobacco Free Initiative WHO

Tobacco Supply & Trade

Economics of Tobacco and Tobacco Control Session World Conference on Tobacco or Health

Singapore, March 23, 2012

Unmanufactured Tobacco

In 2006, over 130 countries used ◦ 3.9 million hectares of land to produce ◦ 6.7 million metric tons of tobacco leaves 88% in LMICs 61% of it is flue cured tobacco

◦ 25% traded globally

Major tobacco leaf producers

Source: Perucic et al. in press.

Tobacco leaf production has been shifting towards low &

lower middle income countries.

Share of tobacco leaf production by Income Groups of Countries


Cigarettes Tobacco leaves are manufactured into ◦ Cigarettes- 84% of all tobacco leaf grown ◦ Cigars ◦ chewing tobacco, ◦ snuff, and other products.

1970 and 2004, global cigarette production increased by 78%

& in 2007, it reached to 5.9 trillion cigarettes. ◦ More than 5.7 trillion pieces were sold globally


Cigarette production has increased in Low and Middle-Income Countries (LMICs) while decreasing in High-Income Countries (HICs)

Shifting Production & Global Trade

Overview

Economic and policy aspects of tobacco growing- subsidies and price supports

Globalization of Tobacco Industry:

◦ Opening of markets through bilateral, regional, and global trade agreements

◦ Loosening of restrictions on foreign direct investment

◦ Privatization of government run tobacco companies A few significant exceptions

◦ Consolidation among multinational tobacco companies ◦ Economic policies on subsidies

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Impact of reducing or eliminating tobacco subsidies & price supports by HICs reduced production in the HICs while increasing production in LMICs

◦ Reduced production in the HICs including United States, Canada, and the traditional producing members

of the European Union, such as Greece and Italy,

& ◦ Increased production in LMICs, including China, Brazil, Argentina, and in the three main producing

countries of Africa—Malawi, Zimbabwe, and Mozambique.

TOBACCO TRADE Benefiting from tobacco trade

Balance in quantity of tobacco trade

Tobacco Leaves Cigarettes

Source: Author's calculations.

At global level Real export price for tobacco leaves &cigarettes are falling

Real Export Price per 20gr

Cigarettes Tobacco Leaves


The export price for cigarettes is much higher than the export price for leaves

TRADE Leaf export and import has been increasing in middle income countries

Middle Income Countries Leaf Trade

Source: Author's calculations from FAO database.

LMICs need to produce and sale more tobacco leaves and cigarettes in order to keep positive balance for import cigarettes

Direct Investment & Privatization Opening of markets resulted in increased openness to direct

investment

◦ Investment in new production facilities/capacity owned and operated by multinational tobacco companies By far the most widespread

◦ Privatization of former government owned/operated tobacco companies for example, Turkish TEKEL acquired by BAT in 2008 after being on the market

for many years) Partial privatization of Egypt Tobacco Company (government still retains

controlling interest)

◦ Joint ventures between local monopoly and multinational tobacco companies For example, PMI , BAT and Vietnam, Cambodia, Laos

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State-Owned Tobacco Monopolies or Significant State Ownership in Tobacco Enterprises, by Region, 2010

Region Countries Europe Belarus, Bosnia-Herzegovina, Bulgaria, Moldova , and Tajikistan Western Pacific Cambodia , China, the Democratic Republic of Korea, Japan , Laos, Myanmar, Taiwan ,

Thailand , and Vietnam Eastern Mediterranean Algeria, Egypt, Iran , Iraq, Jordan , Lebanon , Libya, Syria, Tunisia, and Yemen Americas Bolivia and Cuba Southeast Asia None Africa None

Source: Yurekli, Shin & Chaloupka, in press

Global Tobacco Industry Structure

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Share Distribution of the Global Tobacco Market, 2011

Source: Euromonitor 2012

Direct Investment & Privatization

Public health concerns about Foreign Direct Investment (FDI) and privatization

◦ government won’t adopt higher taxes, strong tobacco control policies

◦ widespread use of sophisticated marketing practices ◦ Tobacco use will be higher than it would be otherwise

Public health benefits of privatization

◦ Eliminates conflict of interest between revenues generated from production/sale of tobacco and health/economic benefits of tobacco control

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Can be good or bad for public health –

depends on how it’s done

& how committed the governments

are for tobacco control

26 Source: Yurekli, Shin & Chaloupka, in press

Case Study - Ukraine Privatization of domestic monopoly after the collapse of the Soviet Union – Early years

Cigarette Consumption, Ukraine, 1990-2006

27 Source: Ross et al., 2008

Cigarette Consumption in Ukraine

0

20,000

40,000

60,000

80,000

100,000

120,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Millio

n P

ieces


Cigarette Prices, Ukraine, 2000-2006


Nominal & Real Retail Price of Branded (Marlboro) Cigarettes in UAH

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2000 2001 2002 2003 2004 2005 2006

UA

H

Nominal Retail Price

Real Retail Price

Case Study: Turkey After privatization of TEKEL in 2008 Cigarette Taxes and Prices in Turkey 2003-2010

Source: Yürekli, et al., 2010

55.3%

70.6% 71.6% 75.1% 75.4% 73.5% 73.4% 74.1%78.70%

59.8% 60.2% 58.2% 58.8%58.1%63.4%

56.3%

5.25

4.103.413.112.782.362.091.85

2003 2004 2005 2006 2007 2008 2009* 2010**

Excise as % of RP Total tax as % of Retail PriceRetail Price/pack YTL

Tobacco Taxes in Turkey, 2002-2011 EXCISE TAXES

Year Ad valorem Minimum Specific/pack

Total Excise Rate on Retail

Price

VAT Rate on Retail Price

Total Tax Rate on Retail Price

2002 49.5 % 49.5% 15.25 % 64.8 %

2003 55.3 % 55.3% 15.25 % 70.6 %

2004 28.0 % AND 0.35 YTL - 1.00 YTL

56.3% 15.25 % 71.6 %

2005** 58.0 % Or 1.20 YTL 60.2% 15.25 % 75.5 %

2006 58.0 % Or 1.20 YTL 59.4% 15.25 % 74.6 %

2007 58.0 % Or 1.55 YTL 58.2% 15.25 % 73.5 %

2008 58.0% Or 1.55 YTL 58.1% 15.25 % 73.3 %

2009*** 58.0% Or 2.00 YTL 58.6% 15.25% 73.9%

2010 63% Or 2.65TL 63.0% 15.25% 78.25%

2011 65% Or 2.90TL 65.25% 15.25% 80.3%

Source: Yurekli, et al., 2010, and MoF Turkey 2011 Official Gazette


“Best Practices” for public health

◦ Make no agreements with multinational tobacco companies that would inhibit government’s ability to adopt strong tobacco control policies

◦ Ratify the WHO FCTC, adopt comprehensive tobacco control policies Regular tax increases that reduce the affordability of tobacco

products Strong, comprehensive smoke-free policies Comprehensive ban on tobacco product marketing Other effective policies/programs

33 Source, Yurekli, Shin & Chaloupka, in press

Further Challenges and Solutions

Crop diversification efforts particularly in LMICs. Evolution of tobacco products The potential for tobacco product regulation to

reduce tobacco use and its consequences

Agricultural alternatives to tobacco growing in LMICs

Diversification ◦ An increasing number of countries exploring alternative

options

Obstacles to Diversification ◦ “Integrated system,” which keeps farmers financially

dependent on tobacco companies; ◦ Subsidies by local and State governments to support

tobacco growing and processing; and ◦ The high financial returns from tobacco, particularly

compared with traditional food crops.

Proliferation of cigarette brands

Proliferation of cigarette brands—an increase in the number of brands available in a given product market—led to increases in overall cigarette consumption in the United States: ◦ A 10% increase in the number of brands

resulted in a 4% increase in consumption.

Governments' policies

To limit brand proliferation ◦ Limit the use of product descriptors like light, ultra

light, and mild. companies have adapted by altering their packaging

to use colors that create similar perceptions. ◦ To sell only one variety of a given cigarette brand-

Uruguay, ◦ To adopt plain packaging -Australia

A new wave of innovation in product design

The development and marketing of “potentially reduced exposure products” ◦ E.g Snus, Orbs, Sticks, and Strips

But None have been conclusively demonstrated to

be safer than conventional products.

Source: WHO (in press), the 2010 Surgeon General’s report

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