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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
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
Source: Perucic et al. in press.
Cigarette production has increased in Low and Middle-Income Countries (LMICs) while decreasing in High-Income Countries (HICs)
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.
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
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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Direct Investment & Privatization
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
Direct Investment & Privatization
Cigarette Prices, Ukraine, 2000-2006
28 Source: Ross et al., 2008
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
Direct Investment & Privatization
“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