| Smoking has become the affliction of a large | | | | growing and processing may be at the national level, its |
| magnitude of people and others seem to be joining the | | | | full economic and social significance is best grasped at |
| smoke bandwagon at an alarming rate. Smoking has | | | | the micro or regional level. In some regions, tobacco is |
| become a very common sight with one out of every | | | | grown side by side with the crop, which is the main |
| fifth person being a smoker. The trend of smoking has | | | | source of income; its contribution to overall income is |
| become very common among teenagers also. The | | | | modest. However, in many others, tobacco is a main |
| problems one gets due to smoking are many, but they | | | | source of income and employment. |
| do not seem to encourage people to stop smoking or | | | | Tobacco growing and tobacco processing may bring |
| deter people for starting to smoke. The hazardous | | | | substantial economic and social benefits, but the |
| effects of smoking are many, but people do not seem | | | | treatment of smoking-related illness is costly. Cigarette |
| to be paying heed; the tobacco companies seem to | | | | smoking causes cancer. It is addictive. The WHO |
| be the only one is reaping the rewards out of smoking. | | | | estimates that tobacco products cause around 3 |
| Since tobacco was born, it has been a few | | | | million deaths per year. Cigarette smoking is the major |
| companies dominate the tobacco industry. These | | | | cause of preventable mortality in developed countries. |
| companies control most of the production and | | | | In the mid-1990s, about 25 per cent of all male deaths |
| distribution around the world. They are quick to adapt | | | | in developed countries were due to smoking. Among |
| to their policies and tactics to conform to the | | | | men aged 35-69 years, more than one-third of all |
| regulations set by the government and cater to the | | | | deaths were caused by smoking. The costs of |
| needs of the ever-increasing number of smokers | | | | treating all these people are clearly enormous (WHO, |
| around the world. | | | | 1997). |
| Tobacco companies of the world | | | | So far, smoking has not had the same impact on |
| A few companies hold the tobacco production and | | | | mortality among women and among people from |
| control of tobacco; the three largest companies sell | | | | developing countries. There is an approximate 30-40 |
| close to two thirds of the entire supply. The stagnation | | | | year time lag between the onset of persistent smoking |
| in demand has prompted them to explore new | | | | and deaths from smoking. The effects of the greater |
| markets. | | | | incidence of smoking between these two groups will |
| The government is in a predicament since the tobacco | | | | thus be felt with a lag, but it seems reasonable to |
| industry accounts for a vast amount of jobs, but it also | | | | believe that its impact on them will not differ |
| has to protect the health of its citizens. The | | | | fundamentally from that on developed country males. |
| government has tried to cut down on smokers by | | | | It may be argued that smokers willingly take a certain |
| increasing the taxes imposed on them. By increasing | | | | health risk when enjoying their smoke. They like the |
| the taxes on tobacco products and leveling higher | | | | taste and all the other things that they associate with |
| duties on the companies, the companies are forced to | | | | smoking. Nevertheless, this does not apply to |
| raise the prices, which indirectly reduce use; since | | | | environmental tobacco smoke (ETS) or |
| higher priced goods will be used less often. There is | | | | “second-hand smoke”. |
| not much the government can do since tobacco is not | | | | Smoke gets in your eyes your clothes. Moreover, it |
| a banned product. | | | | gets in your lungs. Non-smokers cannot escape from |
| The large companies also diversify their business to | | | | smoke in badly ventilated areas. To be exposed to |
| keep abreast in the market. They use various ways | | | | other people’s tobacco smoke can be a nuisance |
| the companies diversify. | | | | in addition to being a health risk for non-smokers. |
| By market segments: Products are usually divided into | | | | Governments and conflicting pressures: How do they |
| categories, from high priced premium cigarettes to low | | | | get by? |
| and middle class of cigarettes. Companies with big | | | | In practice, governments have opted for several |
| brand names sell premium high priced cigarettes but | | | | strategies (which are often followed simultaneously). A |
| also expand in to lower class sales to protect them | | | | recent strategy consists of seeking compensation for |
| from susceptibility. A decline in sales of premium | | | | the costs of treating smoking-related illnesses. It has |
| cigarettes will be ploughed back by the sales in the | | | | been followed with success in the United States, as |
| lower or middle brands of cigarettes. | | | | we saw in section 3.4. Governments also set rules |
| By target group: Every cigarette has its target group. | | | | regarding the maximum content of hazardous |
| By creating a new target group, the company can | | | | substances in cigarettes. Most of all, however, |
| raise its overall market share. Thus the need to branch | | | | governments try to discourage demand for what is, as |
| out into women cigarettes and target young people. | | | | the industry does not tire of telling us, essentially a legal |
| This targeting of women and youngsters has been | | | | product. |
| seen in bad light. The tobacco industry has long | | | | This is done in a variety of ways, with some |
| targeted young people with its advertising and | | | | governments applying particular vigor and others taking |
| promotional campaigns. One of the most memorable, | | | | a more relaxed approach. Overall, however, the trend |
| “Joe Camel” campaign initiated by the R.J. | | | | is clear: governments’ rules on smoking are |
| Reynolds Tobacco Company, helped generate public | | | | becoming ever more restrictive. The use of tobacco |
| outrage against tobacco company efforts to reach | | | | products is being discouraged in several ways. |
| young audiences and it is no longer used. The reason | | | | Limitation of the space where smoking is allowed. |
| is obvious, most people start smoking at an early age. | | | | This is done above all to protect non-smokers from |
| Getting a hold on a new segment will increase its | | | | involuntary exposure to tobacco smoke. Smoking is |
| share in the market. | | | | being prohibited in public places (particularly health care |
| Women are also a segment that the industries try to | | | | and educational facilities) and in mass transport. |
| win over. Cigarettes for women are put forward as a | | | | Legislation requires restaurants to reserve space for |
| symbol of liberation and some even shown in the light | | | | non-smokers. |
| of slimming products. Manufacturers produce (long, | | | | Limitation by age group |
| slim) cigarettes especially for women. Perfumed or | | | | It is prohibited to sell tobacco products to people under |
| scented cigarettes with exotic flavors are targeted at | | | | a certain age. |
| women. Cigarettes usually have the word “slim” | | | | Limitations on points of sale. |
| or “lights” to attract women consumers. | | | | The use of vending machines is being restricted |
| Minorities are also a target for the tobacco industry. | | | | because these cannot discriminate against sales to |
| Diversification by tobacco products: cigarettes | | | | young people. |
| companies also try to branch out into other tobacco | | | | Health warnings stating that tobacco is harmful to |
| products. For example, Imperial tobacco has decided | | | | health have become obligatory. |
| to branch out into the roll your own segment; it | | | | The warnings must be placed on packets and in ads, |
| dominates both the tobacco and the paper for this | | | | with the authorities prescribing the text and the |
| segment. | | | | minimum space allotted to the warning in the ad or on |
| Diversification by non-tobacco products: food seems | | | | the pack. Governments sponsor education and public |
| to be the favorite for companies seeking to diversify. | | | | information programs on smoking and health. |
| R.J. Reynolds bought Nabisco (which, in turn, was later | | | | Advertising bans. Restrictions concern the location of |
| acquired by Kraft) owned by Philip Morris. Japan | | | | ads, the media used (no billboards, no ads in the printed |
| Tobacco derives a (small) part of its sales from food. | | | | media or in cinemas), the images presented (no young |
| Logistics and wholesaling are another favorite | | | | people, no cigarette packets), and the time when |
| Austria Tabak, wholesaling of tobacco and other | | | | broadcasting is allowed (not during hours when children |
| products (and the operation of vending machines) | | | | watch television). |
| makes up a large share of turnover. Over 20 per cent | | | | The manufacturers are unhappy with these |
| of Altadis’ earnings originate in its logistics division. | | | | restrictions, and in particular with the ban on advertising. |
| Skandinavisk Tobakskompagni owns the largest | | | | In their view, it is not proved that such a ban |
| wholesaler of consumer goods in Denmark. BAT tried | | | | discourages demand for cigarettes (as its proponents |
| financial services (but, since 1998, is a pure tobacco | | | | claim). They are concerned about its effect on the |
| company). | | | | value of their prime asset, the brand name. |
| Diversification into food and other activities makes the | | | | Worldwide, the tobacco-processing industry employs |
| tobacco companies less dependent on (slow-growing) | | | | hundreds of thousands of people. However, due to a |
| sales of tobacco products. However, the profit | | | | combination of slow demand growth, consolidation, and |
| margins in these industry are usually well below those | | | | higher productivity, this number is unlikely to increase by |
| attained in tobacco processing. Producing and | | | | much in the near future. Fewer people are needed per |
| marketing cigarettes remain the more lucrative activity. | | | | unit of production. The industry is becoming less |
| Incase of diversification by geographical market, | | | | intensive in the use of labor. Tobacco growing, in |
| OECD-based tobacco companies are keen to reduce | | | | contrast, gives work to millions of people. It continues |
| their dependence on their stagnant home markets and | | | | to be a highly labour-intensive activity. The scope for |
| establish a presence in markets where growth is | | | | productivity increases in tobacco growing would |
| above average. After having started business in many | | | | appear to be more limited than those in tobacco |
| markets in Latin | | | | processing. |
| America, Central and Eastern Europe, and the Central | | | | Over a million people are employed in the world |
| Asian republics in the 1990s, their center of attention is | | | | tobacco industry |
| shifting to the Far East. All the major tobacco | | | | However, of this number a high percentage is |
| companies now have a presence in Poland, Russia | | | | employed in just three countries: China, India and |
| and the Central Asian republics. Austria Tabak, which | | | | Indonesia. The large number employed in China comes |
| gained a presence in | | | | as no surprise in view of the large number of |
| Estonia when it acquired the cigarette activities of | | | | cigarettes (one-third of the world total) produced there. |
| Swedish Match also has a 67 per cent market share | | | | Still, the productivity gap with the United States is |
| in Guinea. The company was considering entering | | | | striking. China produces roughly three times as many |
| Asian markets when it was taken over by Gallaher in | | | | cigarettes as the US, but it needs over nine times as |
| June 2001. Through this take-over and the acquisition in | | | | many people to produce them. In the other two |
| 2000 of Liggett-Ducat, the Moscow cigarette maker, | | | | countries, the scope for productivity improvements |
| Gallaher greatly reduced its dependence on the UK | | | | would appear to be even higher. |
| market. Similarly, Japan Tobacco became a world | | | | THE SCENARIO TODAY. |
| player when it acquired the international activities of | | | | The situation concerning smoking are scary, if global |
| R.J. Reynolds. Thanks to a relentless internationalization | | | | trends continue as they are doing today by 2030 more |
| drive, Germany’s Reemtsma now sells less than | | | | than 8 million people will die each year from tobacco |
| one-third of its total in its home market (compared to | | | | related causes-80% in the developing regions of the |
| over 60 per cent in 1991) (see also figure 6). It is now | | | | World. In India per example where 120 million smoke 1 |
| on the go in several Central and Eastern European | | | | in 5 men will die for smoking. Smoking is on the decline |
| countries and, in 1999, it acquired Cambodia’s | | | | in developed nations but is on a large-scale rise in |
| Paradise Tobacco Company. | | | | developing or underdeveloped nations. The statistics |
| The government. | | | | are frightening, every eight seconds someone dies |
| A predicament is generally faced by the Governments | | | | from smoking; about 15 billion cigarettes are sold daily. |
| all across the world. On the one hand, | | | | There are 1.1 billion smokers in the world today, and if |
| tobacco-growing and processing can makes a large | | | | things continue as they have, that number is expected |
| contribution to employment, tax revenue and foreign | | | | to increase to 1.6 billion by the year 2025. |
| exchange receipts. In many developing and formerly | | | | Smoking and use of tobacco products is on a decline |
| centrally planned economies, the tobacco companies | | | | in most developed countries. However, it is on a |
| have made sizeable and most welcome investments | | | | rampant increase in other developing countries. |
| when other investors were disinclined to do so. On the | | | | In the US, there has been a decrease in the number of |
| other hand, governments have the responsibility to | | | | smokers. This can be attributed to the growing |
| protect the population’s health. Smoking is harmful | | | | awareness of the damage smoking causes to the |
| to health and treating people for smoking-related | | | | health of the individual. There is however a sad side to |
| illnesses is expensive. This can lead to heated debates | | | | the story, smoking has increased to a drastic level in |
| within the same government as each sector defends | | | | other countries and the figures are staggering. |
| the interests it believes it should represent. | | | | China is home to 300 million smokers who consume |
| The economic importance of tobacco growing and | | | | upwards of 1.7 trillion cigarettes a year, or 3 million |
| processing differs from country to country. At the | | | | cigarettes a minute. As many as 100 million Chinese |
| national level, cigarette (sales and import) tax can be a | | | | men presently under the age of 30 will die from |
| main source of government revenue. In Russia, | | | | tobacco use. There are approximately 120 million |
| cigarette tax revenue contributes around 8 per cent to | | | | smokers in India today, and it is estimated that in the |
| the financing of the state budget. | | | | year 2010 alone, there will be close to one million |
| When the government owns the industry, it receives | | | | tobacco-related deaths among men and women age |
| profits in addition to tax. That is why, in so many | | | | 30 to 69 in India. Worldwide, tobacco use will kill more |
| countries, State monopolies continue to control | | | | than 175 million people between now and the year |
| cigarette trade and production. In China, proceeds from | | | | 2030. Current tobacco-related health care costs in the |
| state-owned CNTC amounted to the equivalent of | | | | United States total US $81 billion annually. Germany |
| US$11,000 million in 1999. CNTC has been the Chinese | | | | spends an average of US $7 billion, and Australia, US |
| State’s top revenue generator for years. Japan | | | | $1 billion each year on health care directly related to |
| Tobacco earned more than US$400 million for the | | | | tobacco use. Health care costs associated with |
| Japanese State in the fiscal year ending March 2000. | | | | secondhand smoke total US $5 billion a year in the U.S. |
| The monopolies can also play a social function. In Italy, | | | | It is estimated that as many as 500 million people alive |
| several of the state monopoly’s factories are to | | | | today will be killed by tobacco use. The statistics are |
| be found in areas of high unemployment. | | | | chilling. |
| Then there are balance of payments issues to mull | | | | One reason for the sudden spurt in the numbers in |
| over, many low-income countries rely on the export of | | | | these countries may be due to the arrival of tobacco |
| cash crops such as tobacco to pay for the service of | | | | companies. The lax stand of the governments in these |
| their foreign debt. | | | | countries makes it a good bet to start business. The |
| Tobacco exports made up close to 10 per cent of | | | | anti smoking lobbies in these countries have not been |
| Cuba’s exports in 1997-98. In the case of | | | | able to combat the increase. Increased awareness |
| Tanzania it was 15 per cent, In Zimbabwe over 25 per | | | | has made it hard for tobacco companies to work in |
| cent and in Malawi tobacco exports made up | | | | many countries and so the tobacco companies have |
| two-thirds of commodity exports. | | | | shifted their sights to greener pastures. |
| Citizens smoke. But, if they smoke domestically | | | | These countries have a very small anti smoking lobby |
| produced cigarettes, using homegrown tobacco or use | | | | and the government restrictions o them are not so |
| imported cigarettes and tobaccos can make a large | | | | tough and the government is dependent on the |
| difference when foreign exchange is scarce. That | | | | revenues it earns from them. Setting up business in |
| explains why so many countries try to restrict the | | | | these countries has resulted in increased used of |
| imports of cigarettes and encourage domestic | | | | tobacco products. |
| producers to use local tobaccos, for example, by | | | | The anti smoking lobby has been very effective in |
| providing a favorable tax treatment to companies that | | | | curtailing the spread and increase of smoking around |
| use a minimum percentage of homegrown tobaccos. | | | | the world. |
| The cigarette companies have also been a key | | | | Advertising related to tobacco has is banned in most |
| source of investment in the formerly centrally planned | | | | countries. Warnings of the harmful effects of the |
| countries of Central and Eastern Europe, and Central | | | | product have to be printed on the packet. This |
| Asia. When others were disinclined to invest, those | | | | statutory warning is mandatory in most countries. The |
| companies saw the possibilities offered by a blend of | | | | WHO in its Framework Convention on Tobacco |
| pent-up consumer demand, outdated production | | | | Control, which came into effect on 27 February 2005 |
| facilities and the association with independence and | | | | has specified that all 168 countries should ban |
| “western style” living that so appealed to the | | | | advertisements unless their constitutions forbade them |
| people in these countries after many years of central | | | | to do so. |
| planning and little consumer choice. After having lobbied | | | | Today, we are aware of the hazards of smoking. |
| successfully for the reduction of restrictions of Asian | | | | Even though the people are aware of the harmful |
| markets such as Japan and the Republic of Korea, the | | | | effects of smoking they rarely seem to pay heed. |
| large tobacco companies are eagerly waiting for the | | | | Everyone knows that smoking causes cancer, heart |
| opening up of the other economies (notably China) that | | | | diseases and can shorten the life span of an individual. |
| continue to restrict imports from and/or investments by | | | | It is a highly addictive habit and smokers are at a risk |
| foreign tobacco companies. | | | | of losing ten years of their life. |
| Tobacco growing, processing and exports can thus | | | | With so many smokers around the world, tobacco |
| make a significant involvement to national employment | | | | companies are the only ones gaining form the |
| and national income. Yet, however important tobacco | | | | increase. |