Dr. Iqbal Lambat – CEO, Star Agritech International
The Tobacco Industry taken as a whole has a huge impact on the global economy. To put that into perspective, here are some mind-boggling facts:
- Global annual cigarette consumption is estimated at 5.4 trillion cigarettes. This sounds like a lot of sticks so using the average length of a king-size cigarette at 84mm, and placed end to end, would result in a length of 453 million kilometres. That “end to end” string of cigarettes could circumvent the circumference of Earth 11,320 times, or travel 4 times from Earth to Mars and back.
- To feed this cigarette consumption, a total of 4.3 million tons of processed tobacco is required. This will require that farmers worldwide need to produce 7.2 million tons of harvested tobacco per year. With an average yield of 1.5 tons per hectare, the total land mass under tobacco cultivation annually is 4.8 million hectares representing 0.3% of the world’s total arable land. The total number of active tobacco farmers are 40 million worldwide.
- The retail value of annual cigarette sales is estimated at US$800 billion of which some 75% or 600 billion wind up in state coffers as excise tax.
- If tobacco consumption was a country with US$800 billion (revenue as GDP), it would rank number 18 in the top 20 countries in the world ranked by GDP, just behind The Netherlands and ahead of Saudi Arabia and Switzerland.
- The total number of smokers in the world are estimated at 1 billion (80% of whom are male) and total livelihoods engaged in tobacco related activities at 100 million.
- And finally, the total annual sales revenue of the tobacco Industry is twice as much as the combined annual revenue of the top ten consumer goods companies worldwide such as Nestle, Unilever, etc.
Given these whopping facts, why is it that the tobacco Industry has now become a corporate hostage to world governments in general? No other Industry comes near it in terms of excessive taxation, accelerated loss of smoker’s freedoms, and a product treated like a virus – out of sight despite plain packaging. In the early years of my corporate tobacco career (1980 to 2000), the tobacco industry was loved and despised – loved for the tax generation to state coffers and despised by victims of newly-coined “passive smoking”. However, there was always room for dialogue with regulators and governments. There was also “compromise” such as practiced at that time on aircraft with smoking and non-smoking sections as well as in cafes, bars, and restaurants. All multinational cigarette companies had teams of corporate affairs professionals who were the voice of the company (and the industry) vis a vis regulators.
However, starting in the early 2000’s, the government stance on the tobacco industry changed for the worse. This started initially with imposing health warnings, initially to cover a reasonable 20-30% of the pack panels. This health warning was in the interest of the smoker needing to be informed of the dangers of smoking. Ironically, in so doing, the health warnings became a bullet proof defence against any attempts to sue tobacco companies for health damage caused by smoking. Lawyers defending Big Tobacco pointed out the health warnings to court officials. Unfortunately, health warnings in many countries now exceed 75-80 % of the pack panels and are made gruesome with terrible hateful pictograms. In parallel, increased smoking bans led to less smokers’ freedoms. Some countries like Bhutan imposed a total country ban on smoking and which has been in effect over the past 15 years. Advertising bans also started intensifying “to protect the children from experimenting with cigarettes”. This meant bans on high profile sponsorship events such as Formula One racing (Marlboro, Camel, JPS, Mild Seven, West), World Snooker Championship (Benson & Hedges), The Davidoff Friendship Classical Orchestra, etc. In today’s world, there are no advertising avenues, the last ban being implemented in Greece on outdoor billboards.
To mitigate smoking, many governments around the world have been increasing excise tax every year to balance their budgets. So much so that [in September 2020] the Australian government increased the excise tax on a pack of 20 cigarettes which will now retail for US$30. Can you believe that? With 13,000 islands that make up neighbouring Indonesia, and private label cigarettes purchased legally from Dubai factories for as little as US$75 per mastercase of 500 packs (i.e. US$0.15 per pack), smuggling to Australia via Indonesia becomes the most lucrative business on earth. If contraband can be sold in the Australian market for half of the legal retail price of say US$15 per pack against a cost of US$1 landed (transport and other frictional costs), then a mastercase can generate US$7,000 of profits and a stunning US$7 million in potential profits for one full container load. Governments create the business opportunity that smugglers then fill. To further illustrate, in Romania where a pack of 20 retails for US$1.50, there is zero smuggling. But this then creates “travel retail legal smuggling” from Romania to Scandinavia, among others. Since the product has paid tax in Romania, it cannot be taxed again when it sells in another EU country with higher retail pricing. Plain packaging is also another government idea, seized upon with joy and obviously little thought. Despite court cases held by Big Tobacco at the World Trade Organization (WTO) on the “theft of intellectual property” by countries like Australia, no manufacturer has been successful in protecting its brands. There has been no willing dialogue between the governments with the tobacco Industry. The truth of the matter now is that it is very easy to produce counterfeit Marlboro in plain packaging, or any other global brand for that matter. Governments that impose plain packaging have only themselves to blame for the flood of counterfeit brands in their markets and excessive tax losses. While plain packaging was touted as the best way to reduce cigarette consumption, its introduction in Australia in 2012, the first country in the world to implement this, has demonstrated eight years later little or no evidence to correlate a decline in smoking incidence due to plain packaging. Also, increasingly, tobacco products must not be visible to clients and are kept behind closed cabinet doors. In Turkey, one of the world’s top ten markets by consumption, this legislation was implemented five years ago and ironically, market consumption increased from 110 billion to 119 billion cigarettes per annum. Can someone please explain the logic of such legislation?
Let’s turn to the historic “USA against Big Tobacco”. The 1990s was the period when the most court suits and class action suits were actioned against Big Tobacco, mostly in the USA. Against this background, the Tobacco Master Settlement Agreement (MSA) was entered into in November 1998, originally between the four largest United States tobacco companies (Philip Morris Inc., R. J. Reynolds, Brown & Williamson, and Lorillard – the "original participating manufacturers", referred to as the "Majors") and the attorneys general of 46 states. The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco related healthcare costs. In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity (in other words, forever!), various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The money also funds a new anti-smoking advocacy group, called the Truth Initiative, that is responsible for such campaigns as Truth and maintains a public archive of documents resulting from the cases. Study of this archive revealed the "Tobacco Industry playbook" and its parallels with techniques used in climate change denial. In the MSA, the original participating manufacturers (OPM) agreed to pay a minimum of US$206 billion over the first 25 years of the agreement. Was there any dialogue? Absolutely not. The only dialogue in 1998 was “if you don’t comply, we will shut you down”. There are thousands of people that die from automobile accidents or alcohol related diseases annually. Has there been an MSA against the related industries?
“The World against All Tobacco”
The World Health Organization Framework Convention on Tobacco Control (WHO FCTC) is a treaty adopted by the 56th World Health Assembly held in Geneva, Switzerland on the 21st May 2003. It became the first World Health Organization treaty adopted under article 19 of the WHO constitution. The treaty came into force on February 27, 2005. It had been signed by 168 countries and is legally binding in 181 ratifying countries. There are currently 15 United Nations member states that are non-parties to the treaty (nine which have not signed and six of which have signed but not ratified). The FCTC, one of the most quickly ratified treaties in the United Nations history, is a supranational agreement that seeks "to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke" by enacting a set of universal standards stating the dangers of tobacco and limiting its use in all forms worldwide. To this end, the treaty's provisions include rules that govern the production, sale, distribution, advertisement, and taxation of tobacco. FCTC standards are, however, minimum requirements, and signatories are encouraged to be even more stringent in regulating tobacco than the treaty requires them to be. The FCTC represents a watershed moment for international public health; not only was the treaty the first to be adopted under WHO's Article 19, but it also marks one of the first multilateral, binding agreements regarding a chronic, non-communicable disease (like Covid 19, sic!). The main provisions are:
- Strengthen tobacco tax.
- A comprehensive ban on tobacco advertising, promotion, and sponsorship.
- Effective health warnings on tobacco packaging.
- Smoke-free work and public places.
- Phase out the cultivation of tobacco worldwide by forcing tobacco farmers to cultivate alternative crops.
The FCTC established two principal bodies to oversee the functioning of the treaty: the Conference of the parties and the permanent Secretariat. In addition, there are over 50 different intergovernmental and nongovernmental organizations who are official observers to the Conference of the Parties.
HOWEVER, THE TOBACCO INDUSTRY ARE BANNED FROM PARTICIPATION EVEN AS OBSERVERS!!
According to the FCTC in 2010, "most parties have now passed or are renewing and strengthening national legislation and policies to meet their obligations under the treaty" and that 80% of parties facilitated public information and / or education programs on the dangers of tobacco and curb underage tobacco consumption through laws that forbid retailers from selling tobacco products to minors. Furthermore, 70% of parties made "large, clear and visible health warnings" mandatory for tobacco packaging. FCTC implementation proves most difficult for developing and transition economies, due to a rift between their need for tobacco control and the resources they can access in meeting FCTC guidelines. Such is the case for the African tobacco producing countries such as Malawi, Zimbabwe, Zambia, Mozambique, and Tanzania where over 50% of their GDP is generated from tobacco crop production and sale. This also proved to be difficult for the European Union where tobacco farming subsidies were cancelled by all countries in the EU resulting in a devastating decline in tobacco cultivation notably in Italy, Greece, Bulgaria, and Poland. Recent attempts to evaluate the implementation and efficacy of the FCTC showed that actual state compliance with the framework is quite low, and that its implementation infrastructure is ridden with errors. For instance, under a recent investigation comparing the WHO's FCTC implementation database with national implementation reports, it discovered that 32% of country responses were misreported in the database, 3% were obvious errors, 24% were missing despite being reported by countries, and 5% were misinterpreted by the WHO staff. These findings highlighted the need for a stronger WHO infrastructure to track and record state compliance with policies. The United Nations which has oversight of the WHO has again demonstrated its total impotency to implement global treaties.
In the past two years, the “New Now” has come into force where customs officials can use their own prerogative of seizing truckloads of unmanufactured tobacco crossing certain countries in the EU. Germany is the main culprit in this matter seizing trucks of tobacco on the grounds that all unmanufactured tobacco is readily smokable and therefore is liable to pay excise tax at the rate of EUR24 per kg (EU480,000 per truck). Therefore, the cost of unmanufactured tobacco shipped to a manufacturer in the EU must pay this amount if the truck will cross Germany, with the final destination being any EU member other than Germany. This is a ridiculously high cost to pay to use the German autobahn for a day to transit Germany. There have been numerous seizures in the last 24 months with the shipper (tobacco suppliers or logistics companies) choosing to abandon the tobaccos upon seizure rather than pay the German customs authorities. The European Court of Justice in the Hague has ruled against the German decision by clearly stating that readily smokable tobacco must contain glycerine and a flavour in order to meet the designation “readily smokable”. The German government refuses to discuss this ruling. Again, no room for a sensible dialogue if the merchandise is tobacco. Other countries in the EU may follow suit.
And finally, to hammer home my point: in the current Covid 19 pandemic, the South African government banned the sale of all alcohol and tobacco products on the grounds that these lead to more socializing and therefore an accelerated spread of the coronavirus. The decision was taken by the health minister, Mrs Zuma, unilaterally. BAT, the largest manufacturer in South Africa, along with smaller manufacturers under the FITSA umbrella took the SA government to court and lost. Meanwhile, the smoking population who consume 60 billion cigarettes per annum had to rely on illegitimate supply from neighbouring countries who profited immensely. And the SA government has lost an estimated USD2 million per day during the 5-month ban. “Can it get more ridiculous than this?” one should ask.
No government has arbitrarily pushed for plain packaging or health warnings on sodas or hamburgers, both very visibly destroying livelihoods via obesity. No consumer goods products have to be hidden from view of the customer. With tobacco, it seems that everyone wants to jump onto the regulatory bandwagon to look like they are pushing for the greater good of humanity, if only to pay lip service to that cause.