DETERMINANTS AND LIKELY EVOLUTION OF GLOBAL TOBACCO LEAF DEMAND

Jad Chaaban

Introduction

Tobacco industry advocates argue that tobacco-control policies are the chief culprits in reducing global tobacco leaf demand, thus negatively affecting farmers' livelihoods. The argument runs as follows: tobacco- control policies lead to a decrease in tobacco consumption and therefore to a decline in global demand for tobacco leaf. This will impoverish large numbers of farmers in poorer countries that heavily rely on tobacco leaf farming.

This chapter examines trends in the global tobacco leaf market, key features of the tobacco industry and a range of factors driving global tobacco leaf demand. It shows that tobacco-control policies play a very minor role in determining short- to medium-term global demand for tobacco leaf. Population growth, income growth, cultural norms, new technology, national economic and political dynamics, government subsidies and the corporate strategies of a monopolistic industry carry much more weight in driving demand for and production of tobacco globally and in particular national contexts. By placing global tobacco leaf demand in this broader perspective, the fallacy of the industry argument against tobacco-control policies is revealed. It also highlights the real source of vulnerability of tobacco farmers to fluctuations in demand and falling farm-gate prices for tobacco leaf – their weak position in the leaf marketing chain.

Overview of the Tobacco Leaf Market

Global consumption of tobacco products

Demand for tobacco leaf is essentially derived from demand for manufactured tobacco products, predominantly cigarettes. More than 43 trillion cigarettes have been smoked in the last ten years, with more than six trillion cigarettes being sold every year. The global market for cigarettes was estimated at USD 610 billion in the year 2010 and accounted for over 95 percent of total worldwide sales of tobacco products (Euromonitor 2011; Eriksen et al. 2012).

Health organizations and financial analysts estimate the total number of smokers today at approximately 1.3 billion worldwide (Mazars 2011; Eriksen et al. 2012). Around 20 percent of the world's population smokes cigarettes. Figure 1.1 shows the evolution of global cigarette consumption in billions of sticks since manufactured cigarettes were introduced in the late nineteenth century, forecast through to 2020.

Global consumption of cigarettes has historically been highest in high-income countries (HIC) where it increased steadily until the early 1990s. Between 1990 and 2009, however, overall tobacco consumption diverged geographically. While in HICs tobacco demand was leveling off or slowly declining, more tobacco was used in low- and middle-income countries (LMIC). For example, during this period, cigarette consumption dropped by 26 percent in Western Europe and rose by 57 percent in the Middle East and Africa (Eriksen et al. 2012).

The shift in tobacco consumption from high-income countries to low- and middle-income countries is due to many factors. In HICs, the downward consumption trend was reinforced by changing consumer awareness of the dangers of smoking, reinforced by strong tobacco-control policies and regulations limiting advertising. In LMICs, targeted international marketing campaigns and trade liberalization driving down prices for tobacco products stimulated demand, which was sustained by higher population growth and increases in disposable income (FAO 2003a).

Figure 1.2 portrays global tobacco consumption in 2009 (Shafey et al. 2009; Mazars 2011). China alone accounted for 38 percent of tobacco consumption worldwide, followed by Russia at 7 percent. Ng et al. (2014) provide recent evidence of the impact of rapid population growth in developing countries on the prevalence of tobacco use and cigarette consumption. For instance, between 1980 and 2012, the total number of cigarettes smoked in China grew from 1 trillion to 2.3 trillion, while in the US there was a decline from 610 billion to 310 billion.

Global tobacco consumption is projected to increase steadily. The World Health Organization (WHO) estimates that over the next five years the number of smokers on the globe will increase at a compound annual growth rate of 3.5 percent to 4 percent. This trend will be maintained despite falling rates of tobacco use in developed countries because the population increase in developing countries will drive the overall growth in the number of tobacco users worldwide. China alone will add 8.5 million new smokers by the year 2015. Financial analysts predict that there will still be at least one billion tobacco users by the year 2050 (Euromonitor 2011).

Global production of tobacco leaf

Tobacco occupies 3.8 million hectares of agricultural land worldwide, in 124 countries. China, Indonesia, India, Brazil and Malawi account for about two-thirds of this total (FAO 2012). In 2009, some 7.1 million tons of tobacco were produced (Eriksen et al. 2012).

Tobacco will grow in any warm and moist environment. However, several factors influence the characteristics of the final product, including climate and soil conditions, harvesting methods and curing procedures. Among these, the curing method generally defines each type of tobacco (Van Liemt 2002). The most widely used curing methods are flue-curing, fire-curing, air-curing and sun-curing. After curing, which is the last stage in the production of tobacco, leaves are manufactured into the final tobacco product.

Most tobacco goes to the manufacture of cigarettes. Different manufacturers and brands use specific mixes of tobacco types (plus other additives) in their...