Is the future of tobacco viable

SINCE Sunday – which itself was ominously the World No Tobacco Day – this has been a thoroughly unpleasant week for the tobacco industry: Stakeholders have had to digest unpalatable news both from the domestic front and the international markets.

On Monday, China announced sweeping new rules that represent the strictest tobacco regulations to date.

Smoking in all indoor public places such as hotels, restaurants, bars and offices in Beijing is now outlawed. Also, there will be no advertising of tobacco and no sponsorships in Beijing.

Public places like primary and middle schools, kindergartens, cultural sites and historical sites, maternal and child health facilities will also be made tobacco-free zones.

There will be no cigarette sale within 100 metres of schools or kindergartens.

Furthermore, there will be no smoking rooms on Beijing airport with 11 outdoor smoking areas having been opened up.

It gets worse for China’s 350 million smokers.

The penalty for breaking these new regulations has been hiked 20-fold to US$33 (200 yuan).

Since becoming the 78th country in the world to ratify the WHO Framework Convention on Tobacco Control (FCTC) – an international treaty to reduce tobacco-related diseases and death – on October 11, 2005, it seemed to the world that Beijing would be reluctant to follow through with implementing restrictions on tobacco smoking in deed. Tobacco is big business in China.

It is the world’s largest producer and consumer of the crop, having more than 350 million smokers – roughly the population of the entire United States.

Proceeds from the yellow leaf contribute between seven and 10 percent of the country’s revenues.

Last year, tobacco contributed 900 billion yuan, or US$148 billion, to the Asian country’s fiscus.

But events this year point towards China’s indomitable will to deal with the scourge of tobacco smoking.

Wholesale tobacco excise tax was increased from five percent to 11 percent in early May, the first increase of the tax in six years.

Before the increase, the price index for cigarettes sold in China rose by three percent between 2000 and 2012.

It is, however, heartening that the new measures are only confined to Beijing. While the temptation is to dismiss the development as a isolated incident that has no material consequence on the local tobacco industry, it is a tumour that has the potential to metastasise with time.

It is reminiscent to what happened to the asbestos industry where Turnall Holdings has had to fight the contagion effects of the anti-asbestos lobby, which saw Mozambique and South Africa, the company’s biggest export markets, banning the import of all forms of asbestos.

The company is now in the process of reconfiguring the business, but not without going through a traumatic period that threatened its very existence.

Beijing’s actions now might have negative medium to long-term effects for it could impact on the future demand and supply patterns.

Recent statistics from the Tobacco Industry Marketing Board are instructive. Of the 36,5 million kg of tobacco that have been exported since the beginning of the year, 19,6 million kg were shipped to China, which represents about 54 percent of the crop.

About US$168,4 million was released by China for the crop.

South Africa was the second-largest buyer after purchasing 4,6 million kg worth US$14,2 million.

The market for tobacco is becoming progressively smaller as more and more countries, including Zimbabwe, roll out anti-tobacco regulations.

It feels as if the noose is tightening.

This could have serious implications on tobacco growing and the economy.

Zimbabwe’s economy heavily relies on the golden leaf.

Last year, the country earned about US$684 million from the export of flue-cured tobacco.

But despite the developments in China and other parts of the world, local tobacco farmers have also not been happy with prices offered for their crop. It is therefore unsurprising that sales registered in the first 60 days of the season at US$413 million were 14 percent lower than the same period last year.

Most worryingly, tobacco sold through the auction system averaged US$2,48 per kg, while contracted tobacco fetched US$3,12 per kg.

There is a danger that the crop might lose appeal with the farmers and force them to switch to other crops that are less taxing to grow.

Government therefore needs to provide direction to the market, either by giving an assurance that tobacco growing is still a sustainable venture or securing a viable market in the medium to long-term of the crop.

Zimbabwe need not to be caught in the lurch.

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