Supply-­‐side  Issues  in  Tobacco  Control    

Donald  Makoka.  Centre  for  Agricultural  Research  and  Development  

Lilongwe  University  of  Agriculture  and  Natural  Resources  (LUANAR)  

Lilongwe,  Malawi.  

UCT  Wednesday,  24  June  2015  

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Introduction  •  The   supply-­‐side   impact   of   tobacco-­‐control   policies,  speci8ically   the   macro-­‐economic,   employment,   and  agricultural  issues.  

 

•  Supply-­‐side   stakeholders,   mainly   farmers   and  manufacturers   of   tobacco   products,   tend   to   form   a  political  and  emotional   lobby  to  resist  control  policies  that  jeopardize  their  interests.  

 

•  Policy-­‐makers   often   balance   the   public   health  imperative   of   reducing   smoking   against   the   economic  interests   of   their   tobacco-­‐producing   or   tobacco-­‐manufacturing  constituents.    

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Introduction  •  Should   policy-­‐makers   encourage   substitution   from  tobacco   to   alternative   crops,   or   even   buy-­‐out   tobacco  producers  altogether?  

 •  Tobacco  Industry  Myth:    •  There   are   currently   no   economically   sustainable  alternatives   to   tobacco   farming   for   small-­‐scale  farmers,   particularly   in   low-­‐   and   middle-­‐income  countries.  

 

 

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Introduction  •  ARTICLE  17  ,  FTCT:  Provision  of  Support  for  Economically  Viable  Alternative  Activities.  

 Parties  shall,  in  cooperation  with  each  other  

and  with  competent  international  and  regional  intergovernmental  organizations,  promote,  as  appropriate,  economically  viable  alternatives  for  tobacco  workers,  growers  and,  as  the  case  

may  be,  individual  sellers.    

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Supply  Side  Issues  –  Malawi  as  a  Case  Study.  

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Introduction  to  Malawi  •  Malawi’  economy  is  heavily  dependent  on  the  agricultural  sector  § 39%  of  GDP  comes  from  agriculture  §   83%  of  foreign  exchange  earnings    

•   The  main  export  crop  is  tobacco,  which  accounts  for  around  52.1%  of  all  export  earnings  

 

•  Malawi  is  the  world’s  most  tobacco-­‐dependent  economy  (Otanez  et  al.  2009)  

 

•  Tobacco  control  is  challenging  to  advance  because  of  the  role  that  tobacco  plays  in  the  economy.  

 

•  Malawi  is  not  a  member  to  the  FCTC.    

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Introduction  •  Top  Ten  Tobacco  Producing  Countries  in  the  World  in  2012,  (MT)    

 

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Malawi  Main  Export  Commodities  in  2012  

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Tobacco  Leaf  Trade  and  the  FCTC  -­‐  Malawi  •  The  debate  around  the  FCTC  continues  to  take  centre-­‐stage  

•   Tobacco  leaf  growing  continues  to  shape  the  politics  of  tobacco  control  in  Malawi.  

•  Policy  makers  often  weigh  the  health  bene8its  of  tobacco  control  against  the  potential  economic  losses  that  may  be  brought  about  by  tobacco  control  

 •  The  central  question  we  ask?  

•  Is   there   a   difference   in   the   pattern   of  Malawi’s   unmanufactured   tobacco  external   trade   during   pre-­‐FCTC   period  (2000-­‐2005)   and   after   the   FCTC   was  introduced  in  February  2005?  

 

 

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Methodology  and  Data  •  The  study  uses  time  series  data  from  the  International  Trade  Centre  (ITC)’s  Trade  Map.      •  The  Trade  Map  provides  trade  statistics  for  international  business  development.    

 •  Trends  in  unmanufactured  tobacco  imports  and  exports  were  analyzed  using  trade  statistics  covering  the  period  2000  and  2013.    

 •  The  data  were  classi8ied  into  two  groups:    

•  The  pre-­‐FCTC  period  covering  the  period  2000  to  2005;    •  The  FCTC  period  covering  the  period  2006  to  2013.    

 

 

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Result  1:  RISING  EXPORT  VALUES    •  Value  of  Malawi’s  Tobacco  Exports  (US$,  000),  2001-­‐2012      

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Results:  RISING  EXPORT  VALUES  •  Growth  in  Malawi’s  Tobacco  Values  (%),  2001/2-­‐2012/13                  

•  Tobacco  exports  have  grown  by  an  average  of  12.6%  between  2005/06  and  2012/13  

•  For  the  pre-­‐FCTC  the  annual  growth  was  1.7%      

 

-­‐11.4

6

-­‐16.8

29.2

54.7

3.3

39.6

28.7

-­‐23

-­‐2.4

16

-­‐16

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13

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Result  2:  Steady  Imports  from  Neighbouring  Countries  •  Sources  of  Malawi’s  Imported  Tobacco  Leaf  in  2013              

•  Total  imported  leaf  was  valued  at  US$89.912  million;  88%  was  imported  from  Zambia.    

 

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Result  2:  Steady  Imports  from  Neighbouring  Countries  •  Share  of  Zambia’s  Unmanufactured  Tobacco  Export  Volumes  by  Destination,  2001-­‐2013.  

           

 

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Result  3:  Access  to  Traditional  Markets  Maintained  •  Destination  of  Malawi’s  Tobacco  Exports  (2005-­‐2012).              

 

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Result  3:  Access  to  Traditional  Markets  Maintained  •  Share  of  Malawi’s  Tobacco  Export  Volumes  by  Destination,  Pre-­‐FCTC  and  the  FCTC  Period.  

           

 

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Key  Findings  •  Up  until  now  the  threat  of  the  FCTC  on  Malawi’s  access  to  European  markets  has  not  been  signi8icantly  felt.    

•  The  data  do  not  also  agree  with  the  assertion  that  Malawi  is  now  looking  to  China  and  other  Asian  markets  for  its  tobacco  exports,  as  the  proportion  of  Malawi’s  tobacco  that  is  exported  to  China  has  remained  below  4%  between  2005  and  2012.    

•  Similarly,  its  share  of  tobacco  exports  to  other  Asian  countries  (Republic  of  Korea  and  the  Philippines)  has  not  gone  beyond  7%  per  year.    

•  At  least  in  the  short  term,  Malawi  will  continue  to  rely  on  the  European  market  for  its  exports.    

•  The  8low  of  unmanufactured  tobacco  between  Zambia  and  Malawi  has  continued  unabated  even  after  the  signing  of  the  FCTC  in  Zambia  in  2008.    

 

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Summary  and  Conclusions  •  In  the  short  term,  the  large  United  States  based  tobacco  leaf-­‐buying  companies  (Universal  Corporation  and  Alliance  One  International),  through  their  Malawian  subsidiary  companies  –  Limbe  Leaf  Tobacco  Company  and  Alliance  One  Tobacco  Company-­‐  will  continue  to  advise  Malawi  on  tobacco-­‐related  trade  policies  that  attempt  to  undermine  the  global  tobacco  control  agenda  (Otanez  et  al,  2009;  Otanez  et  al,  2007).    

 •  Up  until  now,  however,  the  Malawian  policymakers  may  not  yet  be  losing  their  sleep  over  the  FCTC.  

 

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Summary  and  Conclusions    

 

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What  is  the  economic  situation  of    tobacco  farmers  in  Malawi?  

 

 

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Smallholder  Tobacco  Production  in  Malawi  •  Traditionally  tobacco  marketing  has  been  through  auctioning    

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Smallholder  Tobacco  Production  in  Malawi  •  The  Integrated  Production  System  (contract)    

•  Established  in  2012/13  season.  •  A  minimum  of  10  individual  farmers  set  up  a  club  

•  Each  farmer  should  have  at  least  1  Ha  •  The  contracts  are  between  the  leaf  company  and  the  club.  

•  To  facilitate  extension  services  •  Trainings  •  Access  to  loans  •  Packaging,  baling  etc.    

•  Farmers  are  still  responsible  for  transporting  the  tobacco  

 

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IPS  Package  

     

Tobacco  Seed   is  provided   as   a  loan   to   the   IPS  farmers  

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IPS  Package  

Pesticides   are  also  part  of   the  package  

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IPS  Package  

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IPS  Package  

Each  farmer  is  given  2X50  Kg  of  inorganic  fertilizer  for  maize.  They  are  also  given  maize  seed.  

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IPS  Package  Farmers   are   also  given   seedlings   on  loan  to  address  the  p r o b l e m   o f  d e f o r e s t a t i o n  associated   with  tobacco  farming.  

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IPS  Package  

P r o t e c t i v e  g e a r   f o r  farmers  is  also  par t   o f   the  package   from  2 0 1 4 / 1 5  season.  This   is  also   provided  on  loan.    The   farmers  do   not   know  how   much   it  costs.  

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Smallholder  Tobacco  Production  in  Malawi  •  Input  Costs  –  Individual  vs  IPS  Farmers    

  Input  in  2013/14  season  

Individual  Farmer  

Contract  Farmers  

Tobacco  Fertilizer  (50  Kg  bag)  

$42.86   $47.62  

Maize  fertilizer  (50  Kg  bag)  

$35.70   $39.47  

Maize  seed  (10  Kg)  

$11.90   S14.29  

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Smallholder  Tobacco  Production  in  Malawi  •  The  contract  farmers  are  not  aware  of  the  cost  of  the  inputs  •  The  cost  of  inputs  under  IPS  is  quoted  in  US$  •  Around  January,  farmers  are  given  a  loan  of  around  US$50.    

•  Reduce  the  risk  of  farmers  selling  tobacco  to  intermediate  buyers.  

•  If  one  individual  within  the  club  is  unable  to  repay  the  loan,  the  leaf  company  deducts  from  the  proceeds  of  the  remaining  9  farmers.  

•  If  the  whole  club  has  not  been  able  to  repay  the  loan,  the  farmers  are  given  a  new  loan  to  enable  the  leaf  company  to  recover  its  money.  In  the  end  the  farmers  are  trapped.  

•  ALLIANCE  ONE  ((Dimon  [USA]  and  Standard  Commercial  [USA])  •  “Maize  yields  have  increased  10  times  “  •  “IPS  increases  tobacco  yield    by  3  times  (600kg/ha  to  1,800kg/ha)”  

 

 

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•  The    Malawian  tobacco  farmer  faces  the  following  levies:  •  TAMA  Classi8ication  levy  (1%)  •  Association  Fee  (0.85%)  •  TCC  Levy  (0.13%)  •  ARET  Levy  (1%)  •  Hessian  Levy  (Packaging)  (US$0.92/bale)  

 

Smallholder  Tobacco  Production  in  Malawi  

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•  The    interest  was  to  understand  the  production-­‐related  (costs,  revenues,  pro8itability,  etc)  between  contract  and  individual  farmers.  

 

Smallholder  Tobacco  Production  in  Malawi  

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Dowa 14.3%

Kasungu 21.8%

Lilongwe 17.5%

Mchinji 16.4%

Ntchisi 14.2%

Rumphi 15.9%

Data  •  685  smallholder  tobacco  farmers    -­‐307  contract  farmers    -­‐378  individual  farmers  

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Data  •  685  smallholder  tobacco  farmers  -­‐ Proportion  of  female  farmers        –  9.9%  (National  -­‐59.5%)  -­‐ Average  age    –  40.6  years  -­‐ Total  household  size  -­‐  6.6  (national  4.4)  -­‐ Average  years  of  schooling    –  7  years  

-­‐ Total  land  size    –  7.7  Acres  (National  –  4  Acres)  -­‐ Proportion  of  land  allocated  to  tobacco  –  40%  

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Data  

•  Estimating  the  Cost  of  Household  Labour  Supplied  to  Tobacco  Farms  

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Tobacco  Nursery  

     

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Tobacco  Drying  and  Grading  

     

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Labour    

•  Tobacco  production  is  highly  labour  intensive.    •  The  majority  of  the  farmers  do  not  include  the  cost  of  household  labour  when  making  their  decisions  to  produce.  

 

•  So,  we  attempted  the  quantify  the  cost  of  household  labour  for  each  activity.  

 

•  For  each  activity,  (e.g.  Nursery  preparation;  nursery  watering;  planting;  fertilizer  application,  etc),  we  asked  about  how  many  individuals  were  involved,  how  many  days  they  worked  and  how  many  hours  they  worked  each  day.  

 

•  Then  we  calculated  the  total  man-­‐hours  taken  for  each  activity,  and  used  the  government-­‐set  minimum  wage  rate  for  the  rural  areas  to  calculate  the  cost  of  household  labour.  

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Results:  Production  Costs    •  Production  Costs  (US$/Acre)                  

•  Malawian  farmers  do  not  include  labour  costs:    •  Labour  costs    -­‐  60.5%  (individual  farmers);  51.7%  (contract  farmers)  

 

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Results:  Prices      -­‐  Average  Price  (US$/Kg)  -­‐  Contract  Farmers  –  US$2.43/Kg  -­‐  Individual  Farmers  –  US$1.78/Kg  

 

•  Prices  offered  to  contract  farmers  is  higher  to  attract  farmers  to  join  the  contract  arrangement  (IPS)  

 

•  Currently,  80%  of  total  tobacco  produced  is  under  contract.  

•  Industry’s  objective  is  to  get    rid  of  auctioning  of  tobacco  

       

 

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Result:  Progitability  of  Leaf  Production  •  Progits/Acre  (US$)              

•  The  individual  farmers  think  they  are  making  pro8its;  •  Contract  farmers’  pro8its  are  actually  making  only  36%  of  what  they  think  

they  are  making.  

 

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• How  does  this  compare  with  other  crops?  

           

 

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Result  2:  Future  of  Tobacco  Production  

 

 Mzimba

Kasungu

Lilongwe

Mangochi

Chitipa

Rumphi

Dedza

Dowa

Chikwawa

Ntcheu

Mchinji

Zomba

Machinga

Karonga

Nkhotakota

Nkhata Bay

Salima

Balaka

Ntchisi

Mwanza

Nsanje

MulanjeThyolo

Blantyre PhalombeChiradzulu

Likoma

CENTRAL

SOUTHERN

NORTHERN

MOZAMBIQUE

ZAMBIA

TANZANIA

0 50 100

Kilometers

Soybean  Study  –  2013  -­‐  185  farmers  

Paprika  and  Birds’  Eye  Chillies  –  2011  -­‐ 118  paprika  farmers  -­‐ 91  birds’  eye  chillies  farmers  

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Progitability  of  Various  Products  

 

US$/Acre   Soybean   Paprika   Birds’  Eye  Chillies  

Tobacco  (Contract)  

Tobacco  (Individual)  

Labour  ($/Kg)  

96.0   61.84   64.86   405.8   454.3  

Price  ($/Kg)  

0.74   1.03   2.48   2.43   1.78  

Profit  ($/Acre)  

123.00   30.57   209.19   224.30   -­‐37.30  

N   185   118   91   307   378  

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Perceptions  of  Tobacco  Farmers  on  the  Future  of  Tobacco  Production.  

 

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Future  of  Tobacco  Production  

•  Mixture  of  both  qualitative  and  quantitative  methodologies  

 •  Focus  group  discussions  and  key  informant  interviews  •  Tobacco  farmers  •  Extension  workers  of  leaf  companies    

•  Household  survey  –  685  farmers.    

 

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Reasons  for  Growing  Tobacco  

 

 

•  Farmers  are  growing  tobacco  mainly  because  they  lack  alternatives.  

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Result  2:  Future  of  Tobacco  Production  

•  41.3%  of  the  farmers  have  ever  considered  switching  •  Poor  market  prices  –  68.5%  •  Labour  intensity  –  29.1%  •  High  input  (non-­‐labour)  requirements  –  26.3%  

 •  42.2%  do  not  see  themselves  still  growing  tobacco  in  the  next  8ive  years.  

 

 

•  Farmers  are  growing  tobacco  mainly  because  they  lack  alternatives.  

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Future  of  Tobacco  Production  •  What  will  make  farmers  switch  from  tobacco?  •  Stable  and  reliable  markets  for  alternatives  –  65.5%  •  Higher  prices  for  alternative  crops  –  32.5%  

   

 

 

•  Alternative  crops  need  to  be  identi8ied  and  their  supply  chains  well  developed  to  attract  farmers  to  switch  from  tobacco.  

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Best  Performer  –  2014  –Limbe  Leaf  

     

A  farmer  displaying  his  reward  from  Limbe  Leaf  Company  for  being  the  best  IPS  farmer  in  2013/14  season.  

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AREAS  FOR  FURTHER  RESEARCH  •  What  is  the  economics  of  tobacco  growing  in  the  leading  African  countries  (e.g.  what  are  the  socio-­‐economic  conditions  of  tobacco  growers?  Are  the  socio-­‐economic  conditions  tied  to  the  industry-­‐grower  contracts?)  

 •  What  are  the  trade-­‐related  alternatives  (i.e.  value-­‐added  commodities)  

Impact  on  employment  Enablers  and  barriers  in  the  context  of  trade  agreements  (Multilateral,  Regional,  Bilateral)  –  tariff  dynamics  

Sanitary  standards  across  the  different  agreements  for  raw  food  crops  (extra-­‐  and  intra-­‐regional  standards)  

Identi8ication  of  alternative  crops  

 

 

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AREAS  FOR  FURTHER  RESEARCH    

•  What   is   the   political   economy   of   domestic   tobacco   leaf  cultivation  and  sale   (NOTE:  conservation  of   resources   theory  –  psychology)?    

 •  Multilevel   approach   to   analysis   –   individual   farmer  perceptions,   local   and   regional   environmental   conditions,  commercial   contracts   with   growers,   political   interests/incentives   at   each   level,   national   policy,   international  arrangements,   FCTC   provisions   and   integration   into  domestic  legislation  (Articles  17  and  18).    

 

 

 

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AREAS  FOR  FURTHER  RESEARCH  

What   are   the   health   effects   of   tobacco   production   in  countries  like  Malawi?    

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END  OF  PRESENTATION  

THANK  YOU  SO  MUCH