Tobacco Companies Of The World Economics Essay

Smoking has become the affliction of a large magnitude of people and others seem to be joining the smoke bandwagon at an alarming rate. Smoking has become a very common sight with one out of every fifth person being a smoker. The trend of smoking has become very common among teenagers also. The problems one gets due to smoking are many, but they do not seem to encourage people to stop smoking or deter people for starting to smoke. The hazardous effects of smoking are many, but people do not seem to be paying heed; the tobacco companies seem to be the only one is reaping the rewards out of smoking.  Since tobacco was born, it has been a few companies dominate the tobacco industry. These companies control most of the production and distribution around the world. They are quick to adapt to their policies and tactics to conform to the regulations set by the government and cater to the needs of the ever-increasing number of smokers around the world.

TOBACCO COMPANIES OF THE WORLD:

A few companies hold the tobacco production and control of tobacco; the three largest Companies sell close to two thirds of the entire supply. The stagnation in demand has prompted them to explore new markets.

Since higher priced goods will be used less often. There is not much the government could do since tobacco is not yet a banned product.

The large companies also diversify their business to keep abreast in the market. They use various ways, the companies diversify by market segments. Products are usually divided into categories, from high priced premium cigarettes to low and middle class of cigarettes. Companies with big brand names sell premium high priced cigarettes but also expand in to lower class sales to protect them from susceptibility. A decline in sales of premium cigarettes will be ploughed back by the sales in the lower or middle brands of cigarettes.

By target group: Every cigarette has its target group. By creating a new target group, the company industry has long targeted young people with its advertising and promotional campaigns. One of the most memorable, “Joe Camel” campaign initiated by the R.J. Reynolds Tobacco Company, helped generate public outrage against tobacco company efforts to reach young audiences and it is no longer used. The reason is obvious, most people start smoking at an early age. Getting a hold on a new segment will increase its share in the market.

Women are also a segment that the industries try to win over. Cigarettes for women are put forward as a symbol of liberation and some even shown in the light of slimming products. Manufacturers produce (long, slim) cigarettes especially for women. Perfumed or scented cigarettes with exotic flavors are targeted at women. Cigarettes usually have the word “slim” or “lights” to attract women consumers. Minorities are also a target for the tobacco industry.

Diversification by tobacco products: cigarettes companies also try to branch out into other tobacco products. For example, Imperial tobacco has decided to branch out into the roll your own segment; it dominates both the tobacco and the paper for this segment. Diversification by non-tobacco products: food seems to be the favorite for companies seeking to diversify. R.J. Reynolds bought Nabisco (which, in turn, was later acquired by Kraft) owned by Philip Morris. Japan Tobacco derives a (small) part of its sales from food. Logistics and wholesaling are another favorite. Austria Tabak, wholesaling of tobacco and other products (and the operation of vending machines) makes up a large share of turnover. Over 20 per cent of Altadis’ earnings originate in its logistics division. Skandinavisk Tobakskompagni owns the largest wholesaler of consumer goods in Denmark. BAT tried financial services (but, since 1998, is a pure Tobacco Company) Diversification into food and other activities makes the tobacco companies less dependent on (slow-growing) sales of tobacco products. However, the profit margins in these industry are usually well below those attained in tobacco processing. Producing and marketing cigarettes remain the more lucrative activity.

In case of diversification by geographical market, OECD-based tobacco companies are keen to reduce their dependence on their stagnant home markets and establish a presence in markets where growth is above average. After having started business in many markets in Latin

America, Central and Eastern Europe, and the Central Asian republics in the 1990s, their center of attention is shifting to the Far East. All the major tobacco companies now have a presence in Poland, Russia and the Central Asian republics. Austria Tabak, which gained a presence in Estonia when it acquired the cigarette activities of Swedish Match also has a 67 per cent market share in Guinea. The company was considering entering Asian markets when it was taken over by Gallaher in June 2001. Through this take-over and the acquisition in 2000 of Liggett-Ducat, the Moscow cigarette maker, Gallaher greatly reduced its dependence on the UK market. Similarly, Japan Tobacco became a world player when it acquired the international activities of R.J. Reynolds. Thanks to a relentless internationalization drive, Germany’s Reemtsma now sells less than one-third of its total in its home market (compared to over 60 per cent in 1991) (see also figure 6). It is now on the go in several Central and Eastern European countries and, in 1999, it acquired Cambodia’s Paradise Tobacco Company.

GOVERNMENT AND ITS ROLE:

A predicament is generally faced by the Governments all across the world. On the one hand, tobacco-growing and processing can makes a large contribution to employment, tax revenue and foreign exchange receipts. In many developing and formerly centrally planned economies, the tobacco companies have made sizeable and most welcome investments when other investors were disinclined to do so. On the other hand, governments have the responsibility to protect the population’s health. Smoking is harmful to health and treating people for smoking-related illnesses is expensive. This can lead to heated debates within the same government as each sector defends the interests it believes it should represent.

The economic importance of tobacco growing and processing differs from country to country. At the national level, cigarette (sales and import) tax can be a main source of government revenue. In Russia, cigarette tax revenue contributes around 8 per cent to the financing of the state budget.

When the government owns the industry, it receives profits in addition to tax. That is why, in so many countries, State monopolies continue to control cigarette trade and production. In China, proceeds from state-owned CNTC amounted to the equivalent of US$11,000 million in 1999. CNTC has been the Chinese State’s top revenue generator for years. Japan Tobacco earned more than US$400 million for the Japanese State in the fiscal year ending March 2000. The monopolies can also play a social function. In Italy, several of the state monopoly’s factories are to be found in areas of high unemployment. Then there are balance of payments issues to mull over, many low-income countries rely on the export of cash crops such as tobacco to pay for the service of their foreign debt. Tobacco exports made up close to 10 per cent of Cuba’s exports in 1997-98. In the case of Tanzania it was 15 per cent, In Zimbabwe over 25 per cent and in Malawi tobacco exports made up two-thirds of commodity exports.

But, if they smoke domestically produced cigarettes, using homegrown tobacco or use imported cigarettes and tobaccos can make a large difference when foreign exchange is scarce. That explains why so many countries try to restrict the imports of cigarettes and encourage domestic producers to use local tobaccos, for example, by providing a favorable tax treatment to companies that use a minimum percentage of homegrown tobaccos. The cigarette companies have also been a key source of investment in the formerly centrally planned countries of Central and Eastern Europe, and Central Asia. When others were disinclined to invest, those companies saw the possibilities offered by a blend of pent-up consumer demand, outdated production facilities and the association with independence and “western style” living that so appealed to the people in these countries after many years of central planning and little consumer choice. After having lobbied successfully for the reduction of restrictions of Asian markets such as Japan and the Republic of Korea, the large tobacco companies are eagerly waiting for the opening up of the other economies (notably China) that continue to restrict imports from and/or investments by foreign tobacco companies. Tobacco growing, processing and exports can thus make a significant involvement to national employment and national income. Yet, however important tobacco growing and processing may be at the national level, its full economic and social significance is best grasped at the micro or regional level. In some regions, tobacco is grown side by side with the crop, which is the main source of income; its contribution to overall income is modest. However, in many others, tobacco is a main source of income and employment.

Tobacco growing and tobacco processing may bring substantial economic and social benefits, but the treatment of smoking-related illness is costly. Cigarette smoking causes cancer. It is addictive. The WHO estimates that tobacco products cause around 3 million deaths per year. Cigarette smoking is the major cause of preventable mortality in developed countries. In the mid-1990s, about 25 per cent of all male deaths in developed countries were due to smoking. Among men aged 35-69 years, more than one-third of all deaths were caused by smoking. The costs of treating all these people are clearly enormous (WHO, 1997).

So far, smoking has not had the same impact on mortality among women and among people from developing countries. There is an approximate 30-40 year time lag between the onset of persistent smoking and deaths from smoking. The effects of the greater incidence of smoking between these two groups will thus be felt with a lag, but it seems reasonable to believe that its impact on them will not differ fundamentally from that on developed country males.

It may be argued that smokers willingly take a certain health risk when enjoying their smoke. They like the taste and all the other things that they associate with smoking. Nevertheless, this does not apply to environmental tobacco smoke (ETS) or “second-hand smoke”.

Smoke gets in your eyes your clothes. Moreover, it gets in your lungs. Non-smokers cannot escape from smoke in badly ventilated areas. To be exposed to other people’s tobacco smoke can be a nuisance in addition to being a health risk for non-smokers.

Governments and conflicting pressures: How do they get by?

In practice, governments have opted for several strategies (which are often followed simultaneously). A recent strategy consists of seeking compensation for the costs of treating smoking-related illnesses. It has been followed with success in the United States, as we saw in section 3.4. Governments also set rules regarding the maximum content of hazardous substances in cigarettes. Most of all, however, governments try to discourage demand for what is, as the industry does not tire of telling us, essentially a legal product.

This is done in a variety of ways, with some governments applying particular vigor and others taking a more relaxed approach. Overall, however, the trend is clear: governments’ rules on smoking are becoming ever more restrictive. The use of tobacco products is being discouraged in several ways.

Limitation of the space where smoking is allowed. This is done above all to protect non-smokers from involuntary exposure to tobacco smoke. Smoking is being prohibited in public places (particularly health care and educational facilities) and in mass transport. Legislation requires restaurants to reserve space for non-smokers.

Limitation by age group. It is prohibited to sell tobacco products to people under a certain age. Limitations on points of sale. The use of vending machines is being restricted because these cannot discriminate against sales to young people.

Health warnings stating that tobacco is harmful to health have become obligatory. The warnings must be placed on packets and in ads, with the authorities prescribing the text and the minimum space allotted to the warning in the ad or on the pack. Governments sponsor education and public information programs on smoking and health.

Advertising bans. Restrictions concern the location of ads, the media used (no billboards, no ads in the printed media or in cinemas), the images presented (no young people, no cigarette packets), and the time when broadcasting is allowed (not during hours when children watch television).

The manufacturers are unhappy with these restrictions, and in particular with the ban on advertising. In their view, it is not proved that such a ban discourages demand for cigarettes (as its proponents claim). They are concerned about its effect on the value of their prime asset, the brand name.

Worldwide, the tobacco-processing industry employs hundreds of thousands of people. However, due to a combination of slow demand growth, consolidation, and higher productivity, this number is unlikely to increase by much in the near future. Fewer people are needed per unit of production. The industry is becoming less intensive in the use of labor. Tobacco growing, in contrast, gives work to millions of people. It continues to be a highly labor-intensive activity. The scope for productivity increases in tobacco growing would appear to be more limited than those in tobacco processing.

Over a million people are employed in the world tobacco industry

However, of this number a high percentage is employed in just three countries: China, India and Indonesia. The large number employed in China comes as no surprise in view of the large number of cigarettes (one-third of the world total) produced there. Still, the productivity gap with the United States is striking. China produces roughly three times as many cigarettes as the US, but it needs over nine times as many people to produce them. In the other two countries, the scope for productivity improvements would appear to be even higher.

CHAPTER 2: GLOBAL SMOKING SCENARIO

MAJOR HIGHLIGHTS OF THE GLOBAL SMOKING SCENARIO:

About a third of the male adult global population smokes.

Smoking related-diseases kill one in 10 adults globally, or cause four million deaths. By 2030, if current trends continue, smoking will kill one in six people.

Every eight seconds, someone dies from tobacco use.

Smoking is on the rise in the developing world but falling in developed nations. Among Americans, smoking rates shrunk by nearly half in three decades (from the mid-1960s to mid-1990s), falling to 23% of adults by 1997. In the developing world, tobacco consumption is rising by 3.4% per year.

About 15 billion cigarettes are sold daily – or 10 million every minute.

About 12 times more British people have died from smoking than from World War II.

Cigarettes cause more than one in five American deaths.

Among WHO Regions, the Western Pacific Region – which covers East Asia and the Pacific – has the highest smoking rate, with nearly two-thirds of men smoking.

About one in three cigarettes are consumed in the Western Pacific Region.

The tobacco market is controlled by just a few corporations – namely American, British and Japanese multinational conglomerates.

Youth

Among young teens (aged 13 to 15), about one in five smokes worldwide.

Between 80,000 and 100,000 children worldwide start smoking every day – roughly half of whom live in Asia.

Evidence shows that around 50% of those who start smoking in adolescent years go on to smoke for 15 to 20 years.

Peer-reviewed studies show teenagers are heavily influenced by tobacco advertising.

About a quarter of youth alive in the Western Pacific Region will die from smoking.

Health

· Half of long-term smokers will die from tobacco. Every cigarette smoked cuts at least five minutes of life on average – about the time taken to smoke it.

· Smoking is the single largest preventable cause of disease and premature death. It is a prime factor in heart disease, stroke and chronic lung disease. It can cause cancer of the lungs, larynx, esophagus, mouth, and bladder, and contributes to cancer of the cervix, pancreas, and kidneys.

· More than 4,000 toxic or carcinogenic chemicals have been found in tobacco smoke.

· One British survey found that nearly 99% of women did not know of the link between smoking and cervical cancer.

· One survey found that 60% of Chinese adults did not know that smoking can cause lung cancer while 96% were unaware it can cause heart disease.

· At least a quarter of all deaths from heart diseases and about three-quarters of world’s chronic bronchitis are related to smoking.

· Smoking-related diseases cost the United States more than $150 billion a year.

Advertising

· US-based multinational Philip Morris – the world’s biggest cigarette company – was the world’s ninth largest advertiser in 1996, spending more than $3 billion.

· A survey a few years ago found that nearly 80% of American advertising executives from top agencies believed cigarette advertising does make smoking more appealing or socially acceptable to children. Through advertising, tobacco firms try to link smoking with athletic prowess, sexual attractiveness, success, adult sophistication, adventure and self-fulfillment.

· A survey in the UK found about half of smokers think that smoking “can’t really be all that dangerous, or the Government wouldn’t let cigarettes be advertised”.

· A 1998 survey found that tobacco companies were among the top 10 advertisers in 18 out of 66 countries surveyed.

· In Asia, tobacco companies are among the top 10 advertisers in Cambodia, Indonesia, Malaysia, Myanmar and the Philippines.

· In Russia, according to press reports, foreign tobacco companies are the largest advertisers, accounting for as much as 40% of all TV and radio advertising.

· In 1997, the tobacco industry’s spending on advertising in the United States was about $15 million a day ($5.7 billion for the year).

· The tobacco industry has changed the way it advertises in the last 30 years. Now, only 10% of advertising expenditure goes to print and outdoor advertisements, while more than half goes to promotional allowances and items, such as t-shirts for young people or lighters and key rings.

· After the entry of foreign multinational tobacco firms into Japan, the Republic of Korea and Thailand, youth and female smoking rose significantly.

*The 37 countries and areas comprising the WHO Western Pacific Region are: American Samoa, Australia, Brunei Darussalam, Cambodia, China, Cook Islands, Fiji, French Polynesia, Guam, Hong Kong (China), Japan, Kiribati, Lao People’s Democratic Republic, Macao (China), Malaysia, Marshall Islands, Federated States of Micronesia, Mongolia, Nauru, New Caledonia, New Zealand, Niue, Northern Mariana Islands, Palau, Papua New Guinea, Philippines, Pitcairn Islands, Republic of Korea, Samoa, Singapore, Solomon Islands, Tokelau, Tonga, Tuvalu, Vanuatu, Viet Nam, and Wallis and Futuna.

Source: World Health Organization – Smoking Statistics

CHAPTER 3: THE INDIAN SMOKING SCENARIO

THE INDIAN SMOKING SCENARIO:

New research shows that by the year 2012 and beyond, around one million deaths per year in India will be attributable to smoking, and the majority of these will occur in middle-aged adults. This will represent 10% of all deaths in the country-one in five deaths in men and one in 20 in women, say Dr Prabhat Jha (Centre for Global Health Research, Toronto, ON) and his team from India, Canada, and the UK in their special article published online February 13, 2008 in the New England Journal of Medicine.

Indian men aged 30-69: Number of deaths studied and smoker vs nonsmoker death rate ratio(RR)

Underlying fatal disease 

Deaths studied, n 

Smokers (%)a 

Smoker vs nonsmoker RRb 

TB 

3119

66

2.3

Respiratory disease 

3487

60

2.1

Stroke 

2200

53

1.6

Heart disease 

5409

52

1.6

Cancers 

2248

59

2.1

All diseases 

25 290

55

1.7

a. Vs 37.0% of 31 661 living men who had smoked

b. Risk ratio adjusted for age, alcohol use, and education

Source: Centre for Global Health Research

Chief executive of the UK Medical Research Council, Dr Leszel Borysiewicz, says: “This research confronts us with the scale of the problem. It shows that smoking kills in different ways in different areas. The results suggest an even higher risk of smoking-related cardiovascular disease among Indian populations than predicted.”

Indian women aged 30-69: Number of deaths studied and smoker vs nonsmoker death rate ratio(RR)

Underlying fatal disease 

Deaths studied, n 

Smokers (%)a 

Smoker vs nonsmoker RRb 

TB 

1363

13

3.0

Respiratory disease 

2288

14

3.1

Stroke 

1597

8

1.6

Heart disease 

2473

7

1.7

Cancers 

2153

8

2.1

All diseases 

16 386

9

2.0

a. Vs 4.5% of 26 678 living women who had smoked

b. Risk ratio adjusted for age, alcohol use, and education

Source: Centre for Global Health Research

India’s Health Minister, Dr Abumani Rammadoss, says: “We are going to take the results of this study very seriously. I am particularly concerned about protecting India’s 600 million young people below the age of 30. These young people are our national assets, and they must be protected against smoking deaths. We plan to take comprehensive steps against tobacco and strengthen our Tobacco Regulatory Authority to enforce the laws.”

Dr Poonam Singh (South East Asian Regional Office of the World Health Organization, New Delhi, India) said Asia has become the new battleground for global tobacco control. “India, Indonesia, and Bangladesh represent just a few of the countries that lie in the path of the tobacco tsunami. This study should sound the alarm that we desperately and quickly need action to curb this most avoidable of epidemics.”

CHAPTER 4: SMOKING HARMS

SMOKING HARMS:

Cigarettes contain more than 4000 chemical compounds and at least 400 toxic substances.

When you inhale, a cigarette burns at 700°C at the tip and around 60°C in the core. This heat breaks down the tobacco to produce various toxins.

As a cigarette burns, the residues are concentrated towards the butt.

The products that are most damaging are:

Tar, a carcinogen (substance that causes cancer)

Nicotine is addictive and increases cholesterol levels in your body

Carbon monoxide reduces oxygen in the body

Components of the gas and particulate phases cause chronic obstructive pulmonary disorder (COPD).

The damage caused by smoking is influenced by:

The number of cigarettes smoked

Whether the cigarette has a filter

How the tobacco has been prepared.

On average, each cigarette shortens a smoker’s life by around 11 minutes.

Of the 300 people who die every day in the UK as a result of smoking, many are comparatively young smokers.

The number of people under the age of 70 who die from smoking-related diseases exceeds the total figure for deaths caused by breast cancer, AIDS, traffic accidents and drug addiction.

Non-smokers and ex-smokers can also look forward to a healthier old age than smokers.

MAJOR DISEASES CAUSED BY SMOKING

Cardiovascular disease

Cardiovascular disease is the main cause of death due to smoking.

Hardening of the arteries is a process that develops over years, when cholesterol and other fats deposit in the arteries, leaving them narrow, blocked or rigid. When the arteries narrow (atherosclerosis), blood clots are likely to form. Smoking accelerates the hardening and narrowing process in your arteries: it starts earlier and blood clots are two to four times more likely. Cardiovascular disease can take many forms depending on which blood vessels are involved, and all of them are more common in people who smoke.

A fatal disease

Blood clots in the heart and brain are the most common causes of sudden death.

Coronary thrombosis: a blood clot in the arteries supplying the heart, which can lead to a heart attack. Around 30 per cent are caused by smoking.

Cerebral thrombosis: the vessels to the brain can become blocked, which can lead to collapse, stroke and paralysis. Damage to the brain’s blood supply is also an important cause of dementia.

If the kidney arteries are affected, then high blood pressure or kidney failure results.

Blockage to the vascular supply to the legs may lead to gangrene and amputation.

Smokers tend to develop coronary thrombosis 10 years earlier than non-smokers, and make up 9 out of 10 heart bypass patients.

Cancer

Smokers are more likely to get cancer than non-smokers. This is particularly true of lung cancer, throat cancer and mouth cancer, which hardly ever affect non-smokers.

The link between smoking and lung cancer is clear.

Ninety percent of lung cancer cases are due to smoking.

If no-one smoked, lung cancer would be a rare diagnosis – only 0.5 per cent of people who’ve never touched a cigarette develop lung cancer.

One in ten moderate smokers and almost one in five heavy smokers (more than 15 cigarettes a day) will die of lung cancer.

The more cigarettes you smoke in a day, and the longer you’ve smoked, the higher your risk of lung cancer. Similarly, the risk rises the deeper you inhale and the earlier in life you started smoking.

For ex-smokers, it takes approximately 15 years before the risk of lung cancer drops to the same as that of a non-smoker.

If you smoke, the risk of contracting mouth cancer is four times higher than for a non-smoker. Cancer can start in many areas of the mouth, with the most common being on or underneath the tongue, or on the lips.

Other types of cancer that are more common in smokers are:

bladder cancer

cancer of the oesophagus

cancer of the kidneys

cancer of the pancreas

cervical cancer

COPD

Chronic obstructive pulmonary disease (COPD) is a collective term for a group of conditions that block airflow and make breathing more difficult, such as:

emphysema – breathlessness caused by damage to the air sacs (alveoli)

chronic bronchitis – coughing with a lot of mucus that continues for at least three months.

Smoking is the most common cause of COPD and is responsible for 80 per cent of cases.

It’s estimated that 94 per cent of 20-a-day smokers have some emphysema when the lungs are examined after death, while more than 90 per cent of non-smokers have little or none.

COPD typically starts between the ages of 35 and 45 when lung function starts to decline anyway. Lung damage from COPD is permanent, but giving up smoking at any stage reduces the rate of decline in lung capacity.

In smokers, the rate of decline in lung function can be three times the usual rate. As lung function declines, breathlessness begins. As the condition progresses, severe breathing problems can require hospital care. The final stage is death from slow and progressive breathlessness.

Other risks caused by smoking

A single cigarette can reduce the blood supply to your skin for over an hour.

Smoking raises blood pressure, which can cause hypertension (high blood pressure) – a risk factor for heart attacks and stroke.

Couples who smoke are more likely to have fertility problems than couples who are non-smokers.

Smoking worsens asthma and counteracts asthma medication by worsening the inflammation of the airways that the medicine tries to ease.

The blood vessels in the eye are sensitive and can be easily damaged by smoke, causing a bloodshot appearance and itchiness.

Heavy smokers are twice as likely to get macular degeneration, resulting in the gradual loss of eyesight.

Smokers run an increased risk of cataracts.

Smokers take 25 per cent more sick days year than non-smokers.

Smoking stains your teeth and gums.

Smoking increases your risk of periodontal disease, which causes swollen gums, bad breath and teeth to fall out.

Smoking causes an acid taste in the mouth and contributes to the development of ulcers.

Smoking also affects your looks: smokers have paler skin and more wrinkles. This is because smoking reduces the blood supply to the skin and lowers levels of vitamin A.

Passive smoking

The ‘side-stream’ smoke that comes off a cigarette between puffs carries a higher risk than directly inhaled smoke.

Children who grow up in a home where one or both of their parents smoke have twice the risk of getting asthma and asthmatic bronchitis. They also have a higher risk of developing allergies. Infants under two years old are more prone to severe respiratory infections and cot death.

For adults, passive smoking seems to increase the risk of lung cancer, but the evidence for an increased risk of heart disease is not yet conclusive.

Smoking Effects on the Human Body

Smoking has become a global issue. The following statistics could provide a reference for the smokers considering quitting:

(1)

One cigarette shortens the life by 11 seconds

(2)

One pack of cigarettes shortens the life by 3.5 hours

(3)

Smoking for one week will shorten the life by 1 day

(4)

On average, non-smokers outlive smokers by 14 years

(5)

After quitting smoking, it would take at least 15 years to eliminate all the toxins in the body

Toxic ingredients in cigarette smoke travel throughout the body, causing damage in several different ways.

Nicotine reaches the brain within 10 seconds after smoke is inhaled. It has been found in every part of the body and in breast milk.

Carbon monoxide binds to hemoglobin in red blood cells, preventing affected cells from carrying a full load of oxygen.

Cancer-causing agents (carcinogens) in tobacco smoke damage important genes that control the growth of cells, causing them to grow abnormally or to reproduce too rapidly.

The carcinogen benzo(a)pyrene binds to cells in the airways and major organs of smokers.

Smoking affects the function of the immune system and may increase the risk for respiratory and other infections.

There are several likely ways that cigarette smoke does its damage. One