Economics
The economics theme has four modules:
- the tobacco economy
- the economic and social costs of tobacco use
- public interventions: cost-effective tobacco control measures
- the economic effects of implementing tobacco control
Two-thirds of the world’s tobacco is grown in just four countries, the largest producer being China. Tobacco farming has shifted from developed to developing countries.
The majority of tobacco farmers now find it difficult to make a living. Tobacco farming also brings significant health and environmental costs.
The vast majority of tobacco leaf is used to manufacture cigarettes. China is the world’s largest producer of cigarettes.
Tobacco manufacture has also shifted to developing countries. Tobacco manufacture is only a small source of jobs in most countries.
The prospects for employment in cigarette manufacturing worldwide are not strong. This is for a number of reasons, including improved productivity due to mechanization, which are likely to offset any increases in demand for tobacco.
Trade in tobacco leaf and tobacco products is big business, but very few countries are significantly dependent on tobacco for their export earnings.
Developing countries are major exporters of tobacco leaf, and have dramatically increased their imports of cigarettes. Developing countries are also becoming major importers of cigarettes.
Almost one-third of cigarettes are smuggled. Smuggling remains a problem for governments, but has some benefits for the tobacco industry.
The economic costs of tobacco use
Tobacco use has costs to the individual smoker and to society as a whole, encompassing national and global costs.
Private costs, or internal costs, accrue to the smoker and his/her family, and include medical care, loss of income due to illness or death.
External costs are incurred by everyone other than the smoker, and include spending on health care and social welfare, reductions in productivity, loss of income tax, costs due to illness and death from passive smoking.
Smoking results in high costs to national and global economies. In developing countries, money that would have been spent on food is often instead spent on cigarettes.
Public interventions: cost-effective tobacco control measures
Governments can justify intervening in tobacco markets because they differ from other markets in three important ways:
- many users have inadequate information about the health risks of tobacco
- the addictive nature of nicotine
- smoking imposes physical or financial costs on non-smokers
Tobacco taxation is the most cost-effective measure to reduce tobacco consumption. Taxation on tobacco products reduces consumption and yields large tax revenues.
The best way to reduce tobacco use is to implement a comprehensive set of measures rather than just one measure. Such programmes are highly cost-effective.
The economic effects of implementing tobacco control policies and reducing tobacco use
National economies do not suffer if tobacco consumption is reduced. This is because:
- employment in the tobacco industry is significant in only a few countries
- money that would have been spent on tobacco is spent on other goods
- a local reduction in domestic consumption is unlikely to affect export revenues
Smuggling has little effect on tax revenues. Lowering tobacco taxes in an effort to prevent smuggling results in higher rates of smoking. In fact, tobacco smuggling can be reduced at the same time as taxes are raised.
In most countries, the poor smoke more than the rich. If tobacco prices are raised, poor smokers are more likely to quit or spend less on tobacco, directing their money into food, education and other resources. Raising cigarette prices is likely to benefit poorer smokers more than higher income smokers.