This means that now Canadian government can sue tobacco companies to recover the costs. These are bad news for the tobacco industry. Awareness about the harmful effects of smoking are increasing so new consumers are hard to get and governments are not only bent on recovering health costs but also increasing restrictions for old customers to enjoy smoking.
However, the corporate profits and stock prices of the three largest tobacco companies tell a completely different story. The profits of tobacco companies are growing —British American Tobacco (BAT) profits grew by around 10 per cent in the first nine months of current financial year — and this has sent their stock prices to new heights. During last two years, the share prices of all the major companies have almost doubled.
Japan Tobacco share price more than doubled while BAT and Philip Morris’s parent company Altria’s stock price has increased by 80 per cent during the same period. Other smaller tobacco companies are also not behind. Rothmans, another major company, also doubled its share price before coming down a bit because of Canadian Supreme Court decision.
For Imperial Tobacco, the growth in stock price was more than 60 per cent. The largest global independent leaf tobacco merchants, who supply the cigarette manufacturers with the addictive product, have even better results. Dimon and Standard Commercial, both German companies, have seen their prices quadrupled over the last year.
How is this possible? The missing link of this puzzle is the third world. As developed countries are shutting their markets to tobacco products, poor developing countries are opening it.
Now, these poor countries are the main target of the tobacco companies and all the growth of revenues is coming from them. Reading the financial reports of the big tobacco companies leaves nothing in doubt.
The latest quarterly report (September 2005) of BAT shows that its major growth areas are in Asia-Pacific, Africa and Latin America, all developing regions of the world. Pakistan, Bangladesh, Brazil, Chile, South Africa and Venezuela are the star performers for the last year.
Although Pakistan usually doesn’t get mentioned in big international companies reports, BAT’s report was an exception. Following are the two extracts from the report.
‘In Pakistan, higher margins and excellent volume growth by Gold Flake and John Player Gold Leaf resulted in higher profit and market share. In Asia-Pacific, regional profit rose by £41 million to £418 million because of good performances in Australasia and Pakistan.’
Similar is the case with Altria/Philip Morris. All the growth in profits and sales is coming from poor countries. Its international sales, which are mainly in developing countries, grew by 18 per cent, while its domestic sales grew by three per cent even when it has establish brands like Marlboro and is the largest seller of tobacco products in USA.
Pakistan also figured in its annual report as Philip Morris increased its stake to 40 per cent in Lakson tobacco, a company that has more than half of the Pakistani market share.
Looking at Japan Tobacco Inc, again we see the same trend. Its domestic market and international market figures for the last quarter couldn’t have been more different. While its domestic sales decreased by 26 per cent, it’s international sales increased by more than 34 per cent.
The benefits of high growth and spectacular stock prices of these companies will go to their Western shareholders, but the downside will be faced by the developing countries.
The change in target of tobacco companies is now being recognized but this has been going on for a long time. According to World Health Organization (WHO), the total consumption of cigarettes remained stable in the developed world, it increased by 300 per cent in the developing world.
Most of the one billion tobacco-related deaths in this century will be in developing countries. In the near future, the number of smokers in developing countries would rise from around one billion now to 1.4 billion by 2025 and the healthcare facilities in these countries would come under severe pressure.
Smoking will also increase poverty incidence and malnutrition as poor are more susceptible to tobacco use and spend a large portion of their income on tobacco. The money spent on tobacco can be used to provide education, better food and health benefits to children.
According to one study, if men of poor households in Bangladesh quit smoking and put 70 per cent of their saved income into providing better food, this would save more than ten million children from malnutrition.
In fact, tobacco use effects the attainment of almost all of the UN millennium goals. Beside health and poverty, it decreases money available for primary education, for infant and maternal health and gives women a false sense of success and equality without really empowering them.
What can the developing countries do to overcome this threat from big tobacco companies to their survival and sustainable development? According to WHO, taxation is the most important measure in the action plan to reduce tobacco use. A price increase, forced by the tax raise, of ten percent, decreases demand by around four percent. Moreover, it also increases much needed government revenue.
Still, developing countries don’t tax tobacco products as much as do the developed countries. But heavy taxation should also include strong anti-smuggling measures and a control on sale of counter band cigarettes. Britain, for example, has very high taxes on cigarettes but this has led to an ever-increasing smuggling problem.
In Pakistan, whenever taxes are increased on tobacco products, sales of brands of legal companies decreases — and thereby the government revenue — as prices have to be increased to pay taxes. However, sale of counter band brands increase, as their prices remain same because their manufacturers don’t have to pay any taxes.
Secondly, laws to restrict smoking indoors should be enacted. This helps the reduction of smoking in two ways. It saves the non-smokers from inhaling smoke involuntarily and places restrictions on smokers that result in decrease in their smoking.
In developing countries, even if such laws are passed, it is difficult to enforce them. As discussed above, only two weeks after the passage of law in Italy, sales were down by 23 per cent due to strict enforcement.
In Pakistan, the Prohibition of Smoking and Protection of Non-smokers’ Health Ordinance 2002 came into effect on July 1, 2002. After more than three years, is there any drastic decrease in tobacco usage? Quite the opposite, Pakistani market was praised by BAT for increase in sale as well as profits and Philip Morris increased its stake in its Pakistani subsidiary, clearly showing the future importance of this market. And this leads us to the final ingredient of an action plan for decreasing tobacco use.
For laws to be successfully enforced, a protracted public campaign against tobacco use is required in every developing country to compel the law enforcement agencies and judicial officers to act.
The success story of anti-smoking movement in developed countries can be repeated in developing countries. There is, however, a tendency in the citizens of developing countries to absolve oneself of everything, if the governments do not do their duties. They believe erroneously that governments in the developed countries always work for the public interest.
In reality, governments everywhere are forced to act in public interest. The main reason why developed country governments perform better is that their citizens are active and vigilant.
For the campaign against tobacco to succeed, ordinary people will have to organise themselves and force their governments to proclaim and enforce anti-smoking laws. This made the anti-tobacco campaign in the developed world successful and this will help sustain the campaign in the poor countries as well.