Economics of Global Economics of Global Tobacco ControlTobacco Control

Kenneth E. WarnerKenneth E. WarnerUniversity of Michigan School of Public HealthUniversity of Michigan School of Public Health

Presented to the Interagency Committee on Smoking Presented to the Interagency Committee on Smoking and Health, “Addressing the Global Tobacco Epidemic”and Health, “Addressing the Global Tobacco Epidemic”

Washington, April 13, 2005Washington, April 13, 2005

Principal source:Principal source: World Bank report, World Bank report,

Curbing the Epidemic: Curbing the Epidemic: Governments and the Economics Governments and the Economics

of Tobacco Controlof Tobacco Control (1999)(1999)

DisclosureDisclosure

Consultant to World Bank on work that led Consultant to World Bank on work that led to publication of to publication of Curbing the Epidemic Curbing the Epidemic (1997-99)(1997-99)

World Bank’s representative to 4 of the 6 World Bank’s representative to 4 of the 6 negotiating sessions on the Framework negotiating sessions on the Framework Convention on Tobacco Control (2001-02)Convention on Tobacco Control (2001-02)

CoverageCoverage1. Role of tobacco in global economy1. Role of tobacco in global economy

CoverageCoverage1. Role of tobacco in global economy1. Role of tobacco in global economy

2. Role of tobacco in individual countries2. Role of tobacco in individual countries

CoverageCoverage1. Role of tobacco in global economy1. Role of tobacco in global economy

2. Role of tobacco in individual countries2. Role of tobacco in individual countries

3. Global “net value” of tobacco3. Global “net value” of tobacco

CoverageCoverage1. Role of tobacco in global economy1. Role of tobacco in global economy

2. Role of tobacco in individual countries2. Role of tobacco in individual countries

3 Global “net value” of tobacco3 Global “net value” of tobacco

4. Methods of reducing tobacco 4. Methods of reducing tobacco consumptionconsumption

a. Supply restrictionsa. Supply restrictions

b. Demand restrictionsb. Demand restrictions

CoverageCoverage1. Role of tobacco in global economy1. Role of tobacco in global economy

2. Role of tobacco in individual countries2. Role of tobacco in individual countries

3 Global “net value” of tobacco3 Global “net value” of tobacco

4. Methods of reducing tobacco 4. Methods of reducing tobacco consumptionconsumption

a. Supply restrictionsa. Supply restrictions

b. Demand restrictionsb. Demand restrictions

5. Projected toll of tobacco, with and without 5. Projected toll of tobacco, with and without (additional) tobacco control(additional) tobacco control

Role of tobacco in global economyRole of tobacco in global economy

● ≈ ● ≈ 33 million people in tobacco farming 33 million people in tobacco farming worldwideworldwide- Includes seasonal workers, part-time workers, - Includes seasonal workers, part-time workers,

family members of farmers, & farmers who family members of farmers, & farmers who grow other cropsgrow other crops

- Of total, approx. 15 million in China- Of total, approx. 15 million in China

Role of tobacco in global economyRole of tobacco in global economy

● ≈ ● ≈ 33 million people in tobacco farming 33 million people in tobacco farming worldwideworldwide- Includes seasonal workers, part-time workers, - Includes seasonal workers, part-time workers,

family members of farmers, & farmers who family members of farmers, & farmers who grow other cropsgrow other crops

- Of total, approx. 15 million in China- Of total, approx. 15 million in China

● ● In most countries, tobacco manufacturing In most countries, tobacco manufacturing < 1% of total manufacturing employment< 1% of total manufacturing employment

Role of tobacco in global economyRole of tobacco in global economy

● ≈ ● ≈ 33 million people in tobacco farming 33 million people in tobacco farming worldwideworldwide- Includes seasonal workers, part-time workers, - Includes seasonal workers, part-time workers,

family members of farmers, & farmers who family members of farmers, & farmers who grow other cropsgrow other crops

- Of total, approx. 15 million in China- Of total, approx. 15 million in China

● ● In most countries, tobacco manufacturing In most countries, tobacco manufacturing < 1% of total manufacturing employment< 1% of total manufacturing employment

● ● Importance of distinguishing economic Importance of distinguishing economic presence ofpresence of tobacco from tobacco from dependence ondependence on tobacco tobacco [Industry’s economic argument][Industry’s economic argument]

Role of tobacco in individual Role of tobacco in individual countries: Leading tobacco leaf countries: Leading tobacco leaf producersproducers [thousands of metric tons, 2001[thousands of metric tons, 2001]]

ChinaChina 2,6612,661

IndiaIndia 701701

BrazilBrazil 568568

USAUSA 450450

TurkeyTurkey 260260

ZimbabweZimbabwe 175175

Leading tobacco leaf exportersLeading tobacco leaf exporters [thousands of metric tons, 1999][thousands of metric tons, 1999]

BrazilBrazil 343343

USAUSA 191191

ZimbabweZimbabwe 164164

ChinaChina 132132

TurkeyTurkey 129129

IndiaIndia 120120

Leading cigarette manufacturers Leading cigarette manufacturers [billions of cigarettes][billions of cigarettes]

ChinaChina 1,7491,749

USAUSA 717717

Russian Fed.Russian Fed. 293293

JapanJapan 265265

GermanyGermany 206206

IndonesiaIndonesia 190190

Leading cigarette exporters Leading cigarette exporters [billions of cigarettes][billions of cigarettes]

USAUSA 148148

TurkeyTurkey 111111

NetherlandsNetherlands 102102

GermanyGermany 9191

SingaporeSingapore 5959

ChinaChina 4242

Role of tobacco in individual Role of tobacco in individual countries: Burden of declining countries: Burden of declining

consumption/productionconsumption/production Most countries are net (or full) importers of Most countries are net (or full) importers of

tobaccotobacco Reductions in tobacco spending Reductions in tobacco spending aidaid their their

economieseconomies

Two countries are especially dependent Two countries are especially dependent on tobacco leaf exports: Zimbabwe and on tobacco leaf exports: Zimbabwe and MalawiMalawi

Global “net value” of tobaccoGlobal “net value” of tobacco

Net drain on world economy, reflecting Net drain on world economy, reflecting health and productivity costshealth and productivity costs

Recall lack of net contribution of tobacco Recall lack of net contribution of tobacco per seper se (i.e., substitutes would produce (i.e., substitutes would produce comparable economic value)comparable economic value)

Real cost of reductionReal cost of reductionin tobacco economyin tobacco economy

● Industry-projected job losses not real Industry-projected job losses not real [gross vs. net job loss][gross vs. net job loss]

● Real cost = transition costsReal cost = transition costs

Methods of reducingMethods of reducingtobacco consumptiontobacco consumption

● Supply restrictionsSupply restrictions

● Demand restrictionsDemand restrictions

Supply restrictionsSupply restrictions

1.1. Prohibition of production and sale of Prohibition of production and sale of tobacco products tobacco products [Bhutan][Bhutan]

2.2. Restriction on sales to youthRestriction on sales to youth

3.3. Crop substitution and diversificationCrop substitution and diversification

4.4. Price support/subsidy/allotment policiesPrice support/subsidy/allotment policies

5.5. Restrictions on international tradeRestrictions on international trade

6.6. Combating smugglingCombating smuggling

Demand restrictionsDemand restrictions

1.1. Cigarette taxationCigarette taxation

2.2. Consumer information Consumer information [e.g., school health [e.g., school health education; media anti-smoking campaigns]education; media anti-smoking campaigns]

3.3. Advertising/promotion restrictions/bansAdvertising/promotion restrictions/bans

4.4. Restrictions on smoking in public places Restrictions on smoking in public places and workplacesand workplaces

Cigarette taxationCigarette taxation

Tax increases Tax increases → price increases → → price increases → demand reductiondemand reduction

10% increase in price →10% increase in price →●● 4% decrease in quantity demanded in 4% decrease in quantity demanded in developed countriesdeveloped countries● ● 8% decrease in quantity demanded in 8% decrease in quantity demanded in developing countriesdeveloping countries

Real cigarette prices & per capita consumptionUS, 1970-2000

1500

1700

1900

2100

2300

2500

2700

2900

3100

1970 1975 1980 1985 1990 1995 2000

Year

Cig

aret

tes

per

capi

ta

60

80

100

120

140

160

180

Pric

e (1

982/

84 c

ents

)

consumption price

Cigarette taxationCigarette taxation (cont’d.)(cont’d.)

Sustained 10% increase in real price of Sustained 10% increase in real price of cigarettes in all regions of the world would cigarettes in all regions of the world would cause…cause…

40 million smokers to quit (and others not 40 million smokers to quit (and others not to start)to start)

10 million premature deaths avoided10 million premature deaths avoided

9 million of them in developing 9 million of them in developing countries!countries!

Cigarette taxationCigarette taxation (cont’d.)(cont’d.)

Increasing cigarette taxes inevitably Increasing cigarette taxes inevitably leads to revenue increases, generally leads to revenue increases, generally largelarge

Federal cigarette tax rate & cigarette tax revenue in the US 1960-2000

0.00

0.05

0.10

0.15

0.20

0.25

0.30

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Year

Re

al c

iga

rette

tax

rate

pe

r p

ack

(19

82

/84

ce

nts

)

2

2.5

3

3.5

4

4.5

5

5.5

6

6.5

7

Re

al c

iga

rette

tax

reve

nu

e

(bill

ion

s o

f 19

82

/84

$)

Cigarette tax rate Cigarette tax renenue

Consumer informationConsumer information

School health educationSchool health educationEvidence indicates little effect unless best-Evidence indicates little effect unless best-practice programs implemented, with practice programs implemented, with “boosters” throughout secondary school “boosters” throughout secondary school [Lantz et [Lantz et al. 2000]al. 2000]

Antismoking media campaignsAntismoking media campaignsLarge, sustained, professionally-designed Large, sustained, professionally-designed campaigns effective campaigns effective [e.g., “truth” [e.g., “truth” (Farrelly et al. 2005)(Farrelly et al. 2005)]]

Advertising/promotion Advertising/promotion restrictions/bansrestrictions/bans

Restrictions/partial bansRestrictions/partial bansLimited impact; industry substitutes alternative Limited impact; industry substitutes alternative venues for advertising, novel promotional venues for advertising, novel promotional techniquestechniques

Complete ban on all forms of advertising Complete ban on all forms of advertising and promotionand promotion

Approx. 6% decrease in demand for Approx. 6% decrease in demand for cigarettescigarettes [Saffer and Chaloupka 2000][Saffer and Chaloupka 2000]

Restrictions on smoking in Restrictions on smoking in public places and workplacespublic places and workplaces

Associated with decreases in smokingAssociated with decreases in smoking

Smoke-free workplaces estimated to be Smoke-free workplaces estimated to be equivalent to large tax increase re equivalent to large tax increase re reducing smokingreducing smoking

If all workplaces in US became smoke-free, If all workplaces in US became smoke-free, consumption consumption 4.5% per capita 4.5% per capita [Fitchtenberg and [Fitchtenberg and Glantz 2002]Glantz 2002]

Toll of tobacco, with and without Toll of tobacco, with and without (additional) tobacco control(additional) tobacco control

Without additional tobacco control, 450 million Without additional tobacco control, 450 million deaths 2000-2050deaths 2000-2050- By 2030, 70% in developing countriesBy 2030, 70% in developing countries

With initiation and adult consumption With initiation and adult consumption 50%, 50%, 210 million premature smoking-produced 210 million premature smoking-produced deaths avoideddeaths avoided- Each gains 15-25 years of lifeEach gains 15-25 years of life

Bottom line Bottom line (and conclusion)(and conclusion)

Well-designed tobacco control is… Well-designed tobacco control is…

Bottom line Bottom line (and conclusion)(and conclusion)

Well-designed tobacco control is… Well-designed tobacco control is…

effectiveeffective

Bottom line Bottom line (and conclusion)(and conclusion)

Well-designed tobacco control is… Well-designed tobacco control is…

effectiveeffective

cost-effectivecost-effective

Bottom line Bottom line (and conclusion)(and conclusion)

Well-designed tobacco control is… Well-designed tobacco control is…

effectiveeffective

cost-effectivecost-effective

possibly cost-savingpossibly cost-saving

Bottom line Bottom line (and conclusion)(and conclusion)

Well-designed tobacco control is… Well-designed tobacco control is…

effectiveeffective

cost-effectivecost-effective

possibly cost-savingpossibly cost-saving

definitely humanedefinitely humane