The objective of this study is to review trends and developments during the period 1970 to 2000 and to provide a forward picture for tobacco production, consumption and trade to 2010. The specific objective is to use a standard commodity framework to construct a projection model for the standard list of countries and for the world. The projections take into account past trends, but also other factors that are considered important in influencing future developments in production, consumption and trade.
The study looks first at past trends and developments during the period 1970 to 2000, examining trends and estimating response parameters using the existing data set for the major countries and for the various regions of the world. The results of this first analysis are then used to form the projections model and obtain projection figures for 2005 and 2010 for tobacco production, consumption and trade. Some general conclusions derived from the previous analysis and also some policy implications are given here.
The first major result is that tobacco production is expected to continue to expand in the period 1998 to 2010 and is expected to reach the level of 7.1 million tonnes of tobacco leaf in dry weight in 2010. However, two diverse trends are apparent between the developed and the developing countries. In the developed countries production will continue to decline, while it will continue to increase in the developing countries. This implies a continuing shift in the production of tobacco leaf from developed to the developing countries, and an increasing share of the developing countries in world tobacco leaf production.
This trend is expected to be strengthened by present forces that shape production and trade policies worldwide. The price support policies for tobacco production in the developed countries are under pressure and, thus, sooner or later support levels are expected to decline. At the same time, tobacco profitability at the farm level in the developing countries is higher than in other competing cash crops. In major producing countries like Brazil and Zimbabwe there are no subsidies to production, while price and input subsidies are used for tobacco production in India and Turkey. This implies that the position of tobacco in the production system in the developing countries remains challenged. Even if price and input subsidies were to be removed, tobacco production would most likely remain in the production system of the developing countries. Given the above, the possibility of a shift of tobacco production from the developed to the developing countries will most probably be strengthened in the future.
China's production shows a variability that is probably related to the fact that the tobacco sector is managed through a state monopoly. Production in China is projected to reach about 2.6 to 2.9 million tonnes in 2010, much lower than its peak production of 4 million tonnes in 1997. However, the developments in the tobacco economy in other countries will most probably not be affected by China, taking into account the structure of the Chinese tobacco sector. Most developments in China will not affect the operation of the world market as China trades only a small proportion of its production and consumption. For this reason, the recent admission of China into WTO may have only a minor impact on the world tobacco economy.
World tobacco demand is expected to increase to between 6.5 and 7.1 million tonnes in 2010, but reflecting two contrasting tendencies. Demand in the developed countries is set to continue to decline, while demand in the developing countries continues increasing. Population and income growth play a major role in determining demand and consumption trends, but price and tax policies are also important, as are restrictions on advertising and on smoking.
While consumption in developing countries is expected to decline, demand in developing countries is expected to increase, mainly due to population and income growth. Africa and the Far East are expected to have the highest growth rates in the period 1991 to 2010. China will remain the major consumer in the world with 2.2 million tonnes projected for 2010, which represents a 43 percent of projected world tobacco consumption in 2010.
The volume of trade of tobacco leaf is projected to increase further by 0.8 percent per annum and the traded volume to reach 2.2 million tonnes. This implies a slow expansion of tobacco trade observed in the period to 2010 relative to the rapid expansion in the 1970s and 1980s.
Overall, the results of this exercise show that demand at the world level during the period to 2010 is expected to increase but more slowly than in the period 1970 to 1998. A most important finding, however, is that global tobacco consumption per adult is expected to decline by as much as 10 percent in the baseline scenario and by as much as 20 percent with an aggressive anti-smoking policy. Lower production support and lower farm level prices for tobacco may result from an elimination of production support policies.
It is the expansion of demand in the developing countries that drives the tobacco economy of the world. Supply responds to demand and it is increasing in countries where production costs are low, there are no production restrictions and the countries have good transportation systems and access to the international market. With that in mind, we might expect to see some further shift of cigarette manufacturing, also, towards developing countries.
Given the above general conclusions, public policy to reduce tobacco use should focus on demand rather than supply. However, reducing demand in the developing countries would be rather difficult given projected population and income growth trends. Mitigating these trends, however, and reducing consumption per adult using a combination of tax and direct restriction policies, as assumed in the policy scenario, would also be an important achievement. Reducing demand will in turn imply a decline in global production of tobacco leaf.