2 TOBACCO IN BRAZIL

2.1 INTRODUCTION

This study reviews the present status and potential future developments of the tobacco industry in Brazil. The study covers not only the production of raw tobacco but also the manufactured products: cigarettes and cigars.

An attempt has been made to identify the social importance of tobacco growing and the major economic factors affecting production and consumption of tobacco products. Some implications of government policies and measures for tobacco control are also considered.

2.2 ANALYSIS OF THE ECONOMIC SIGNIFICANCE OF TOBACCO

2.2.1 At farm household level

Tobacco is grown in two distinct areas: the northeast and the south. Approximately 135 000 family farmers in 656 municipalities in the three rich and industrialized states of the south have tobacco production as their main economic activity. In 2000/01, the harvest in the states of Paraná, Santa Catarina and Rio Grande do Sul was 504 728 tonnes of tobacco, with a gross income of $R 1.23 billion, implying an average gross income per family farm of $R 9 164.63, from average production of 3.74 tonne/ha - a record high. In the south, about half a million people work in tobacco-related activities.

The properties where tobacco is grown have an average area of 16.8 ha - a small farm by Brazilian standards - with 2.5 ha planted to tobacco, 9.4 ha under other crops, and the remainder being pasture, virgin or replanted forests, dams and fallow areas. About a quarter of the family farms growing tobacco in the south rent land or have sharecropping arrangements with landowners - contractual arrangements for renting land requiring all those farmers either to grow tobacco or to leave the farms. The small average size of farms in the south - between 1 and 10 ha - allows only limited alternatives to tobacco.

Tobacco is the one of the few crops that generates income from small plots of land, providing an income four times greater than any other crop, and utilizes family labour, which accounts for more than 50 percent of production costs. Tobacco production has a positive social impact, thus militating against rural exodus, which is one of the most dramatic problems in Brazil following trade liberalization.

In the poor northeast, tobacco drives the economy in 39 municipalities, especially in the states of Paraíba, Rio Grande do Norte, Ceará and Pernambuco, which are among the poorest states of the country. There, families rely on tobacco for their livelihood. Shifting away from tobacco to other crops - if it were possible - could have a significant impact on food security for tobacco growing farmers.

An estimate by Associação dos Fumicultores Brasileiros (Afubra) (the Association of Brazilian Tobacco Growers) and Associação Brasileira das Indústrias do Fumo (Abifumo) (the Brazilian Tobacco Industry Association) for the number of households in tobacco farming shows an interesting fluctuation in the last two decades (Table 2.1). In the south, numbers peaked at 160 560 in 1997, up from 83 150 in 1981, and then fell back to ca 135 000 in 2001. In the northeast, households in tobacco farming built from just under 64 000 in 1980 to a peak of 81 000 in 1986, before falling by half to reach 36 250 in 2001.

Total household income from tobacco farming built up from US$233.4 million in 1980 to a peak in 1997, when incomes totalled almost US$1 billion. Total household income from tobacco was only US$580.1 million in 2001.

Table 2.1: Number of households in tobacco farming and total household income

Sources: Afubra and Abifumo.

2.2.2 At state level

Tobacco production and processing are very important economic activities in the south: Paraná, Santa Catarina and Rio Grande do Sul, where, besides production, there are manufacturing industries and processing firms that export tobacco and tobacco products. The states rely heavily on tax revenues from tobacco, primarily through the value-added tax - ICMS.

The northeast of Brazil - a region where tobacco plays an important role in an otherwise locally depressed economy, providing jobs and income for thousands of small family production units - produces far less tobacco than the south, but the quality is good for the manufacture of higher value cigars. This segment of the economy of the northeast is an important source of permanent full-time jobs. It provides jobs for women in specialized work, at both farm and local industry levels.

Typically, a small-scale farmer of the Recôncavo region, in the state of Bahia, would plant an average of 0.5 ha of tobacco, giving about 10 000 stands. The normal harvest is ca 750 kg, which in a normal crop year is sold for up to $R 60.00 per arroba (15 kg) of top quality leaf. This yields a gross income of $R 3 000 per year, most of which is used to pay for family expenses. This provides subsistence to a household of six people. Larger-scale growers plant up to 40 000 stands.

In Bahia, a densely populated area of the state and region, the tobacco industry also offers employment to rural-urban communities. A typical industry unit in Bahia provides almost year-round jobs for 300 women, who are trained in rolling cigars, a totally manual process. This is a skilled workforce, working for companies that often proudly claim compliance with “social responsibilities”. Some companies further extend their involvement to include community development.

As in the southern states, growers participate in a so-called “integration” system together with companies, which provides a technological package of best practices (in use of fertilizers and agrochemicals), finances a part of the grower’s production costs and buys the crop at harvest. The cigar industry also transports the tobacco from farms, where curing takes place, to processing plants.

The integration system, by virtue of guaranteeing the purchase of the product, in effect works as a price insurance mechanism, which has a strong effect on supply. Supply growth is mostly due both to this price risk management system and to quality control at farm level.

2.2.3 At federal level

The social and economic importance of tobacco can be judged from the 171 000 family farms growing tobacco in the south and northeast, and the related processing. The cigarette industry alone directly and indirectly provides 2.1 million jobs, has a turnover of $R 4.8 billion, and provides tax revenues of $R 3.1 billion.

Tobacco-related employment represents ca 3.2 percent of the total workforce of Brazil, of which tobacco production agriculture employs around half a million. Another 223 000 jobs are created in farming-related activities, such as tobacco processing at farm level. It has been estimated that another 1.5 million jobs are created by the tobacco industry in other areas, such as transport, input production and distribution, the wholesale and retail labour force, and employment in processing for exports (see Table 2.2).

Table 2.2: Employment in the Brazilian tobacco industry (1999/2000)

Sources: Afubra and Abifumo.