Tobacco Economics

Tobacco Economics concerns the growing, processing, manufacturing, and marketing of tobacco products. It concerns, also, the impact of this industry on people’s livelihoods and government revenue versushealth, environmental and social costs of production and use of tobacco products. 

Governments tend to narrow their concerns with tobacco economics to tobacco control measures on apparent negative economic consequences such as reduced demand of tobacco leaf and hence redundancy of tobacco farmers, or lack of jobs in the manufacturing and retail sectors of tobacco products. In addition governments fear that tobacco control will impoverish smokers with higher prices of the products. However, such views fail to reflect on the cost of tobacco production and use to the environment, and particularly the enormous toll of tobacco related deaths. Economies also suffer from increased health-care costs and decreased productivity among affected persons. Smoking for instance, imposes an enormous economic burden on society as it affects smokers as well as non-smokers exposed to second-hand smoke. Any assessment of the economics of tobacco must therefore be premised on a cost and benefit analysis which is presently lacking in the Africa region.

Tobacco is expensive to grow with high upfront costs and high labour requirements. Tobacco farmers often receive subsidies, loans, inputs, and technical support from the Tobacco industry, which dictates the price it pays the farmer for the leaf. As a consequence tobacco growing areas in many developing countries are amongst the poorest. Alternatives to tobacco include farming of more lucrative crops such as maize, rice, soya beans and oil seeds farming, but also other non farming activities such as honey and beeswax production, and diverse artisanry for the youth.  

Tobacco provides avenues for governments to raise tax revenue especially in low income countries. With a small number of cigarette manufacturers, tax collection does not pose challenge to tax administration. However, governments are adamant or slow to respond to increases in tobacco tax .for fear of losing revenue. Whereas tax, hence price, increase may cause consumption to fall, this fall will be relatively smaller than the gain in revenue, given the inelastic demand of tobacco products. In Africa, where the farmers produce tobacco primarily for export, there is little linkage between the price of cigarette consumed and production. Also, except for a few African countries, tobacco exports are not important sources of export revenues. In Uganda, for example, tobacco with export revenue of $60 million is not considered a cash crop, unlike coffee which provided export revenue of $250 million on average for the period 2005/6 to 2010/11.  

The net impact of tobacco production on most economies is therefore negative due to the high costs related to its production and use of tobacco products