Tobacco production in the
European Community [2]
4. In 1994 the European
Community produced 4.6 per cent of the global harvest of raw leaf
tobacco. The 1995 harvest in the European Community was 333,180
tonnes. Eight Member States contributed to this total, with Italy
at 39 per cent, Greece at 36 per cent, Spain at 13 per cent and
France at 8 per cent. The remaining 4 per cent was grown, in
descending order of output, by Germany, Portugal, Belgium and
Austria.
5. Tobacco production
is concentrated in Objective 1 regions[3]
of the Community, such as Thrace in northern Greece, Campania
and Puglia in Italy, and Extremadura in Spain. Tobacco is often
grown in conditions of terrain, soil and climate which make it
difficult to cultivate profitable alternative crops. It is mostly
produced on very small holdings: the mean area under tobacco per
producer is 1.11 hectares, on a lengthy crop rotation of up to
seven years.
6. Tobacco is a very
labour-intensive crop, requiring much work to be done by hand,
particularly in harvesting and sorting. The sector is therefore
a major source of employment, accounting for 135,000 tobacco farmers,
with a great deal of seasonal work often performed by the family
workforce. In addition, employment of some 30,000 people in the
first processing of tobacco is dependent on local production.
(Employment in second processing in factories is, by contrast,
largely dependent on imported tobacco.)
7. Tobacco varieties
differ widely in their characteristics, cultivation needs and
popularity, and a diverse range is grown in the Community. While
some Greek Oriental tobaccos are of good quality and sell for
reasonable prices, the majority of production is of a low grade
and commands a very low price. The generally poor quality is
demonstrated by the low selling prices, usually well below the
prices for the same varieties from Malawi, Zimbabwe and the United
States. The Commission acknowledges that most of the Virginia
and Burley varieties grown in Greece and Italy depend for their
production on a Community subsidy that is sometimes 99 times their
purchase price.
8. As a result, much
of the Community's production is exported to lower income countries
where price is more important than quality, while demand within
the Community is largely met by imports. This pattern has been
reinforced by changes in consumption patterns in the Community,
as more consumers have switched to light, American-style cigarettes,
and is reflected in the reduction in the amount of Community-grown
tobacco which is consumed in the Community, from roughly 219,000
tonnes in 1991 to roughly 119,000 tonnes in 1994[4].
Support for tobacco production
under the Common Agricultural Policy
9. The common organisation
of the market in raw tobacco was established in 1970[5].
This provided for intervention purchases; for export refunds;
and for the payment of a flat-rate premium to the first buyer
of leaf tobacco. The scale of the regime grew with the accession
to the Community of Greece in 1981 and Spain and Portugal in 1986.
Budget over-runs resulted, and fraud became widespread.
10. The regime was significantly
reformed in 1992[6].
Intervention and export refunds were abolished; premia were limited
to production within a quota; the number of premium rates was
reduced from 34 to 8, thus simplifying administration and reducing
the scope for fraud; payment procedures were simplified; and monitoring
procedures were strengthened. The results of these reforms have
been considerable. Budget expenditure has been brought under
control, dropping from 1,329.6 million ECU in 1991 to 993 million
ECU in 1995. Production has been reduced from a peak of 430,000
tonnes in 1991. The scope for fraud has also been somewhat reduced,
as we were told in evidence by the Ministry for Agriculture, Fisheries
and Food (MAFF) (Q 5). However, neither Italy nor Greece has
yet set up the national supervisory agencies provided for in the
1992 reform.
Problems facing the tobacco sector
11. Various factors
external to the sector mean that the medium- and long-term prospects
for tobacco production in the European Community are not promising.
These include likely pressures from the World Trade Organisation
(WTO), changes in world markets, and the implications of further
enlargement of the Community.
12. It seems inevitable
that trends towards greater trade liberalisation, begun under
the General Agreement on Tariffs and Trade (GATT), will continue
under the WTO. It is likely that the process of switching agricultural
support systems away from market intervention and towards direct
payments for social and environmental purposes, that is "decoupling"
of support from production, will continue. MAFF predicted that
"support which remains linked explicitly to production levels
. . . will come under very strong pressure in the next WTO round"
(Q 45). The high levels of premia paid for tobacco, together
with quota restrictions, make this a particularly vulnerable sector.
13. The world market
in tobacco is undergoing substantial changes. While global demand
has remained more or less constant, developing countries such
as China, Brazil, Zimbabwe, Malawi and India have significantly
increased their output. At the same time they have pursued improved
quality, achieving a favourable quality/price ratio because of
their low labour costs. This has meant increased competitiveness
and increased market share. These developments are bound to have
an adverse effect on the market for tobacco grown in the European
Community, where growers have no incentive to improve quality
and, because of the small scale of holdings may have no capital
to invest in improving efficiency.
14. Finally, the implications
of proposed enlargement of the Community are such that the tobacco
regime cannot realistically be expected to survive in its current
form. Of the earliest likely entrants, the so-called Visegrad
Four, three produce tobacco. In 1996 Poland, Hungary and Slovakia
produced a total of about 61,000 tonnes (Q 14). It seems unlikely
for budgetary reasons that the quota could be raised to that extent,
so more radical reform of the regime will be necessary.
The rationale for Community support
of tobacco production
15. The Commission makes
plain in its report that the rationale for Community support of
tobacco production is a social one. A few quotations will demonstrate
this:
"Tobacco farming is
a major source of employment . . . in some areas it procures the
entire population a livelihood" (page 9);
"Without tobacco, practically
all of the farms that grow this crop would no longer be economically
viable" (page 9);
"Tobacco farming keeps
the rural fabric of the regions in which it occurs alive . . .
contributes to the survival of areas threatened by ageing and
desertification" (p 12).
16. The Spanish Embassy
in London also emphasised the social importance of tobacco production.
We were told that the sector provided employment for over 15,000
people in Spain, largely in disadvantaged areas where unemployment
was as high as 30 per cent and where alternative economic opportunities
were limited (p 16).
Tobacco production and levels of
smoking
17. Publication of the
Commission's report was preceded by widely-publicised disagreement
between Commissioner Fischler (with responsibility for agriculture
and rural development) and Commissioner Flynn (employment and
social affairs). Mr. Flynn was reported to have argued that Community
subsidies for tobacco production undermined the credibility of
Community measures to discourage smoking on public health grounds.
Subsequently the Commission published a communication to the
Council and the European Parliament on the present and proposed
Community role in combating tobacco consumption, setting out a
number of possible new initiatives (5058/97).
18. The Commission's
report on the tobacco regime acknowledges the harmful effects
of smoking on human health, and the apparent contradiction between
supporting tobacco production on the one hand and promoting anti-smoking
measures on the other. But the report concludes that "aid
to tobacco growers has no impact on the level of tobacco consumption"
(page 28). A reduction in European tobacco production would simply
result in demand being met by production elsewhere.
2
The statistical material in this section is drawn from the Commission's
report. Back
3
Objective 1 regions are areas which qualify for expenditure from
EU Structural Funds because development is lagging. Such areas
are determined broadly as those with a per capita GDP of
less than 75 per cent of the EU average. Rural areas where development
is to be promoted are eligible for expenditure under Objective
5(b). See Council Regulation 2052/88 EEC; OJ L 185, 15th July
1988. Back
4
These figures are derived from the levels of production detailed
in the Commission's report, and the levels of exports detailed
in the Commission's annual publication, The Agricultural Situation
in the EU. Back
5
Council Regulation 1727/70 EEC; OJ L 191, 27th August 1970. Back
6
Council Regulation 2075/92 EEC; OJ L 215, 30th July 1992. Back
