 10. The Economic Impact of Reduced Smoking in the Pacific Islands This section reviews the probable economic impact of reduced smoking prevalence and tobacco consumption on selected Pacific islands. For all Pacific Island nations under consideration, a reduction in tobacco consumption would very probably produce a small increase in employment. This would be true even when tobacco leaf is grown in that country, given that alternative cash crops are likely to be available. There would be an improvement in the balance of payments on current account, mainly as a result of a reduction in tobacco imports. Government budgetary positions will improve as a result of a decline in health care costs and, if higher tobacco taxes are implemented, an increase in tax revenue. It is possible to reach some conclusions on the probable economic impact of reduced levels of smoking upon certain Pacific Island nations. The nations considered here are Fiji, Kiribati, Samoa and Tonga. Any such analysis should, to be meaningful, take account of certain policy realities: There is absolutely no prospect, even with the most effective anti-smoking policies, that national tobacco consumption could be reduced to zero. Thus, the analysis should assume a reduction in tobacco consumption rather than the cessation of all smoking. Virtually all of the proceeds of the reduced expenditure on tobacco will be redirected to other forms of expenditure. Total consumer demand is unlikely to be significantly changed by such a reduction, although the composition of that demand will change. The implications of this changed composition will depend upon whether it improves or causes a deterioration in the balance of payments current account.If a nation produces neither manufactured tobacco products nor tobacco leaf, the import component of tobacco demand is likely to be extremely high. In these circumstances, a reduction in tobacco consumption will almost certainly lead to a balance of payments improvement, even after taking account of the resulting re-allocation of consumer expenditures. The demand for tobacco is usually relatively unresponsive to price increases. In the great majority of countries where this apparently is the case, governments wishing to do so have the luxury of being able to achieve this objective by raising tobacco taxes while at the same time increasing tax revenue. Any reduction in tobacco consumption will inevitably lead to a decline in public health expenditures, as a result of the beneficial health effects, although the full extent of this decline will take some time to be realised. We present below a review of the probable economic impact of reduced smoking on each of four Pacific Island nations, based upon a brief review of the relevant economic characteristics of each nation. The primary sources of the information on these are publications of the World Health Organisation, the United Nations, the World Bank and the Australian Agency for International Development (AusAID). I Kiribati Tobacco production No tobacco is grown or cigarettes manufactured in Kiribati. Tobacco trade Tobacco imports into Kiribati have been as shown below:
No tobacco or tobacco products are exported. Smoking prevalence According to a 1981 survey, smoking prevalence was as follows: Economic effects of a reduction in smoking prevalence The prevalence of smoking is very high in Kiribati (for comparison, the male and female smoking prevalence rates in Australia in 1993 were 33% and 26% respectively). There is thus substantial scope for achieving significant reductions in tobacco consumption. Since there is no tobacco production or cigarette manufacture, reduced consumption would have no direct employment effect. In fact, the re-allocation of consumer expenditures away from tobacco would probably increase employment because the new expenditures would be likely to have a lower import component than tobacco and so would create more employment in Kiribati. Similarly, the change could be expected to improve the balance of payments, as a result of the reduction in tobacco imports. Tobacco currently represents about 3% of total imports. The effect of reduced tobacco consumption on tobacco tax revenue will depend upon how the reduction is achieved. If tobacco tax rates are raised (they are currently very low), the impact on revenue is likely to be positive, since the fall in demand is unlikely to be sufficient to wipe out totally the revenue benefits. If other measures (for example, advertising bans, restrictions on sales to minors or health promotion campaigns) are implemented, the reduction in tobacco use is likely to be matched by a similar proportionate reduction in revenue. If these measures are successful in reducing smoking prevalence, they will reduce public health expenditures, as a result of the beneficial health effects of reduced smoking. Thus, it is to be expected that public policies designed to reduce tobacco consumption would lead to an improvement in the government's budgetary position. II Western Samoa As the WHO has stated, there is in Samoa "a lack of reliable data and inadequate data analysis". This deficiency makes economic analysis more difficult than is usually the case. Tobacco production There are no specific tobacco farms in Western Samoa but a small amount of tobacco is grown. There is one cigarette factory, owned 60% by a multinational and 40% by the Western Samoan government. This employed about 50 people in 1995 (about 0.05% of the adult population). It appears to be an unfortunate fact that this plant was funded from foreign aid. In an index of industrial production in Western Samoa, cigarette production has a weight of 9 percent of the total index. The cigarette production volume index has fallen from 100 in 1988 to 91.2 in 1993. Tobacco trade Western Samoa imports manufactured tobacco and exports cigarettes. United Nations data on Samoan trade, which are extremely out-of-date, indicate that in the early to mid 1980s the value of tobacco imports was in the order of three to four times tobacco exports. Recent data on cigarette exports are presented below.
Smoking prevalence According to a 1994 survey, smoking prevalence was as follows: Economic effects of a reduction in smoking prevalence The prevalence of smoking in Samoa is high, particularly among males, indicating that it should be possible to reduce tobacco consumption substantially. Samoa produces and exports cigarettes but imports virtually all the required tobacco. Thus, although there are significant cigarette exports, the industry imposes a substantial net drain upon the country's balance of payments. In addition, it provides very little direct employment. To reduce tobacco consumption in Samoa would have little direct effect on employment and, in net terms, would probably increase the total level of employment as the freed expenditure resources were redirected to goods and services with a higher labour component and a lower import component. The change could be expected to improve the current account of the balance of payments, particularly since there is no reason why a decline in domestic tobacco consumption need lead to a decline in cigarette exports. The two are unrelated. The reduction in consumption could be expected to improve the government's budgetary position as a result of the reduced demand for health care and, if appropriate tax policies are adopted, an increase in total tax revenue. III Fiji Tobacco production In 1990, 91 hectares were harvested for tobacco (179 hectares in 1985). The 1990 figures represented 0.1% of total arable land. Production statistics are presented in the following table:
Note: 1 kg. of tobacco equals 880 cigarettes Tobacco trade Import statistics are as follows:
Fiji's tobacco exports are insignificant-US$0.14m. of cigarettes in 1990 (0.03% of total exports). Smoking prevalence
Smoking mortality and morbidity Smoking is estimated to cause approximately 350 deaths per annum (7% of total deaths). Between 1972 and 1983 lung cancer accounted for about 8% of all cancers in male Fijians. It is estimated that 11-13% of all hospitalisations in Fiji are directly due to smoking. Economic effects of a reduction in smoking prevalence The prevalence of smoking is comparatively high in Fiji. The rates are particularly high in the Fijian Melanesian community and among males. The achievement of lower smoking prevalence and lower tobacco consumption would appear to be perfectly feasible. Tobacco production is low in Fiji and a very small proportion of arable land is used for that purpose. There is a significant level of cigarette manufacturing. Reduced consumption of tobacco would have some small direct effect on employment. Tobacco growing is significantly more labour-intensive than cigarette manufacture, which is largely mechanised. The aggregate effects of reduced consumption on employment depend upon: the alternative expenditure patterns which would result from reduced smoking.The tobacco-producing Central Manufacturing Company itself talks of feasible alternative crops to tobacco, focussing particularly on pawpaw for export and maize for use in domestic livestock production. Fiji exports substantial quantities of meat and livestock. The existence of these and other alternative cash crops means that a reduction in tobacco consumption would be unlikely to lead to any significant reduction in employment. The change would be likely to produce some improvement in the balance of payments, as a result of: increased exports of substitute crops; and IV Tonga Tobacco production About 500 kg of tobacco is produced per annum. Tobacco trade Import statistics are as follows: Tonga exports no tobacco or tobacco products. Smoking prevalence
Male prevalence rates are established by the age of 20-24 and only start to fall slightly after the age of 65. Female prevalence rates increase to the age of 70 and then decline Smoking mortality It has been estimated by the Ministry of Health that, in 1986, smoking caused 5% of all deaths. Economic effects of a reduction in smoking prevalence Smoking prevalence is high among Tongan males and low among females. There is scope for significant reduction in smoking, particularly by males. Tonga has no tobacco production or cigarette manufacture so no direct employment would be lost as a result of any reduction in smoking. As with Kiribati, the re-allocation of consumer expenditures away from tobacco would probably increase employment because the new expenditures would almost certainly have a lower import component than the replaced tobacco and so would create more employment in Tonga. The change would also improve the balance of payments. Tobacco imports represent about 2% of total Tongan imports. Again, the effect of reduced tobacco consumption on tobacco tax revenue will depend upon how the reduction is achieved. If tobacco tax rates are raised, revenue is likely to rise since the fall in demand will not match the revenue benefits. If other measures (for example, restrictions on sales to minors or health promotion campaigns) are implemented, the reduction in tobacco use is likely to be matched by a similar proportionate reduction in revenue. If these measures are successful in reducing smoking prevalence, the consequent beneficial health effects of reduced smoking will result in reduced public health costs. |