8.4.1 Trade barriers World trade of tobacco has been impeded by both tariff and non-tariff barriers. Many countries, including developed countries such as United States and the european Community and developing countries such as China, india, zimbabwe, levy high tariffs on imported raw tobacco and tobacco products (Table.1 and Table.2). The non-tariff barriers that are used to limit imports include license requirements, restricted product lists, exchange control, mixing regulations (which govern the percentage domestic grown tobacco required in manufactured products and" restrictions. The pattern of trade is also distorted by export promotions through bilateral trading agreements, trade on concession terms, export subsidies and other government interventions in domestic production (Grise, 1990). 8.4.2 Impact of trade liberalization Trade liberalization, defined as eliminating tariff and non-tariff barriers and domestic programs including supply control, price support programs and the other programs that alter the production decisions, would affect world tobacco production, consumption and trade. Grise (1990) analyzed the impact of trade liberalization on tobacco prices, production, consumption and trade.
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Eliminating production"s would lead to an increase in supply of tobacco in those countries. Estimating the elasticities of supply for tobacco is complicated by governmental interventions in tobacco production and trade. The marginal cost elasticity of tobacco production under the production" system in the United States was estimated to.25 (Goodwin and Sumner, 1992). The supply elasticity of tobacco without production"s was estimated to.0 (Fulginiti and Perrin, 1993). The supply elasticity for tobacco should be fairly large, particularly in the long run, since tobacco uses a small proportion of the arable land in the world as well as in any country and the net return from growing tobacco is several times that from. 8.4 tobacco leaf trade tobacco is traded in the world market for three main reasons: (1) some countries do not produce tobacco, produce too little, or do not produce a particular kind of tobacco; (2) some countries do not produce high enough quality tobacco. About one fifth of the global tobacco production was traded in the world market in 1997. The proportion of the export to production for individual countries varies from none to three-fourths (Jacobs., 2000). An individual country can be both exporter and importer of leaf tobacco since tobaccos produced in different countries are not homogenous. For example, spain exported about half of its tobacco production and also imported.3 times as much as it produced in 1997.
Despite the taxation, tobacco is still more profitable than alternatives in most developing countries. Governments in developed countries tend to subsidize tobacco farmers. Supply management is a widely used policy tool for tobacco production. The operation of the supply management differs between nations, however. In United States and Australia, basic components of the supply management are price support, production restriction through production", and import restriction through tariff and non-tariff measures (Zhang and Husten, 1998). In the european Union, the principal features for leaf tobacco are guaranteed prices to growers, database buyers premium, export subsidies, and safeguards to protect the european market. Production control is also implemented when needed (Grise, 1990). Tobacco policy in developed countries has resulted in a higher and stable tobacco prices, and attracts more resources to tobacco production, except to the extent that production is restricted by"s. The production" has effectively reduced tobacco production in those countries.
Measuring the overall intervention schemes, however, is difficult because of the diversity and complexity of these policies (Coady, pompelli, and Grise, 1991). (2000) summarized the differences in policies used in developing and developed countries. They found that developing countries tended to tax tobacco production since tobacco was an important source of foreign exchange earning and tax revenues. A few Sub-Saharan African countries are particularly dependent on book tobacco and other primary commodities for foreign exchanges. Many low income countries rely on revenue from export industries excise taxes since income taxes are difficult to administer in less developed countries (Beghin, foster and Kherallah, 1996, pena and Norton, 1993). Argentina, brazil, turkey, and Zimbabwe all have export taxes on tobacco products. In some countries, centralized marketing boards or tobacco monopolies purchase tobacco at lower prices, implicitly taxing tobacco growers (Beghin, foster, and Kherallah, 1996). Governments in some developing countries also subsidize tobacco farmers with credit, electricity, etc, which offsets the taxation. The extent of taxation, however, has been reduced in recent years due to the reduction of centralized monopoly purchasing as a result of gatt/wto requirements, economic transition in former Easter-bloc countries and imf mandates in several east Asian countries (Jacobs., 2000).
Table.2: Policies affecting tobacco production and trade, 1982-87 Policy instruments Argentina Brazil ec-10 India japan Korea, rep. Turkey united States Zimbabwe Income supports: Direct payment x Crop insurance x x x Price interventions: Export taxes x x x Market" x State trade x x x x Tariff x x x x Non-tariff barriers x x x x x x x Domestic. X x source : coady, pompelli and Grise, 1991. The level of governmental intervention varies considerably between nations. In some, governmental intervention is pervasive and weighs heavily in most production and trade decisions. High levels of intervention often involve a domestic subsidy, trade barriers, legal restriction, or agricultural production and export taxes. In other countries, governmental intervention is minimal and has little or no influence on tobacco production and trade.
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Thus, tobacco has been a crop that farmers prefer to grow in nearly all producing countries. The market for tobacco does not resemble a free market (Coady, pompelli and Grise, 1991). Governmental intervention influences the report production and trade of tobacco in most of the tobacco producing countries. The types of domestic support and trade programs by countries are summarized in Table.1. More detail on polices of the intervention for the eight major tobacco trade nations and the european Community for 1982-87 is presented in Table.2. Table.1: Types of domestic and trade programmes in producing and consuming countries.
Support programmes, trade programmes, price supports: United States, european Community. Japan, taiwan Province of China, korea, republic, brazil. Zimbabwe, argentina, mexico, marketing restorations : United States, european Community. Canada, australia, export subsidies: European Community, canada, turkey, south Korea. Input subsidies: Brazil, india, korea, republic, canada Indonesia tariff barriers: United States European Community Brazil Korea, republic Zimbabwe canada australia writing bulgaria china czechoslovakia dominican Republic Egypt guatemala honduras Hungary India indonesia jordan Malaysia mexico new zealand pakistan Philippines south Africa taiwan Province of China Thailand.
This increase, however, is not evenly distributed across production countries. Nearly all growth in production has come from developing countries. Between 19, production in the developed counties fell by 31 percent, while production in developing countries rose by 128 percent (Jacobs., 2000). The increase in tobacco production in developing countries can be attributed to several factors, including increased demand for cigarettes, a higher return for tobacco, and increased farm efficiency and quality of tobacco produced. 8.3.1 Factors affecting supply of tobacco leaves.
In a competitive market, the supply of tobacco is determined by the price of tobacco and production costs of tobacco relative to its competing crops. Real prices of tobacco have fallen in most countries, but much less rapidly than prices of other agricultural crops and basic commodities. Tobacco is one of the most profitable crops in many countries. For example, in Zimbabwe, tobacco is roughly seven times more profitable than the next-best crop (Marvanyika, 1997). In the United States, the net return of about 2000 per acre from growing tobacco far exceeds the net return for most other crops. Tobacco is a cash crop for many farmers in developing countries.
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Tobacco is grown in more than 100 countries, including paper about 80 developing countries. Given its hardiness, tobacco can be grown in a variety of climatic conditions and topographies. Tobacco grows well in sandy soil with low water-holding capacity. It is tolerant to extreme weather conditions (Jacobs., 2000). World tobacco production is geographically concentrated. The four top countries, China, the United States, India and Brazil, produced about two-thirds and the top twenty countries produced more than 90 percent of the world production in 1997 (Jacobs., 2000). World tobacco production has increased by nearly 60 percent from 1975 to1998.
The substitution between different types of tobacco such as flue-cured, burley, or oriental tobaccos was investigated by beghin and Chang (1992). They estimated a share equation of four types of tobacco derived from a translog cost function using time series data of the United States cigarette manufacturing industry. The small elasticity of substitution estimated from their study implies a limited substitutability among the four types of tobacco used in the United States cigarette production. As with assignment the results from the study by sumner and Alston, they also found that domestic and foreign tobaccos were substitutes, but the degree of substitution in this later study was much smaller. Rezitis, Brown and Foster (1998) used a dynamic model to improve the elasticity of demand for United States tobacco by United States cigarette manufactures over the two previous studies. Their result showed that demand for United States tobacco was more inelastic. For example, they estimated that the total own price elasticity for United States tobacco was -1.46, compared with a value of -2.5 estimated by sumner and Alston. The own-price output-constant elasticity for United States flue-cured tobacco was estimated to be close to -1.0 by beghin and Change and -2.0 by sumner and Alston, and only -0.4 by rezitis, Brown and Foster. 8.3 supply of tobacco leaves.
United States tobacco was.0. Substituting tobacco for the other production inputs according to their study occurred in two different forms: increasing the proportion of additives to cigarettes and reducing tobacco wastage. These substitution processes were accomplished through developing new production technologies. The leaf-conserving technology had increased the filling capacity of tobacco. Other technology also permitted the use of the entire leaf. Because of this substitution, the amount of tobacco used to produce 1000 cigarettes had fallen from.70 pounds in 1950-54.70 pounds in 1987 (Sumner and Alston, 1987). Tobacco grown in different countries or different regions in a country varies in type and quality. It is not an homogeneous product.
Other products include smokeless tobacco and cigars. Demand for tobacco is primarily derived from consumer demand for cigarettes. Thus, factors influencing demand for cigarettes would also affect the demand for tobacco. These factors will be discussed in the later section on demand for cigarettes. Cigarette manufacturers use tobacco and other inputs to produce cigarettes. An important question in determining the factors affecting demand for tobacco is whether there exists a substitutable relationship between raw tobacco and other production inputs. Sumner and Alston (1987) examined this question using a generalized leontief cost function with data from United States cigarette production. Their results showed that utilization of United States-grown tobacco was not a fixed proportion of cigarette outputs.
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8 review of literature.1 introduction, this review covers a wide range of issues related to tobacco in nine subject areas: demand, supply, and trade of tobacco leaves, demand for cigarettes, cigarette advertising, cigarette taxes, social costs of smoking, economic significance of tobacco industry, and. To select for the most relevant literature for the review, first, key words were used to search for articles related to the nine topics from three large databases: Arcola created by the national Agricultural library of the United States Department of Agriculture, national Smoking Data. The abstract and full text of each identified study were then reviewed, and results from the reviewed study summarized. The study period covered by this review is between 19, but a few important studies conducted before 1985 are also included. 8.2 demand for tobacco leaves, most of the tobacco produced in the world is not consumed as a final consumer product, but is used to produce tobacco products. Cigarette production accounts for most of the tobacco use in the world. In night the United States, for example, cigarette production utilized 90 percent of the total tobacco consumed in 1996 (usda, 1996).