Fewer smokers, more money

19 March 2007

The South African tobacco industry may not be going up in smoke just yet, despite some setbacks.

The number of people employed by British American Tobacco South Africa (BATSA), who hold the lion's share of the tobacco industry in the country, had fallen dramatically from 5 000 to 2 000 in the past 15 years. Tobacco farming in South Africa had also been in decline for a long time.

But, according to Evan Blecher of UCT's School of Economics, this job-shedding started well before the first tobacco control law was implemented in 1993. Which means that legislation may not be the sole cause for this fall in fortunes.

Blecher explained much of this to the National Council Against Smoking (NCAS), an NGO he addressed on the issue of local tobacco control in February. The research Blecher presented to the NCAS was on pricing and taxation of tobacco, conducted by UCT colleague Corné van Walbeek, and his own work on the economic impact of smoke-free areas.

Tobacco companies may be selling fewer cigarettes - the good news, then, is that there are fewer smokers - but they're making more money. The reason for that is the hiked retail price.

"The industry has in the last 10 to15 years massively increased their margins to compensate for the decrease in consumption," Blecher said. "If we look at the industry now, they're selling some 30% less cigarettes than they were 15 years ago, yet their revenue is almost 30% higher."

The industry's net price, what companies receive, is far higher now than it has ever been.

According to Blecher, a decline in cigarette consumption did not necessarily mean a decline in production: tobacco could still be exported either raw or in manufactured form.

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