1. RURAL AREAS AND TOBACCO IN THE EUROPEAN UNION János BORSOS DSc Bea BITTNER Anita MISLOVICS Tibor OROSZ UNITAB CONGRESS, Caceres, 15-10-2008 Agricultural Economics Research Institute Hungarian Tobacco Growers Association University of Debrecen

2. European tobacco growing appeared in the creation of the support system as one of the rather sensitive issues of the common agricultural policy, as an eco-social focus. Debates continue under the pressure of the price competition in the world marketthe price competition in the world market the ecological and social drawback of tobacco growing regionsthe ecological and social drawback of tobacco growing regions the growing pressure of the anti-smoking social atmosphere, andthe growing pressure of the anti-smoking social atmosphere, and the WTO negotiations aiming at the decoupling of direct payments.the WTO negotiations aiming at the decoupling of direct payments. Our aim: to find those integration points which allow the sustainable tobacco production in Europe, for the benefit of rural inhabitants, by developing the social relations.Our aim: to find those integration points which allow the sustainable tobacco production in Europe, for the benefit of rural inhabitants, by developing the social relations.

3. Summarizing the situation of European tobacco production Status of European tobacco production Dependence on the globalisation of the tobacco world Contrast of production and consumption World market prices are independent of European production The key of survival is subsidy Serious social argument Reduction of health risk Tobacco production provides living in underdeveloped areas There is no alternative of tobacco production tobacco production Without tobacco growing the population migrate, the devices and natural environment decline Employment can be replaced only by social elements

4. This study would like to contribute to the more and more extensive strategy of UNITAB. In this study we examined (until 2006) global relations (biological, ecological, quantity, price, turnover and other factors), global relations (biological, ecological, quantity, price, turnover and other factors), development of growing and consumption, employment,development of growing and consumption, employment, the difficulties of production diversification,the difficulties of production diversification, regional connections,regional connections, the effect of the ten new member states joining the EU in 2004 – taking Hungary as a model, and the possible directions of strategic activity.the effect of the ten new member states joining the EU in 2004 – taking Hungary as a model, and the possible directions of strategic activity.

5. The topics of this presentation 1.The tobacco growing of the European Union in a global comparison 2.The status of tobacco production in the European Union 3.Situation in Hungary (in the view of ten new member states joining the EU in 2004) 4.Difficulties of diversification and alternative crops to tobacco 5.Joining forces for stability – UNITABs efforts and strategy 6.Suggestions

6. 1.The tobacco growing of the European Union in a global comparison Tobacco is grown in more than 120 countries in the worldTobacco is grown in more than 120 countries in the world Tobacco has a special biological ability to adapt, but most of the developing countries have more favourable climate conditions for tobacco growing, than EuropeTobacco has a special biological ability to adapt, but most of the developing countries have more favourable climate conditions for tobacco growing, than Europe Concerning potential yield and tobacco quality (Brazil, Malawi), production is not competitive with the big tropical and subtropical tobacco growing countries (excepting Oriental tobaccos)Concerning potential yield and tobacco quality (Brazil, Malawi), production is not competitive with the big tropical and subtropical tobacco growing countries (excepting Oriental tobaccos) Production is being transferred from developed areas to developing countriesProduction is being transferred from developed areas to developing countries Multinational companies control increasingly the whole tobacco sectorMultinational companies control increasingly the whole tobacco sector In EU, Tobacco production is done in poor quality soils, where economical production of other plants is not possible and is regionally concentrated to a great extentIn EU, Tobacco production is done in poor quality soils, where economical production of other plants is not possible and is regionally concentrated to a great extent

7. The extent of European tobacco growing internationally

8. Changes in the quantity of the worlds tobacco production

9. Changes in the quantity of the worlds FCV tobacco production

11. Changes in the quantity of the worlds light air cured tobacco growing

13. Changes in the production of Oriental tobacco

15. Farmer prices of raw tobacco Farmer prices vary considerably by the demand on different types of raw tobacco (special character) and are influenced by several factors: quality (habitat, variety), price policy of big companies, etc. In case of oriental tobaccos, market pays for their unique character, special role in blends and limited quantity Filler tobacco prices in EU are influenced by supply and demand in the world market, and not by tobacco quantity produced in the EU, or according to payment system In the case of FCV and Burley tobaccos, there is no determining connection between the quantity of tobacco produced in the EU and the average farmer prices of raw tobacco The change in the raw tobacco prices of EU did not follow the dramatic fall in quantity, resulting from decoupling of the payment

16. Farmer prices of FCV tobacco in some countries of the world 2001-2006 Farmer price EUR/kg Country200120022003200420052006 the USA3,493,423,473,462,802,96 Brazil1,021,001,011,221,501,69 Argentina1,000,711,081,161,481,63 India0,680,630,650,710,780,85 EU-150,781,040,820,680,630,80 Farmer prices of light air cured tobacco in some countries of the world Country200120022003200420052006 the USA3,703,71 3,722,973,07 Brazil0,880,850,861,071,281,47 Argentina0,940,561,191,321,041,05 Malawi0,940,950,970,930,840,77 EU-150,450,860,570,520,530,68

17. Changes in quantity of FCV tobacco and its farmer price

18. Changes in quantity of Light air cured tobacco and its farmer price

19. Changes in quantity of Oriental and Semi- oriental tobacco and its farmer price

20. The tobacco production and consumption Demand for tobacco products constantly rises 2025Until 2025 the number of smokers grow from 1.1 billion to 1.7 billion The developing countries represent 70% of the worlds consumption (China 44%) Consumption have fallen in developed countries The quantity of cigarettes marketed in the EU-25 dropped by 10% between 2002 and 2004. 106.63 million smokers in EU, 2,5% (2005) There is no connection between the quantity of raw tobacco produced in the European Union and the tobacco consumption of the EU

21. The European tobacco production and consumption While the production of the EU dropped by 32 % from 2005 to 2006, the drop in consumption is only 2-3 % (In Greece, for instance cigarette consumption dropped only by 3 %, in spite of the 80 % drastic drop in production.)

22. Situation of greatest tobacco producer countries compared to the EU CountryAdvantagesDisadvantages CHINA huge potential of arable area favourable climate cheap manpower and materials, low costs cheap final products high level of fluctuation of growers, low level of professional expertise, profitable growing of competitive crops (sugar cane, cotton), increasing production of food crops, state regulations do not motivate the quality BRAZIL favourable climate conditions, cheaper labour force, effective price negotiations with the processors (personnel) use of coal and wood for curing environment degradation, air pollution, low curing efficiency

23. CountryAdvantagesDisadvantages INDIA low production costs, average export prices are lower, than that of Brazil, USA and Zimbabwe, low variable costs, varieties with low nicotine content, (meeting the market demands) relative low average yield use of coal and wood for curing, environment degradation, air pollution, low curing efficiency, successful growing of alternative crops (sugar cane, soya beans, peanuts) ZIMBABWE favourable climate conditions cheaper manpower cheaper final products serious crisis (social, economical) emigration of qualified farmers ongoing diversification; tobacco sector is being replaced by: cotton, coffee, tea, cut flowers, etc.

24. CountryAdvantagesDisadvantages MALAWI favourable climate conditions cheaper manpower WTO support supporting of investitions state subsidies for rural inhabitants tobacco growing is competitive with food crops reinforcement of more profitable agricultural sectors absence of traceability system low level of growers grouping low farmer prices underdeveloped environmental protection and biodiversity

25. Main conclusions of the comparison Main advantages of developing countries in competition on world market are lower cost (more favorable climate, cheaper workforce) and support of the WTO. In spite of increasingly control of multinational companies, in most developing countries traceability and consumers health protection lag behind European tobacco, which is produced under traditionally strictly controlled conditions - European Charter for Tobacco Growing. Outside Europe, in most countries the market operates still on a speculative basis. The safety of product quantity, the predominance of quality respects and working conditions are fall behind the European criteria. In European Union tobacco is grown within quantity frames regulated by agricultural policy, in the framework of unified production contracts, under predictable market conditions and profitability. In the EU, the profitability of tobacco growing can only be maintained by significant direct support, mainly because of the high production costs.

26. 2.The status of tobacco production in the European Union Tobacco has been grown in the following 12 countries out of the 27 member states of the EU in 2007: Italy Germany Romania Slovakia Hungary Greece France Poland Belgium Spain Portugal Bulgaria

27. According to the regional policy of the EU, in these countries tobacco growing regions belong to Target Group 1. (underdeveloped areas) We present typical European tobacco growing areas through some particular regions. We have chosen the following regions: France: Aquitaine, Poitou-Charentes Italy: Umbria Spain: Extremadura Portugal: Alentejo Germany: Baden-Württemberg Hungary: Northern Great Plain

28. We examined the Geographical location, Weather conditions, Soil. There are significant differences among these areas, which prove the tobaccos outstanding biological ability to adapt.

29. Macroeconomic features Country-Region GDP (Euro per capita) Deviation from national average (%) GDP per capita, deviation from average of EU- 27 (%) France-Aquitaine24722-9,6+10,4 France-Poitou-Charentes23185-15,2+3,5 Spain- Extremadura14163-32,3-36,8 Portugal-Alentejo13106-7,2-41,5 Italy-Umbria22817-6,0+1,9 Germany– Baden-Württemberg30433+11,8+35,9 Hungary-Észak-Alföld5606-3,64-75,0 1. GDP in 2006

30. Macroeconomic features 2. The rate of unemployment in 2005 Regional rate of unemployment (%) National rate of unemployment (%) France-Aquitaine8,59,2 France-Poitou-Charentes7,09,2 Spain- Extremadura13,19,2 Portugal-Alentejo9,27,6 Italy-Umbria5,17,7 Germany-Baden-Württemberg7,09,5 Hungary-Észak-Alföld11,07,2

31. Data of tobacco growing farms in the European Union Member state Number of tobacco producing farms Size of tobacco growing fields (ha) Size of tobacco growing area comparing national agricultural area (%) Average field per producer (ha/producer) France308173150,0252,4 Spain3397100430,043,0 Portugal2608980,023,5 Belgium100720,0050,7 Greece17659183880,481,0 Italy9203279060,143,0 Germany42233560,178,0 Poland14123168190,111,2 Hungary136558550,014,3

32. Average tobacco producing farm size in the EU between 1997-2006 hectare/farm Country1997199819992000200120022003200420052006 Belgium1,3 1,5 1,61,71,51,40,7 Germany1,92,73,6 4,14,64,85,25,78,0 Greece0,91,00,9 1,0 Spain1,71,91,81,92,02,12,32,12,33,0 France1,41,51,61,71,81,92,02,12,22,4 Italy1,31,41,21,31,51,61,81,92,03,0 Austria1,21,11,21,41,51,61,82,1 Portugal5,55,85,24,04,24,85,04,86,13,5 EU 151,2 1,31,4 1,52,0 Hungary 1,92,02,84,14,3

33. Number of people employed in tobacco growing in 2006 CountryNr. of workers France22 878 Spain42 494 Portugal3 327 Italy115 906 Germany10 217 Greece66 750 Belgium235 EU-15261 807 Hungary19 439 Poland89 137 Slovakia- EU-25370 383

35. Effects of the tobacco payment system introduced in EU-15 Member State Crop (tons) Rate of decoupling % 20052006Change % Belgium1 019196-84100 Greece106 50722 500-79100 Portugal4 8322 559-4750 Germany11 03811 957+840 Spain40 17132 688-1940 Italy115 71796 588-1740 France22 99215 622-3040

36. Changes of tobacco production of EU member states

37. Changes of the area and crop of tobacco in EU member states FCV Member State Area covered by contractsQuantity 2001-20052006Change2001-20052006Change ha%ton% Germany24291927-20,75030619623,2 Greece12462220-98,242105713-98,3 Spain86467611-12,02960525495-13,9 France40503777-6,8112589380-16,7 Italy1762116406-6,94896048491-1,0 Portugal1673782-53,247842156-54,9 EU 154688230723-34,514174292431-34,8 Hungary3387405519,7578061957,2

38. Changes of the area and crop of tobacco in EU member states Light air cured Member state Area covered by contractsQuantity 2001-20052006Change2001-20052006Change ha%ton% Belgium29,216-45,28632-62,6 Germany968789-18,52676311616,5 Greece26141-100,0105671-100,0 Spain21551373-36,362483959-36,6 France337233860,493599007-3,8 Italy109155723-47,64997529195-41,6 Austria820-100,02220-100,0 Portugal186117-37,1647403-37,7 EU 152032211405-43,97977845713-42,7 Hungary18971800-5,132932641-19,8

39. The economic indexes of tobacco growing in the EU Farmer prices of FCV EUR/kg State1997199819992000200120022003200420052006 Germany0,73 0,750,760,820,870,730,961,180,91 Greece1,040,600,540,550,741,000,640,300,290,75 Spain0,550,520,540,580,630,950,910,620,560,57 France0,950,92 0,960,97 0,850,991,011,04 Italy0,720,620,590,670,750,980,990,950,960,98 Portugal0,31 0,360,300,330,510,420,540,510,55 EU 150,750,600,570,610,781,040,820,680,630,80 Hungary1,201,381,341,321,531,571,430,720,560,53

40. Farmer prices of Light air cured tobaccos EUR/kg State1997199819992000200120022003200420052006 Belgium1,091,031,081,140,911,291,301,241,211,46 Germany1,031,041,061,051,071,15 1,181,191,15 Greece0,530,430,440,500,54 0,440,400,200,55 Spain0,500,490,48 0,610,580,340,330,34 France0,991,010,940,981,131,091,151,221,321,30 Italy0,180,200,230,300,340,570,460,470,480,71 Portugal0,330,260,340,270,310,440,48 0,450,48 EU 150,350,36 0,420,450,860,570,520,530,68 Hungary0,820,890,940,991,121,171,040,590,340,44

41. Tobacco productions cost structure (2006 in Hungary) EUR/hectare Burley Virginia Material costs 7382 006 Labour costs2 5471 855 Machinery costs 263 402 Other costs 211 480 Total cost3 7594 743

42. Unite production costs in some European countries (EUR/kgs) Spain (2007) France (2005) Italy - Veneto (2006) Hungary (2006) Virginia2,4-2,8*2,0-2,5*2,7-2,82,6-2,7 Burley1,75**2,3-2,6**2,02,0-2,1 * depending on the rate of mechanization and type of energy source ** mechanized, or greatly mechanized whole plant harvesting In France the costs neither include family labor, nor equipments depreciation.

45. 198620002005 Tobacco consumption7 kgs/year5,4 kgs/year4 kgs/year Number of consumers (capita)4 million3,5 million3,2 million Nicotine (mg/cigarette)21,5 Tar (mg/cigarette)3515-2012-15 The smokers consumed: tar100 t38 t26 t nicotine5,6 t2,8 t1,2 t Reducing the health risks of tobacco consumption in Hungary Reducing the health risks of tobacco consumption 20 years- Tar 74%, Nicotine 73% Attack of WHO Answer: Variety development, quality traceability, product development

46. 3.Situation in Hungary (in the view of ten new member states joining the EU in 2004)

47. The changes in the tobacco production (1997-2006)

48. The profitability of Virginia production Item20062007200820092010 Production cost4 7145 0625 0565 1415075 Returns9411 0941 1181 1431800 Income I.-3 773-3 968-3 938-3 998-3275 Direct payments/SAPS101105132158184 Top up, coupled3 7313 595 0 Top up, decoupled04941 0671 6402812 Production value4 7735 2885 9116 5354796 Income II.592268551 394-279 Average crop (t/ha)1,8 Average selling price (EUR/t)5236086216351000

49. The profitability of Burley production Item20062007200820092010 Production cost3 7643975407741734164 Returns7518268448631350 Income I.-3 012-3150-3233-3311-2814 Direct payments /SAPS101105132158184 Top up, coupled2 9512861 0 Top up, decoupled037282212732200 Production value3 8034 164465951543734 Income II.39188582981-430 Average crop (t/ha)1,8 Average farmer price (EUR/t)417459469479750

50. 4.Difficulties of diversification and alternative crops to tobacco Some important studies carried out in the issue and institutes dealt with the topic: EUROSTAT study (2001) COGEA study (2003) FAO study (2003) Tobacco Institute of South Africa (2007) Keyser study (2007) ANITTA case study (2006-2008) University of Hohenheim (DIVTOB Projek, 2008) Agricultural Economics Research Institute, Hungary (2008) European Parlament (2008-)

51. Cardinal point of wievs, by analyzing the alternatives of tobacco The significance of the sector in rural development and sustainable development of regions concerned, shell take into consideration with high priority Studies have to carry out in individual cases (for single countries or regions) and for the whole sector (processors!) Alternative crops shell simultaneously guarantee high income in a small area, have a stabile market, and provide high level of employment (also for the seasonal workers)

52. Main conclusions of the studies In tobacco regions of the EU, unfavourable ecological conditions limiting the scope of profitable growing of alternative crops Overproduction on the market of possible alternative crops Alternative possibilities do not provide the utilization of special equipments, used for tobacco growing High need in investments of economically viable alternative activities

53. Main conclusions of the studies Until now, in EU no agricultural or other activity can provide the same level of profitability and employment at the same time, as tobacco growing and related branches. Securing the employment of unskilled workers – mainly seasonal– will not be possible in tobacco growing regions, from sources of the II. pillar. At present there is no reason for urging the switch to other activities (tobacco consumption of the world is going to rise in near future). Diversification has to be based on tobacco production, since income from tobacco can help to finance the introduction of alternative activities. When examining the possibilities of diversification, multiple use of tobacco should be emphasised.

54. 5.Joining forces for stability – UNITABs efforts and strategy Commonplace application of CAP reform, which disregards the specialities of certain sectors, or extremely changeable ecological conditions and socio-economic situation of the different regions, can cause huge damages in the economy and employment of the sectors and regions concerned. Tobacco is the sector, which fell victim in greater extent to this mistake – the CAP reform ignores the specific eco- social situation of European tobacco growers and tobacco growing regions. During the performance of the Health Check, the decision makers of the EU have to correct these obvious mistakes. UNITAB and his alliances carry on increasing fight against the discriminative measures.

55. Summary Multinational companies and their partners integrate increasingly the tobacco market. Production is being transferred from developed areas to developing countries,Production is being transferred from developed areas to developing countries, focal point is cheaper production. European tobacco growing is insignificant as volume and price modifying factor on the world market, except for Oriental tobaccos. There is no connection between the consumption of tobacco products and tobacco growing of the European Union.

56. Summary In the EU, tobacco growing can only be maintained and the social crisis avoided by the maintenance of the present level of direct payments and universal development of the regions. In European tobacco growing regions, there is no real alternative to tobacco growing, tobacco is a complex eco-social system, which is at present irreplaceable. The Hungarian model proves too that the decline of tobacco growing leads to social crisis. Therefore, the correction of the reform have to be influenced by as many arguments as possible. The social position of the growers is outlined in producing European quality. By demanding this, the support of loyal and demanding smokers can be achieved.

57. Suggestions Introduction of quality encouraging payment system. Introducing and emphasizing of quality certificate for a controllable, traceable and excellent quality tobacco. Ensuring the availability of 2nd pillar payments for the sector. Market protection against lower quality imported tobacco grown under uncontrolled circumstances (within the scope of legal devices). Urging the creation of an independent and self-propelled payment system (Swiss example). Reducing the production costs (application of energy- saving technology eg: using alternative sources of energy). Products should be labelled with the place of origin. Producing of chemical-proof biological tobacco.

58. Thank you for your attention!