SANTIAGO - In early November, a group of delegates from Latin America and Britain, all part of the British American Tobacco multinational, gathered in Rio de Janeiro.
The company said it was a routine meeting, and offered few details. The one thing we can know for sure is that if any of them smoked, they would have had to go to a special smoking area to light up.
Brazil does not allow smoking in closed areas, nor does it allow cigarette advertising at cultural or sports events. In Uruguay, cigarette sellers are not allowed to display cigarette packets.
“This is about more than just cigarettes,” says Lezak Shallat, coordinator of the organization Tobacco Free Chile. “It’s about protecting people from the advertising onslaught of junk food and other products that are not healthy.” Shallat says that the equation is simple: more regulations means less consumption and less cancer and heart attacks. But is that really the case in Latin America?
There was a golden era for smoking in Latin America, when lighting up was accepted (and even expected) at funerals, baptisms, in movie theaters and even maternity wards. The alarm was raised in 1964, when the U.S. Surgeon General presented a report about the effects of tobacco on health. At that time, 52% of Americans were smokers. Twenty years later, only 25% of the population smoked.
It’s still early to judge the effects of the new restrictions in Latin America. According to the Ministry of Health in Brazil, in 2011 the prevalence of smoking fell to under 15% of the population older than 15. No effect has been measured yet in Chile, the heaviest smoking country in the region.
The tobacco industry is one of the most centralized in the world. There are really only four brands that dominate the entire world market: BAT, Philip Morris International (PMI), Japan Tobacco and Imperial Tobacco.
Both BAT and PMI have focused their attention on places with high rates of smoking: Russia, Asia and Latin America. They have expanded into these markets mainly through acquiring smaller tobacco companies.
Today, most Latin American countries have extremely concentrated tobacco markets, when the market is not a complete monopoly. BAT dominates Brazil, Chile, Peru and Venezuela completely, while PMI rules over Argentina and Mexico. The two only really compete in Colombia.
Getting around restrictions
The tobacco companies have put into practice several techniques to get the most profit out of their products. PMI has sued the Uruguayan government at the International Center for Settlement of Investment Disputes, for their anti-tobacco regulations. BAT has done the same in Australia, which has the strictest anti-tobacco rules in the world. It’s a two-pronged game – trying to prevent restrictions while adapting marketing techniques to get around the ones that exist.
The companies have started marketing more at the point of sale, and have also used changes in packaging and the length of cigarettes to make them more attractive to consumers.
And it’s having results. The industry continues to post profits and have plenty of support from the stock market. The secret is to get more and more profit from each cigarette that is sold in this declining market. In other words, to carefully cultivate the industry’s most precious asset – the diehard smoker.
For Souza Cruz, the Brazilian BAT affiliate, the number of cigarettes sold annually dropped by 10% between 2007 and 2011, but profits soared. The company’s annual report says that this was due to a better mix of products and better prices. BAT’s stock prices have also risen, in spite of the general down market for stock prices. This has created a dilemma for some institutional investors – in 2010, the Norwegian government pension fund disinvested from all tobacco stocks, and the Australian government is studying the same possibility.
None of the BAT executives contacted by America Economia agreed to talk, and Souza Cruz said it did not have a spokesperson to comment on the recent government measures.
The main defenders of the tobacco industry are actually the people who sell the products directly. Convenience store owners in Peru are unhappy about regulations that prohibit them from displaying cigarettes in their stores. And tobacco farmers in Brazil were incensed when the government decided that they would have to diversify their crops in order to receive national agricultural subsidies.
Tobacco has allies in the parliament, too. “I don’t smoke, but what are we going to do with the 190,000 families in the south and the other 30,000 in the north that depend on tobacco?” asks Luis Carlos Heinze, a Brazilian federal deputy. He adds that it is a total of 600,000 families if you include indirect employment.
In Colombia, the opposite is happening – the government is encouraging tobacco crops in areas reclaimed from armed conflict. “Even if it’s true that it can harm health, that isn’t exclusive to tobacco. There are lots of other products that can be much more harmful,” says Heliodoro Campos, head of Fedetabaco. “Fortunately, the Ministry of Agriculture backs tobacco cultivation,” he adds.
While the Colombian peasants fight against drought and flood to grow their tobacco crops, somewhere in Chile a teenager lights his or her first cigarette. And in Brazil a 66-year-old man lights up his last. Cigarettes cost the Brazilian health system around $11 billion. Everywhere except Uruguay, cigarettes continue to share sales space with sweets and chocolates for kids.