This report is adapted from Ross Hammond’s work for the San Francisco
Tobacco Free Project and the San Francisco Tobacco Free Coalition.
The U.S. West is ruled by virile, chain-smoking cattle ranchers. That’s the
impression Mexicans get from prime-time TV advertisements for U.S. cigarette
brands. The ads link smoking to glamour, adventure, rebellion, sex and U.S.
prosperity. “Come to the Marlboro World,” says one.
In Argentina, the government has cracked down on TV ads for smokes, so the
industry has devised more clever approaches. In 1996, cards appeared in
Camel packs across the country. Smokers could redeem them for posters, boxer
shorts, shot glasses and, if they were lucky, Harley-Davidson motorcycles.
Bus ads for Joe Camel and his “Hard Pack” blues band, meanwhile, became so
popular they vanished as fast as they went up.
The ads work. A 1996 survey of Mexican TV viewers placed Marlboro as the
fourth-most-remembered brand. During the Argentina campaign, Camel sales
shot up by 50 percent.
But there’s a tragic reality behind the hype. Lung-cancer deaths in Mexico
rose 220 percent between 1970 and 1990, according to the World Health
Organization (WHO). Across Latin America, smoking-related diseases are on
the rise, killing 150,000 people each year. If trends continue, the number
of deaths per year will reach 1 million within 30 years, exceeding the
combined toll from AIDS, tuberculosis, car crashes, maternal mortality,
homicide and suicide. And smoking saps poor countries of billions of dollars
in health-care expenses, disability payments, decreased productivity and
fires.
The beneficiaries of the smoking are three transnational firms. Reaping half
a billion dollars in profit in Latin America each year, U.K.-based British
American Tobacco controls 60 percent of the market. New York–based Philip
Morris controls most of the rest. The third player is New York–based RJR
Nabisco.
Over the last two decades, the three giants have spread across Latin America
and the rest of the world, scooping up state-owned factories, forging joint
ventures, building new plants, and setting up distribution and sales
networks. All three companies now own or lease plants in at least 50
different countries.
Overseas, Big Tobacco uses advertising and marketing techniques long ago
banned or restricted in the United States. The companies apply political and
economic pressure to circumvent public health laws, often under the guise of
“free trade.” Where governments restrict market access, the transnationals
massively smuggle in their cigarettes. And they purchase most of their
tobacco from three large U.S.-based firms that have crowded out all other
major leaf traders in the global market.
Because nearly all of the world’s major cigarette and leaf firms are
headquartered in the United States, Washington will have to spearhead any
meaningful effort to control Latin America’s tobacco scourge. “The situation
is only going to get worse as more women and children start smoking,” warns
Barbara Zolty of the WHO. “There is no time to lose.”
THE BIG THREE
Several factors contribute to Big Tobacco’s overseas expansion, including a
drive for the cheapest labor, tobacco leaf and transport. Firms are also
shielding assets from lawsuits in developed countries. In recent years, the
biggest cigarette firms have all scored double-digit growth in international
sales.
Philip Morris (Marlboro, Merit, Virginia Slims, etc.), the world’s largest
cigarette company, controls about 16 percent of the global industry and
hawks the world’s most popular brand, Marlboro. It has cigarette
subsidiaries, affiliates and licensing agreements in 54 countries. Since
1990, the firm’s cigarette sales have risen by only 4.7 percent in the
United States, but by 80 percent overseas. In 1997, sales abroad generated a
$4.6 billion profit, for the first time more than profits at home. CEO
Geoffrey Bible made $30 million in salary, bonuses, incentives and stock
options that year, and his holdings in the company totaled $170 million. In
1996, Philip Morris spent $813 million on overseas advertising.
British American Tobacco (BAT), the parent company of U.S.–based Brown and
Williamson (Pall Mall, Lucky Strike, Capri, etc.), is the world’s
second-largest cigarette firm. With subsidiaries in 65 countries, BAT
controls 15 percent of the global industry. In 1997, BAT’s international
tobacco operations turned a $2 billion profit. BAT runs its U.S., Mexican,
South Korean and Japanese business through Brown and Williamson. BAT
controls 60 percent of the Latin American market, double the share of Philip
Morris. BAT chair Martin Broughton’s 1997 base salary was $1.3 million.
RJR Nabisco (Camel, Winston, Salem, etc.) is the world’s third-largest
cigarette company, with subsidiaries, affiliates and licensing agreements in
57 countries for control of about 4 percent of the global cigarette market.
Chair and CEO Steven Goldstone’s 1996 salary, bonuses and stock options
totaled $7.1 million. Despite a 75 percent increase in international sales
since 1990, the company hasn’t kept pace with Philip Morris and BAT. Saddled
with a huge debt from the R.J. Reynolds–Nabisco merger of the late 1980s,
the company is struggling with falling international tobacco profits (in
1997 profits dropped 5 percent to $759 million) and mounting costs from U.S.
tobacco lawsuits. On March 9, RJR Nabisco announced it was splitting its
food and tobacco units into two companies, and selling its international
tobacco business to Japan Tobacco for $8 billion.
The three giants purchase tobacco mostly from three U.S.-based leaf traders
that have crowded out competitors in recent years. The traders—Universal
Corporation, Dimon Inc. and Standard Commercial Corporation—reaped combined
1997 revenues of $7.9 billion.
LIGHTING UP MEXICO
In July 1997, Philip Morris and BAT paid a combined $2.1 billion to purchase
controlling shares of Mexico’s two cigarette companies.
Both firms were eager to return to Mexico, where they had operated before
government restrictions pushed them out in the 1980s. In Mexico, Philip
Morris and BAT enjoy low-cost labor, a cheap tobacco supply, U.S. trade
privileges and the world’s 15th largest cigarette market. Some 13 million
Mexicans—39 percent of men and 19 percent of women—smoke 60 billion
cigarettes a year.
Mexico’s tobacco control is lax. The only mandated cigarette warning label
says, “This product may be harmful to your health.” There are no
restrictions on sales to minors, and no laws against single-stick sales.
Advertising on television is permitted during the evening. In the late
1980s, companies successfully pressured for cigarette tax cuts.
The acquisitions have dire implications for Mexican public health and U.S.
tobacco control. Philip Morris and BAT will more aggressively target Mexican
children. They will also use Mexico as a base for expanding exports while
evading U.S. regulations and public opinion.
As the North American Free Trade Agreement (NAFTA) reduces U.S. tariffs,
Mexican exports of tobacco and cigarettes to the United States are likely to
skyrocket. Former U.S. Surgeon General C. Everett Koop says the two
companies are planning to flood the United States with black-market smokes
from Mexico if U.S. cigarette taxes rise dramatically.
GUATEMALA SUES
Because of its large indigenous population, Guatemala has Central America’s
lowest smoking rate. Per capita cigarette consumption among people ages 15
and older fell from 640 cigarettes a year in 1980–1982 to only 340 in
1990–1992. Since then, the rate seems to have leveled. Smoking rates are
highest in cities, where almost 38 percent of men and 18 percent of women
light up, according to a 1989 survey. Philip Morris controls 72 percent of
the cigarette market. BAT controls 27 percent.
Guatemala is Central America’s largest tobacco leaf producer, with 11,120
acres, or 0.3 percent of arable land, under cultivation in 1990. Cultivation
more than doubled between 1980 and 1992. Cigarette production, meanwhile,
increased from 1.96 billion in 1990 to 2.33 billion in 1994. The industry
generated $21 million in foreign exchange in 1996.
Last year, Guatemala became the first country outside the United States to
sue foreign tobacco companies over costs for treating smoking-related
illnesses. Filed in U.S. District Court in Washington, D.C., the suit
charges that the companies and their affiliates conspired to mislead the
public about the dangers of smoking and violated the Racketeering Influenced
and Corrupt Organizations law. The defendants include Brown and Williamson,
Philip Morris, BAT and others. The suit, estimating costs of treating the
illnesses at $800 million, seeks triple that amount.
Despite pushing hard in court, the government has never campaigned against
smoking and has relatively loose tobacco controls. Smoking is still
permitted in theaters and government offices, minors are allowed to purchase
cigarettes, radio and television ads remain common, and health warnings on
packs are small and not written in indigenous languages.
BRAZIL UP IN SMOKE
Brazil has become a tobacco superpower. Between 1975 and 1997, leaf exports
more than doubled, making Brazil the world’s leading exporter. But foreign
traders dominate the industry. Nearly half of the nation’s tobacco farmers
contract with Universal or Dimon, two of the U.S.-based leaf traders. Most
of the rest contract with Souza Cruz, a BAT subsidiary.
The growers are mostly family farmers. Because a tobacco crop requires 10
times more labor per acre than beans or maize, many of the families pull
their children from school to work in the fields.
Since a growers’ strike in the late 1980s, the traders have aligned to fix
prices and punish growers who sell elsewhere. In 1997, Souza Cruz held
growers’ prices stagnant as its profits increased 40 percent.
States give traders huge tax breaks, and rarely intervene in contract
disputes.
The increased leaf production has wreaked ecological havoc. Every year,
thousands of forest acres are cut down to make room for new plantations and
to provide wood fuel for curing (drying) crops. The industry depends on
ozone-depleting methyl bromide and other toxic pesticides that the United
States bans. Almost half of tobacco farmers have suffered pesticide-related
headaches, vomiting, nervous crises and other problems. And their kids have
more birth defects.
For more than a decade, farmers in southern Brazil have grown tobacco that’s
genetically altered for fast growth and more nicotine. BAT’s Brown and
Williamson developed the plant with DNA Plant Technology, a Mexican-owned
firm based in Oakland, California. The enhanced leaf, known as “crazy
tobacco,” has so much nicotine it makes farmers dizzy.
Between 1990 and 1994, Souza Cruz shipped nearly 8 million pounds of the
genetically altered tobacco to the United States for Brown and Williamson
brands sold here, including Pall Mall and Lucky Strike. The U.S. Justice
Department filed criminal charges against Brown and Williamson as well as
DNA, charging that they illegally smuggled the seeds to Brazil and other
countries. In January 1998, DNA pled guilty to a misdemeanor and agreed to
cooperate with an investigation into Brown and Williamson’s efforts to
manipulate nicotine levels.
On top of leaf exports, cigarette exports increased 1,000 percent between
1981 and 1996, ranking Brazil 10th in the world.
About 30 percent of Brazilian adults smoke. BAT’s Souza Cruz controls about
84 percent of this domestic cigarette market. Philip Morris controls the
rest.
Brazil has enacted relatively strong controls. A 1996 law bans TV ads before
9 p.m. and allows no ads tying smoking to relaxation, sex or sport. The law
bars smoking in enclosed public areas and on most public transport vehicles.
Brazil also bans free cigarette samples and purchases by children. All ads,
packages and retailer displays must carry health warnings. Cigarette taxes
are about 78 percent, twice as high as in the United States.
The taxes and ad restrictions have cut smoking by men, but the rate for
women seems to be climbing.
In 1997, a Brazilian judge ordered BAT’s Souza Cruz to pay $82,000 and a
35-year monthly pension to the family of a smoker who died of a heart
attack. It was the first time a tobacco company had been ordered to pay
damages outside the United States. BAT has appealed.
WASHINGTON’S ROLE
Big Tobacco often invokes the plight of U.S. tobacco farmers to argue
against taxes and controls. But over the past decade, Philip Morris, RJR
Nabisco and BAT have been switching to foreign-grown tobacco in both their
U.S. and foreign factories.
The United States does remain the world’s largest cigarette exporter. It’s
also home to two of the world’s three largest cigarette companies and the
three big leaf-trading firms.
Until recently, Big Tobacco’s global expansion has enjoyed the U.S.
government’s full backing. Large-scale U.S. promotion of tobacco exports
dates back to just after World War II, when the “Food for Peace” program
shipped hundreds of millions of dollars in tobacco to Asia, Africa and Latin
America. The program paved the way for today’s transnationals.
Although Congress recently has taken steps to restrict U.S. trade officials
from promoting tobacco, the big firms are finding new ways to pry open
markets. Philip Morris and BAT took over Mexico, for example, after NAFTA
stripped locally owned firms of protections.
In this context, the U.S. government is crucial for slowing the death toll
in the developing world. Washington should quit opposing other countries’
tobacco-control laws. And Congress should force cigarette firms to:
Sign an international code of conduct in advertising, marketing and
labeling.
Compensate foreign agencies for tobacco-related health-care costs.
Contribute to the World Health Organization and other agencies for programs
to reduce smoking.
MORE INFORMATION
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