Industry lobbyists fight policy change as farmers’ subsidies smoke millions
by Sami Halabi
The Lebanese government has developed a habitual pattern of behavior in regards to progressive policy: the idea is lit with good intentions, smoked by vested interests and political squabbling, then forgotten like ash flicked away in the wind. When not tossed aside entirely, major policy initiatives are often simply relegated to an indefinite sentence in a bottom drawer somewhere in parliament.
There have been signs recently that government may be trying to curb this damaging addiction, however, in light of the tobacco control legislation currently being mulled by politicians.
The first puff
The draft law on tobacco control was first proposed in 2004 by Member of Parliament Atef Majdalni – who was also the acting chairman of the Public Health Parliamentary Committee at the time — as well as MPs Nasser Kandil, Ghattas Khoury and Ahmad Fatfat, only to find itself promptly shelved.
In March 2004 Lebanon signed, and later ratified, the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC). The country has since missed every deadline for the staged implementation of the convention, with none of its articles having yet been applied (see story on page 76).
In 2006, under a new cabinet and parliament, another draft law was again submitted for consideration, a copy of which was obtained by Executive. This new draft was a diluted version of the first, removing clauses pertaining to testing tobacco before sale and confiscation of materials in contravention of the law, and limiting the authority of inspectors to implement the law.
According to the document, these amendments were made after consulting with the Regie Libanaise du Tabac et Tombacs (Regie) — the Lebanese government entity under the Ministry of Finance in charge of tobacco imports and exports and the licensing of farmers, wholesalers and retailers — as well as the syndicate of advertisers, syndicate of doctors and the Ministry of Public Health (MOPH). Even this watered-down version was shelved, however, as the country spiraled into conflict and political stalemate from 2006 to 2008.
Without the new legislation, Lebanon’s tobacco regulation is based on the six-article long Law 394, issued in 1995, which falls well short of the international obligations mandated in the FCTC. The current law states that health warnings should cover 15 percent of advertising media (print, outdoor, TV and cinema) and read: “The Ministry of Health warns: Smoking leads to serious and fatal diseases.”
Notably, it does not forbid the sale of tobacco to people under the age of 18, but bans handing out free samples to this age group.
At the beginning of 2009, the draft law was still gathering dust in a government drawer. Executive’s investigation uncovered that the parliamentary Administration and Justice Committee of the previous government went back to the original 2004 legislation and began the entire amendment process over again – work which has continued under the Administration and Justice Committee of the current government. This amendment process includes “consulting and listening to opinions of stakeholders,” according to a source on the committee, who spoke on condition of anonymity.
These stakeholders include international tobacco companies whose lobbyists sit in on committee meetings — a fact confirmed by several sources close to the proceedings. Lebanon’s three largest tobacco importers, Philip Morris International, British American Tobacco (BAT) and Japan Tobacco International declined the opportunity to contribute to this article.
“The tobacco lobby, like all the lobbies, will try to stop anything that might threaten their business,” says Yassine Jaber, a former minister of economics and trade and current MP in the Amal party.
George Jabbour, president of the International Advertising Agency’s Lebanon chapter, conceded that members of the advertising industry have also lobbied members of the committee, though he disagrees with the ethics of this.
“You cannot change the facts of life, and this is a fact of life,” said Jabbour. “Today, there is a trend and there are proven facts that cigarettes are not a good thing.”
The source on the committee said civil society groups who work on tobacco control issues were not invited to give their opinions.
They went on to explain that a sub-committee, under former minister and MP Samir al-Jisr, has been formed with the purpose of carrying out proceedings without the involvement of industry lobbyists. This sub-committee met twice in April in the presence of members of the Regie and the MOPH.
The absence of an official tobacco lobby at sub-committee meetings is, however, is a matter of switching hats: an international tobacco lobbyist, who asked not to be identified, confirmed that the Regie asked Jihane el-Murr, BAT’s head of corporate and regulatory affairs, to attend sub-committee sessions under the auspices of a “representative” of the tobacco industry, rather than a lobbyist.
The committee source confirmed that subcommittee negotiations are revolving around the details of the advertising ban, the definition of public space, fines on violators, forbidding sales to persons below 18 and the obvious display of cigarettes at retail points.
Tobacco taxation and smuggling
Notably absent from discussions is a hike in tobacco taxation, normally a cornerstone of tobacco control policy.
According to a Turkish international tobacco representative, when tobacco control legislation was introduced in Turkey — which had comparable smoking incidence to Lebanon — consumption dropped some 5 percent. However, when taxes were applied, the market saw a 20 percent fall in consumption.
The government could have, technically, proposed a budget this year including increased taxes on tobacco — it did not (see page 76). The stated reasoning behind this decision, and the impetus to keep tobacco prices low, is the fear of increased smuggling across Lebanon’s porous borders.
“England, a developed country surrounded by water, has a tobacco market of which 30 percent is supplied through smuggling,” said Mohamad Daher, head of the Regie’s anti-smuggling unit. “What about us, whose sea, land and air borders are completely open? How much smuggling do you think we have?”
In the late 1990s then-Prime Minister Salim el-Hoss spearheaded a raise in the tobacco tax. Smuggling soared and the government lost revenue, forcing Hoss to backtrack on the measure. However, another official present at subcommittee meetings, who also spoke on condition of anonymity, attributed the increase in smuggling to Syrian control over Lebanon’s borders at the time, as well as politicians’ protection of smuggling rackets.
The Regie is the only body in Lebanon authorized to license wholesalers and retailers. Presently, there are around 490 licensed wholesalers in Lebanon, who must pay the Regie $10,000 for a license, prove that they have a place to store merchandise and open their books up for spot inspections, according to Khalil Dugan, legal advisor to Regie Chairman Nasif Siklawi.
But as far as licensing retailers goes, nothing has been done for decades. “Because the amounts are small, [the government] deems them negligible,” says Daher. “If you are going to chase people for one or two cartons then you need 1,000 men, and they don’t exist. If you see cigarettes at smeneihs [stores licensed to sell only food], all those cigarettes are smuggled.” Daher’s unit consists of up to 50 inspectors for all of Lebanon.
The combination of increased smuggling and a decrease in consumption would no doubt have widespread economic, health and social effects on Lebanon. But there is one sector in society that stands to lose out more than anyone else.
According to the Regie, Lebanon currently has 24,000 licensed tobacco farmers spread throughout the country, some 57 percent of whom are located in the south. Farmers receive a subsidized set rate for their crops through the Regie’s ‘Price Support Program,’ depending on the quality and type of tobacco they grow.
The price farmers are paid, however, has not changed for 15 years according to MP Jaber, whose electoral support in the south stems from many of those same farmers. At present, farmers in the south and the Bekaa Valley receive an average of $7.46 and $6.04 per kilogram, respectively, for the same type of tobacco, according to the Regie. Farmers in the north produce another type of tobacco used in the nargile, or water pipe, and are paid an average price $6.04 per kilogram.
The total amount paid out to farmers last year was $52.6 million, according to the Regie, an increase of 3 percent on 2008, with the south counting for 61 percent of production last year. Total production of tobacco in Lebanon last year reached some 7.7 tons.
According to the World Bank, on the international market the average price per metric ton of tobacco is $3,500, meaning that the Regie lost some $3,330 per metric ton of tobacco it sold last year, totaling losses of some $25.6 million.
The tobacco bought by the Regie is sold on to international tobacco companies according to a barter system, whereby international tobacco companies buy a share of Lebanon’s tobacco output equal to that of their present market share.
The arrangement constitutes a net loss for the Regie, which still manages to be a profitable organization through money funneled to it from the finance ministry and other activities, including the sale of the local Cedars brand, which is produced at its headquarters in Haddath using Lebanese tobacco.
Meanwhile, the government raked in around $189 million in tobacco tax revenue in 2008, according to the latest data from the World Bank and Lebanese Customs.
Money ain’t everything
While the arrangement is a monetary loss for Lebanon, it does serve several functions that are socioeconomic and political in nature. Farmers are ensured a fixed and steady income, allowing them to stay on their land. This prevents further migration to Lebanon’s cities, which are already struggling to provide infrastructure for urban living (see ‘Development disorder’ on page 58).
To boot, this arrangement helps the main political parties in the south — Amal and Hezbollah — to provide for their key constituents, both keeping the parties in power and maintaining a population base near to the border to stand against Lebanon’s main military threat — Israel.
“In the south our role was more important during the [Israeli] occupation, and even now it is still important,” said a high-ranking member of the Regie, on condition of anonymity.
In a bargain that is renewed annually, international tobacco companies have, for years, enjoyed secure access to the Lebanese market by buying the country’s relatively low-quality tobacco. Marwan Iskandar, economist and managing director of MI Associates, and several other sources who spoke off the record, said that the companies actually discard a portion of this tobacco due to its poor quality.
“In the north we are planting something that does not have a place in the international market,” said the source at the Regie. “We are trying to sell it to the countries that do not know tobacco well.”
The source added that Lebanon used to lose some 500 percent on sales of northern tobacco, though current losses are between 200 and 300 percent. Abdul Mawla el-Mawla, tobacco technology manager at the Regie who is also responsible for buying and selling all of Lebanon’s tobacco, denies that the tobacco is still being discarded, as he claims quality has increased over the years to a level that “has become acceptable” to international companies.
But if tobacco legislation is enacted and consumption decreases, as is expected, a domino effect may occur.
“The international companies will tell me that ‘you are not selling as much for us,’” says Mawla, implying they will change the arrangement. “If my revenues fall, who is going to take Lebanese tobacco? What do I do with the farmers?”
Amal MP Jaber, who holds a parliamentary seat allocated to the Nabatiye district, says he doesn’t see the link between tobacco legislation and his constituents’ livelihoods. He is, however, aware that the situation cannot continue forever. “Nobody in the south of the country is fond of planting tobacco. Tobacco is the most difficult type of crop you can ever dream of; the whole family works 7 days a week to make it,” he says. “Farmers hate the whole system of [growing] tobacco, they hate the way they have to work so hard and how they are humiliated by having to wait in [long] lines when they sell their crops to the Regie.”
According to the World Bank, the average labor days per hectare needed to cultivate tobacco in Lebanon is 610, as opposed to 25 for cereals and 242 for fruits and vegetables.
The bank also estimates that tobacco constitutes a third of household revenue for tobacco farmers, with around 40 percent of them working off-farm and 23 percent rotating tobacco with other crops such as chickpeas and fava beans. “Why do people [in the South] choose tobacco? Because they have no alternative,” says Jaber. Tobacco is a ‘dry plant’, which means it is rain fed and does not require irrigation, an asset currently lacking in much of South Lebanon.
What is vexing about the situation is that there are solutions and the legal infrastructure to facilitate them is already in place. In 1950’s, the government created the Litani River Authority (LRA), mandated to enact projects along the river and around the region. Later, Law 221 — entitled the Water Authority Law — was passed. Its implementation decrees gave the LRA the mandate to irrigate 42 percent of Lebanon, including all of the south and southern Bekaa, not to mention supplying 7 to 10 percent of the country’s electricity through hydropower and providing potable water to 20 percent of the population.
Apparently, the government had other priorities. “If we calculate over the years how much money we have paid to subsidize the planting of tobacco, we could have done the Litani river project five times over,” says Jaber. “Unfortunately, there has not been a sense of responsibility…”
Environmental experts have begun working with the government on proposals to expand the Litani river projects and Jaber added that after receiving $50 million in funding from Kuwait, “we are halfway there.” Whether it will take another 60 years to make it the rest of the way remains to be seen.
In principal, everyone agrees
All the stakeholders Executive interviewed for this article said they were in favor of enacting the proposed tobacco control law, but its actual application will be another issue.
“We are with stopping smoking, and sections for smokers, and all of the elements of the law, and with a complete awareness program; but we have to be realistic. There are people who are addicted,” said Mawla, who advocates having a grace period to implement the law, as do members of the advertising and hospitality sectors.
Rima Nakkash, assistant research professor at the faculty of health sciences and coordinator of AUB’s Tobacco Research Group believes that a grace period will only allow for piecemeal reforms and give stakeholders the chance to dilly dally around the law and maintain the status quo.
With or without the grace period, if the proposed tobacco control legislation is passed without being neutered by amendments, smoking rates and tobacco consumption will undoubtedly decrease in the mid to long term.
“By that time we will have finished the Litani River project,” said Jaber. “God willing, by that time we won’t need to have tobacco plants.”
First published in Executive Magazine’s May 2010 issue