Up In Smoke
When walking down the street or going to a nightclub, it quickly becomes clear that Thailand is a nation of smokers. Whether it’s L&Ms, Krongthips or hand-rolled cigarettes, the Thai people and many expats, have an oral fixation nursed by their cigarettes.
Some estimates have suggested approximately half of adult men in Thailand are regular smokers. However, tobacco is a recent addition to Thai culture and has become prevalent only in the last century with the birth of massive agricultural production. Tobacco, much like the rest of Thailand, is also undergoing a massive transition period as the country modernises.
A Brief History
Tobacco first started being farmed and processed on a large scale in Thailand by British American Tobacco (BAT) in 1939. During World War II due to the Japanese occupation and general chaos, operations were reduced. BAT entered into a joint partnership with the Thai government’s company, the Thai Tobacco Monopoly (TTM), with BAT providing training for TTM employees.
However, by 1949 BAT-TTM relations had become strained. Arguments over how revenue would be distributed, BAT employee salaries and other problems eventually caused the two companies to split and TTM took over the exclusive production of tobacco in the country. In 1954, TTM’s management was transferred under the Ministry of Finance where it remains to this day.
During the 1960s, Thailand began to open up larger export operations and multinational corporations began to sell Thai tobacco to cigarettes companies all over the world. At the time, several international companies started to market Thai tobacco to large cigarette manufacturers like Philip Morris and R.J. Reynolds and as a result, smokes from Pittsburgh to Paris and Rio to Rome began to inhale Thai tobacco.
The next great shift in Thai tobacco came in the late 80s and early 90s as the country opened up its markets to imported brands of cigarettes. Thailand previously had only sold brands manufactured in Thailand by TTM, but by the late 80s, western companies had begun to place magazine advertisements and billboards to raise awareness of their brands.
These ad blitzes came at a time when American tobacco companies had been in talks with the Thai government about opening the Thai market to foreign brands. In 1990 the U.S. Cigarette Exporters Association (CEA) filed a suit through the United States Trade Representative alleging that Thailand’s import ban was a violation of the General Agreement on Tariffs and Trade (GATT), a multinational treaty that liberalised trade among signatory nations and was the predecessor to the modern World Trade Organisation.
Since the CEA won its judgment, Thailand has opened its markets and imported cigarettes have become, in general, premium commodities in the Thai market. In particular the two biggest players in the import market are Philip Morris, manufacturer of Marlboro and L&M cigarettes, and Japan Tobacco with their Mild Seven brand.
Currently the three major players in the market for raw tobacco are TTM for domestic purposes and two major exporters, Premium Tobacco Thailand and Alliance One International (locally known as Siam Tobacco and Adams) both global tobacco merchants, exporting tobacco out of Thailand through joint ventures with local partners.
What makes Thailand unique among tobacco producing countries is that it can grow the three major types of tobacco thanks to its climate and soil. The three types _ Virginia, burley and oriental – all have different flavours and undergo different curing processes before they can be shipped out. The varieties are grown in different regions with Virginia coming from the Upper North near Chiang Mai and Chiang Rai, burley from the Lower North near Sukothai and oriental in the North East close to Khon Kaen.
Thai tobacco, as an unnamed source from the tobacco industry explained to me, is used as a filler tobacco in cigarettes that is blended (infact, all those interviewed, Thai and expats, have requested anonymity as they, as ‘millers’, prefer to stay in the background, shying away from the media, which is dominated by global brands such as Philip Morris, or, in Thailand, the tight-knit industry ruled by the government monopoly.) The reason is that tobacco is further divided into the categories of filler and classical where classical tobacco provides most of the flavour in a cigarette whereas filler makes up the majority of the body. Thai tobacco is noted for its generally smooth and mild characteristics, so it makes the perfect filler material.
Tobacco is a huge business in Thailand that employees hundreds of thousands of people and generates vast amounts of revenue for the government. Estimates are tricky to come by for the number of farmers growing tobacco in Thailand, but there are over 40,000 tobacco farms in the country, so numbers are quite significant. Between a farmer, his family and any field hands who may be employed, there could be up to 200,000 people working in the growing, harvesting and sale of tobacco.
A tobacco processing factory I saw outside of Chiang Mai, at the height of the season, had hundreds of people working; separating qualities, packing cases into trucks, operating machinery, quality control and everything else that goes into the process. The number of people working along the line, the whir of machines and smell of stepping into what seemed like a super humidor that tickled my nose and eyes was impressive and overwhelming to see.
Once the workers at cigarette plants, the people in exporting, importing, marketing, TTM government employees, and everyone else is considered, the only reasonable estimate is to say that a lot of people are involved in the industry.
There are three factors in considering the government’s take from the industry. The first is that TTM pays import tariffs on bringing in tobacco, so the classical tobacco added to Thai brands generates a duty. TTM being a subsidiary of the Ministry of Finance means that profits go back into government accounts. Excise taxes and VAT are also levied on cigarette sales. Every government makes money off tobacco, but not every government makes money like Thailand does. The irony of a government increasing its censorship on tobacco while reaping such financial benefits is more obvious in Thailand than in other countries which merely profit from taxation. My contact said that “all in all tobacco is one of the major income contributors to the government”.
Times are Changing
So what are the general changes that are coming to tobacco in Thailand? The first is the change in consumption habits. In general the two major market segments where tobacco use is growing are amongst women and the switch from roll-your-own to manufactured cigarettes.
Women in Thailand, and across Asia, are a huge growth market because tobacco has generally been considered a manly activity and female smokers were frowned upon and considered unladylike. In the more traditional and conservative parts of the country, this stigma still holds, but modernisation is quickly changing that stereotype. Estimates still hold that the number of female smokers is less than 10% of the population and a far cry from the number of men who smoke, but the gap is shrinking. It is no longer such a rare sight to see a woman holding a cellphone in one hand and a cigarette in the other.
The switch from Roll Your Own ‘RYO’ to manufactured ciggarettes is another big change as RYO is falling out of fashion for numerous reasons. RYO traditionally has been the staple of the rural farmer because the tobacco is much cheaper and a farmer is able to both sell and smoke his own crop. But with demographic shifts from rural to urban areas, lack of access to freshly cured tobacco and perceived status, manufactured cigarettes are taking over from RYO.
Image, being so important, may be the first reason, but TTM has also aggressively expanded into the economy cigarette market. SHOOT and SMS are two brands recently launched that follow this goal by costing only a fraction of mid-tier brands such as Gold City or Falling Rain. TTM has most definitely exploited this market because of the rising affluence in Thailand, but also because it brings so much more money into the government’s coffers.
The second major transition has been in tobacco farming. Because of increased global competition from countries like China and Brazil, the demographic shift to urban areas among young people and how difficult tobacco is to farm, Thailand has had a general declining trend of tobacco growth.
I spoke with employees of one of the exporters and was told, “the biggest problem we face is convincing a young man to farm tobacco instead of becoming a taxi cab driver in Bangkok, this isn’t just a tobacco issue, but an agriculture versus urban living one”. Tobacco requires months of caring for a particular crop with very detailed needs that must also be raised with consistency to create a regular product. “That is why we need to treat our farmers very well. There is a lot of competition from competing crops, so we spend a lot of time supporting and helping our suppliers, wooing them to grow tobacco. Our agronomy departments have introduced a number of new growing practices over the years which have improved the overall quality and yield to the farmers with the knock-on effect of providing them with the best possible profit.”
Whereas in countries like the United States, mechanisation is a huge part of agriculture, Thailand still relies on labour. With smaller farms in Thailand, than, say the swathes of tobacco growing areas in the United States or Africa, would require extensive and unrealistic capital investments on the part of the farmer to make the switch.
Instead Thai farming requires labourers to go over a field by hand often five or six times. The reason being that a tobacco plant ripens from the bottom up, so after a few months some leaves may be ready for harvest, but the rest of the plant still is not ready for market. Over a few weeks, a farmer will have to check and check again over the crops to make sure and harvest once the specific segments are ready. This process, on the one hand, acts as a method of quality control, but also is very time and effort intensive.
However tobacco offers a handful of distinct advantages for a farmer. The first is that export companies and TTM provide support from trained professionals when it comes to horticulture and agronomy. These specialists are able to assist a farmer when choosing pesticides, caring for the soil and tweaking methods to produce the right taste for the leaf. Illegal and environmentally damaging chemicals are avoided and farmers generally do not face as many crop failures are a result.
Besides support, farmers can also count on fairly consistent demand and a good payoff from raising tobacco. Once a farmer has a bale of tobacco ready and cured, then he can easily sell it and take home the money that day. The consistency of the market is also a big boon because, according to my contact, many farmers are subject to “knee jerk reaction when choosing crops”. Farmers may hear that a certain crop like garlic or soy beans had a big year, so en masse they can decide to jump on the bandwagon. As a result, come harvest time there is overproduction, prices plummet and the farmers make out like paupers instead of bandits.
Tobacco however, even with these advantages, is not invincible. I was told that the biggest reason for the decline of tobacco production comes from “other cash crops such as corn and rice”. While tobacco is one of the best cash crops to produce, these crops have the advantages of being easier to farm, receiving government subsidies and utilising better machinery. Even though these crops may not make as much money per rai, they allow farmers to enjoy the advantage of harvesting from greater areas of land and thus make more money.
Thailand’s tobacco industry’s future faces some challenges.
First and foremost are new proposed regulations involving cigarette packaging. Proposals concerning packaging have been to either increase the size of warning labels on the box or to make their horrific images even more off-putting.
Already the Thai government has required companies to remove certain misleading words from their cigarettes such as how Marlboro Lights became Marlboro Golds. The other proposal has been to make all boxes plain white with only the name printed. The aim of such changes is to reduce apparent ‘brand’ appeal, but may have a tradeoff in increasing smuggling and counterfeiting which is already a concern in the region.
Advertisement regulations are also being discussed that would further prevent companies from sponsoring outdoor events or sport teams. Currently, these are about the only avenue for companies as they already have been banned from print, radio, television and billboards. If this were to pass then Chiang Mai FC might have to get a new sponsor instead of TTM.
As country after country around the world impose smoking restrictions and increase taxes on cigarettes, the tobacco industry in Thailand is healthy and hale with a government sitting pretty harvesting some very satisfactory rewards.