Minispike: Tobacco economics

[Welcome to a new Spike series, Minispike, in which I don’t have to get out of my purple velour armchair to pontificate.] 

A kind reader scratched an investigative itch with the simple question, “If Japan Tobacco (JT) no longer wants to buy leaf tobacco from Fukushima, what do you think their preferred alternative is?”

JT is the developed world’s third largest cigarette company, thanks in part to its 1999 takeover of RJ Reynolds International. At home, it has around two-thirds of the market. It’s the privatized 1985 incarnation of the 1949 tobacco, salt, and camphor monopoly (name three modern uses for camphor—I can’t), and according to the 1984 Tobacco Business Law, it’s required to buy every last leaf of the domestic tobacco crop. A monopsony situation, then, with only one buyer but many sellers, but given the strictures of the law, Japanese tobacco growers must be making nicotine hay, no?

No. Japan Tobacco lays it out for the curious in its annual report (on p138-p139 here). Domestic tobacco grower numbers fell from 23,000 in 2001 to 12,000 in 2010. The area under tobacco cultivation fell from 24,000ha to 15,000ha. Domestic tobacco production volume fell from 60,000 tonnes to 36,000 tonnes. The value of the domestic tobacco leaf crop fell from Y117bn to Y68bn, even though the price per kilo remained roughly flat, at Y1,800-Y1900 or so. JT has managed to achieve this because, by its own admission, it stuffs the Leaf Tobacco Deliberative Council, the price and acreage setting commission, with members it appoints, as it admits on p59-60 of its annual report with a delicious footnote:

Contracts stipulate the area to be cultivated and the prices of leaf tobacco for the subsequent year, and in this regard JT respects the opinion of the Leaf Tobacco Deliberative Council*

(*Footnote: The Leaf Tobacco Deliberative Council is a council which confers on important matters concerning the cultivation and purchase of domestically grown leaf tobacco in response to inquiries by JT representatives. The council consists of no more than 11 members, appointed by JT with the approval of the Minister of Finance from among domestic leaf tobacco growers and academic appointees.)

The last Leaf Tobacco Deliberative Council reported on November 17, 2010, here:  

The Council was in general agreement with JT’s proposal (surprise!), and determined that in 2011, the domestic tobacco cultivation area will be set at 14,301 hectares. The leaf tobacco grower price will be set at an average of JPY 1,869.28 per kilogram for all leaf types.

While the price is stable, the acreage is down 6.5% YoY.

It doesn’t take a supersleuth to work out what is happening: JT, faced with a domestic market that is shrinking dramatically, is trying to get rid of the domestic leaf tobacco industry as fast as it can without causing too many political hiccups, or—to be fair—too much domestic grower dislocation, as tobacco farmers are no doubt mostly on the far side of 60. It’s a very orderly arrangement in many ways, but it does nothing to help the economy of Fukushima’s Tamura, which is where we came in.

All I knew at the beginning of this tale was that Tamura, according to the city’s website, accounted for more than a third of the tobacco grown in Fukushima. But how big a tobacco-growing prefecture is Fukushima? It turns out that it’s no higher than seventh on the national rankings, according to the Japan Leaf Tobacco Growers Association (Japanese only pdf here), although tobacco growing is fairly evenly distributed from north to south. I would guesstimate now that only 10% of Tamura farmers are left in the evil weed business.

The domestic leaf tobacco industry is an overlooked template for the unfortunate inefficiencies and protectionisms of Japanese farming as a whole.

This is all academic, though, as Fukushima’s leaf tobacco crop this year will not be see the smoky light of day, sadly, as on April 9, the prefectural growers’ association decided to suspend operations because of Fukushima Daiichi (Japanese only link here). No need to tell me about the carcinogenic ironies.

Why is Japanese leaf tobacco uneconomic? Well, to JT the domestic industry sells at around $25/kg. The prices in Malawi and Zimbabwe are about a tenth of that.

So in answer to my kind reader’s question—where does JT want to buy tobacco from—the answer is Africa (and Brazil), as you can see from the leaf grower acquisitions it made in 2009 on p39 of the annual report.

[P.S. I am genuinely touched and astounded by the messages of support in the last 24 hours–many, many thanks to you all. I’ll witter on.]

39 responses to “Minispike: Tobacco economics

  1. You are so cruel.❤

  2. Hmm, seems you’re back. Glad to see but what happened?

  3. I’m also glad you’re back, even though I’ve only “known” you a month or so. I did have a “fun” time reading all your old messages, and now looking forward to more.😉

  4. Whoot, you’re back!
    *happy dance*

  5. that’s a good news – that your back – THANK YOU !!!!

  6. I believe our host wishes to remain discrete about what happened. Pachiguy, whatever befell you, I hope you’ll steer through it; thank you for everything you gave us so far, and thank you for being back!

  7. I tried doing some additional calculations… According to this page (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition) , the share of the primary sector in the Japanese GDP is only 1.1%. This one (http://www.worldtradescanner.com/Japan%20Fishing%20Industry%20Struggling%20after%20Tsunami.htm) attributes 0.2% of it to fishing, leaving only 0.9% for agriculture (and mining and forestry, but I guess one can safely neglect their contributions today).

    However, in the case of tobacco, the 90% price increase over international markets can be seen as a subvention… But GDP is calculated using observed prices, and so should over-valuate the contribution of tobacco by a tenfold factor!

    If this rate of subvention was common in Japanese farming, then not only should the actual farming contribution to Japanese GDP be accounted as around 0.1%, but worse, this would imply the whole sector would be a net liability of around 0.8% of GDP to the whole economy! That’s more than two-thirds of the Japanese military budget…

    Obviously, since I don’t know the actual subvention rate, these figures shouldn’t be given too much credit (or credit at all). But the whole idea appalled me. Do you think farming is a net positive or a negative contributor to the country’s economy?

    • “Do you think farming is a net positive or a negative contributor to the country’s economy?”
      Now that’s a tough one–I try and be an expert on tiny things (so noone will disagree with me). But probably on balance negative, as you suggest. The negative GDP impact from leaf tobacco is exceptionally bad (proportionately; in absolute terms it doesn’t matter a kindling). However… I don’t care. I don’t want to see rural Japan and its beautiful though sometimes overhyped satoyama destroyed. I don’t want Japan, with its fundamentally uneconomic farming industry, to cave in to the TPP, even though I’m a free trader in every other respect, because no medium-sized nation should allow its farmers and its rural infrastructure to be destroyed on a spurious point of principle.

      • In a country with one of the lowest rates of food self-sufficiency in the world, tobacco farming is a criminal waste of productive agricultural land.

        Japan will never be able to feed itself and it has little land that is suitable to more mechanized, larger scale agriculture (Japan’s agriculture is still classified as “intensive gardening,” if I’m not mistaken), but it could be more productive and provide a more varied “abundance” since rice consumption has declined so much over the last couple decades.

        Off soap box now (used to pay attention to this sort of thing a long time ago).

  8. mini spike better than no spike!

  9. What, have you forgotten Vicks Vaporub! Too long in the mysterious East laddie.
    Also moth balls, Indian cooking, Hindu religious ceremonies and apparently as an embalming agent, although whether it is used in ‘modern’ embalming is an issue best left to those in the funeral industry.
    Glad to have you back, it has been a difficult 24 hours for us all.
    My partner is a journalism lecturer and she commends your blog to her students as, to quote her words, a “fascinating and stylish way of combining narrative journalism and pics”.

    • Now that made me laugh. I grew up with Vicks Vaporub but never made the camphor association. A deprived childhood. I checked the Big W before I wrote, so I knew what I was about to challenge, but there are whole stretches of life that have passed me by while I’ve been mesmerised by old cricket videos on YouTube.
      ‘My partner is a journalism lecturer and she commends your blog to her students as, to quote her words, a “fascinating and stylish way of combining narrative journalism and pics”.’
      She’s far too generous. My photos are awful (but I love them just the same).

  10. Hey, you’re back. I’m pleased to see that rumours of your retirement were greatly exaggerated.
    Carry on, soldier.

  11. I didn’t get to leaving a message on the other thread before I saw this one, but I too think this blog is outstanding. I only found it at the beginning of the Haus Ten Bosch series (a month or two ago, I believe). Absolutely amazing writing that you do, but I can see how the longer articles must take unbelievably intense amounts of research. If something in “real life” keeps you away from these articles, of course, entertaining the lot of us is hardly necessary. But if you have time, now and again, to turn out more posts (including shorter ones like this one), I for one will keep coming back. Good luck with whatever is going on your life now, and thank you for the edutainment you’ve provided thus far. Luckily, I still have quite a bit of archives to wander through.

  12. An excellent blog. I will get you on my blogroll.

    As for Japanese agriculture… I am not interested in getting into a philosophical debate about ‘globalisation’ and the ‘race to the bottom’ for labour and commodity prices. However, I rather wonder if a high-income, expensive-labour, relatively small-yield industry isn’t better off changing its paradigm, whether or not it exists behind protectionism: ‘organic’ produce and meats. This is not kool-aid I drink uncritically, but it is some that could be sold to the Japanese public, given the various local and mainland Asia food scandals. Japan’s growing regions are so isolated from each other, if not by seas then by drianage systems, that you would think a few of them could get organized enough to ban pesticides and GM seeds throughout.

    Clearly, little good for Fukushima. They shoud reforest it and leave it alone for a few generations.

    • “However, I rather wonder if a high-income, expensive-labour, relatively small-yield industry isn’t better off changing its paradigm, whether or not it exists behind protectionism.”
      Elements of it are trying. “High quality”, whatever that may precisely mean, is the selling point, but the near abroad markets that can pay $5 per apple from Aomori, say, are precious few. “Organic” is also, I guess, a growing niche market, but the the question remains very wide open to my mind whether Japan as a nation can really afford “organic” at the moment.

      “Clearly, little good for Fukushima. They shoud reforest it and leave it alone for a few generations.”

      Funnily enough, about two-thirds of it is forest already. Leave it alone? Where do 2mn people go?

  13. Would just like to add myself to the list of people who are excited to see this blog continue. Thank you.

  14. Glad to see that your demise was short-lived.

    A couple of people have muttered direly to me about a long-term impact on domestic cigarette production due to the loss of Fukushima crops (I assume the thinking runs that since the shortage of a particular made-in-Japan filter type was behind the recent Mild Seven drought, Japnese cigarettes must also be dependent on some autochthonous tobacco variety). Interesting to see that Fukushima’s a minor part of the production and that JT is anyway nudging volume overseas.

    Incidentally, I’m sure there would be a (black) market for cigarettes made from “irradiated Fukushima tobacco”, in the same vein (or lung) as the Death cigarettes that were goth-chic to smoke when I was in secondary school. If that’s not too macabre a thought.

    • “Incidentally, I’m sure there would be a (black) market for cigarettes made from “irradiated Fukushima tobacco”, in the same vein (or lung) as the Death cigarettes that were goth-chic to smoke when I was in secondary school.”

      Now *that’s* lateral thinking! I see a premium product here, with some seriously high value-added. We must suggest it to the prefectural leaf tobacco growers association at once.

      Thanks for your support, aragoto, much appreciated.

  15. It`s great to see you’re back! I’m very relieved that Spike has not disappeared.
    And thank you for answering my question about JT!

  16. Jolly good. Keep wittering away…

    • Sorry to miss the screening of The Swap, but I caught the promo trailer on YouTube and you were a star (and we know which variety). Los Rizlas are the bizlas!
      For those who have no idea what we’re talking about, see here:

      • Has Lemmy moved to Japan?

      • You’ve got me there Jeffrey! Could you elaborate? BTW, I’ve tracked down the Pluto kun T-shirts and a mini-post will follow soon–many thanks for your tip-off.

      • The one chap with the mutton chops reminds me of Lemmy of Motorhead. Prior to that, he was in Hawkwind! What are the chance in the usually short R&R’s life of being in two bands considered punchlines!?

        http://en.wikipedia.org/wiki/Lemmy

  17. Count me amongst the voices who were too late to say, “oh, don’t go!”, but are here to say, “we’re glad you’re not gone!”

  18. Likewise.

  19. Also coming in late–it’s good to see you’re still writing. When I first encountered this blog, I read it from metaphorical cover to cover, and it’d be a shame to see you quit at this point.

  20. Was gutted to see you shut up shop. Glad it was only for a day or so. Always looking forward to the next instalment..

  21. Glad to see you back posting🙂

  22. Another reader thrilled to see that you are going to continue the blog.

  23. I have dicked around on my blog for a half year to see what kind of writing I might stick with were to write a book. I’ve finished reading half of your posts, and you’ve got your book right here. Nothing like it, that I know of, in the online and bound writing about Japan. The quality, and your voice, starts high and only gets better. The bleakness reminds me of Paul Theroux, minus the snide comments at the expense of people who won’t have an opportunity to defend themselves.

    • “The bleakness reminds me of Paul Theroux, minus the snide comments at the expense of people who won’t have an opportunity to defend themselves.”

      Ah, bleakness is one of my fortes, along with his brothers, despair and nothingness.

      One vignette from Paul Theroux has always stuck in my mind. It comes from Burma circa 1973-1974, in The Great Railway Bazaar:

      Towards the end of the afternoon the engine kept breaking down. The man next to me, a policeman with exemplary patience, said, ‘The oil is hot. They are waiting for it to cool.’ He was obviously pained by my questions and assured me the train would arrive at seven: ‘If not at seven, then definitely at eight.’
      ‘It is a slow train,’ he said at Thazi, where the train broke down for the fourth time. ‘Dirty and old – old coaches, old engines. We have no foreign exchange.’
      ‘But it doesn’t take much foreign exchange to buy a broom.’

      Never had any respect for him since.

  24. Alternative: smoke pipes and cigars. Get some style back into smoking.

    18 year pipe smoker myself. I hate cigarettes. They are junk food, low quality tobacco. Yes, I’d love to see more pipes and cigars in Japan.

    Now I’m reminded of a rant “alternative” singer Hans Söllner once let go. He ranted about how he smoked everything in his garden, but only got diarrhea. When Chernobyl happened he went at again, because, quote, “maybe something would give me a kick now!”

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