Tuesday, July 3, 2007

Cutting their nose to spite their face

Further to my Aytaroun post, I thought it would be interesting to try to learn more about tobacco subsidies in Lebanon. I interviewed Asma Bazzi a graduate student in Environmental Policy, working under the guidance of Dr. Nader Kabbani from the Department of Economics at The American University of Beirut. Asma is writing a thesis on tobacco in South Lebanon. She told me the tobacco story.

Tobacco cultivation became a state monopoly started under the Ottoman Empire in 1884. The “Societe Anonyme de Régie Co-interessee Libano-Syrienne de Tabacs et des Tombacs” was created in 1935 and given effective legal monopoly of the tobacco trade in both countries. After independence, it became known as the Régie Libanaise des Tabacs et des Tombacs and retained the exclusive trading rights for tobacco imports and exports and local trade. The Régie has been under governmental control since 1991.

Tobacco subsidies were initiated by the French Mandatory Government in 1936 primarily for rural development purposes, especially to reduce rural-urban migration. Tobacco gained importance in the 60s and 70s, declined during the war and picked up again in 96-97, especially in the Southern qadas of Marjeyoun, Bint Jbeil and Sour.

Tobacco cultivation contributes to the livelihoods of 24,000 farmers, in addition to more than 1000 seasonal laborers. Moreover, the Régie counts 1,500 employees. In the year 2001, nearly 92,000 dunums (9,200 ha) were planted in the whole of Lebanon. 64% were in the South, 20% in the Bekaa and 16% in the North. During the same year, the South produced 5,800 tons of tobacco (62%), the Bekaa 1,870 tons (20%) and the North 1,740 tons (18%), for a total Lebanese production in 2001 of 9,410 tons. The best tobacco (Saada 6 variety) is grown in the South. The Bekaa grows Burley and Saada-6, and the North the low value Saada-33 also known as tombac (Régie data).

Most tobacco farmers are small and poor. Half of them plant less than 4 dunums (0.4 ha, just under 1 acre). The Régie only purchases tobacco planted by farmers having permits, and only one permit is allowed per family. A farmer cannot plant or sell tobacco without a permit from the Régie which specifies the area to be planted and the crop volume expected.

Tobacco is a very labor intensive crop, requiring 610 workdays per hectare per year. For comparison, cereals require 25 days per hectare per year, and irrigated vegetables cultivation 242 days per hectare per year. The gross income of the average 4 dunums plantation in the South was $3,210 per year in 1999, five times greater than that for wheat (another dryland crop) (Association pour le Developpement Rural). Values for 2006 fell in the same range.

While tobacco is important for the livelihoods of farmers from all over Lebanon, it is especially crucial for the Southerners. A survey dating from 1999 indicated that tobacco provides 25% to 85% and sometimes 100% of the total income of farmers (ADR).

Tobacco farming increased by 24% after the liberation of the South in 2000, especially in the cazas of Bint Jbeil, Marjeyoun and Sour. Tobacco cultivation has been vital in the livelihood rebuilding process that followed liberation, both for those who were in the resistance and for those who were in the pro-Israeli South Lebanon army. Moreover, a number of farmers from villages on the border used to work in the Israeli settlements and had to stop their activities after the liberation. Tobacco offered a post-war alternative and an opportunity to re-adapt to working in Lebanon.

In the South, tobacco is called “the crop of steadfastness”. Had it not been for tobacco and its subsidies, the South would have witnessed more intensive migration and emigration, and Israel would have easily reinvaded Lebanon in July 2006. Tobacco subsidy may have been a central factor in determining the outcome of the war.

For many years, a string of Hariri governments, and now the Sanioura government, have been threatening to remove the subsidies. They have accused the tobacco subsidies of draining the national economy.

What is the value of the tobacco subsidy? In 2005, there were 13,738 tobacco farmers in the South. The value of the subsidy paid by the Régie to Southern farmers was $15.5 million, equivalent to 40% of the value of the crop. This is nearly $1,000 per farmer family. Another $15 millions was spent on the 10,000 farmers of the North and the Bekaa. They are subsidized at 75%. The total value of the subsidy (price paid above market price) is close to $30 millions per year. This much is known to most people.

What is less known is that most of the Lebanese tobacco is exchanged for foreign cigarettes from international tobacco corporations. These cigarettes are then resold on the local market for a handsome profit (close to $5 millions in 2005). The main bartering partners are Philip Morris (43%) and British American Tobacco (23%).

So the tobacco subsidy help people from the poorest areas of Lebanon construct a livelihood and remain attached to the land, while providing the government and the Régie with a handsome profit. Why should they want to stop it?

Could it be because it is called the crop of steadfastness?

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