Curbing the Epidemic Governments and the Economics of Tobacco Control The World Bank Presented by Prabhat Jha, on behalf of the Report team and the Human Development Network

Why did the World Bank produce this report? Economic arguments for, or against, tobacco control are unclear and often debated n In 1957, British Chancellor of the Exchequer warned of “the enormous contribution to the Exchequer from tobacco duties and the serious effect on the Commonwealth...that a campaign against smoking would have” n In 1996, an Asian Health Minister stated “cigarette producers are making large contributions to our economy... we have to think about workers and tobacco farmers” Source: Pollock 1996, Tobacco Control 1996, The Economist 1997

Methodology n Consultation workshops: Washington D.C. 1996, Beijing 1997, Cape Town 1998 u Proceedings published n Background papers (17): “Tobacco Control in Developing Countries”, Oxford University Press u Reviews of literature u New Research

Outline of Report n Why intervene to control smoking? n Which interventions are effective and which are not? n What are the costs of tobacco control? n Key recommendations

Why should governments intervene? Large and growing number of deaths from smoking World: Annual Tobacco deaths (in millions) Source: Peto, Lopez, and others 1997; WDR Developed 2 ~3 Developing ~2 ~7 World Total 4 ~10 u 1 in 2 of long-term smokers killed by their addiction u 1/2 of deaths in middle age (35-69)

Smoking is more common among the less educated Smoking prevalence among men in Chennai, India, by education levels Source: Gajalakshmi and others, background paper

Smoking accounts for much of the mortality gap between rich and poor Risk of death of a 35 year old male before age 70, by education levels in Poland 1996 Source: Bobak and others, background paper; Jha and others 1999

Why should governments intervene? Economic rationale or “market failures” n Smokers do not know their risks n Addiction and youth onset of smoking u Lack of information and unwillingness to act on information u Regret habit later, but many addicted n Costs imposed on others u Costs of environmental tobacco smoke and health costs

Tobacco addiction starts early in life Source: Chinese Academy of Medicine 1997, Gupta 1996, US Surgeon General Reports, 1989 and 1994, Authors’ calculations n Every day 80,000 to 100,000 youths become regular smokers

Health costs from smoking n Annual costs are about 6 to 15 percent of total health costs in high-income countries u Differences in lifetime costs are smaller than annual costs u Short-term cost escalation n “Smokers pay their way” arguments are complex, and often misused u Low pension coverage in low/middle income countries

Government roles in intervening n To deter children from smoking n To protect non-smokers from others’ smoke n To provide adults the needed information to make an informed choice u First-best instrument, such as youth restrictions, are usually ineffective. Thus, tax increases are justified, and are effective. u Tax increases are blunt instruments.

Unless current smokers quit, smoking deaths will rise dramatically over the next 50 years Source: Peto and others, 1994; Peto, personal communication.

Which interventions are effective? Measures to reduce demand n Higher cigarette taxes n Non-price measures: consumer information, research, cigarette advertising and promotion bans, warning labels and restrictions on public smoking n Increased access to nicotine replacement (NRT) and other cessation therapies

Taxation is the most effective measure n Higher taxes induce quitting and prevent starting n A 10% price increase reduces demand by: u 4% in high-income countries u 8% in low or middle-income countries n Young people and the poor are the most price responsive

Cigarette price and consumption go in opposite trends Real price of cigarettes and annual per adult cigarette consumption in South Africa Source: Saloojee 1995

What is the “right” level of tax? n Complex question u Depends on various factors, degree to which society wishes to protect children, revenue considerations, etc. n Useful yardstick: where comprehensive programs used, tax is at least 2/3 to 4/5 of retail price.

Cigarette tax levels are lower in low or middle-income countries Source: Authors’ calculations

Non-price measures to reduce demand n Increase consumer information: dissemination of research findings, warning labels, counter-advertising n Comprehensive ban on advertising and promotion n Restriction on smoking in public and work places

Comprehensive advertising bans reduce cigarette consumption Consumption trends in countries with such bans vs. those with no bans (n=102 countries) Source: Saffer, background paper

Potential impact of a price increase of 10% and a package of non-price measures Source: Ranson and others, background paper

NRT and cessation therapies n NRTs double the effectiveness of cessation efforts and reduce individuals’ withdrawal costs n Governments may widen access to NRT and other cessation therapies by: u Reducing regulation u Conducting more studies on cost-effectiveness (especially in low/middle income countries) u Considering NRT subsidies for poorest smokers

Which interventions are ineffective at reducing consumption? Most measures to reduce supply n Prohibition n Youth access restrictions n Crop substitution n Trade restrictions n Control of smuggling is the only exception and it is the key supply-side measure

What are the costs of tobacco control? n Revenue loss: likely to have revenue gains u a 10% tax increase would raise revenue by 7% n Job loss: temporary, minimal and gradual n Possible smuggling: crack down on criminal activity, not lower taxes n Cost to individuals, especially the poor: partially offset by lower consumption

As tobacco tax rises, revenue rises too Real price and tobacco revenues in the U.K., Source: Townsend 1998

Studies on the employment effects of dramatically reduced or eliminated tobacco consumption Source:Buck and others, 1995; Irvine and Sims, 1997; McNicoll and Boyle 1992, van der Merwe and others, background paper; Warner and others 1996

How cost-effective are tobacco control measures? US dollars per DALY saved Note: 3% discount rate, costs for non-price measures and all benefits projected over 30 years Source: Ranson and others, background paper

Summary n Tobacco deaths worldwide are large and growing, and have higher burdens in the poor n Specific market failures support government intervention n Demand measures, chiefly tax increases, information, and regulation are most effective to reduce consumption n Control of smuggling is the major supply-side intervention n Tobacco control is cost-effective

Key recommendations n Governments : adopt multi-pronged strategy, tailored to each country u cigarette tax increases: 2/3 to 4/5 of retail price u consumer information, research, advertising and promotion bans, warning labels and restrictions on public smoking u widen access to NRT and other cessation therapies n International agencies : review policies, sponsor research, address cross-border issues and support the FCTC