Tob Control: first published as 10.1136/tobaccocontrol-2011-050395 on 16 February 2012. Downloaded from http://tobaccocontrol.bmj.com/ on April 7, 2024 at Pakistan:BMJ-PG Sponsored.

The shameful past

A brief overview of the tobacco industry in the

last 20 years
Stella Aguinaga Bialous,1 Silvy Peeters2

< An additional table is ABSTRACT makers to increase their level of coordination and
published online only. To view Since the launch of Tobacco Control 20 years ago, there collaboration in order to continue to implement the
this file please visit the journal WHO FCTC.
online (http://tobaccocontrol. have been several changes in the tobacco industry
bmj.com/content/21/2.toc). worldwide. The goal of this commentary is to present Other changes in the USA market were designed
1 some of the keys changes of the past two decades. This to decrease the exposure of PMI and BAT assets to
Tobacco Policy International,
San Francisco, California, USA time is marked by mergers and acquisitions that led to USA litigation. In 2003, United States’ RJ Reynolds
2
Tobacco Control Research the existence, today, of four major transnational tobacco Tobacco Holdings and BAT’s Brown & Williamson
Group, Department for Health, companies: Philip Morris International, British American Tobacco Corp. combined their assets to create
University of Bath, Bath, UK Tobacco, Japan Tobacco and Imperial Tobacco. The Reynolds American Inc, with BAT holding 42% of
possible role of the China National Tobacco Corporation the shares of the new company. In 2008 Altria,
Correspondence to
Dr Stella Aguinaga Bialous, 676 in the world tobacco market is also discussed. In until then the parent company of Philip Morris
Funston Avenue, San Francisco addition, in the past decade there was an increase in USA and PMI, spun off PMI, a separate legal entity.
CA 94118, USA; tobacco companies’ investment in non-cigarette forms of Another significant development of the past two
[email protected] nicotine delivery. The impact of these changes for decades has been China’s 2001 entry into the World
tobacco control policy is briefly discussed. Trade Organization. While China continues to be
Received 26 August 2011
Accepted 19 December 2011 a desirable potential growth market for the TTCs,
China’s entry into the World Trade Organization
did not immediately open doors to the Chinese
When Tobacco Control was launched in 1992, Philip market. The Chinese State Tobacco Monopoly
Morris International’s (PMI) global cigarette sales Administration Association/China National

Protected by copyright.
reached 400 billion sticks. Its volume has since Tobacco Corporation (CNTC), which in 2009
more than doubled, reaching almost 900 billion reportedly sold 2290 billion cigarettes (a 40%
sticks in 2010 (table 1).1 There have been several increase from 2002) making it the largest tobacco
other subsequent changes in the global tobacco company in the world by volume,4 remains state-
market, besides volume growth. What remains owned. CNTC has undergone a series of reforms in
unchanged is that the transnational tobacco the past decade to become more competitive,
companies (TTCs) continue now, as then, to including restructuring cigarette production facili-
pursue shareholder value, market freedom and ties and developing business partnerships with
social acceptability for their products, and for countries such as Brazil and Zimbabwe. Notwith-
themselves. Despite significant advances in tobacco standing those measures, as well as some (relatively
control, including the advent of the WHO Frame- minor) joint venture and licensing agreements
work Convention on Tobacco Control (FCTC) in reached with some TTCs for the manufacturing
2003, tobacco companies (both private and state- and distribution of cigarettes in China5 6 (online
owned) continue to reliably post significant profits. supplementary table 1), CNTC continues to firmly
The tobacco leaf business, while economically and control the Chinese market. In addition, CNTC
socially challenging for the growers, continues to now focuses on a smaller number of brands,
offer profits for the handful of transnational leaf approximately 30 brands with high growth poten-
buyers and processors as well. tial, with a slow phase-out of less lucrative brands.7
The past two decades were marked by a large Market research company, Euromonitor Interna-
number of privatisations, mergers and acquisitions tional, suggested this move is about scaling back
that served to strengthen the position of the four domestic brands and ‘grooming’ a few brands into
largest TTCs in the world market (table 1).2 3 global flagship brands,8 which may indicate that
Other previously significant tobacco companies CNTC is planning to emerge on the international
have been folded into one or another of the ‘Big tobacco market.
Four’ (online supplementary table 1). Although the global tobacco market is now
Notable mergers and acquisitions have included highly concentrated, limiting the opportunities for
British American Tobacco (BAT) and Rothmans in further mergers and acquisitions due to competi-
1999, UK-based Imperial Tobacco’s acquisition of tion constraints,3 there are still some expansion
Germany’s Reemtsma in 2002 plus Franco-Spanish possibilities. The Japanese ruling party recently
Altadis and Commonwealth in the USA, both in requested that its parliament consider selling off
2007, and Japan Tobacco International’s (JTI) the government’s 50% ownership of Japan Tobacco
acquisition of Gallaher, also in 2007 (after the latter Inc, and announced in November 2011 the sales of
had acquired several companies itself). This market 17% of its shares.9 BAT and PMI have also shown
consolidation translates to a very strong interna- interest in Egypt10 11 where the market is currently
tional presence by a handful of companies, chal- controlled by Eastern Tobacco, 66% owned by the
lenging tobacco control advocates and policy Egyptian government. Euromonitor International

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 Tob Control: first published as 10.1136/tobaccocontrol-2011-050395 on 16 February 2012. Downloaded from http://tobaccocontrol.bmj.com/ on April 7, 2024 at Pakistan:BMJ-PG Sponsored.
The shameful past

Table 1 The four largest transnational tobacco companies by volume the patent for an aerosol-based nicotine delivery system. Despite
and market share, 2010 figures BAT and PMI not yet selling pure nicotine products, these
Volume (billions World investments are inevitably tied up with the industry’s survival.
Company of cigarettes) market share With growing regulatory pressure against cigarettes, particularly
Philip Morris International (PMI) 899.9* 24.4% in the form of public smoking bans, tobacco companies seem to
British American Tobacco (BAT) 708 20.5% be reframing their business as maintaining nicotine addiction
Japan Tobacco/Japan Tobacco 563y 16.2% through other products, depending vastly on each market and
International (JT/JTI) the regulatory environment. Thus, it seems that now, as in 1963,
Imperial Tobacco 308.7 8.6% tobacco companies remain firmly entrenched in “.the business
Sources: PMI, BAT, JT/JTI and Imperial’s 2010 annual reports (JT/JTI from March 2010 to of selling nicotine ..”16
March 2011) as available on each company’s website. While tobacco companies’ involvement in the political process
*The 140.8 billion cigarettes sold by Philip Morris USA are not included, as it is a separate
company from PMI. and in philanthropy are not new and have been researched, the
yJT/JTI includes 134.6 billion of cigarettes sold in Japan’s domestic market and 428.4 past 2 decades have seen an increase in these companies’ efforts
billion sold by JTI. Not included are the 3.5 billion cigarettes representing the volume of the
JT China Division (including Hong Kong and Macau) and domestic duty free, separately
to promote themselves as responsible corporate citizens as well
reported by the company. as important partners in the development of legislation and
regulation (a selection of papers can be found at http://www.
library.ucsf.edu/tobacco/.docsbiblio). In 2002 BAT published
recently identified Egypt as a top growth tobacco market (by its first Social Report in which it reported on economic, envi-
volume) in the next 40 years, and forecasts it to become the fifth ronmental and social dimensions of its activities.17 Similar
biggest tobacco market in the world.12 Furthermore, industry efforts gained particular emphasis when it became clear to the
analyst Goldman Sachs has suggested that low debt levels, TTCs that the WHO FCTC was making progress and would
strong cash generation, below average valuations and a lack of eventually be approved. The general approach by the ‘Big Four’
organic growth among the TTCs, have created the right condi- (and some of the smaller ones) is very similar, although the
tions for the ‘Big Four ’ to become the ‘Big Three’, with Imperial degree to which they promote themselves and their role as
Tobacco considered the most likely takeover target.13 regulatory partners varies by company and market. Companies
However, with few acquisition options remaining in the tend to be less subtle, and often more aggressive, in markets
cigarette sector, the TTCs’ focus will probably continue to be on where there is less political support for tobacco control. As

Protected by copyright.
growing existing markets, as well as venturing into new new threats to industry profits appear, we see new industry
commercial endeavours, exemplified by the last decade’s strategies develop, such as the exploitation of bilateral trade
increased emphasis on smokeless tobacco and more recently, agreements to oppose national tobacco control measures and
pure nicotine products (figure 1). implementation of the FCTC, as was recently seen with
In 2009 Reynolds American became the first tobacco company Australia’s plain packaging legislation and Uruguay’s health
to acquire a pharmaceutical company, Swedish Niconovum, warnings.18e20
which develops and markets nicotine replacement therapy While the activities of BAT and PMI have been well researched
products. In April 2011 BAT launched a new company (Nico- and documented due to the availability of millions of
ventures) to commercialise non-tobacco nicotine products, internal tobacco industry documents released following litiga-
shortly followed by PMI’s announcement that it had acquired tion in the USA,21 Imperial Tobacco and JTI have received

Figure 1 Timeline of key tobacco industry developments in smokeless tobacco and pure nicotine delivery products. This timeline presents a sample
of key developments and does not aim to be fully comprehensive. BAT, British American Tobacco; JTI, Japan Tobacco International; LD, Liggett Ducat;
PM, Philip Morris; PMI, Philip Morris International; RJR, RJ Reynolds Tobacco company. Sources: Peeters and Gilmore,14 Euromonitor International,12
Ayers et al,15 Star Scientific website.

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The shameful past

somewhat less attention, creating a gap in tobacco control 7. Euromonitor International. Tobacco in China. Executive Summary. 2011. http://
knowledge that needs to be addressed. To help inform future www.euromonitor.com/tobacco-in-china/report
8. Euromonitor International. Global Tobacco Findings 2011. London: Battle
tobacco control policy, new research should focus on the Intensifies, 2011. http://www.euromonitor.com/global-tobacco-findings-2011-battle-
behaviour and strategies of Imperial and JTI as they continue to intensifies/report (accessed 13 Jan 2012).
expand, particularly in North Africa, the Middle East, and Asia 9. Kachi H. Japan’s Tobacco farmers stunt privatization plan. The Wall Street Journal
21 November 2011.
and should continue to explore the similarities and differences in 10. British American Tobacco. British American Tobacco Tekel Announcement Friday
how the four TTCs operate. While potential changes to the 22nd February 2008. 2008. http://www.bat.com/servlet/SPMerge?mainurl¼%
industry have been highlighted above, including a potential 2Fgroup%2Fsites%2Fuk%5F%5F3mnfen%2Ensf%2FvwPagesWebLive%2FDO6FKEVZ
%3Fopendocument%26amp%3BSKN%3D1 (accessed 9 Dec 2011). (investor
takeover of Imperial Tobacco, the emergence of CNTC on presentations section on the BAT website).
the world tobacco market and, if regulation in the cigarette 11. Philip Morris International. Remarks by Louis C. Camilleri Chairman and CEO PMI
market increases further, TTCs becoming nicotine rather than Morgan Stanley Consumer Conference and Retail Conference November 16, 2011.
cigarette companies, it remains to be seen what the next 2011. http://investors.pmi.com/phoenix.zhtml?c¼146476&p¼irol-presentations
(accessed 9 Dec 2011).
20 years will bring for both the tobacco industry and in turn 12. Euromonitor International. Passport: The Future of Tobacco. London, 2011. http://
tobacco control. www.euromonitor.com/the-future-of-tobacco/report (accessed 13 Jan 2012).
13. Elder B, Hume N. Imperial Tobacco lit up by talk of sector merger. Financial Times
Funding Work funded by EC FP7 Grant Agreement HEALTH-F2-2009-223323, ‘Pricing 2011. London.
Policies and Control of Tobacco in Europe (PPACTE)’, contributed to this paper. 14. Peeters S, Gilmore A. A report on the tobacco industry rationale and approach to
Competing interests None. expand sales of smokeless tobacco (snus) in the European Union. A Pricing Policies
and Control of Tobacco in Europe (PPACTE) output. Bath: University of Bath, 2011.
Provenance and peer review Commissioned; externally peer reviewed. 15. Ayers JW, Ribisl KM, Brownstein JS. Tracking the rise in popularity of electronic
nicotine delivery systems (electronic cigarettes) using search query surveillance. Am
J Prev Med 2011;40:448e53.
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the tobacco industry. The limited awareness, particularly in

Invited commentary developing countries, of what constitutes tobacco industry
interference at the political and community levels further calls
The tobacco industry continues to promote products that cause for more attention to the supply-side issues of the epidemic.
a loss of over 5 million lives globally each year. Of particular Poverty in developing countries has given the tobacco industry
concern is that the tobacco industry is vigorously shifting its an upper hand in promoting reliance on tobacco and it is
marketing focus from the West to developing nations in Africa marketing tobacco as a solution. The WHO theme recognises the
and Asia.1 2 This poses a challenge and a public health threat work of the tobacco industry over the decades in deceiving and
for these countries, which already have many competing diverting attention from its activities, as well as acknowledging
priorities for the meagre resources to provide basic human the enormous energy of the tobacco industry to protect its
needs. interests when threatened by the globalisation of public health.3
Responding to this threat WHO has selected ‘tobacco industry The preamble of the Framework Convention on Tobacco
interference’ as the theme of the 2012 World No Tobacco Day. Control notes ‘the need to be alert to any efforts by the tobacco
The campaign aims to expose and counter the tobacco industry’s industry to undermine or subvert tobacco control efforts and
increasingly sophisticated strategies that hinder meaningful the need to be informed of activities of the tobacco industry
tobacco control efforts and undermine the WHO Framework that have a negative impact on tobacco control efforts.’ The
Convention on Tobacco Control. This campaign could not come big question is whether developing countries have the capacity to
at a better time. It is needed to shame the tobacco industry for assess, identify and address tobacco industry activities that have
turning children and young adults into walking billboards, the potential to negate country specific tobacco control efforts.
particularly in developing countries, where many tobacco Scrutiny of industry tactics in the developing world is necessary
control policies are still filled with loopholes easily exploited by to be able to address the specific needs of each country.

94 Tobacco Control March 2012 Vol 21 No 2