Uncertainty caused by the ban on tobacco products has forced many producers in the multibillion-rand industry to watch helplessly as their planting season passes by.
Farmers are unable to plan the next cycle in the year-long process of tobacco growing while there is no indication when the coronavirus-related ban will be lifted.
Ahead of the ban the sector, which was set to have brought in billions in tax revenue this year alone, was already facing tough times. It had been hard hit by the aftershocks of the mushrooming illicit cigarette trade and consumer behavioural change which has seen the number of smokers decline significantly.
The ban has been in force for more than 130 days now. It has cost more than R4.5 billion in lost excise tax revenue, put 300,000 jobs at risk and forced smokers to buy unregulated products from the underground market at exorbitant prices, says British American Tobacco South Africa’s (Batsa) head of external affairs, Johnny Moloto, in media statement.
Industry juggernaut Batsa fought government’s actions in court this week on behalf of the tobacco industry. It is the second court case to contest the constitutionality and administrative validity of the ban.
Following two days of intense debate, it is now up to the Western Cape High court to reach a consensus over the ban on the sale of tobacco products.
Batsa presented their arguments against the regulation prohibiting the sale of tobacco products before a full bench of the court on Wednesday and Thursday. They are joined in the action by applicants Japan Tobacco International (JTI), the South African Tobacco Transformation Alliance (SATTA) and eight other parties including representatives of retail and smokers.
‘We look forward to a swift end to this excessive prohibition which is impoverishing decent citizens, enriching criminals and destroying jobs and livelihoods.’ – Johnny Moloto
Batsa and co-applicants’ advocate Alfred Cockrell says that the constitutional rights of tobacco producers and smokers were grossly being infringed upon. Cockrell rubbished government’s “perverse concerns” over the potential health risks associated with smoking.
The state, meanwhile, maintained that the ban is in place to safeguard the health of South Africans and to prevent further strain on the already pressurised health system, making reference to various health experts to prove their case.
An industry distressed
Research conducted by the University of Cape Town (UCT) recently has shown that the ban on tobacco has failed dismally to prevent people from smoking and simultaneously resulted in the booming of the illicit market, robbing the state of billions in tax revenue.
According to Tobacco Tactics, a study conducted by the Tobacco Control Research Group three years ago, 20% of the South African adult population smoked cigarettes. A further 5% of the population surveyed were also dependent on various tobacco products.
In 1993, smoking prevalence among adults was estimated at approximately 33%. A significant decrease in tobacco consumption occurred between 1990 and 2010, after which it plateaued around the current level.
While these changes in behaviour may have previously impacted the industry, the current reach of the ban has been economically crippling, believes chief executive officer of the Agricultural Business Chamber (Agbiz), Dr John Purchase.
“(Tobacco) is a multibillion-rand industry, if you look at the extent of the ban on tobacco sales and the loss of excise duties to government we are talking about billions of rands in taxes that have been lost in the process.”
The ban on the legal sale of cigarettes has enabled the illicit market to mushroom uncontrollably, Purchase adds. “The reach has been enormous,” he emphasizes.
“You can ban the legal part, but that illicit trade is where the problem lies. The smuggling operations, the illegal production of cigarettes – that all goes into the black market. It undermines the whole process. People are still smoking. It made no sense to ban the sale of tobacco.”
Batsa is the largest tobacco manufacturer and distributor of tobacco products in the country, holding 74% of the legal market, followed by the JTI at 9% and Phillip Morris International, at 8%.
The multibillion-rand company is the distributor of, among others, Dunhill, Lucky Strike and Peter Stuyvesant.
Tobacco production is a time intensive industry, Purchase adds. “With the uncertainty now, it’s very difficult for farmers to plan the tobacco planting season, which will pass soon again.”
‘It undermines the whole process. People are still smoking. It made no sense to ban the sale of tobacco.’ – Dr John Purchase
Tobacco leaf is grown in several provinces of the country. From the early 90’s until 2014 production decreased by 54%. Along with the decline came the decrease in the number of producers and tobacco processors.
“It is very important to know what your market is going to look like, to know that there is going to be an offtake agreement for product distribution, you have got to prepare inputs, fertilizers, seedlings; and it’s a whole year-long process to produce tobacco.”
The war has only begun
Batsa has vowed to continue to fight the tax-evading illicit cigarette trade, championing the consumers’ right to purchase legal tobacco products of their choice in their legal application.
“We look forward to a swift end to this excessive, unconstitutional and unworkable prohibition, which is impoverishing decent citizens, enriching criminals and destroying jobs and livelihoods,” says Moloto.
The tobacco company says it is confident that legal council has demonstrated that the government’s ban was “unjustifiable” in law and science. The math and evidence in arguments presented by government’s defence team does not add up, Batsa representatives emphasized. The UCT research found that 93% of smokers were still buying contraband on the black market despite the prohibition.
“Consumers are having to pay prices on average more than three times higher than before lockdown, generating huge profits for syndicates from organised crime, who become deeper entrenched by the day,” Moloto stresses.
“Consumers have the right to access the brands of their choice, and businesses and individuals have a right to earn an honest living.
“We look forward to the day when the ban is lifted and consumers are free to buy legal products at normal market prices,” he adds.
Judgement has been reserved in the matter.