WASHINGTON, D.C. – More government-owned tobacco companies are falling into private hands, presenting new opportunities and ethical dilemmas for investors, finds a new report from the Investor Responsibility Research Center. While the privatization trend supports economic reforms advocated by free-trade groups like the World Trade Organization, it also invites more aggressive marketing practices that spread the health risks of smoking.
The main benefactors of the ongoing industry consolidation are private sector tobacco companies now dominated by three global players—Philip Morris, British American Tobacco and Japan Tobacco. These companies account for more than 60 percent of tobacco product sales by 99 publicly traded tobacco companies worldwide, according to the just-released tenth edition of IRRC’s Tobacco Industry directory. Besides Japan Tobacco, other large regional players that were until recent years wholly owned government enterprises include Altadis, Korea Tobacco & Ginseng and Austria Tabak. Gallaher Group of the United Kingdom is acquiring the Austrian government’s remaining stake in Austria Tabak, making it the latest government-owned tobacco company to be fully privatized.
Top 10 Publicly Traded Tobacco Companies in 2000
Company, Tobacco Sales (in $ millions), Home Country
Philip Morris Cos. Inc., $31,952, USA
British American Tobacco PLC, $17,991, UK
Japan Tobacco Inc., $17,284, Japan
R.J. Reynolds Tobacco Holdings Inc., $8,167, USA
Loews Corp., $4,342, USA
Altadis SA, $2,135, Spain
Imperial Tobacco Group PLC, $1,903, UK
Gallaher Group PLC, $1,551, UK
Korea Tobacco & Ginseng Corp., $1,430, South Korea
PT Gudang Garam, $1,399, Indonesia
Source: IRRC. Sales figures exclude excise taxes; list excludes tobacco leaf processors.
More Privatizations Coming
More government privatizations of tobacco firms are underway or are in the works in Bulgaria, Egypt, Italy, Morocco, Romania, Taiwan and Turkey. Even China’s government tobacco monopoly is entertaining joint venture bids with private companies to manufacture cigarettes in the world’s largest cigarette market.
“When it comes to cigarettes, free trade and public health are on a collision course,” says Doug Cogan, director of IRRC’s Tobacco Information Service. “Casualties are going to mount as private companies build their global distribution channels.”
According to the World Health Organization, smoking-related deaths are on a path to reach 10 million annually by 2030, compared to 4 million this year. “Nothing is likely to change this projection as long as cigarettes are such a great source of tax revenue for governments—and of profits for investors,” Cogan predicts.
IRRC’s Tobacco Information Service tracks institutional tobacco investment policies as well as developments in the global tobacco industry. Cogan says momentum for tobacco divestment has stalled in the United States, one year after California’s two largest employee pension funds and four state university systems adopted tobacco investment bans. In June, trustees of the Florida State Retirement Trust Fund reversed a four year-old policy and reinvested in tobacco stocks, marking the first time fund trustees had ordered such a shift.
The tobacco industry still faces a litigation minefield, however, with allegations of complicity in smuggling, price fixing and concealment of the health risks of smoking. “To avoid being crippled by these suits, the tobacco companies must step very carefully,” Cogan warns. “They are starting to get bloody, but they are still unbowed.”
IRRC is an independent group that conducts research for institutional investors on corporate social responsibility, corporate governance and proxy issues. As an impartial firm, it takes no advocacy positions on the issues it follows.