Tobacco farmers lost but not forgotten in tax rumble

January 2nd, 2012 by Philip Brasor & Masako Tsubuku

Smoke 'em if you got 'em: JT HQ in Toranomon, Tokyo

As every smoker in Japan knows, the cigarette tax was raised in the fall of 2010. With ¥3.5 added to each cigarette, it means a pack suddenly cost at least ¥70 more, and as a result sales have dropped by about 20 percent. So-called sin taxes are double-barrelled: They have a behavior modification purpose of discouraging users from over-indulging, and they’re an easy political sell since the consumers (and maker/providers) usually aren’t considered a sympathetic or powerful constituency by the general public. Consequently, the government is thinking of adding another ¥2 per cigarette tax levy to help pay for reconstruction.

The suggestion has been tabled for the time being, though it will likely be revived. The main reason for the postponement isn’t so much Japan Tobacco, which has a monopoly on tobacco sales in Japan, but rather the farmers who supply JT. There are approximately 10,000 households that make a living from growing tobacco, and about 40 percent have said that they plan to quit since they see no future in the crop. The presumed reason is the tax and the trend for quitting, but many farmers say they are getting out of tobacco because JT asked them to. Since JT is obliged to buy all their product, these farmers no longer have a guaranteed future, and with the Trans-Pacific Partnership possibly looming on the horizon, there’s even less of an incentive to stick it out.

Tobacco, like salt and rice, used to be a government monopoly. That changed in 1985 when the monopolies were abolished and Japan Tobacco was established. Despite the change in nomenclature, JT pretty much continued to operate as a monopoly, since it had to buy all the tobacco produced and controlled all sales of cigarettes. JT determined the price of tobacco before each growing season, meaning there was never a market for the crop. This worked fine while sales were strong, but after they peaked in the mid-90s revenues steadily decreased. Starting in 2004, JT solicited tobacco farmers to retire, and about 20 percent did exactly that. The amount of farmland dedicated to tobacco decreased by about 10 percent. Last year, JT asked more farmers to quit the game, and the decrease in farmland was 30 percent.

Part of the reason was the March 11 disaster. A large portion of tobacco farmers are from Fukushima and Iwate prefectures, and when local tobacco farmers unions decided to forego planting because of the nuclear accident, some members just quit. As one farmer told the Asahi Shimbun, it’s difficult to protest the tax increase if it’s going to be used for reconstruction, and most of the farmers are old anyway. The writing is on the wall, and has been for years. Even in Miyazaki Prefecture, on the island of Kyushu, about half the tobacco farmers — more than 400 — have said they will stop growing it. Many already grow other crops anyway, which seems to be the key. Too many tobacco farmers don’t, and would thus have to learn new farming methods if they want to switch crops. This is especially important to them since if they leave their farmland unproductive and the government hasn’t specifically asked them to stop growing, they are taxed more heavily for the land.

So why is the government not going to raise the cigarette tax even more? The main reason is the main opposition Liberal Democratic Party, which has the tobacco farmers’ collective back. Though the government formally got out of the cigarette business back in the 1980s, it still owns a good portion of JT’s stock, about ¥2 trillion worth. The ruling Democratic Party of Japan wants to unload this stock, but the LDP has effectively blocked the sale, understanding that as soon as its gone, tobacco farmers will have no hold on the government. It was the LDP, after all, that first paid farmers to not grow tobacco in order to maintain a high price for the crop. At one time the LDP was the party of all the agricultural concerns, but after the restructuring of the Junichiro Koizumi administration farmers were cut loose, and many turned to the DPJ’s Ichiro Ozawa for political support. He was only too happy to give it to them.

The only farm constituency that has stuck with the LDP is tobacco growers, and out of a sense of obligation the LDP continues to protect them. JT, of course, couldn’t care less. For survival, they’re doing what American tobacco companies started doing in the 1980s — looking for markets abroad and buying up foreign cigarette companies. It’s what globalization is all about.

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