3 March 2017:
To privatise or not to privatise – a question Thailand has been asking for a while. Researchers, Mackenzie, Ross and Lee, attempt to answer this question in their latest paper, “Preparing ourselves to become an international organization: Thai Tobacco Monopoly’s regional and global strategies”. Their conclusion is the TTM is functioning well as a domestic operation, but its expansion plans overseas have not materialised and it is vulnerable to the transnational tobacco corporations (TTCs).
The TTM dominates the local cigarette market holding about 70% of the market. Since the trade spate with the U.S. ending in the 1990 GATT ruling opening up the market, TTM which had 99.4% of market share steadily lost ground mainly to Philip Morris International. PMI has now captured 28.6% of cigarette market share and is the leading TTC operating in Thailand. The bulk of PMI’s brands sold in Thailand are imported from the Philippines with a small amount from Singapore.
According to Mackenzie et al, the issue of privatisation of TTM has been raised since 1980s, however there is little information available on how this will be achieved. The public health community has argued against privatisation saying it would make the tobacco industry in Thailand more efficient and lead to more aggressive marketing which in turn will result in higher tobacco consumption.
Between 2004 and 2012, TTM began a restructuring exercise towards efficiency, which resulted in reducing its employees from 4,583 to 2,866. TTM’s cigarette stick exports are not substantial and have been fluctuating with 28.4 million sticks in 2001, declining to 10.2 million in 2007 and increasing to 35.6 million sticks in 2013.
According to the International Trade Centre, 28 countries imported Thai tobacco products in 2014, five markets from the region – Vietnam (31%), Laos (24%), Myanmar (16%), Malaysia (13%) and the Philippines (8.5%) – accounting for 92.5%.
Thai cigarette exports to markets in ASEAN region: 2010 – 2014 (Export Value US$000)
According to Mackenzie et al, TTM profits are predicted to grow in the short term, based on increased production of higher-priced, mid-range and premium cigarettes, which yield higher margins. This, coupled with increased tobacco tax revenues, will ensure the monopoly’s contribution to government revenue will remain dependable in the immediate future.
However, as domestic market share and smoking prevalence continue to decline, pressures to privatise or agree a joint venture could put the two policy domains more directly in conflict. An increased role for TTCs in the Thai tobacco industry could potentially undermine public health efforts given ongoing tobacco industry challenges to national legislation.
Perhaps the more important question is, how strong are the tobacco control measures to withstand a strong tobacco industry? Tobacco control in Thailand has made strong strides to protect public health in the face of challenges from TTM. It will help if TTM went private so that the government is not conflicted when they introduce even stronger tobacco control measures.
The only other tobacco monopoly in the ASEAN region is VINATABA, the Vietnamese state enterprise. VINATABA is considered a government agency and hence can intervene in tobacco control policies which has hampered stronger measures such as substantial tax hikes.
Unlike the Thai monopoly, in Vietnam the TTCs such as BAT and PMI produce their brands locally through joint ventures with VINATABA. VINATABA controls about 55% of the cigarette market share while the TTCs (BAT, PMI, JTI) collectively hold over 35% market share and are on track to increase their market share. Vietnam’s main export for tobacco products are China (19%), Indonesia (10%), Hong Kong SAR (9%), Egypt (7%) and Sierra Leone (6%). Should the Vietnamese government consider privatisation of VINATABA, it should further strengthen tobacco control.
Mackenzie et al paper can be downloaded here