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25.02.2010 General posts

Tobacco subsidies in Spain

Cigarette boxes warn: Smoking kills.
But the EU still subsidizes tobacco plantations. Ana Carricondo from the Sociedad Española de Ornitología traces the weird twists of tobacco support in her country. While some improvements have been made recently, tobacco farmers still receive 4,000€/ha on average.

The history of tobacco in Spain dates back to the discovery of the New World. Since the very beginning, the cultivation and processing of tobacco was supported by the government to respond to the ever increasing internal demand. However, it was only during the 1960s and ‘70s that tobacco production fully developed into the main economic activity in several regions, such as some valleys in Extremadura.

Today, Spanish production accounts for about 13,000 hectares of cultivated area and around 40,000 tons of tobacco. This places Spain third in terms of production at European level, but corresponds to just 0,7% of world production. Spain is clearly not competitive on the global market, most notably in comparison with China, which produces 2 million tons annually.

While Spain does not have a competitive advantage in tobacco production, the sector is important for direct and indirect employment in tobacco-specialized regions, and this has led to high levels of public support in recent decades. Currently, tobacco producers receive payments of nearly 7,800€/ha. Since the 2003 CAP reform, these consist of decoupled income support (35%), subsidies coupled to production (60%) and quality premia (5% - under Art. 69). Together, they account for around 83% of farmers’ total revenues, which highlight the key role of subsidies in tobacco production.

One issue is the favouring of tobacco farmers over other farmers. Another, in a wider approach, is the inconsistency between the EU’s agricultural and health policies: why subsidize the production of tobacco and then spend additional money warning consumers against the dangers of smoking? Furthermore, from an environmental point of view, tobacco is a high-intensity crop with significant impact, requiring high quantities of fertilizer, pesticides and water. The sector doesn’t make a case for “greening” subsidies through agri-environmental payments, since no substantial benefits could be delivered by production at the industrial scale needed to maintain the level of employment. What is needed is development away from growing tobacco towards other crops or economic activities, suitable for conditions of involved areas.

In fact, the 2009 reform of the CAP (‘Health Check’) phased out subsidies coupled to tobacco production, only keeping decoupled payments and the quality programme (through the new Art. 68). Although this still leaves an average payment of around 4,000€/ha (of which 82% is decoupled income support and 18% is from the application of Art. 68), it seems to be a step in the right direction. Until 2013, the released funds will be used for transitional second-pillar programmes to restructure the sector (both conversion and diversification measures). In the long-term, even the untargeted decoupled payments (based on a historic model in Spain) should disappear, while a new agriculture policy supporting public goods delivery should be established.

The case of cotton is similar: a couple of thousand euros per hectare for ecologically unsustainable farming goes to a few specialized regions. Things are even worse, since there is as yet no deadline for the phasing-out of cotton-specific payments that come without agro-environmental requirements. But that is another story…