• Tobacco farming has become a forgotten sector of the EU’s Common Agricultural Policy (CAP)
• The sector is rarely discussed in EU agri-food policy circles and there is little information available on the farming subsidies paid to the industry
• But S&P Global found that the next CAP could keep handing out €100 million or even up to €270 million to tobacco growers between 2023 and 2027
• The expenditure seems to conflict with the EU’s anti-cancer plans and its aim to create a “tobacco-free generation” by 2040
• The case for ending these subsidies is stronger than ever as EU farming policies are increasingly linked with health and environmental goals
• But scrapping the funds is not a panacea and could risk higher imports of less sustainably produced tobacco

EU tobacco producers benefit from the same subsidy support system as any other farmer in the bloc, but the subsidies for this controversial crop are rarely discussed in agri-food policy circles in Brussels. It’s as if European tobacco production has become a forgotten sector of the EU’s Common Agricultural Policy (CAP).

However, an S&P Global investigation found that EU tobacco farmers keep receiving around €100 million from the CAP, which seems to contradict the European Commission’s anti-cancer plans to drastically reduce smoking and other forms of tobacco consumption across the bloc.

This political misalignment did not raise any uproar when members of the European Parliament and EU farming ministers decided to keep providing area-based direct payments to producers of raw tobacco in June 2021, as part of their deal on the new CAP for the 2023-27 period.

But this situation may change as S&P Global reveals that the sector will keep profiting from a considerable amount of EU money, even though tobacco is not an edible food crop and the subsidies therefore have no impact on food supplies or security.

The subsidy amounts can only be calculated based on estimates, as the Commission gives no real information on these payments – possibly to avoid public criticism for supporting such a highly controversial sector.

The latest data from the EU’s statistical body Eurostat just show that there were around 26,000 producers of raw tobacco in 2018, cultivating a total of 66,000 hectares. Italy, Greece and Poland were the main producing countries with around 14,000 hectares, followed by Spain with 8,000 hectares.

Based on the expected average payment amounts per hectare (which are regardless of the specific crop grown), S&P Global found that the CAP pays almost €20 million in direct aid to raw tobacco growers every year (see table behind paywall). This would add up to around €100 million in total for the complete five-year period of the current EU farming policy (2023-27).

But that is probably still a modest estimate, as some EU member states can also provide ‘transitional national aid’ (TNA) to their farmers and used this to spend €36 million on tobacco production in 2019, according to the EU’s declaration of its farm support to the World Trade Organization. Central and Eastern European countries successfully pushed to maintain these payments in the negotiations on the revised CAP – although the amounts paid should be reduced every year – and this could see another €130 million in CAP subsidies go to tobacco production between 2023 and 2027.

The EU also reported €7.8 million in CAP market support for tobacco in 2019 and if that continues, it could build up to nearly €40 million over a five-year period. This would bring the bloc’s total farm support for the sector to €270 million in 2023-27.

Conflicts with cancer plan

Spending such huge sums to subsidize tobacco production seems hypocritical when the EU aims to drastically reduce the consumption of tobacco through its ‘Europe’s Beating Cancer Plan’.

The European Commission presented this strategy in February 2021 and set out a new EU approach to help member states reduce the human suffering caused by cancer. The strategy hopes to trigger more decisive actions to prevent a projected 24% in cancer deaths by 2035 by tackling the entire disease pathway – from prevention to diagnosis, treatment and follow-up care.

One of the plan’s most ambitious objectives is creating a “tobacco-free generation” in the EU, with less than 5% of the population using tobacco by 2040. This would require a decrease of 20 percentage points over the next two decades, as around a quarter of EU citizens still use tobacco now.

Commission officials explained that they are targeting tobacco use because it is one of the leading causes of preventable cancers and can be attributed to 27% of all cancers and 90% of lung cancers. The EU executive also pledged to take a range of measures to achieve this tobacco-free objective, including reducing the attractiveness of smoking through plans for plain packaging, a ban on flavors, curbs on cigarette advertisements and possibly higher national taxation.

These efforts will span across several policy areas, including education and social policies, but also environmental, climate and agricultural policies. Yet the Commission failed to make any mention of the future CAP and its role in supporting tobacco production in its 31-page-long plan.

Better than before

It should be noted that the CAP’s role was much worse in the past. Until the early 1990s, tobacco was the most highly subsidized crop per hectare and received around 3-4% of the CAP’s budget, leading to total annual expenditure of more than €1 billion ECUs – the predecessor of the euro.

This support was implemented through a complex system of production subsidies, quotas, price-setting and the buying of excess product for storage, with the key purpose of maintaining the incomes of tobacco farmers. But the policy failed miserably in this objective and expenditure spiralled out of control, while the EU lost out on the market and remained the largest importer of raw tobacco in the world.

EU policymakers eventually abolished this system in the early 1990s. However, they decided to maintain some of the support in the form of direct payments to farmers and rural development measures for tobacco-growing regions, which proved to be a much cheaper way to support the industry.

The main objective of these subsidies stayed the same – ensuring better incomes for EU farmers growing the crop – but it was clear that this was done far more efficiently by offering payments decoupled from production.

This shift in design silenced the biggest public criticisms of the CAP’s support for tobacco, and the public debate about these subsidies died out. Not too long after that, the Commission no longer organized a working group to discuss the CAP’s tobacco policies, and now it struggles to maintain a well-developed portal for the crop on its website.

Trade impact

It is also unlikely that removing the remaining CAP subsidies for tobacco would have a big impact on EU consumption, since manufacturers are likely to keep buying raw tobacco from wherever they can get it cheaper – whether this is from inside or outside the EU.

In fact, the EU produces less than 2% of the world’s raw tobacco and has been increasing its net purchases of the commodity – with imports reaching 420,000 tonnes and exports at just 120,000 tonnes in 2018.

However, it can be argued that any EU financial support for tobacco seems inappropriate given the health risks associated with tobacco consumption and the contradictions with the Commission’s own anti-cancer plans.

For instance, the €100 million could be used to help prevent chronic diseases by addressing poor diets, such as through the promotion of fruit and vegetable consumption, or even be deployed for other policy initiatives that could help tackle cancer, such as smoking prevention campaigns.

The ambitions of the Farm to Fork strategy mean that the case for ending the remaining subsidies for tobacco now seems better than ever before, as EU policymakers have been increasingly linking the bloc’s farming policies with health and environmental objectives. From this perspective, cutting off the farming subsidy stream to tobacco production could be a logical next step for EU policymakers.

But the best argument to maintain these payments could echo trade concerns from the European farming groups opposing the F2F plans – where the narrative follows a tried-and-tested format: scrapping CAP funds could reduce the EU’s own production and make the bloc even more dependent on less sustainably produced imports.

Regardless, a public debate on ending tobacco subsidies is unlikely to materialize any time soon, given the silence from EU policymakers on this topic in recent years. This suggests they may be hoping that the CAP’s support for tobacco stays forgotten in the future.

Posted 14 September 2021 by Pieter Devuyst, News Analyst, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.