Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A....
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![Page 1: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/1.jpg)
Privatized Cigarette Enterprises and Public Health:
Evidence from Turkey and Ukraine
By
Ayda A. Yurekli, Ph.D
World Bank
KOBE- Japan , December 2001
![Page 2: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/2.jpg)
The Key Policy Question
• Does privatization exacerbate the adverse health impact and market failures that beset tobacco products? if so, what regulatory or other measures would be appropriate?
![Page 3: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/3.jpg)
Objective of the Study
• To examine the impact of the entry of private sector cigarette manufacturers in Turkey and Ukraine from a public health perspective looking at changes in:
production and consumption levels cigarette prices product appeal.
![Page 4: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/4.jpg)
Expected Benefits and Outcome of Privatization
Efficiency
and
Productivity
Lower Prices
Higher Quality
More Variety
• Increased
- Consumption
- Users
- Accessibility
- Affordability
EXPECTED OUTCOME
EXPECTEDBENEFITS
LEADS TO
![Page 5: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/5.jpg)
How does Privatization of Cigarette Enterprises affect Public Health ?
• Increased
- Consumption
- Users
- Accessibility
- Affordability
EXPECTED OUTCOME
on PUBLIC HEALTH
Increasing deaths and diseaseIncreasing health care costsIncreasing burden on • smokers• non-smokers• families• society• economy
![Page 6: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/6.jpg)
Factors Affecting Efficiency
Ownership matters– Public ownership– Private ownership
Market structure matters– Competitive environment– Government intervention
![Page 7: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/7.jpg)
Labor productivity in Private Cigarette Enterprises in Ukraine
Labor Productivity of Private Cigarette Enterprises in Ukraine,
1995-1999
0
200
400
600
800
1000
1200
1995 1996 1997 1998 1999
Pro
du
cti
vit
y
PM Product. Reemstra
![Page 8: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/8.jpg)
Labor productivity in State Cigarette Enterprises
Labor Productivity by State Cigarette Producer TEKEL in Turkey
1988-1999
0
2
4
6
8
10
12
14
Prod
uctiv
ity- t
on o
f pr
oduc
tion/
empl
oyee
Labor Productivity of State Cigarette Producers in Ukraine- post
privatization period
0
50
100
150
200
250
300
350
1995 1996 1997 1998 1999
prod
uctiv
ity
![Page 9: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/9.jpg)
Labor Productivity: Private vs. state cigarette
enterprises
Labor productivity in Private and State Cigarette Enterprises in Turkey, 1998
2847
1953
784
0
500
1000
1500
2000
2500
3000
3500
RJR Philsa Turkish
1000 p
acks o
f cigar
ette
produc
tion pe
r emplo
yee
Labor Productivity in Cigarette Enterprises in Ukraine and difference in productivity (%) compared to UkranianCigarette
Factories
2%
122%
551%
568%
352%
30%83%
328%367% 281%
0
200
400
600
800
1000
1200
1995 1996 1997 1998 1999
1000
pack
prod
uced
per
emplo
yee
Philip Morris Reemstra Ukranian Factories
![Page 10: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/10.jpg)
Privatization and Production:Is production higher after privatization?
Cigarette Production by State and Private Cigarette Enterprises in Turkey
0
20000
40000
60000
80000
100000
120000
Cig
aret
tes
(to
n)
Total Cigarette TEKEL Private
50% increase since 1992
21% increase since 1992
730% increase since 1992
Private production started
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Would privatization increase consumption?
Trend in Cigarette Consumption in Turkey, 1987-1999
0
20000
40000
60000
80000
100000
120000
140000
Mill
ion
Pie
ces
Total consumption
TEKEL
Private
![Page 12: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/12.jpg)
Cigarette Consumption Trend in Turkey
Cigarette Consumption in Turkey, 1970-2000
20000
40000
60000
80000
100000
120000
140000
1970 1975 1980 1985 1990 1995 1996 1997 1998 1999 2000
Ove
rall
Cig
aret
te
Con
sum
ptio
n (M
illio
n P
iece
s)
50
60
70
80
90
100
110
120
130
Cig
aret
te
Con
sum
ptio
n P
er
15+
(pac
ks)
Overall Cigarette Consumption Cigarette Consumption Per 15+
![Page 13: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/13.jpg)
Real Price Matters
Nominal and Real Cigarette Prices in Turkey, 1994-2000
0
100200
300
400500
600
700800
900
1994 1995 1996 1997 1998 1999 2000
No
min
al P
rice
(00
0 T
L/p
ack)
0
10
20
30
40
50
60
70
80
Rea
l P
rice
(00
0 19
95
TL
/pac
k)
Nominal Price, Foreign Brands Nominal Price, Domestic Brands
Real Price, Foreign Brands Real Price, Domestic Brands
![Page 14: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/14.jpg)
Non-price tobacco control measures and marketing
• Since the late 1980s, Ukraine and Turkey introduced rather comprehensive tobacco control measures
• Problem with these measures are: They are:
– Weak– Not being implemented– Easily abused
• Aggressive Marketing and Distribution System
– Tailored products to existing smokers, – Made it accessible even in remote areas – Hired additional sales people in Turkey for distribution – Increased point-of sale advertising
![Page 15: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/15.jpg)
The Impact of Privatization on Prices
If privatization leads to higher efficiency and lower unit costs of production, then an enterprise may choose to reduce consumer prices
If state-owned enterprises were being subsidized by the government, a reduction in subsidies after privatization might result in higher consumer prices.
![Page 16: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/16.jpg)
Competitive Environment and Pricing Policies in Turkey and Ukraine
Prices for Privately Produced Ukraine Cigarettes
0
0.2
0.4
0.6
0.8
1
1.2
1996 1999 2001
US
$/p
ack
Prima (Reemstra) L &M (PM)
Marlboro (PM)
Cigarette Prices for Selected Brands in Turkey
00.20.40.60.8
11.21.41.61.8
US $/
pack
Tekel 2000 Bafra nofilter Marlboro short
![Page 17: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/17.jpg)
Price Control in Turkey and its impact on cigarette prices
Brand/
Price
Samsun 100mm
pack
Tekel2000 100mm
pack
Maltepe 85mm
pack
Birinci 68mm
pack
Production Cost +Taxes
362,325 601,404 323,873 318,223
Retail Sale Price
325,000 650,000 275,000 200,000
Profit/Lost Per Pack
-37,325 48,596 -48,873 -118,223
![Page 18: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/18.jpg)
Government subsidy and its impact on prices
• Tobacco has been one of the most highly subsidized agricultural products in Turkey
– In 1996, US$9.1 billion - through transfers
• US$7 billion implicit taxing of consumers
• US$3 billion directly from tax payers
– Internal and external borrowings
• In the long run, this is unsustainable
• Given apparent TEKEL pricing policy and subsidies, it is possible that prices of TEKEL brands could be increased when it is privatized
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The impact of privatization on qualityFrom Public health perspective:
Quality is a problematic concept with respect to cigarettes
Definition: produced from high grade tobacco leaves and packaged in appealing ways, and has smooth taste.
But all cigarettes – even those produced with the highest grade leaves –
harm the health of smokers and of non-smokers who inhale the smoke.
![Page 20: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/20.jpg)
The Impact of Privatization on QualityFrom economic perspective
State-enterprises –less incentive to improve quality Protected from competition High import barriers Inability to invest in new technology
Private enterprises – high incentive To increase sales and market share Capture all income groups by product
differentiation, and packaging To stay competitive
![Page 21: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/21.jpg)
Pros and Cons of PrivatizationPros• Increases foreign investment• Increases government revenues• Funds can be reallocated to other good uses • less conflict of interest for government (increasing cigarette
production and reducing demand)• In the short run, price may increase• Products may be more appealing to consumers
Cons: Health and economic burden may increase1. Private producers may:
1. influence government’s decision on TC measures2. abuse TC measures using loopholes in the regulations
2. Aggressive marketing, promotion, distribution, 1. Smoking age is getting younger- early teens 2. may raise consumption
![Page 22: Privatized Cigarette Enterprises and Public Health: Evidence from Turkey and Ukraine By Ayda A. Yurekli, Ph.D World Bank KOBE- Japan, December 2001.](https://reader035.fdocuments.us/reader035/viewer/2022062618/5514fb71550346935c8b619f/html5/thumbnails/22.jpg)
Conclusion:• For efficiency
– policy towards competition and regulation appears to be very important.
• Privatization will likely increase – production – consumption of cigarettes
• Government should intervene in the market before or after privatization by setting regulatory tobacco control framework to protect consumers– Especially, when market failure and externalities exist
• Government intervention affects pricing– Pre-privatization- price control, subsidies– Post-privatization- tobacco tax policies
• No compromise and discussion on TC measures with the private enterprises