Law

Who’s smoking so much in our country?


By Ro­drigo Ibar­rola

A lit­tle over a year ago, the Cen­ter for Analy­sis and Dis­sem­i­na­tion of the Paraguayan Econ­omy (CADEP), the best think tank in the coun­try, 17th in the re­gion and 68th in the world (in in­ter­na­tional eco­nomic pol­icy), high­lighted the ex­cess pro­duc­tion of cig­a­rettes by the na­tional to­bacco com­plex. The study pro­voked heated con­tro­ver­sies on the man­age­ment of the in­dus­try and en­er­getic replies from the busi­ness as­so­ci­a­tion and its as­so­ci­ated press me­dia.

The CADEP study used in­ter­na­tion­ally val­i­dated method­olo­gies to es­ti­mate lo­cal pro­duc­tion and use (with as­sis­tance from the Uni­ver­sity of Illi­nois, Chicago). Strictly speak­ing, the re­port only re­con­firmed what other re­ports had al­ready found in to­bacco pro­duc­tion: an ex­cess of pro­duc­tion that is not in line with na­tional con­sump­tion, which sparks sus­pi­cions about the des­ti­na­tion of the bulk of lo­cal pro­duc­tion.

To es­ti­mate to­bacco pro­duc­tion, CADEP used the avail­able in­for­ma­tion on raw ma­te­ri­als used in the pro­duc­tion process: in method 1, the im­port of cel­lu­lose fil­a­ments for fil­ter pro­duc­tion (Cen­tral Bank of Paraguay, BCP), a tech­nique ap­plied in a pre­vi­ous study in 2018, and, in method 2, the lo­cal pro­duc­tion and im­port of un­processed to­bacco (data from the Min­istry of Agri­cul­ture and Live­stock and the BCP), a tech­nique also car­ried out in 2018, by an­other study. The re­sults of these cal­cu­la­tions -al­ways es­ti­mates- were quite close to the pro­duc­tion ad­mit­ted by the rep­re­sen­ta­tive of the Paraguayan To­bacco Union (UTP), José Or­tiz Es­cau­r­iza.

Graph 1. Es­ti­mated pro­duc­tion (method 1 and 2), in­dus­try out­put. In mil­lions of 20-cig­a­rette packs

Source: Own cre­ation based on CADEP and UTP data.

To de­ter­mine the de­mand for cig­a­rettes, i.e., lo­cal use, CADEP in­te­grated data from var­i­ous sur­veys, such as the In­te­grated House­hold Sur­vey (EIH) of 1997/​1998 and 2000/​2001 and the Sur­vey of In­come and Ex­pen­di­tures and Liv­ing Con­di­tions (EIGyCV) 2011-2012, of the for­mer Gen­eral Di­rec­torate of Sta­tis­tics, Sur­veys and Cen­suses (DGEEC). In ad­di­tion, in­for­ma­tion was taken from the Global Youth To­bacco Use Sur­vey (EGTJ) for the years 2003, 2008, 2014 and 2019, a com­po­nent of the Global To­bacco Sur­veil­lance Sys­tem, sup­ported by the Min­istry of Ed­u­ca­tion and Sci­ence (MEC), the Min­istry of Pub­lic Health and So­cial Wel­fare (MSPBS) and the Pan Amer­i­can Health Or­ga­ni­za­tion (PAHO). The 2011 Na­tional Sur­vey of Risk Fac­tors for Non­com­mu­ni­ca­ble Dis­eases (ENFR), pre­pared by the MSPBS, was also con­sid­ered, ac­cord­ing to which the preva­lence of in­di­vid­ual con­sump­tion was 14.6% of the pop­u­la­tion over 15 years of age. The es­ti­mate of to­tal do­mes­tic use is shown in the fol­low­ing graph.

Graph 2. Es­ti­mated do­mes­tic con­sump­tion. In mil­lions of 20-cig­a­rette packs

Source: Own cre­ation with CADEP data.

The con­tro­versy re­gard­ing the CADEP study arose from the es­ti­mated pro­duc­tion de­clared to the Un­der­sec­re­tariat of State for Tax­a­tion (SET), which was cal­cu­lated based on the av­er­age sales price in the mar­ket, re­sult­ing in a sales vol­ume lower than the es­ti­mated pro­duc­tion. In other words, it was con­sid­ered as an in­di­ca­tion of the ex­is­tence of tax eva­sion by the to­bacco com­plex. Since the tax re­turns are made based on the fac­tory sales price -al­ways lower than the sales price to the fi­nal con­sumer-, the de­clared sales es­ti­mate was un­der­es­ti­mated. Con­se­quently, this er­ror caused the to­bacco grow­ers to file a civil law­suit against CADEP, which sub­se­quently re­tracted this point and pub­lished a new ver­sion of the doc­u­ment omit­ting this chap­ter. Apart from the sit­u­a­tion men­tioned above, the other data pre­sented are still ab­solutely valid.

The is­sue is that it is im­pos­si­ble to de­ter­mine -with cer­tainty- the fac­tory sales prices with­out an on-site ver­i­fi­ca­tion of the doc­u­men­ta­tion. Fac­tory sales prices are re­ported to SET only through a monthly af­fi­davit. In ad­di­tion, the SET’s Hechauka sys­tem, which cap­tures the in­voices is­sued by the com­pa­nies, does not record the de­clared sales con­cepts of the in­voic­ing.

De­spite this, we have tested a method to de­ter­mine the av­er­age fac­tory price, based on the an­nual ag­gre­gate pro­duc­tion data con­tained in Form 160, ob­tained from SET through the Pub­lic In­for­ma­tion por­tal. Based on this, the fac­tory sell­ing price has been de­ter­mined to be ₲749 per pack for 2019 (Table 1). Clar­i­fy­ing that this value is -just- an av­er­age of ag­gre­gated data, cer­tainly, not ex­act, but quite ap­prox­i­mate.

Table 1. Re­ported sales, ex-fac­tory price and mar­ket price

Source: Own with data from SET, UTP, The Econ­o­mist In­tel­li­gence Unit.

On the other hand, re­view­ing data from the Sofia Sys­tem of the Na­tional Cus­toms Di­rec­torate (DNA), it has been de­ter­mined that the amount of cig­a­rette packs ex­ported by the to­bacco com­plex has de­creased by 59% since 2012, stand­ing at around 152 mil­lion packs (Graph 3). A note­wor­thy fact is that, in DNA’s records, no ex­ports to Brazil are recorded within the pe­riod shown. How­ever, it is the most com­mon site for cig­a­rette seizures, in ad­di­tion to seizures in Ar­gentina, Uruguay, Chile, Peru and Colom­bia.

Graph 3. Es­ti­mated do­mes­tic use. In mil­lions of 20-cig­a­rette packs

Source: Own cre­ation with DNA data.

From the pro­duc­tion and ex­port data ob­tained, and un­der the as­sump­tion that do­mes­tic con­sump­tion is given by es­ti­mated de­mand, it can be con­cluded that there is a gap of about 2501 mil­lion packs in ex­cess. That is, the dif­fer­ence be­tween es­ti­mated pro­duc­tion mi­nus what is used lo­cally (ac­cord­ing to smok­ing preva­lence) and what is ex­ported, left that num­ber (2501 mil­lion packs) whose des­ti­na­tion or use, in real terms, is un­known.

Fig­ure 4. Ex­ist­ing gap be­tween pro­duc­tion and do­mes­tic use plus ex­ports. In mil­lions of packs of 20 cig­a­rettes.

Source: Own cre­ation with data from SET, UTP and DNA.

The CADEP study used internationally validated methodologies to estimate local production and use (with assistance from the University of Illinois, Chicago). Strictly speaking, the report only reconfirmed what other reports had already found in tobacco production: an excess of production that is not in line with national consumption, which sparks suspicions about the destination of the bulk of local production.

As­sum­ing the preva­lence of con­sump­tion of 14.6%, we would have a to­tal of 738,889 smok­ers over 15 years of age in 2019, who should have smoked, on av­er­age, 9 packs per day each that year. An ab­sur­dity.

There­fore, it is worth ask­ing -as did the for­mer Min­is­ter of the In­te­rior, Ar­naldo Giuzzio- “Mava piko la opi­taitereía ñande re­tame? (Trans­la­tion from the na­tive Guarani lan­guage: Who in our coun­try is smok­ing so much?”

Cover im­age: ABC Color.

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