Starving China's Tobacco Monopoly Is Professor Li's Smoking Cure – Bloomberg

Watching Deng Xiaoping chain-smoke through a lunch of bear paw and Moutai liquor at the Great Hall of the People in 1982, Virginia Li saw what she was up against.

Li was an anti-tobacco crusader with a PhD in public health and the crazy idea the Chinese could be persuaded to give up cigarettes. “I said to him, smoking is bad for your health, and I hope you would stop smoking and the Chinese people will smoke less,” she says, recalling the meal with the reformist leader. Deng ignored her advice, and lived to be 92. And in three decades, the ranks of Chinese smokers swelled by 100 million.

A professor at the University of California, Los Angeles, Li returned to China almost every year after she met Deng on a visit with her parents to the country the family left in 1947. Now 81, blind in one eye and reliant on a walking stick, she says she finally has the prescription for getting China to quit: starving the state-owned tobacco monopoly.

To do that, she’s focusing on the people who grow tobacco, not on those who use it.

“Everyone already knows the health argument against smoking, so the really important thing in China is making the economic argument,” says Judith MacKay, a Hong Kong doctor who advises the World Health Organization and World Lung Foundation. Li is trying something new, showing “tobacco control measures need not necessarily harm its economy and the farmers.”

Tobacco Giant

Li’s idea is to start a revolution among China’s 20 million tobacco growers that will deprive China National Tobacco Corp., a giant that manufactures two of every five cigarettes consumed on the planet, of the raw materials it needs. She says she figured approaching the predicament from the agriculture side would be palatable to decision-makers, who are perennially preoccupied with how to feed the country’s 1.3 billion people.

A crop-replacement pilot project she spearheaded with farmers in Yunnan province was a success: They made more money after switching to producing food. If enough others follow suit, China National will have to turn to more expensive sources. It will be forced to raise prices, a goad for smokers to quit. Governments will have to find other tax revenue. The industry’s influence will weaken.

That’s the theory, which Li cautions can’t be implemented too swiftly. “If tobacco farms are fully eliminated right away,” she says, “it will create chaos.”

China, with about 320 million smokers, is hooked in more ways than one.

‘Intractable’ Barriers

The country is the world’s biggest tobacco producer, and tobacco taxes account for about 7 percent of the government’s annual revenue — bringing in roughly $100 billion in 2012. Some cities in agriculture regions rely on tobacco customs for almost half their budgets. There’s a 23 percent levy on cured leaf sales, the only crop on which farmers are taxed.

Resistance to cutting back is practically built into a government-backed web of interconnections and contradictions. China National’s deputy director is Li Keming, the brother of Premier Li Keqiang, who as head of the cabinet is the official ultimately in charge of health-care. The company’s parent, the Ministry of Industry and Information Technology, directs the body responsible for implementing a treaty with the United Nations in which China promised to reduce the harm from tobacco.

The State Tobacco Monopoly Administration regulates the production and marketing of cigarettes — and is headed by the same group that runs China National.

“China faces intractable political, structural, economic and social barriers in tobacco control,” says Hu Teh-Wei, a professor in the School of Public Health at the University of California, Berkeley.

Heart Disease

The country has plenty of reasons to kick the habit. Cancer, diabetes, heart disease and other ailments tied to smoking will crimp national income by $558 billion in the decade ending in 2015, the WHO predicts. About 1 million people die of smoking related causes every year.

For Li, the millions of tobacco growers, most with plots of just a few acres, were as important.

“I was concerned about the tobacco farmers because how could they ever become rich with that little piece of land?” Li says on a bumpy ride at the back of a minivan in rural Yunnan. She visits twice a year to see the progress of former tobacco growers and check on other projects, including her latest, installing eco-toilets in schools.

With funding from the Hung and Jill Cheng Charitable Foundation, started by a family friend, $15,000 of her own money and help from local government authorities, Li persuaded 458 farmers in the corner of southwestern China to spurn the fragrant leaves in 2008 in favor of grapes, mushrooms and other new food crops.

More Money

After four years, every one was making more money, Li says on the ride through Changning, a mountainous county in Yunnan.

Grape-growers sold $15,255 on average from every acre planted in 2010, pocketing $10,175 in profit, more than double the return on tobacco, according to a report Li published in the American Journal of Public Health in September 2012. Those who switched to mushrooms reaped 80 percent more annual net income than neighbors who stuck with tobacco. Their average annual profit was just $4,834.

Now it’s harder to get people with land on the plateaus of Yunnan to grow tobacco, says Xia Ning, deputy director of the industrialization office at the Bureau of Agriculture in Yuxi, which worked with Li on the crop replacement pilot project.

Daring Step

“Other farmers saw the results and also came to us wanting to switch,” Xia says. So many have abandoned tobacco since that cigarette makers hired laborers to plant the crop on farms that shunned it, he says, and the recalcitrant farmers would turn around and dig up the unwelcome seedlings in the night.

The agriculture bureau took something of a daring step when it teamed up with Li. The bureau is based in the same city as Hongta Tobacco (Group) Co., a China National unit that makes the country’s top-selling brand, Hongtashan, and is a main buyer of the crops the bureau encourages farmers not to plant. Hongta’s net income in 2012 was 6.16 billion yuan or $992 million, about the same as the U.S. retailer The Gap Inc. China National itself is as profitable as Wal-Mart Stores Inc.

Calls to China National’s office of external affairs in Beijing weren’t answered. Hongta’s publicity office in Yuxi said its senior management weren’t available for interviews and declined to answer questions sent by fax.

The centerpiece of the garden at the base of Hongta’s 23-story office tower is a giant silver pipe that puffs out wisps of gray smoke. Near the entrance to the Hongta tobacco culture museum, open five days a week, are eight golden pillars in the shapes of cigarettes.

Political Capital

This is tobacco country, but Xia says he hasn’t encountered opposition to the crop-replacement endeavor “because this is still on a small scale.” Come what may, he says, the government tasked the bureaus with helping farmers improve their livelihoods.

It helped shield the bureau, according to Li, that she lent her name and UCLA’s to the project. Some powerful locals endorse what she’s doing; one is Wu Kunyi, a senior health official when Li met her as she started traveling to China in the 1980s to work on public health projects, building the connections to tackle tobacco. Li says Wu introduced her to Yuxi’s top-ranking communist party leader, who gave the pilot project the go-ahead.

The tobacco monopoly’s local bureaus might be Li’s main hurdles. The central government sets local quotas for land that can be used for tobacco production and fixes the price China National pays for cured leaves, and the monopoly bureaus are responsible for securing the raw materials.

‘Farmers’ Fear’

“They can’t force farmers to plant tobacco, but if the village committee is given a quota for tobacco leaves, then there is pressure,” Xia says. “If I’m a village official and a farmer refuses my instruction to plant tobacco, I could say, ‘Alright then. If you need help in future, don’t come looking for me.’ And some farmers will still do it out of fear.”

The tobacco bureau in Yuxi took a page from Li’s book in 2010, approaching a group of farmers with a plan to boost annual yield by consolidating small plots to reap economies of scale. The bureau also offered technical assistance as part of a five-year deal to sell leaves to cigarette makers, according to Yin Wenyu, deputy leader of the group.

It lost money early on, due in part to a drought. Disappointed, Yin says he and his fellow farmers set aside 50 of their collective 500 acres to experiment with grapes in 2011, and liked what they saw.

“The returns from grapes are looking quite good even though the initial investment was much larger,” Yin says.

Contract Renewal

The group plans to increase to 333 acres of grapes, which may mean ending their relationship with the tobacco industry.

“The company raised the tobacco leaf purchase prices 10 to 20 percent each of the past two years after many years of no adjustments, but it’s still not enough to meet our needs,” Yin says, puffing on a cigarette as he oversees workers weighing and packing freshly plucked grapes.

China National’s Yunnan branch is also trying incentives. Four years ago, company representatives began building curing centers around Jifei, a village of 2,000 that’s about 5,600 feet above sea level, says Yang Dewen, the village Communist Party secretary. The company funded 90 percent of the cost, with the county government kicking in the remainder, Yang says during a tour of a 12-shed curing facility opened last year.

Curing Worries

The complex backs onto Yang’s 3-acre plot, enabling him to avoid the home-curing that limited how much he could grow.

“When we were on our own, I could only manage to plant tobacco on less than 1 acre a year because I had a small curing room,” he says. “But now I can plant tobacco on 2 acres because I don’t have to worry about the curing.”

Across Jifei, tobacco-growing has more than doubled to 460 acres since the curing centers opened, Yang estimates. While some of his neighbors have experimented with fruit and flowers, he says those enterprises aren’t likely to be successful because the village is too remote to get fresh produce to market.

On Eshan Mountain, 20 miles from Yuxi’s city center, Yi Zhixiao says he expects to make 2,000 yuan ($330) profit from the sale of about 4,000 yuan worth of tobacco leaves he harvested in the past year. His farm is one-sixth of an acre or about one-and-a-half basketball courts.

“It’s a tough life,” Yi says as he loads a bundle of yellowed leaves onto a cart.

Breaking Habits

He and his wife take turns at night ensuring their leaves don’t burn when they’re left to cure over a low coal-fire in a shed adjoining their house. Curing is a delicate, labor-intensive week-long process that risks ruining the leaves if they’re heated too little or too much.

Over 1,000 miles to the north, in Beijing, the country’s health commission is drafting a proposal for a national ban on lighting up in public places that could help cut smoking rates and ease the pressure on tobacco farmers — if it can break the deep-rooted habits that helped the industry cement its place in China’s economy.

Wu Kunyi, the Li supporter and former leading member of Yunnan’s top political consultative committee, says she’s hopeful.

“Tobacco substitution is going to be very difficult, but it’s something we need to try so we can develop in new ways.” she says. “As more farmers and people in government see that substitution works, we can slowly reduce China’s dependence on tobacco.”

To contact Bloomberg News staff for this story: Daryl Loo in Beijing at [email protected]

To contact the editors responsible for this story: Anjali Cordeiro at [email protected]; Jason Gale at [email protected] Anne Reifenberg

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