WORLD LEAF REVIEW CAP Reform
Italy holds its breath
While manufacturers in Italy are still reeling from the drop in sales following the 2005
introduction of a ban on indoor smoking, the country's leaf growers are becoming
increasingly uneasy about the future for leaf cultivation. Eric J. Lyman explains
Italian growers are dreading a change in European Union
(EU) subsidy rules scheduled for 2010 that could have a far
greater effect on total production from Europe's largest
tobacco producer.
     It is the 2010 deadline of the Common Agricultural Policy
(CAP) Reform that has Italian industry players talking. If there
is no last-minute change in EU rules, next year's growing season
will be the last under the current rules, which decouples
40% of EU tobacco subsidies from production and gives the
other 60% to producers.
     That change became
law in 2004 and went into
effect two years later. The
next reform would increase
the 40% portion to half of
the former total, and eliminate
the other half all
together.
     "If that happens in
2010, it would be very, very
bad news for tobacco growers
because they would be left unprotected against growers
in the developing world," Carlo Sacchetto, director of the Italian
Tobacco Producers' Association, known by its Italian initials
APTI told World Tobacco. "There is not enough time
before 2010 for the industry to respond."
     Sacchetto pointed to the Italian region of Apulia as a test
case of what could happen when subsidies are no longer tied
to production. The 40-60 subsidies split in use today was
applied to nine of the 10 Italian regions with at least some
tobacco production.
     The tenth - Apulia, the heel of the Italian boot -decoupled
100% of its subsidies, in effect paying tobacco farmers not to
grow. As a result, the region went from Italy's fourth leading
tobacco growing region - trailing only Campania, Veneto, and
Umbria – to a non-producer between one season and the
next, with farmers pulling up plants that had previously produced
nearly 5mkg of tobacco.
     Even decoupling 40% of the total subsidies had an
impact, reducing total Italian tobacco production to around
96mkg of green leaf - the lowest level since the early 1990s -
from around 110mkg before. With the erosion in production
levels, Italy slipped from the world's fifth largest tobacco producer
to seventh.
     "When the rules changed, many farmers could earn
more leaving their land undeveloped than they could earn by
growing tobacco," Sacchetto said. "A year after the rules
changed there was not a single tobacco plant growing in all of
Apulia."
     But Sacchetto and other industry insiders are actually

WORLD TOBACCO LEAF SUPPLEMENT JANUARY 2008 www.worldtobacco.co.uk
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more relaxed about this situation than might be imagined.
This is because they are confident the deadline for complete
decoupling will be pushed back to 2013, when most other EU
agricultural subsidies will be revisited.
     In December, Italy's Minister of Agriculture Paolo de Castro
– a native of Apulia – and his counterparts from 12 EU
tobacco producing states co-signed a letter to the European
Commission asking the date be pushed back three years in
order to give tobacco farmers more time to prepare for the
change.
           This is a big voting
    block in the EU Council of
    Ministers and de Casto
    thinks this appeal will be
    heard and acted upon.
    Italy is currently the
    largest recipient of EU
    tobacco subsidies, which
    are worth around €180mn
    - roughly a third of the total
    EU tobacco leaf subsidy
budget. Many in Brussels have complained that the tobacco
subsidy program is too expensive, and counter to the EU's
effort to improve the health of Europe's residents. Advocates
of the programs point to potential job losses if production
falls.
     The Commission however – always loath to be pushed
around by member states – will not give any hint about its
plans.
     A spokesman for the European Competition Commissioner
Neelie Kroes would only confirm the letter had been
received when contacted, declining to even speculate about
when a decision on the matter could be announced.
     But a spokesman for de Castro's office said the minister
remained hopeful the date will be changed – "We feel the
ministers made a strong case and that if the case is judged on
its merit the deadline will be pushed back," the spokesman
said - and most industry players agree.
     "I will say we remain very hopeful the change will be
made," said Orlando Astuti, regional manager for tobacco
merchant Deltafina. "This is a situation where you have to
presume that common sense will rule the day."
     Under the current rules, tobacco production in Italy is stable.
All the stock is sold every year. And the industry remains
relatively immune to domestic demand, with about 85% of its
production sold outside Italy.
     The strong export market for Italian cigarettes is fortunate
for Italian tobacco producers, since consumption levels
have shrunk in eight of the 11 years, according to consensus
estimates.
This is a situation
where you have to presume
that common sense will
rule the day