An agricultural think-tank says Ontario tobacco farmers have a good case for demanding compensation from the federal government for the impending collapse of their once lucrative industry.
“The tobacco producing industry in Canada is the victim of a public health policy failure,” George Morris Centre researchers Larry Martin and Al Mussell said in a recently published analysis.
“If the decision is to close the industry down, it would remain appropriate to use the concept of compensation from policy choices as the basis for compensating producers. We have no idea what that injury would be.”
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The 600 active farmers and hundreds more quota holders in the southern Ontario’s tobacco belt have been demanding a government buyout in the face of declining markets and prices, production cuts and quota devaluation.
Ottawa so far has refused and former agriculture minister Chuck Strahl said industry demands for an exit package valued at close to $1 billion was unreasonable. It is a contentious file that new agriculture minister Gerry Ritz is inheriting.
The tobacco industry is concentrated in the Haldimand-Norfolk riding of cabinet member Diane Finley, where growers have political influence and economic clout.
Martin and Mussell concluded that the fundamental cause of the decline of the Ontario industry is not the decline in smoking but the fact that a large share of the tobacco supply for Canadian smokers enters the country illegally, encouraged by high federal and provincial taxes that drive consumers to buy cheap illegal tobacco products.
Part of the problem is that First Nations reserves are major venues for tobacco smuggling and natives are among the largest smugglers, openly selling cheap tax-free cigarettes.
Finley told the Ontario tobacco board this year that government tax revenue losses from untaxed illegal tobacco is more than $2 billion annually.
However, Martin and Mussell said governments do not want to challenge native smuggling because of sensitivity over land claims negotiations and other issues involving aboriginal governments and rights.
“One explanation for the apparent tobacco policy failure is that governments have been unwilling, or do not have the right, to enforce policy on the reserve,” they wrote.
“If this is true, the mainstream tobacco industry finds itself caught in the middle of a failed policy. The simplest way to solve it is to remove the conditions that make the illegal market profitable.”
Researchers suggest governments lower taxes to make domestic production more competitive with imports and then work out a formula to pay compensation for some of the lost income.
Martin and Mussell also attribute part of the blame to the Ontario tobacco marketing board, which fought for higher prices even as those prices drove consumers and manufacturers to look for cheaper illicit supplies.
