VCAT-Gr

Understanding the factors that determined the amounts of tobacco produced in postwar Greece

Goals

One important topic being studied within the framework of the “Value Chain Analysis of Tobacco in Greece” project is how to quantify the factors affecting the trajectory of the tobacco sector in the second half of the 20th century. By exploring this, we hope to contribute to the development of already existing bibliography on the Greek economy from a historical perspective. Our approach allows us to frame the interactions between producers, merchants and states (the general focus of our project) in more concrete terms, at least to the extent that available statistical data allow.

Why is tobacco important in Greece?

Historically speaking, tobacco contributed to the development of the Greek economy, especially in the greater part of the 20th century. More specifically, tobacco was: 1) an important part of Greece’s overall agricultural output; 2) the Greek economy’s principal export commodity from the 1920s up until the industrialization of the 1960s; and 3) a source of livelihood for a large section of the Greek population, including growers, merchants, and industrial workers. The latter include those employed in cigarette manufacturing, as well as those who processed tobacco leaf prior to its export as raw material for cigarettes produced abroad.

To put figures on some of these examples, we should mention that between 1955 and 1960, tobacco accounted for around 7% of the value produced by Greek agriculture; in Macedonia, this figure reached 20%. In the 1960s, while the country experienced a wave of industrial development, this agricultural commodity still represented around a third of Greek exports. In 1959, tobacco workers still made up 14% of those employed in industry, despite the development of other industries and the increasing mechanization of tobacco leaf processing. In 1961, one in ten Greeks employed in agriculture still produced tobacco, despite the expansion of other crops such as fruit and vegetables.

While we often speak of Greek tobacco as a single crop, in some cases it would actually be more correct to speak of “tobaccos” rather than “tobacco.” The development of tobacco production was definitively shaped by the diversity of the product in terms of the techniques employed (with or without irrigation), its uses in the cigarette industry (as cheap filling or a flavor enhancer), and the characteristics inherent to each tobacco sub-type (nicotine content, combustibility, etc.). At least in part, this heterogeneity explains the very different trends observed in this sector of the economy. For this reason, to the extent allowed by the available data, we attempt to go into as much detail as possible in explaining the different trends within the tobacco sector. We try to go beyond the question of whether tobacco was or was not a crop that would contribute to regional development, or a crop that depended on state assistance. The short answer is that much depends on what tobacco we are talking about.

What explains the volume of tobacco production? The role of prices and production factors

Our study approaches the statistical analysis of tobacco production from two vantage points. First we quantify tobacco production, taking into account the impact of fluctuations in the price paid to producers both on the free market and through state-led purchasing programs. We do not look at export prices, as we consider that such prices were influenced by too many additional factors to correlate with potentially observable specific incentives on farm-level production. Export prices were affected by multiple layers of profit margins, taxation, tariffs, and prices in competing tobacco-producing countries (mainly Turkey).

Secondly, besides prices, we seek connections between the production levels of Greek tobacco on the one hand, and a series of factors on the other. The latter are known as “factors of production” because they are widely accepted as the determinants of agricultural output. They are often referred to as land, labor and capital. Because these three categories are too broad, we look specifically at: a) the availability of arable land; b) the availability of new agricultural technologies that could be used for tobacco production; c) the waves of emigration away from tobacco-producing regions, which reduced the availability of labor; and d) the expansion of the public school system, which would (at least indirectly) indicate an increase in the access of the farming population to literacy and numerical skills. We believe that an analysis of these factors will help us answer a question that might sound simpler than it truly is: what explains the resilience of tobacco as a central component of Greece’s rural economy in so many parts of Greece?

The statistical data our study is based on are those collected and published by the National Tobacco Board (Ethnikos Organismos Kapnou) and the Hellenic Statistical Authority (Ellenike Statistike Arche).

Did farmers adapt to price changes?

Based on our analysis, it seems clear that by and large, tobacco producers would follow market trends whenever deciding whether or how much tobacco to produce. Put simply, they would produce more and sell more following years of relatively high prices, and reduce their production after years of low prices. In our view, this indicates that farmers were “rational” in the way that rationality is usually defined by economists: seeking economic profit in the most efficient way possible. This finding allows us to counter the relatively common narrative in part of the Greek bibliography, according to which farmers would not adapt to changes in agricultural markets based on economic incentives, thereby slowing down general economic progress. It also allows us to challenge the notion that state programs aimed at protecting Greek agriculture neutralized market incentives and economic efficiency.

It is worth noting that the validity of our findings is confirmed on three different levels of analysis: when we look at individual tobacco varieties, when we look at geographic regions separately, and when we combine both the variety and geographic levels of analysis. In all cases analyzed, tobacco production was found to be elastic. In economics, elasticity means that any given economic indicator (how much tobacco farmers produce, how many cigarettes people smoke, etc.) changes based on how some other indicator fluctuates. Thus, if farmers produce less because they are getting paid less, we can say that their production levels are elastic in relation to their profits. Statistical analysis shows that as far as tobacco production was concerned, this was the case in postwar Greece across the board, despite the intervention of the state in tobacco markets. This finding applies both to short-term decisions made by farmers as well as to the long-term evolution of the tobacco sector. Prices would drive production, not the other way around. This finding contributes to the existing literature on postwar Greece’s economic history, and also to a large international literature on the theme of peasant rationality, as exemplified by the works of Soviet agricultural economist/sociologist Alexander Chayanov and American economist Theodore W. Schultz.

The impact of arable land, technology, labor and education

Our findings also confirm the important role of a series of factors in determining the levels of tobacco production in postwar Greece. Here, once again, we observe differences within the tobacco sector depending on tobacco sub-types and location, but we can also speak of common trends. For instance, the impact that the amount of arable land had on the production of irrigated tobacco was twice as important as was the case with non-irrigated tobacco. Likewise, the availability of agricultural amchinery seems to have contributed to irrigated tobacco production considerably more than to non-irrigated tobacco, where impact was negligible. Last, the negative impact of emigration and increased access to education on tobacco production levels seem to indicate that the crop was negatively affected by the expansion of other employment opportunities for the people living in tobacco-producing regions. This means that in postwar Greece there was not much room left for tobacco to “modernize itself” based on a more educated, mobile labor force. As economists would put it, there was complementariy betwen tobacco production and the development of the country’s human capital.

Incapacity to adapt to global economic transfrmations or strategic shift?

The downward trend observed in Greece’s tobacco production following the country’s integration into the European common market, especially as far as value is concerned, raises a number of questions. Why was Greek tobacco not able to maintain a prominent position into the 21^st century? People certainly continue smoking across the world. Was it because the crop, and those who produce it, were not able to adapt to a changing globalized environment? Or was this downturn the result of a conscious reorientation of both national and EEC/EU policy towards other crops considered more competitive or lucrative? Or was it perhaps driven by an aggregate shift of many independent producers towards other activities and crops? Whatever the case might be, it seems clear that a conclusive answer will have to be based on a deeper understanding of the tobacco sector’s historical trajectory. Such understanding should take into account the possible complementarities between tobacco and other crops that partially displaced it from the centre of Greece’s export-oriented agriculture. Did specialization in tobacco production become a hurdle for the development of new crops? Or was it in any way beneficial? That is yet another question addressed in VCAT-Gr.