H N P D I S C U S S I O N P A P E R Economics of Tobacco Control Paper No. 15 An Economic Analysis of Tobacco Control in Thailand Isra Sarntisart October 2003 TobaccoFreeInitiative WorldHealthOrganization AN ECONOMIC ANALYSIS OF TOBACCO CONTROL IN THAILAND ISRA SARNTISART OCTOBER 2003 Health, Nutrition and Population (HNP) Discussion Paper This series is produced by the Health, Nutrition and Population Family (HNP) of the World Bank's Human Development Network (HNP Discussion Paper). The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its board of executive directors or the countries they represent. 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The editors of the Economics of Tobacco Control papers are Joy de Beyer (jdebeyer@worldbank.org), Emmanuel Guindon (guindone@who.int) and Ayda Yürekli (ayurekli@worldbank.org). For free copies of papers in this series please contact the individual authors whose names appear on the paper or one of the editors. Papers are posted on the publications pages of these websites: www.worldbank.org/hnp and www.worldbank.org/tobacco ISBN 1-932126-45-7 © 2003 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, NW Washington DC 20433 All rights reserved. ii Health, Nutrition and Population (HNP) Discussion Paper ECONOMICS OF TOBACCO CONTROL PAPER NO. 15 AN ECONOMIC ANALYSIS OF TOBACCO CONTROL IN THAILAND Isra Sarntisarta Siripen Supakankuntia, Monthaka Teerachaisakulb Kamol Chuensukkasemkulc and Narinthon Kaluntakaphanc aAssociate Professor, Economist, Centre for Health Economics, Faculty of Economics, Chulalongkorn University, Bangkok, Thailand bPharmacist, Division of Alternative Medicine, Ministry of Public Health, Bangkok, Thailand cEconomist, Centre for Health Economics, Faculty of Economics, Chulalongkorn University, Bangkok, Thailand Paper prepared for the World Health Organization Regional Office for South-East Asia. Presented at a meeting on the Economics of Tobacco Control in the South-East Asia Region, in Jakarta, Indonesia, December 3-4, 2003 Abstract: Revenue from taxation of tobacco products accounts for more than 5 % of total government revenue in Thailand. The Thai tobacco industry is less significant: in 2000 it employed only 0.67 % of the total agricultural workforce, and only 0.11 % of all manufacturing workers. Until 1996, tobacco prices increased more slowly than prices of other consumer goods. After 1996 the trend reversed as tax/price policies were used to discourage smoking. Smoking prevalence is higher among men than women (50% and 3% respectively) and higher in rural than urban areas (26% and 18% respectively). Price and income elasticity of tobacco demand are analysed. They vary across income categories and between urban and rural areas. Overall, price elasticity is ­0.39 and income elasticity is 0.70, similar to estimates for many other middle- income countries. Earlier studies that estimated health costs due to tobacco use are reviewed. Two main policy recommendations are made: to continue to use tax policy to reduce tobacco use and future health costs, which will also raise government revenue, and to enforce existing tobacco control measures better. Keywords: Thailand, tobacco, tobacco revenue, tobacco tax, tobacco industry, cigarette, price, price elasticity, health cost, tobacco control policy. Disclaimer: The findings, interpretations and conclusions expressed in this paper are entirely those of the authors, and do not represent the views of the World Bank or the World Health Organization, their executive directors, or the countries they represent. Correspondence details: Isra Sarntisart, Faculty of Economics, Chulalongkorn University, Phayathai Road, Khet Pathum Wan, Bangkok 10330, Thailand. Telephone: +66 2 218 6229, +66 2 218 6292; fax: +66 2 218 6229; email: sisra@chula.ac.th. iii iv TABLE OF CONTENTS NOTE FROM REGIONAL DIRECTOR, Office for South-East Asia, World Health Organization ..........................................................................................................................................ix FOREWORD.............................................................................................................................xi ACKNOWLEDGEMENTS .....................................................................................................xiii SUMMARY ..............................................................................................................................xv 1. INTRODUCTION AND OUTLINE.......................................................................................1 2. DESCRIPTION OF THE THAILAND TOBACCO INDUSTRY .........................................2 2.1 Tobacco production and trade......................................................................................2 2.2 Employment in the tobacco industry...........................................................................4 2.3 Government revenue ...................................................................................................5 3. PREVALENCE AND CONSUMPTION................................................................................6 3.1 Trends in tobacco consumption and prices..................................................................6 3.2 Smoking prevalence ....................................................................................................9 3.3 Causes of death..........................................................................................................12 4. PRICES, TAXES, AND THE DEMAND FOR TOBACCO PRODUCTS ..........................13 4.1 Cigarettes and consumption demand .........................................................................13 4.2 Taxation, price structure and tax revenue ..................................................................19 4.3 Tobacco and tobacco product trade and smuggling...................................................25 4.4 Smoking control measures: problems of law enforcement .......................................28 5. HEALTH CARE COSTS OF SMOKING............................................................................30 5.1 Introduction...............................................................................................................30 5.2 Smoking-related diseases ..........................................................................................30 5.3 Health care cost of smoking ......................................................................................31 5.4 Health care cost of lung cancer: a literature review..................................................32 5.5 Health care cost of coronary heart diseases: a literature review ...............................36 5.6 Health care cost of chronic obstructive pulmonary disease (COPD): a literature review ................................................................................................................................39 5.7 A re-estimation of the health care cost of smoking-related diseases.........................40 6. POLICY RECOMMENDATIONS.......................................................................................44 APPENDICES ..........................................................................................................................47 Appendix 1. Methodology and data ...............................................................................47 Appendix 2. Questionnaire.............................................................................................63 Appendix 3. Detailed information for smoking-related diseases ....................................69 Appendix 4. Detailed information for health care cost estimating principles.................70 Appendix 5. Detailed information for estimating economic loss from early death of lung cancer patients: Wattana's study (1986).................................................................72 Appendix 6. Detailed information on relative risks in China.........................................73 Appendix 7. Estimated number of lung cancer patients in Thailand, 1999.....................74 REFERENCES .........................................................................................................................75 TABLES Table 2.1. GDP growth at 1988 prices and structure at current prices by sector (percentage).....................................2 Table 2.2. Production of cigarettes (TTM) and tobacco leaf, Thailand, 1990-2001 ......................................................3 v Table 2.3. Trade in tobacco and tobacco products, various years (US$ million)............................................................3 Table 2.4. Labour force, by sector, Thailand, 1995­2000 (000s)......................................................................................4 Table 2.5. Employment in tobacco cultivation and cigarette production, 1985­2000...................................................4 Table 2.6. Thai Government revenue, by source, various years (million baht) ..............................................................5 Table 2.7. Thai government revenue from TTM, 1993­2000 (million baht)..................................................................6 Table 2.8. Thai government revenue from tobacco, 2000 (million baht).........................................................................6 Table 3.1. Consumption expenditure at current prices, Thailand, various years (million baht)...................................7 Table 3.2. Consumption expenditure at 1988 prices, Thailand, various years (million baht)......................................7 Table 3.3. Price index of consumer goods and tobacco products, Thailand, various years..........................................8 Table 3.4. Tobacco consumption at current prices and tobacco products market shares, Thailand, various years...9 Table 3.5. Population 11 years of age and over who smoked regularly, by type of tobacco product, Thailand, 1996, 1999 and 2001..................................................................................................................................................................9 Table 3.6. Smoking prevalence, Thailand, various years..................................................................................................10 Table 3.7 Percentage share of expenditure for tobacco products in total household consumption expenditure, by income decile, Thailand, 1990 and 2000...................................................................................................................10 Table 3.8. Smoking prevalence by urban/rural, sex and smoking habit, Thailand, 1999 (1000 persons)................11 Table 3.9. Population 11 years and over, by age group and smoking habit, 1999 (000s) ...........................................11 Table 3.10. Death rates per 100 000 population, by cause of death, Thailand, 1992­2000........................................12 Table 4.1. Average per capita expenditure, marginal budget share, committed level of expenditure and expenditure elasticity of demand, Thailand, 2000 .........................................................................................................................14 Table 4.2. Price elasticity and cross price elasticity of demand, Thailand, 2000..........................................................16 Table 4.3. The effect of a 1% increase in income on demand for cigarette and in cigarette price on demand for various goods, by income class...................................................................................................................................17 Table 4.4. Effect of a 1% increase in income on demand for cigarettes and in cigarette price on demand for various goods, by age group......................................................................................................................................................18 Table 4.5. Import tariff rates, WTO rates.............................................................................................................................19 Table 4.6. Import tariff rates for products imported from Singapore, Indonesia and the Philippines .......................19 Table 4.7. Excise tax rates, Thailand, 12 October 1999­present.....................................................................................20 Table 4.8. Hypothetical price structure of cigarettes, Thailand, 2002 (baht).................................................................21 Table 4.9. Impact on government revenue, Thailand, 2000 (million baht)....................................................................23 Table 4.10. The percentage impact of changes in the excise tax rate on cigarette demand and revenue from cigarettes by income group, Thailand..........................................................................................................................................24 Table 4.11. Opinions on the cause of the last cigarette price increase, Thailand, by region.......................................24 Table 4.12. Cigarette market shares 2001, Thailand, by region (percentage)...............................................................25 Table 4.13. Warning labels and cigarette types, Thailand, by region..............................................................................26 Table 4.14. Warning label languages on imported cigarettes, Thailand .........................................................................26 Table 4.15. Declared price and customs price ratios, Thailand, by import origin ........................................................27 Table 4.16. Percentage brand switching after a 10% increase in prices .........................................................................27 Table 4.17. Experience of cigarette advertisements, Thailand.........................................................................................28 Table 4.18. Percentage of smokers who had smoked in no-smoking areas, Thailand .................................................29 Table 4.19. Average age at first smoking, Thailand (years)..............................................................................................29 Table 5.1. Number of deaths and death rate per 100 000 population, by smoking-related disease, Thailand.........31 Table 5.2. Summary of cost associated with lung cancer, studies in Thailand..............................................................36 Table 5.3. Summarizing the cost associated with coronary heart disease, studies in Thailand..................................38 Table 5.4. Summarizing the cost associated with COPD, studies in Thailand..............................................................40 Table 5.5. Estimated direct and indirect costs of lung cancer cases caused by smoking, Thailand, 1999 ...............42 Table 5.6. The direct and indirect costs of COPD cases caused by smoking, Thailand, 1999...................................43 Table 5.7. The health care cost of lung cancer and COPD caused by smoking, Thailand, 2003...............................43 Table A1.1 Characteristics of households, by income class, Thailand, 2000................................................................50 TableA.1.2.Average regional relative prices, by income class, Thailand......................................................................52 TableA1.3. Age of samples, by region, Thailand ...............................................................................................................53 Table A1.4. Education background of samples, by region, Thailand..............................................................................53 Table A1.5. Estimates of model parameters, Thailand ......................................................................................................54 Table A1.6. Estimates of model parameters, urban class 1, Thailand.............................................................................54 vi Table A1.7. Estimates of model parameters, urban class 2, Thailand.............................................................................55 Table A1.8. Estimates of model parameters, urban class 3, Thailand.............................................................................55 Table A1.9. Estimates of model parameters, urban class 4, Thailand.............................................................................56 Table A1.10. Estimates of model parameters, urban class 5, Thailand ..........................................................................56 Table A1.11. Estimates of model parameters, rural class 1, Thailand ............................................................................57 Table A1.12. Estimates of model parameters, rural class 2, Thailand ............................................................................57 Table A1.13. Estimates of model parameters, rural class 3, Thailand ............................................................................58 Table A1.14. Estimates of model parameters, rural class 4, Thailand ............................................................................58 Table A1.15. Estimates of model parameters, rural class 5, Thailand ............................................................................59 Table A1.16. Estimates of model parameters, age 0­8 years, Thailand .........................................................................59 Table A1.17. Estimates of model parameters, age 8+­18 years, Thailand ....................................................................60 Table A1.18. Estimates of model parameters, age 18+­30 years, Thailand ..................................................................60 Table A1.19. Estimates of model parameters, age 30+­40 years, Thailand ..................................................................61 Table A1.20. Estimates of model parameters, age 40+­50 years, Thailand ..................................................................61 Table A1.21. Estimates of model parameters, age 50+­60 years, Thailand ..................................................................62 Table A1.22. Estimates of model parameters, age over 60 years, Thailand ..................................................................62 Table A7.1. Number of lung cancer deaths and economic loss from early death patients: 1985...............................72 FIGURES Figure 3.1. Price of tobacco products and other consumer goods, Thailand...................................................................8 Figure 4.1. The reduction of cigarette consumption due to the impact of an increasing in the rate of excise tax from 75% to 76% ....................................................................................................................................................................22 Figure 4.2. Value of imported cigarettes, Thailand, 1980­1999 (thousand million baht)...........................................25 vii viii NOTE FROM REGIONAL DIRECTOR, OFFICE FOR SOUTH-EAST ASIA, WORLD HEALTH ORGANIZATION The trend in tobacco consumption in many developing countries is worrying. This is not only because of the millions of deaths and related suffering that it involves, but also due to its negative impact on economic development. Experiences from many countries have shown that cost effective tobacco control measures can be taken that could bring net economic gains for the country. Proven, cost-effective measures include: public education and information; a ban on tobacco advertising; tobacco smuggling deterrence and increased tobacco taxes. All these measures can be incorporated in national anti-tobacco legislation. Studies and research from countries around the world have revealed that an increase in tax on tobacco products is perhaps the most effective tool for tobacco control, and is especially effective in reducing tobacco use among young people and people with low incomes. Higher tobacco taxes can help a country in a number of ways ­ by generating additional revenue, reducing tobacco use leading to less tobacco-related morbidity and mortality and reduced expenditure on treatment of tobacco-related diseases. Effective collaboration between health and finance ministries is essentialto address appropriately the economic and fiscal aspects of tobacco control. Such collaboration could ensure improved health for millions of people by protecting them and their families from the harmful effects of tobacco use. I am confident that the findings of the study initiated by World Health Organization and World Bank will encourage the policy makers, in particular, in the health and finance ministries, to take appropriate and coordinated action for tobacco control. Dr Uton Muchtar Rafei Regional Director World Health Organization Regional Office for South-East Asia 10 October, 2003 ix x FOREWORD In 1999, the World Bank published Curbing the epidemic: governments and the economics of tobacco control, which summarizes the trends in global tobacco use and the resulting immense and growing burden of disease and premature death. By 1999, there were already 4 million deaths from tobacco each year. This number is projected to grow to 10 million per year by 2030, given present trends in tobacco consumption. Already about half of these deaths are in high- income countries, but recent and continued increases in tobacco use in the developing world is causing the tobacco-related burden to shift increasingly to low-and middle-income countries. By 2030, seven of every ten tobacco-attributable deaths will be in developing countries. Curbing the epidemic also summarizes the evidence on the policies and interventions that have proved to be effective and cost-effective in reducing tobacco use in countries around the world. Raising taxes to increase the price of tobacco products is the most effective way to reduce tobacco use and the single most cost-effective intervention. It is also the most effective way to persuade young people to quit or not take up smoking. This is because young people, like others with low incomes, tend to be highly sensitive to price increases. Why are these proven cost-effective tobacco control measures not adopted or implemented more strongly by governments? Many governments hesitate to act decisively to reduce tobacco use because they fear that tax increases and other tobacco control measures might harm the economy by reducing the economic benefits their country gains from growing, processing, manufacturing, exporting and taxing tobacco. The argument that tobacco contributes revenues, jobs and incomes is a formidable barrier to tobacco control in many countries. Are these fears supported by the facts? In fact, these fears turn out to be largely unfounded when the data and evidence on the economics of tobacco and tobacco control are examined. A team of about 30 internationally recognized experts in economics, epidemiology and other relevant disciplines who contributed to the analysis presented in Curbing the epidemic reviewed a large body of existing evidence. The teamconcluded that in most countries tobacco control would not lead to a net loss of jobs and could, in many circumstances actually generate new jobs. Tax increases would increase (not decrease) total tax revenues, even if cigarette smuggling increased to some extent. Furthermore, the evidence shows that cigarette smuggling is caused at least as much by general corruption as by high tobacco product tax and price differentials. The team recommended that governments not forgo the benefits of tobacco tax increases because they feared the possible impact on smuggling. Rather, they should act to deter, detect and punish smuggling. Much of the evidence presented and summarized in Curbing the epidemic was from high-income countries. However, the main battleground against tobacco use is now in low-and middle-income countries. If needless disease and millions of premature deaths are to be prevented, then it is crucial that developing counties raise tobacco taxes, introduce comprehensive bans on advertising and promotion of tobacco products, ban smoking in public places, inform their citizens about the harm that tobacco causes and the benefits of quitting, and provide advice and support to help people quit. xi In talking to policy-makers in developing countries, it became clear there was a great need for country-specific analytic work to provide a basis for policy making within a sound economic framework. The World Bank and WHO's Tobacco Free Initiative (as well as several other organizations, acting in partnership or independently) began to commission and support analysis of the economics of tobacco and tobacco control in many countries around the world. The report presented in this paper makes a valuable contribution to our understanding of the issues and likely economic impact of tobacco control. Our hope is that the information, analysis and recommendations contained herein will prove helpful to policy-makers and result in stronger policies that will reduce the unnecessary harm caused by tobacco use. Joy de Beyer Tobacco Control Coordinator Health, Nutrition and Population World Bank xii ACKNOWLEDGEMENTS The research team is indebted to many people, especially Narathip Chutiwongse, Emmanuel Guindon and participants of a round table discussion on tobacco, organized by the Centre for Health Economics (CHE) of Chulalongkorn University, Bangkok, who gave valuable comments and suggestions on this report. The team appreciates Taweesak Siripornpaiboon for his assistance in sampling design. Special thanks go to friends and officials at the National Statistical Office, the Department of Business Economics, Thailand Tobacco Monopoly, the Customs Department, the Excise Department, and the Office of the National Economic and Social Development Board, who provided data and information that were crucial to the completion of this report. For their editorial assistance, our sincere thanks are due to Steve Cannell and John Shimwell. The authors are also grateful to the World Bank for publishing the report as an HNP Discussion Paper. xiii xiv SUMMARY Introduction Tobacco plays many roles in the Thai economy. It provides over 5% of all government revenue, and is a source of income and employment. But it is also a major risk factor for many diseases, causing loss of life, productivity and imposing health care costs. Previous studies of cigarette demand used data from around 10 years ago. Since then, cigarette consumption in Thailand has been affected by Thailand's membership of the World Trade Organization and ASEAN Free Trade Area, by the 1997 economic crisis and by policies designed to reduce tobacco use. These factors suggested the need for a more comprehensive and up-to- date analysis of the economics of tobacco use in Thailand. The tobacco industry and government revenue from tobacco Tobacco employment in agriculture and manufacturing is a negligible fraction of each and declining. During the past four decades, tobacco production and tobacco manufacturing in Thailand have grown more slowly than the overall economy. Cigarette production peaked in 1996­97 at around 48 thousand million cigarettes and had fallen to about 32 thousand million by 2001. The market is dominated by the state-owned Thailand Tobacco Monopoly (TTM), although competition has been increasing and imports have grown to about 5% of the market. In 1999, the total income of TTM and 15 private sector domestic tobacco companies was over baht 44,700 million and total declared profit was nearly baht 5,900 million (in late 2002, baht 1=US$0.02324). In tobacco leaf and tobacco product trade, Thailand is a net importing country. Trade in tobacco leaves is much larger than trade in cigarettes. In 2000, cigarette imports were US$ 62.645 million and exports were US$ 11.629 million. The Thai government collects revenue from tobacco in two ways. TTM contributes about 4% of annual government revenue in profits and taxes. Taxes on imported cigarettes contribute another 0.7%. In 2000, tobacco contributed about baht 40 thousand million to government funds. Smoking prevalence and tobacco use Expenditure on tobacco (almost all on manufactured cigarettes) has increased over the past 30 years although it represents a declining share of consumption expenditure. Tobacco prices increased at a slower rate than those of other goods until 1996, and then increased faster than the inflation rate as greater use began to be made of tax policy to reduce smoking. Smoking prevalence in Thailand has declined over the past decade, although population growth has kept the number of smokers roughly constant at about 12 million. In 1999 the smoking rate was about 24% for the population aged over 11 years, higher in rural than urban areas. Smoking xv is an overwhelmingly male activity: female smoking is still low and a very attractive potential new market for cigarette companies. Heart disease, and all forms of malignant neoplasm are two of the three leading causes of deaths in Thailand. Smoking is a key risk factor for many of these diseases. Death rates from all forms of malignant neoplasm have risen steadily (except for a short-lived improvement in 1997). Mortality rates from heart disease rose steadily until 1996 and have since fallen. Pneumonia and other lung diseases and tuberculosis death rates are also increasing. Prices, taxes and demand Thais spend almost 3% of total expenditures on cigarettes. The response of demand for tobacco to price changes in Thailand is similar to other middle-income countries, with each 1% real price increase causing a fall in consumption of about 0.4%. Thus tax increases would reduce demand, but increase total tax revenue. Econometric analysis of elasticities by rural/urban and income groups indicates that a tax policy that increased prices would be more effective in reducing smoking among urban smokers than among rural smokers, and have the largest impact in reducing smoking among people with low incomes. Since March 2001, excise tax on cigarettes has been 75% of the retail (tax-inclusive) price. The paper examined the effects of a hypothetical rise in the tax rate from 75% to 76% with similar rises for other tobacco products. Overall cigarette consumption would fall by 1.64%, with most of the fall in demand being among the lower income groups. Excise tax revenue would rise by nearly 4%. Despite lower value-added tax income and smaller TTM profits, there would be a total net increase in government revenue of more than baht 1 thousand million or about 2.5%. Qualitative surveys based on interviews with smokers and examination of their cigarette packets and of 809 packets collected across the country found about 15% of packets without the warning in Thai that is compulsory for all cigarettes legally sold in Thailand. This suggest that consumption of illegally imported cigarettes is perhaps two or three times consumption of legally imported cigarettes. This represents a significant loss to the government treasury. However, the interviews with smokers suggested that brand loyalty and concern that contraband products are substandard would prevent much shift to contraband if prices were to rise further in future. Enforcement of some anti-smoking laws is not fully effective. The ban on cigarette advertising appears to be flouted, especially in provincial areas (21% of smokers said they had seen advertisements, mostly for Marlboro cigarettes), and more than half of all smokers reported that they had, on occasion, smoked in public places where smoking is supposed to be banned. Health care cost of smoking The direct and indirect costs of treating lung cancer and chronic obstructive pulmonary disease, both strongly associated with smoking, were estimated. For 1999, this was computed at about US$ 6 million, approximately 0.1 of Thailand's total health care expenditure that year. xvi Policy recommendations Excise taxes on tobacco products should be increased in order to reduce demand for smoking and increase government revenues. Most smokers support such increases. Measures should be taken to prevent women, who by and large do not smoke, from being targeted as potential customers by tobacco manufacturers. Tobacco-control law enforcement needs to be stepped up, especially with regard to smoking in public places, bans on advertising, and selling tobacco to minors. xvii xviii 1. INTRODUCTION AND OUTLINE Tobacco plays many roles in the Thai economy. It is a source of income and employment of workers in tobacco cultivation, tobacco manufacturing and sales of tobacco products. It is also a major source of government revenue from tobacco monopoly profit, customs tariffs on imported tobacco and tobacco products, and excise tax and value-added tax (VAT) on local and imported products. It is part of household consumption and is a major cause of diseases that impair and shorten the lives of millions of smokers in Thailand and people exposed to second-hand smoke. Because of these conflicting roles, tobacco policies have been at the centre of discussions among economists, health personnel and policy-makers. On the one hand, tobacco consumption should be reduced so that consumers will have more income for other purposes, disease and premature death averted and future health costs avoided. On the other hand, there is concern that less smoking would mean decreased revenue from tobacco taxes, adversely affecting the development activities these taxes finance. Moreover, some tobacco farmers and workers in tobacco-related industries might lose jobs or income, and have to seek alternative income sources. In Thailand, a number of studies have provided a basis for policies to reduce tobacco use. These studies have analysed the demand for cigarettes and the health cost of smoking. However, studies on cigarette demand were based on data of around 10 years ago. Some do not provide satisfactory results. Methodologies employed by various past studies on health care cost of smoking are not comparable. Moreover, international agreements such as the World Trade Organization (WTO) agreements and the ASEAN Free Trade Area (AFTA) agreement have made the domestic market a target of multinational cigarette companies and have put pressure on tobacco policies. However, the 1997 economic crisis led to depreciation of the baht, and imported cigarettes became relatively more expensive. These changes point to a need for a more comprehensive and up-to-date analysis of tobacco control measures in Thailand, especially their impact on tobacco consumption by smokers in various income classes and age groups, and on tax revenue. It should also be noted that, at present, there has been no analysis of the impact of tobacco control on employment and trade in tobacco and tobacco products. Although these are important, they are not the focus of this study. Following this introductory section, this report is organized as follows. Section 2 describes the role of tobacco in the Thai economy. This focuses on production, employment and government revenue from tobacco. Section 3 investigates trends in tobacco consumption, prices, smoking prevalence and the major causes of death of the Thai population. It also briefly discusses tobacco trade and smuggling, and policy efforts to reduce smoking. Section 4 analyses demand to estimate the overall responsiveness of cigarette demand to price and income changes, the distributive effect of price/tax increases and the effect on smokers in various age groups. This section also demonstrates how an increase in the rate of excise tax will affect smokers' demand for cigarettes and government revenue from cigarettes. Section 5 summarizes some important findings on the health cost of smoking-related diseases. It reviews Thai literature on the health care cost of smoking. Policy recommendation are offered in the final section. The methodology and data used in this study are explained in the Appendices. 1 2. DESCRIPTION OF THE THAILAND TOBACCO INDUSTRY 2.1 Tobacco production and trade During the past four decades, the growth of tobacco production and tobacco manufacturing in Thailand has been slower than that of the overall economy. The share of tobacco has remained fairly constant at around 0.05% while the agriculture sector declined from nearly 40% in 1960 to slightly over 11% after 1995 (Table 2.1). The share of the manufacture of tobacco and snuff declined from more than 1% to around 0.7% while that of all manufacturing rose from 12.5% in 1960 to around 30% by the end of the 1990s. Table 2.1. GDP growth at 1988 prices and structure at current prices by sector (percentage) 1960 1970 1980 1990 1995 1996 1997 1998 1999 2000 GDP growth rate ­ 8.0 6.9 10.4 9.3 5.9 ­1.5 ­10.8 4.2 4.4 Total share 100 100 100 100 100 100 100 100 100 100 Agriculture 39.8 25.9 23.2 12.8 11.2 11.1 11.2 12.7 11.2 11.4 Tobacco ­ ­ ­ ­ 0.03 0.04 0.05 0.05 0.05 0.04 Manufacturing 12.5 15.9 21.3 27.3 28.2 28.2 28.7 29.4 31.1 30.5 tobacco & snuff 1.81 1.18 1.13 0.79 0.59 0.59 0.72 0.71 0.65 0.73 Other 47.7 58.2 55.5 59.9 60.6 60.7 60.1 57.9 57.7 58.1 Source: Office of the National Economic and Social Development Board, Thailand. Due to Thailand's openness to the world market, competition in the tobacco industry has been increasing. In 2001, the industry comprised the state-owned Thailand Tobacco Monopoly (TTM) and 15 private import companies, of which 12 were foreign ventures. The state-owned tobacco company produced around 32 thousand million cigarettes under 24 product brands while private companies imported as many as 63 brands. In 1999, the total income of TTM and the other 15 tobacco companies was well over baht 44,700 million and the total declared profit was nearly baht 5,900 million (in late 2002, baht 1 = US$ 0.2324). The increasing trend in cigarette production was reversed after the onset of the 1997 economic crisis. TTM production had increased continuously before 1996, peaked at 47,752 million cigarettes in 1996­97 (Table 2.2). Since then, production has decreased. It dropped dramatically from 47,126 million cigarettes in 1997­98 to 34,569 million cigarettes in 1998­99. In 2000­01, total production went down to 31,795 million cigarettes. Tobacco leaf production fluctuated over the same period and went down to less than 56 million kilograms in 2000­01. 2 Table 2.2. Production of cigarettes (TTM) and tobacco leaf, Thailand, 1990-2001 TTM cigarette Tobacco leaf production (kg) Year production (million cigarettes) Total Virginia Burley Turkish 1990­91 38 237.22 67 076 491 28 899 226 23 121 959 15 055 306 1991­92 39 721.45 66 838 953 32 732 918 24 329 596 9 776 439 1992­93 39 593.12 83 700 510 35 720 681 33 922 899 14 056 930 1993­94 41 221.78 94 567 686 45 672 089 33 299 738 15 595 859 1994­95 44 544.10 63 526 715 24 006 514 29 316 086 10 204 115 1995­96 43 183.83 52 106 638 23 921 225 19 265 110 8 920 303 1996­97 47 751.79 68 374 209 25 926 870 29 912 031 12 535 308 1997­98 47 125.75 75 014 012 29 542 928 29 960 450 15 510 634 1998­99 34 568.73 74 275 810 30 424 981 35 088 961 8 761 868 1999­00 32 022.62 75 014 255 24 367 403 42 094 414 8 552 438 2000­01 31 795.23 55 723 446 21 416 809 28 414 703 5 891 934 Source: Thailand Tobacco Monopoly. Thailand is a net importer of tobacco leaf and products. Trade in tobacco leaves is much larger than trade in cigarettes. In 1995, tobacco leaf imports were worth US$ 100.544 million while exports were US$ 58.198 million, for a net deficit of around US$ 42 million (Table 2.3). In 2000, the import and export figures went up to US$ 70.897 million and US$ 121.834 million; the deficit increased to nearly US$ 51 million. The cigarette trade deficit of US$ 35 million in 1995 (US$ 36.765 million imports and US$ 1.466 million exports) rose to more than US$ 51 million in 2000, when cigarette imports were US$ 62.645 million and exports were US$ 11.629 million. If manufactured cigarettes had been imported instead of tobacco leaves that were then used for domestic production of cigarettes, the overall tobacco trade deficit would have been even greater. Table 2.3. Trade in tobacco and tobacco products, various years (US$ million) Product 1995 1996 1997 1998 1999 2000 Net trade ­77.644 ­27.159 ­2.671 ­28.418 ­81.597 ­102.096 Export 60.592 101.333 102.235 96.987 70.893 83.317 Tobacco 58.198 95.016 90.581 84.153 58.946 70.897 Cigarettes 1.466 4.523 9.385 11.467 10.468 11.629 Other 0.928 1.794 2.269 1.367 1.479 0.791 Import 138.236 128.492 104.906 125.405 152.490 185.413 Tobacco 100.544 94.688 79.816 99.089 113.601 121.834 Cigarettes 36.765 32.721 23.659 25.403 37.541 62.645 Other 0.927 1.083 1.431 0.913 1.348 0.934 baht/US$ rate 24.89 25.32 31.32 41.31 37.79 40.11 Source: Customs Department, Thailand. 3 2.2 Employment in the tobacco industry The contribution of the tobacco industry to employment is small. In 2000, more than 33 million, or almost 50%, of 62 million Thais were in the labour force (Table 2.4). Agriculture was the biggest sector of employment, employing around 14 million people, of whom only around 0.67% or 94,486 persons worked in tobacco production. Another 5 million were employed in manufacturing, of which only around 0.11% or 4,925 persons worked in tobacco manufacturing, for the Thailand Tobacco Monopoly. There are no data on the contribution of tobacco trade and sales to the remaining 12.4 million labour force in other sectors. However, it is also very small. Table 2.4. Labour force, by sector, Thailand, 1995­2000 (000s) Year Total labour Sector force Agriculture Manufacturing Other 1995 32 175 14 389 4 608 11 818 1996 32 324 14 137 4 651 12 378 1997 32 781 14 315 4 644 12 755 1998 32 496 13 571 4 577 12 122 1999 32 911 13 997 4 611 12 227 2000 33 394 14 000 5 005 12 442 %DQNRI7 KDLODQG 6RXUFH. The importance of tobacco as a source of employment has been decreasing continuously. The number of TTM employees decreased from around 7,800 in 1985­86 to 4,925 in 1999­2000 (Table 2.5). Of these, around 40% were hourly workers. Tobacco employment was a tiny fraction of total manufacturing sector employment, which totalled 33 million and 16% of the total Thai labour force. The number of tobacco farmers, which had been more in earlier years, went down to around 150,000 in 1992­93 and fluctuated around 100,000 after that. In 1999­2000, the number of tobacco farmers was 94,486. This was a very tiny percentage of all farmers and farm workers, who constituted around 42% of the Thai labour force. However, it should be noted that while the total number of TTM employees and tobacco farmers decreased, employment in industries related to cigarette importation increased, by an unknown but probably very small number. These industries are part of other sectors whose share of the total labour force continuously increased during the past decades and reached 42% in 1999. Table 2.5. Employment in tobacco cultivation and cigarette production, 1985­2000 Year Total (persons) Tobacco farmers (persons) TTM employees (persons) 1985­86 n.a. n.a. 7 820 1990­91 n.a. n.a. 6 949 1995­96 106 442 100 053 6 389 1996­97 102 300 96 041 6 259 1997­98 120 724 114 749 5 975 1998­99 119 265 113 680 5 585 1999­2000 99 411 94 486 4 925 n.a. = not available. The total number is full-time equivalent. Sources: Excise Department, Thailand and Thailand Tobacco Monopoly. 4 2.3 Government revenue The Thai government derives its revenue from many sources. In 2000, total government revenue was baht 746,816 million or approximately US$ 18,619 million (Table 2.6). Income tax provided around one-third of the total revenue. The shares of major indirect taxes such as selective sales (excise and municipal) taxes and value-added tax were approximately 22% and 20% of total revenue, respectively. The remaining revenue came from import duties (11%), fiscal monopolies (2%) and other sources (12%). The revenue structure has changed since the 1980s and early 1990s, when more than 20% of revenue was derived from import tax. Table 2.6. Thai Government revenue, by source, various years (million baht) 1986 1990 1995 1996 1997 1998 1999 2000 Total revenue 170 025 411 652 777 286 853 201 847 696 717 780 713 079 746 816 Taxation: 154 202 385 742 711 098 785 797 762 286 633 599 632 626 679 017 Income taxes: 34 767 101 940 248 567 281 528 276 365 213 435 205 007 243 493 Personal 19 218 41 524 88 169 107 727 111 682 123 058 91 925 90 541 Corporation 15 549 58 658 157 160 170 178 159 717 85 114 101 941 142 097 Petroleum ­ 1 758 3 238 3623 4 966 5 263 11 141 10 855 Indirect taxes: 119 435 283 802 462 531 504 269 485 921 420 164 427 619 435 524 Import duties1 31 106 93 218 127 389 121 783 94 813 60 928 73 355 85 081 Export duties 806 69 12 9 14 18 68 88 Business taxes 28 150 90 157 699 520 394 451 95 152 VAT2 ­ ­ 142 955 180 911 185 942 176 392 157 721 154 181 Selective sales tax 46 332 72 210 161 170 173 737 175 159 158 908 167 986 165 316 Fiscal monopolies 3 040 5224 7 890 4 027 12 133 8 906 14 995 14 696 Royalties 2 098 2 934 4 233 5 056 6 471 8 771 7 601 12 186 Licences and fees 5 426 5 454 1 569 2 084 2 808 1 248 1 168 1 550 Other taxes 2 477 14 536 16 614 16 142 8 187 4 542 4 630 2 274 Sales and charge 2 906 4 761 7 809 8 626 8 710 9 422 25 598 10 403 Enterprise & 5 936 12 031 36 796 45 697 57 694 35 846 37 806 34 471 dividend Miscellaneous 6 981 9 118 21 583 13 081 19 006 38 913 17 049 22 925 revenue Source: Bank of Thailand. 1. From 1982, items listed under government revenue from import duties are adjusted in line with trade statistics. 2. Includes specific-business trade. The significant contribution of the tobacco industry to government revenue consists of two parts. First, the Thailand Tobacco Monopoly, the only cigarette producer, has contributed around 3.5%­4.5% of government revenue. In 2000, this was slightly less than baht 34 thousand million (Table 2.7). Nearly 70% of this was from excise tax on cigarettes and other tobacco products. Another 15.65% was in the form of returns to government ownership in TTM. Another 8.6% was from value-added tax. The second part is tax revenue from imported tobacco and tobacco products, which has increased considerably over the past decade. In 2000, Thailand imported cigarettes with a total value of around US$ 62.645 million or around baht 2,513 million. The Thai government earned nearly baht 4,595 million from excise tax on these imported products. 5 Revenue from tariff and value-added tax was not reported. Based on the prevailing tax rates in 2000, tariff revenue should be around baht 503 million, and revenue from value-added tax should be around baht 533 million (Table 2.8). Thus, the Thai government's dependence on tobacco is fairly high. In 2000, the total government revenue from cigarettes was nearly baht 40 thousand million--more than 5% of total government revenue. Of this, more than baht 34 thousand million was tax revenue. Table 2.7. Thai government revenue from TTM, 1993­2000 (million baht) Year All Tobacco revenue from TTM sources Total TTM Excise VAT Tariff Others profit tax 1993 574 932 20 241 2 802 14 497 1 726 1 024 192 1994 680 337 25 329 2 954 18 862 2 174 1 115 224 1995 777 286 26 499 3 588 19 469 2 175 1 042 225 1996 853 201 29 583 3 448 22 733 2 543 597 260 1997 847 696 35 771 3 600 28 296 3 032 478 365 1998 717 780 35 450 4 658 25 816 4 037 512 427 1999 713 079 32 632 5 000 23 101 3 309 693 529 2000 746 816 33 910 5 310 23 540 2 916 480 1 664 Sources: Bank of Thailand, and Thailand Tobacco Monopoly. Table 2.8. Thai government revenue from tobacco, 2000 (million baht) Total Revenue from TTM Revenue from imports Total Tariff Excise VAT TTM Other Total Tariff* Excise VAT* tax profit tax 39 541 33 910 480 23 540 2 916 5 310 1 664 5 631 503 4 595 533 Note: * = estimated values. Tariff revenue is assumed to equal 20% of imported cigarette value. However, this implies excise tax revenue of around baht 10 100 million, which is around two times the actual figure. Revenue from local tax is not included. It could be as much as baht 1400 million. Sources: Excise Department, Thailand and Customs Department, Thailand. 3. PREVALENCE AND CONSUMPTION 3.1 Trends in tobacco consumption and prices Over the past three decades, expenditure on tobacco products has changed considerably. In 1970, Thai smokers spent over baht 3 thousand million on tobacco products (Table 3.1). This was equivalent to 3.69% of aggregate private consumption expenditure. Ten years later, while tobacco expenditure rose to baht 12 thousand million, its share of aggregate consumption expenditure dropped to 2.78%. The same trend continued, and by 1990 expenditure was up to around baht 27 thousand million while its share of private consumption expenditure had fallen to 2.18%. In the boom that began in the second half of the 1980s, tobacco consumption rose dramatically to around baht 43 and 48 thousand million in 1995 and 1996, respectively. 6 However, its share of private consumption expenditure dropped further to 1.91% and 1.63% in those years. The decrease in the share of tobacco expenditure could reflect a decrease in demand for tobacco or in tobacco prices or both, relative to other goods and services. Table 3.1. Consumption expenditure at current prices, Thailand, various years (million baht) 1970 1975 1980 1985 1990 1995 1996 1997 1998 Total consumption 108 049 229 477 515 018 800 288 1 440 335 2 642 277 2 977 900 3 096 332 3 029 984 expenditure Private consumption 92 429 198 514 433 585 657 365 1 234 981 2 229 259 2 510 293 2 622 594 2 529 279 expenditure Tobacco 3 414 6 340 12 066 17 413 26 945 42 536 48 490 53 670 52 327 General government 15 620 30 963 81 433 142 923 205 354 413 018 467 607 473 738 500 705 expenditure Source: Office of the National Economic and Social Development Board, Thailand. At constant 1988 prices, consumption of tobacco products increased relatively continuously before 1980. In 1970, tobacco expenditure (baht 7.261 thousand million) represented a 2.27% share of total consumption expenditure (baht 320.483 thousand million). In 1980, with an average annual growth rate of around 9%, tobacco expenditure jumped to baht 17.353 thousand million and its share of total consumption expenditure of baht 607.226 thousand million went up to 2.86% (Table 3.2). The trend began to reverse in 1982 when the share dropped to 2.41% and fluctuated around 2.4% to 2.5% in the following two years. The decreasing trend continued in the second half of the 1980s and the 1990s. The average annual growth rate of tobacco expenditure over these periods was well behind that of expenditure on other goods. In 1998, tobacco consumption went down to baht 24.814 thousand million and its share of total consumption expenditure went down to 1.87%. The total consumption expenditure in that year was around baht 1484 thousand million. Table 3.2. Consumption expenditure at 1988 prices, Thailand, various years (million baht) 1970 1975 1980 1985 1990 1995 1996 1997 1998 Total consumption 367 510 502 494 714 164 874 451 1 282 879 1 834 327 1 971 392 1 945 503 1 741 626 expenditure Private consumption 320 483 439 772 607 226 723 199 1 110 935 1 601 525 1 710 852 1 692 861 1 484 088 expenditure ... of which tobacco 7 261 11 295 17 353 16 187 24 732 32 442 34 568 31 293 24 814 was General government 47 027 62 722 106 938 151 252 171 944 232 802 260 540 252 642 257 538 expenditure Source: Office of the National Economic and Social Development Board, Thailand. Between 1970 and 1996, tobacco products became relatively cheaper than other consumer goods. The tobacco price index, which was 47.02 in 1970, increased continuously to 100.00 in 1988 and 140.27 in 1996. At the same time, the price index of other consumer goods, which was 28.84 in 1970, increased to 146.73 in 1996. This slower increase in the prices of tobacco products 7 encouraged people to spend more on tobacco products, and pointed to an urgent need for measures to deter smoking, especially price increases. After 1996, tobacco products became relatively more expensive. The tobacco price index rose from 140.27 in 1996 to 171.51 in 1997 and 210.88 in 1998 (Figure 3.1 and Table 3.3). Concurrently, the price index of other consumer goods increased from 146.73 in 1996 to 154.92 in 1997 and 170.43 in 1998. This increase in relative prices of cigarettes and other tobacco products decreased smokers' demand for tobacco products. Price policies to combat smoking were very active over this period. Table 3.3. RIFRQVXPHUJRRGVDQGWREDFFRSURGXFWV 3ULFHLQGH[ , Thailand, YDULRXV\ HDUV Price index 1970 1975 1980 1985 1990 1995 1996 1997 1998 Consumer goods 28.84 45.14 71.40 90.90 117.17 139.20 146.73 154.92 170.43 Tobacco 47.02 56.13 69.53 107.57 108.95 131.11 140.27 171.51 210.88 Index base year is 1988. Source: Author's calculation from the National Income Account of NESDB. Figure 3.1. Price of tobacco products and other consumer goods, Thailand 250 Consumer goods 200 value 150 Tobacco 100 Index 50 0 1970 1975 1980 1985 1990 1995 1996 1997 1998 Year Source: Table 3.3. Almost all of expenditure on tobacco products is on manufactured cigarettes. Tobacco products consumed in Thailand consist of domestic cigarettes, imported cigarettes and various kinds of traditional tobacco products such as self-rolled cigarettes, bai jak and ya chun. The value share of these traditional products, which was 3.32% in 1980, has decreased continuously and reached 0.67% in 1995, fluctuating around 0.70% since then (Tables 3.4 and 3.5). Local cigarettes, cigarettes manufactured by TTM and imported cigarettes compete for the cigarette market share of more than 99% of the total tobacco product market. The share of TTM in the total tobacco product market was more than 95% of total expenditure on tobacco products during the pre-1995 period, but dropped continuously to less than 91% in 1995. After that year, the share of TTM increased continuously, reached 95% again in 1998, and decreased slightly to 94.30% in 1999. It is important to note that these are value shares and are not the share of each category of tobacco product measured in physical units such as the number of smokers or the number of 8 cigarettes. Because of differences in tax rates and production costs and the nature of the products, the prices of manufactured, domestically produced and imported cigarettes are much higher than the prices of self-rolled cigarettes and other tobacco products. Consequently, the share of cigarettes and the share of smokers in volume terms could be much less than the value share. While its value share was more than 90%, in terms of the number of smokers, manufactured cigarettes are smoked by about half of all regular smokers. The other half of smokers roll their own. Table 3.4. Tobacco consumption at current prices and tobacco products market shares, Thailand, various years Product 1980 1985 1990 1995 1996 1997 1998 1999 Consumption 12 066 17 413 26 945 42 536 48 487 53 670 52 327 48 482 (million baht) Share (%) 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Domestic 95.15 97.14 97.24 90.96 91.89 93.41 95.71 94.30 cigarettes (%) Imported 1.53 0.88 1.31 8.37 7.42 5.91 3.58 4.89 cigarettes (%) Other (%) 3.32 1.98 1.45 0.67 0.69 0.68 0.71 0.81 Source: Office of the National Economic and Social Development Board, Thailand. Table 3.5. Population 11 years of age and over who smoked regularly, by type of tobacco product, Thailand, 1996, 1999 and 2001 Type 1996 1999 2001 Domestic cigarettes 54.9 45.5 46.0 Imported cigarettes 2.1 3.6 1.2 Self-rolled 42.3 50.6 52.7 Other 0.7 0.3 0.1 Note: the 2001 figures are based on population 15 years of age and over who smoked regularly. Source: Health and Welfare Survey, National Statistical Office, Thailand. 3.2 Smoking prevalence Changes in smoking prevalence indicate that Thailand has been partially successful in limiting the number of smokers. Smokers are defined as those who smoke regularly or occasionally. The percentage of smokers in the total population increased slightly from 27.31% in 1986 to 28.05% in 1988 and 28.38% in 1991 (Table 3.6). Then smoking prevalence dropped to 25.40% in 1993 and increased to 26.14% in 1996. The impact of the economic crisis that began in 1997 was found to be very significant. The Thai economy recorded negative growth rates in 1997 and 1998, and tobacco prices rose sharply over the same period (Table 3.3); the smoking rate dropped dramatically to 24.03% in 1999. However, while the smoking rate tended to decrease, the total number of smokers fluctuated around 12 million in the second half of the 1990s. The number of those who smoked regularly was also around 11 million. 9 Table 3.6. Smoking prevalence, Thailand, various years Smoking prevalence 1986 1988 1991 1993 1996 1999 Population (million) 37.997 40.479 43.291 45.680 48.009 49.906 Smokers (million) 10.376 11.355 12.286 11.603 12.548 11.992 (%) (27.31) (28.05) (28.38) (25.40) (26.14) (24.03) Regular smokers (million) ­ 10.110 11.402 10.406 11.254 10.231 (%) (24.98) (26.34) (22.78) (23.44) (20.50) Occasional smokers (million) ­ 1.245 0.884 1.196 1.294 1.761 (%) (3.07) (2.04) (2.62) (2.70) (3.53) Note: population 11 years of age and over. Source: reports of Health and Welfare Survey, National Statistical Office, Thailand. Based on the share of expenditure of tobacco products in total household consumption expenditure, the effectiveness of tobacco control measures appears to vary across income groups. Between 1990 and 2000, the share of tobacco products in the expenditure of households in the seven upper deciles decreased significantly. In the three lower deciles, the share increased or decreased slightly from 1.49%, 1.53% and 1.48% to 1.59%, 1.51% and 1.50%, respectively (Table 3.7). These changes could be because efforts to deter smoking have been more effective among smokers in the upper income deciles than smokers in lower income deciles, or because incomes in the upper groups have risen more relative to tobacco expenditures. Table 3.7 Percentage share of expenditure for tobacco products in total household consumption expenditure, by income decile, Thailand, 1990 and 2000 Income Decile Year Total 1 2 3 4 5 6 7 8 9 10 1990 1.53 1.49 1.53 1.48 1.74 1.83 1.96 2.02 1.98 1.69 0.89 2000 1.08 1.59 1.51 1.50 1.44 1.81 1.61 1.68 1.42 1.15 0.53 Note: Income deciles are ranked in ascending order: decile 1 is the poorest and decile 10 is the richest. Source: Reports of Household Socioeconomic Survey, National Statistical Office, Thailand. The report of the 1999 Health and Welfare Survey raised concerns over the number and status of smokers in Thailand. In that year, nearly 12 million Thais were smokers. Of these, 10.231 million were regular smokers. The number of smokers was equivalent to around 19.45% and 24.02% of the total population and population 11 years of age and over, respectively. In comparison to the pre-1999 figures, the 1999 figures were smaller. However, while the percentage of regular smokers decreased over the period, the percentage of occasional smokers increased. This change seems to be favourable. But the success of smoking control could be over-reported: because of the anti-smoking campaign, smokers may be less willing to report their actual smoking habits. People living in rural areas have a tendency to smoke more than those who live in urban areas (Table 3.8). In absolute terms, the number of smokers in urban areas was around 1.941 million while that in rural areas was 10.051 million. Inrelative terms, smoking tends to be higher in rural areas than in urban areas. Around 26% of rural Thais older than 11 years old smoked while only 18% of urban Thais in the same age category smoked. It should be added that the difference was 10 mainly caused by the rate of male regular smokers, which was approximately 22% in rural areas, but slightly over 15% in urban areas. The rate of smoking participation was much higher among males than females, irrespective of area. While one in two males smoked, only around 3% of Thai females smoked regularly or occasionally. If there are no effective preventive measures, female smoking could be a very attractive target for cigarette companies. Table 3.8. Smoking prevalence by urban/rural, sex and smoking habit, Thailand, 1999 (1000 persons) Smoking habit Total # Total (%) Urban # Urban (%) Rural # Rural ( %) Total 49 905.6 (100.00) 10 953.0 (100.00) 38 952.6 (100.00) Smokers 11 991.7 (24.03) 1 940.7 (17.72) 10 051.0 (25.80) Regular smokers 10 230.6 (20.50) 1 669.4 (15.24) 8 561.2 (21.98) Occasional smokers 1 761.1 (3.53) 271.3 (2.48) 1 489.8 (3.82) Non-smokers 37 913.9 (75.97) 9 012.3 (82.28) 28 901.6 (74.20) Male 24 801.3 (100.00) 5 300.8 (100.00) 19 500.5 (100.00) Smokers 11 247.4 (45.35) 1 826.6 (34.46) 9 420.8 (48.31) Regular smoker 9 638.3 (38.86) 1 576.0 (29.73) 8 062.3 (41.34) Occasional smokers 1 609.1 (6.49) 250.6 (4.73) 1 358.8 (6.97) Non-smokers 13 553.9 (54.65) 3 474.2 (65.54) 10 079.6 (51.69) Female 25 104.3 (100.00) 5 652.2 (100.00) 19 452.1 (100.00) Smokers 744.3 (2.96) 114.2 (2.02) 630.2 (3.24) Regular smokers 592.3 (2.36) 93.5 (1.65) 498.9 (2.56) Occasional smokers 152.0 (0.60) 20.7 (0.37) 131.3 (0.68) Non-smokers 24 360.0 (97.04) 5 538.0 (97.98) 18 821.9 (96.76) Note: in this survey, urban means areas covered by Bangkok metropolis and municipal areas. Source: report of the Health and Welfare Survey, National Statistical Office, Thailand. Smoking prevalence increases with age, peaking around 35­39 years old at over 30% then dropping slightly (Table 3.9). Table 3.9. Population 11 years and over, by age group and smoking habit, 1999 (000s) Age group (years) Smoking habit Total 11­14 15­19 20­24 25­29 30­34 35­39 40­49 50­59 60+ Total 49 905.6 4 375.9 5 699.9 5 770.6 5 595.2 5 222.4 4 786.4 7 895.5 5 083.2 5 476.5 Smokers 11 991.7 11.7 493.9 1 350.2 1 630.3 1 566.4 1 491.2 2 443.5 1 552.3 1 452.1 (%) (24.03) (0.27) (8.67) (23.40) (29.14) (29.99) (31.15) (30.95) (30.54) (26.52) Regular smoker 10 230.6 10.9 359.5 1 056.2 1 386.5 1 311.9 1 285.3 2 162.8 1 378.7 1 278.7 Occasional smoker 1 761.1 0.8 134.4 294.0 243.8 254.5 205.9 280.7 173.6 173.4 Non-smoker 37 913.9 4 364.2 5 206.0 4 420.4 3 964.9 3 655.9 3 295.2 5 452.0 3 530.9 4 024.4 Source: report of the Health and Welfare Survey, National Statistical Office, Thailand. 11 3.3 Causes of death Heart disease, and malignant neoplasms are among the 3 leading causes of deaths in Thailand. Tobacco use is an important risk factor for both. Death rates per 100 000 population from these causes increased during the early 1990s and then fell after 1996 (Table 3.11). While the contribution of heart diseases decreased, deaths caused by all forms of malignant neoplasm, pneumonia and other lung diseases, and tuberculosis increased and contributed to the increasing trend in the death rate, especially in the post-1996 period. In 2000, death caused by these diseases rose sharply to 92 per 100 000 population, while it was only around 61 in 1992. Smoking is a key explanatory factor for this increase. Table 3.10. Death rates per 100 000 population, by cause of death, Thailand, 1992­2000 Cause 1992 1993 1994 1995 1996 Total 480 492 520 548 573 Malignant neoplasm, all forms 43.5 45.0 48.9 50.9 50.5 Heart disease 56.0 58.5 62.5 69.2 77.4 Accident and poisoning 48.5 52.7 61.5 61.5 62.0 Hypertension and cerebrovascular 16.9 16.4 15.7 16.1 15.6 Suicide, homicide/other injury 15.2 14.7 11.1 13.3 13.8 Pneumonia and other lung diseases 11.4 13.8 11.2 11.8 12.6 Nephritis, nephrotic syndrome and 9.7 9.9 9.9 11.0 8.1 nephrosis Diseases of liver and pancreas 13.3 13.0 13.0 12.9 12.4 Tuberculosis, all forms 6.3 6.1 5.9 7.0 7.7 Dengue haemorrhagic fever ­ ­ ­ ­ 0.5 Other 259.2 261.9 280.3 294.3 312.4 (continued) 1996 1997 1998 1999 2000 Total 573 497 508 589 592 Malignant neoplasm, all forms 50.5 43.4 48.7 58.6 63.9 Heart disease 77.4 71.1 63.5 49.9 31.9 Accident and poisoning 62.0 49.0 35.5 48.5 52.6 Hypertension and cerebrovascular 15.6 13.3 10.3 15.6 18.9 Suicide, homicide/other injury 13.8 12.5 14.2 15.0 14.0 Pneumonia and other lung diseases 12.6 10.2 10.0 15.3 18.0 Nephritis, nephrotic syndrome and 8.1 8.4 9.8 11.0 14.7 nephrosis Diseases of liver and pancreas 12.4 10.4 9.4 10.4 10.9 Tuberculosis, all forms 7.7 6.1 7.0 8.6 10.1 Dengue haemorrhagic fever 0.5 0.5 0.6 0.2 0.2 Other 312.4 272.1 299.0 355.9 356.8 Source: Ministry of Public Health, Thailand. 12 4. PRICES, TAXES, AND THE DEMAND FOR TOBACCO PRODUCTS 4.1 Cigarettes and consumption demand Past studies on cigarette demand There are a limited number of studies on the demand for tobacco and tobacco products in Thailand. Supakorn (1993 in Isra, 1995) used a log­linear model and national-level data to analyse aggregate tobacco consumption. The study found that the demand for tobacco products was inelastic. The estimated price and income elasticities of demand were ­0.666 and 0.359, respectively. This implies that each 10% increase in price (through an increase in tax rate) would decrease demand by under 7% and would increase total tax revenue. A 10% increase in income would lead to a 3.6% increase in demand. To counter the effect of rising income on tobacco product consumption, prices would need to increase by around 0.54 times the real rate of growth of the Thai economy. Isra (1995) used a linear expenditure system and 1988 household level data to analyse demand for tobacco products. The study divided smokers by the level of per capita expenditure on tobacco products. Results showed that, on average, the price and expenditure elasticities of demand for tobacco products were ­0.0926 and 0.1387, respectively. A 10% increase in price would lead to a less than 1% decrease in demand. Thus, an increase in tax revenue that followed a tax increase was found to be greater than that found by Supakorn. Moreover, the elasticity estimates indicate that, in order to freeze the demand for tobacco products, the increase in the prices of tobacco products should be around 1.5 times the real growth rate of the economy. The same study also estimated the elasticity of substitution between local cigarettes and imported cigarettes. The results indicated that a 10% change in the relative price of cigarettes from the two sources would lead to a 1.936% shift in demand from expensive cigarettes to cheaper cigarettes. The results of another study (Suchada, 1997) also pointed to a similar conclusion. Demand for cigarettes is very inelastic. An increase in tax rate will reduce cigarette consumption and increase tax revenue. Local and imported cigarettes are complementary products ­ consumers switch between them to some extent in response to price changes. Another three studies worth mentioning are Mason et al. (1987 in Direk, 1989), Direk (1989) and Isra (1995). These studies also used household-level data and a linear expenditure system to analyse household demand. Beverages and tobacco products were aggregated in the same category. Estimates of the price elasticity of demand for the combined products from two of the studies were ­0.979 and ­0.828. These were significantly higher than the estimates derived in other studies. This was because of the inclusion of alcoholic and non-alcoholic beverages in the same category. Demand for beverages is believed to be more elastic than that for addictive products such as cigarettes and other tobacco products. The third study aggregated spending on cigarettes, alcohol and gambling. Income elasticity was found to be more than 1 for consumers in the bottom urban quintile and four lower rural quintiles while those of other quintiles were less than 1. The price elasticity was less than 1 for consumers in most quintiles, except those in the three lower rural quintiles. 13 Overall responsiveness The present study used data from the household socioeconomic survey, 2000 (SES2000) and various price data sets (see details in Appendix 1) to analyse demand for cigarettes and other products. Hereafter, the term "cigarettes" means cigarettes and other tobacco products. Almost half (48%) of households spent some amount each month on tobacco products, the analysis focuses on these 11,968 households. Looking at average expenditures for each consumer good, and as a percentage of total expenditure, puts cigarette expenditures in context. Average expenditure on food, housing, transport and communication, and education were the four highest categories. Each month, the average Thai spent around baht 1972.71 or US$ 46.42. Of this around 38% or baht 741.39 was spent on food. Of the remaining 62% that was non-food expenditure, baht 449.22 was expenditure on housing and domestic activity, baht 281.60 for transport and communication, baht 99.25 for education and baht 78.98 for clothing. Expenditure on non-essential goods accounted for nearly 8% of total consumption expenditure. Of this baht 60.08, baht 56.24 and baht 39.46 were for "bads" (goods that can harm health or family wellbeing)--alcoholic beverages, cigarettes and gambling--respectively. Expenditure on recreation was less than baht 16 per month. Only around baht 37 was left for goods such as gifts, social contributions, occupational expenses, charities and donation, and religious contributions. Table 4.1. Average per capita expenditure, marginal budget share, committed level of expenditure and expenditure elasticity of demand, Thailand, 2000 Good Average Budget share Committed Expenditure expenditure expenditure elasticity (i) (baht) (baht) Total 1972.71 1.0000 909.32 ­ Food 741.39 0.2048 492.38 0.5448 Clothing 78.98 0.0491 30.53 1.2276 Housing 449.22 0.2048 206.35 0.8993 Health care 56.15 0.0403 20.19 1.4159 Personal care 57.64 0.0192 37.00 0.6580 T'port and communication 281.60 0.3092 0.00 2.1659 Recreation 15.53 0.0179 0.00 2.2681 Education 99.25 0.0648 45.23 1.2873 Alcoholic beverages 60.08 0.0299 20.67 0.9822 Cigarettes 56.24 0.0201 26.88 0.7049 Gambling 39.46 0.0209 12.91 1.0454 Other non-foods 37.17 0.0190 17.19 1.0124 Source: author's estimates. The expenditure elasticity of demand (i) captures the change in expenditure on a good as income changes. Results show that a 1% increase (decrease) in income will lead to a 0.70% increase (decrease) in demand for cigarettes. By comparison, a 1% increase (decrease) in income will lead to a 0.54% increase (decrease) in demand for food and 0.98%, 0.90% and 0.66% 14 changes in demand for alcoholic beverages, housing, and personal care, respectively. Education and health care expenditures respond more strongly to income changes (i =1.4 and 1.28 respectively), as do recreation (i = 2.29), transport and communication (i = 2.17) and clothing (i = 1.23). Thus, during an economic boom, demand for these goods will grow at a relatively higher rate than that of the average of all other consumer goods. When the economy is in recession, the decrease in demand for these goods will be greater than that of the demand for other consumer goods. In order to prevent expenditures on cigarettes rising as incomes rise, percentage increases in cigarette real prices should be around 1.8 times the rates of increase in smokers' incomes. This would prevent an increase in total demand as incomes rise, and also increase tax revenue. Smokers who quit or decrease their consumption in response to price increases will free up disposable income to reallocate to other goods. Smokers who continue to smoke the same quantities at higher prices will have less to spend on other goods, but the impact is modest, as cigarettes account for only 2% of total spending. Price elasticity (ii) is defined as a percentage change in the quantity purchased, divided by the percentage change in the price of the commodity. It has important policy implications. The responsiveness of cigarette demand to a change in cigarette price in Thailand is in the usual range for middle- and higher income countries (table 4.2). Each 1% increase in cigarette real prices will lead to a 0.39% decrease in cigarette demand.1 This also implies that tax revenue will rise as a result of increases in the tax rate, even though consumption falls, because the fall in consumption is proportionately smaller than the tax and price increases. Table 4.2 shows price elasticities for all 12 goods. Recreation, and transport and communication are highly price responsive, with price elasticities greater than 1. For the other 10 goods, a 1% increase in their own prices would reduce demand by between 0.36% and 0.77%, depending on the good. Although cigarettes are on the low end of the range of price elasticities, tax increases that increase prices are still a powerful policy tool to reduce cigarette consumption. The cross price elasticity of demand (ij) shows that almost every pair of goods is complementary (ij < 0). A rise in the price of one good will reduce real income and, as a consequence, the demand for other goods. The impact of a 1% increase in cigarette prices on demand for other goods is generally low, a small fraction of one percent. The impact on demand for health care would be ­0.025% and for education would be ­0.023%. Food price changes would have the most significant impact on demand for other goods, because they absorb such a large share of all expenditures. A 1% increase in food prices will reduce demand for recreation, and transport and communication by about 0.60%, and would reduce demand for health care by ­0.38% and demand for education by ­0.34%. 1In the author's 2001 survey of 810 smokers, 32% of smokers said they would reduce their cigarette consumption if prices were to increase by 10%. The price elasticity estimated from this small survey was lower than the estimate using the national household survey data. 15 Table 4.2. Price elasticity and cross price elasticity of demand, Thailand, 2000 Good 1 2 3 4 5 6 Price elasticity 1. Food ­0.4383* ­0.0074 ­0.0639 ­0.0037 ­0.0103 0.0130 2. Clothing ­0.3259 ­0.6784* ­0.1440 ­0.0083 ­0.0231 0.0294 3. Housing ­0.2387 ­0.0122 ­0.5903* ­0.0061 ­0.0170 0.0215 4. Health care ­0.3759 ­0.0192 ­0.1440 ­0.7729* ­0.0267 0.0339 5. Personal care ­0.1747 ­0.0089 ­0.0772 ­0.0044 ­0.3671* 0.0157 6. Transport and ­0.5749 ­0.0293 ­0.2541 ­0.0146 ­0.0408 ­1.1158* communication 7. Recreation ­0.6021 ­0.0307 ­0.1661 ­0.0153 ­0.0428 0.0542 8. Education ­0.3417 ­0.0174 ­0.1510 ­0.0087 ­0.0243 0.0308 9. Alcoholic ­0.2607 ­0.0133 ­0.1152 ­0.0066 ­0.0185 0.0235 beverages 10. Cigarettes ­0.1871 ­0.0095 ­0.0827 ­0.0047 ­0.0133 0.0169 11. Gambling ­0.2775 ­0.0142 ­0.1227 ­0.0070 ­0.0197 0.0250 12. Other non- ­0.2687 ­0.0137 ­0.1188 ­0.0068 ­0.0191 0.0242 foods Good 7 8 9 10 11 12 1. Food 0.0010 ­0.0084 ­0.0078 ­0.0096 ­0.0048 ­0.0047 2. Clothing 0.0022 ­0.0189 ­0.0176 ­0.0217 ­0.0107 ­0.0105 3. Housing 0.0016 ­0.0138 ­0.0129 ­0.0159 ­0.0079 ­0.0077 4. Health care 0.0025 ­0.0218 ­0.0203 ­0.0250 ­0.0124 ­0.0121 5. Personal care 0.0012 ­0.0101 ­0.0094 ­0.0116 ­0.0057 ­0.0056 6. Transport and 0.0038 ­0.0333 ­0.0310 ­0.0383 ­0.0189 ­0.0185 communication 7. Recreation ­1.2188* ­0.0349 ­0.0325 ­0.0401 ­0.0198 ­0.0194 8. Education 0.0023 ­0.7138* ­0.0184 ­0.0228 ­0.0112 ­0.0110 9. Alcoholic 0.0017 ­0.0151 ­0.5436* ­0.0174 ­0.0086 ­0.0084 beverages 10. Cigarettes 0.0012 ­0.0109 ­0.0101 ­0.3925* ­0.0062 ­0.0060 11. Gambling 0.0018 ­0.0161 ­0.0150 ­0.0185 ­0.5727* ­0.0089 12. Other non- 0.0018 ­0.0156 ­0.0145 ­0.0179 ­0.0088 ­0.5544* foods Note: * = own price elasticity. Responsiveness by income class Despite the damage caused by smoking, the implementation of policies to control or reduce smoking has been partly constrained by concerns over whether they would have an unfavourable distribution impact. An increase in cigarette price will decrease real income (unless smokers cut 16 back to avoid spending more on cigarettes or even quit). Consequently, demand for other goods would be reduced. This can be analysed by deriving the expenditure elasticity of demand for cigarettes, the price elasticity of demand for cigarettes and the cross price effect of an increase in the cigarette price on the demand for other goods by income class. The expenditure elasticity of demand shows that the effect of an increase in consumption expenditure, hereafter income, is different across income classes (Table 4.3). Generally, the effect is positive, is higher in urban areas than in rural areas, and is higher for lower income groups than higher income groups. For each 1% increase income, urban smokers in the two bottom classes will increase expenditure on smoking by around 1.55% and 1.27%, more than the proportionate increase in their income. Thus, the shares of other consumer goods in their consumption expenditure are expected to decline slightly. In the case of urban smokers in the other three income classes, their smoking will increase by around 0.53%, 0.32% and 0.17%, respectively, with a small fall in the share of total income spent on cigarettes. Similarly, a 1% increase in the income of rural people will also lead to a less than 1% increase in smoking. Table 4.3. The effect of a 1% increase in income on demand for cigarette and in cigarette price on demand for various goods, by income class Class Income Price Cigarettes Food Housing Health Education Urban 1 1.5503 ­1.0034 0.0001 0.0001 0.0001 0.0002 Urban 2 1.2733 ­0.3554 ­0.0203 ­0.0108 ­0.0344 ­0.1131 Urban 3 0.5264 ­0.1259 ­0.0225 ­0.0234 ­0.0000 ­0.1174 Urban 4 0.3241 ­0.0981 ­0.0112 ­0.0344 ­0.0136 ­0.1527 Urban 5 0.1678 ­0.0418 ­0.0092 ­0.0229 ­0.0160 ­0.0258 Rural 1 0.8399 ­0.4866 ­0.0091 ­0.0114 ­0.0143 ­0.0212 Rural 2 0.1670 ­0.0464 ­0.0164 ­0.0119 ­0.0183 ­0.0739 Rural 3 0.4511 ­0.0280 ­0.0052 ­0.0025 ­0.0017 ­0.0359 Rural 4 0.9233 ­0.1476 ­0.0138 ­0.0111 ­0.0324 ­0.0844 Rural 5 0.1533 ­0.0686 ­0.0051 ­0.0206 ­0.0167 ­0.0087 Note: urban 1 and rural 1 are smokers in the bottom income class of urban areas and rural areas, respectively. Similarly, urban 5 and rural 5 are smokers in the top income class of the areas. Source: author's estimation. Concerning the distributive effect of a price increase, the elasticities for the different income groups in Table 4.3 indicate that price policy would be particularly effective in reducing smoking among urban smokers in the lowest two income groups, and on the poorest rural smokers. The lowest two urban income groups have a price elasticity of demand of ­1.003 and ­0.355 respectively, for the four upper urban income classes, price elasticities are ­0.1259, ­0.0981, and ­0.0418. Thus, an increase in cigarette price (which could be brought about by a tax increase), would decrease smoking much more among the lower urban income groups than among higher income urban smokers. In the case of rural smokers, the responsiveness of smoking to an increase in cigarette price of the bottom income class (0.4866) is around 8 to 70 times those of smokers in the other rural income classes. So the increase in tax revenue that would occur with an increase in tobacco tax rates would be borne more by higher income urban smokers, and by 17 smokers in the upper four income quintiles in rural areas, whose consumption would change relatively little. The cross price elasticity of demand estimated by income group (shown in the last 4 columns of Table 4.3), shows only very small effects of changes in cigarettes price on consumption of other goods. The impact of a 1% increase in cigarette price on the consumption of foods, housing, health care and education is negligible for the bottom urban class. The biggest effect is for education; a 1% increase in cigarette price will lead to a reduction in demand for education of just more than one eleventh of one percent among smokers in the three middle urban classes. The impact on expenditures by rural smokers on all basic needs categories is considerably smaller than for urban smokers. Cigarette prices rises would have very little impact on rural expenditures on food, housing, health care and education. Responsiveness by age group The sample is divided into six age groups: 8­17 years old, 18­29 years old, 30­39 years old, 40­ 49 years old, 50­59 years old, and 60 years old and older. They are 10-year age groups except 18­29 and 60+. The 8­17 years group was selected for two reasons. Survey results point out that some smokers start smoking as young as 8 years old, despite the fact that selling cigarettes to people younger than 18 years old is illegal under the 1992 tobacco control act. Age-specific income elasticity of demand for cigarettes suggests that, all other things remaining constant, an increase in income will stimulate smoking among children, youths and especially those who are between 18 and 40 years old (Table 4.4). The responsiveness of cigarette demand to a 1% income change is positive and highest among smokers in the 30­39 years old age group (1.00%), followed by the 18­29, 8­18, 50­59 and 40­49 years old age groups, in descending order of size of the elasticity. The reverse is true when the economy is in recession. Price can be an effective smoking control measure, especially among middle-aged and young smokers (Table 4.4). For the 30­39 years old age group, cigarette demand will fall by 0.46% in response to a 1% increase in price. In the 18­29 and 8­17 year old age groups, cigarette demand will decrease by 0.39% and 0.31%, respectively in response to each 1% increase in price. Price response in the other two age groups is a little lower at 0.25% and 0.29%. Table 4.4. Effect of a 1% increase in income on demand for cigarettes and in cigarette price on demand for various goods, by age group Age group Income Prices Cigarettes Food Housing Health Education 8­17 0.6364 ­0.3075 ­0.0121 ­0.0142 ­0.0120 ­0.0619 18­29 0.8365 ­0.3880 ­0.0123 ­0.0132 ­0.0094 ­0.0278 30­39 1.0015 ­0.4616 ­0.0073 ­0.0103 ­0.0038 ­0.0000 40­49 0.5109 ­0.2447 ­0.0090 ­0.0249 ­0.0266 ­0.0306 50­59 0.6011 ­0.2875 ­0.0070 ­0.0180 ­0.0218 ­0.0292 60 and over 0.0000 ­0.0000 ­0.0124 ­0.0466 ­0.1819 ­0.0108 Source: author's estimation. 18 It is unusual and unexpected that the 30-39 year old age group is more price responsive that the younger groups. It is also notable that the 60 and over group appear to be completely unresponsive to price changes, despite the fact that elderly people also tend to have relatively low or fixed incomes that tend to make them more price responsive than people of working age. The impact on demand for essential goods that an increase in cigarette prices would have is generally negligible, as the very small coefficients in Table 4.4 show. The only effect that is in the tenths-off-one-percent range rather than the hundredths of one percent range is for expenditures on health care by people 60 years and older. 4.2 Taxation, price structure and tax revenue Cigarette taxation and price structure Import tariffs For locally produced cigarettes, purchase price equals factory price plus excise tax and value- added tax. For imported cigarettes, purchase price equals the sum of c.i.f. price, import tariff, excise tax and value-added tax. Based on a World Trade Organization commitment, the import tariff on cigarettes is 63% of c.i.f. prices or baht 83.99 per kilogram (whichever is higher) in 2001 and 62% of c.i.f. prices or baht 82.66 per kilogram in 2002 (Table 4.5). For cigarettes with tobacco imported from three ASEAN Free Trade Area (AFTA) member countries, customs tariff was set at 10% and 5% of c.i.f. prices in 2001 and 2002, respectively (Table 4.6). The three countries are Singapore, Indonesia and the Philippines. For cigarettes imported from other AFTA member countries, the rate has been 22.5% since 1 January 2001. In all cases, the tariff rates are supposed to be reduced gradually. Table 4.5. Import tariff rates, WTO rates Product Ad valorem rate (%) Specific rate (baht/kg) 2001 2002 2001 2002 Cigarettes with tobacco 63 62 83.99 82.66 Cigars 63 62 83.99 82.66 Others 63 62 83.99 82.66 Source: Thailand Customs Department. Table 4.6. Import tariff rates for products imported from Singapore, Indonesia and the Philippines Product 2001 (%) 2002 (%) Cigarettes with tobacco 10 5 Cigars 15 10 Others 20 20 Note: since 1 January 2001, custom tariff rates for cigarettes, cigars and other products imported from other AFTA member countries are 22.5%, 45%, and 60%, respectively. Brunei also enjoys the same rate of custom tariff on other products. Source: Thailand Customs Department. 19 Excise tax rates The excise tax rate has been increased over the past decade. The same rate is applied to both locally produced and imported cigarettes. Between 12 October 1999 and 29 March 2001, the rates for cigarettes, cigars, and other tobacco products were 71.5%, 0.1% and 0.1%, respectively. Since 29 March 2001, the rate for cigarettes has been set at 75% of the post-tax price, i.e. including the tariff and excise tax (Table 4.7). The value-added tax is currently set at 7% of the price including the tariff and excise tax. The Provincial Administrative Organizations (PAOs) extract revenue from the retail trade margin of all sticks of manufactured and imported cigarettes. The rate of the local tax differs from PAO to PAO and can be as high as baht 0.05 per stick. In provincial areas--outside Bangkok--the rate is currently set at baht 0.0454 per stick. Since 7 November 2001, a health tax is applied on all sticks of manufactured and imported cigarettes. The tax is 2% and is on top of the excise tax. Table 4.7. Excise tax rates, Thailand, 12 October 1999­present Product Ad valorem rate (%) Specific rate (baht/kg) 12 Oct99 - 29 Mar01 29 Mar01-present Cigarette 71.5 75 ­ Cigar 0.1 0.1 120 Others 0.1 0.1 46.25 Source: Thailand Excise Department. The structure of tobacco taxation can be complicated. Taxes can be specific rates, on physical quantities, usually set in nominal terms, and/or ad valorem rates, based on product values. The rate of excise tax is applied on the factory price or imported price that includes customs tariff and the excise tax--the excise tax rate is calculated as a percentage of the post-tax price. An excise tax rate that is cited as 75% of the retail price may be 300% of the factory price. Value-added tax is levied on the cigarette price after all other taxes and the profit margin have been included. The structure of cigarette purchase prices can be calculated by the following equation (tariffs are presented as fractions of unity). Pc = P0(1+tr )1+ te 1-te + M (1+tv) where Pc = the purchase price of cigarettes P0 = the factory price or import price of cigarettes M = margin tr = tariff rate, which is zero for locally produced cigarettes te = excise tax rate tv = value-added tax rate. Table 4.8 demonstrates how cigarettes were taxed in 2002. Examples are based on two popular brands of cigarette, one a locally produced brand and the other an imported brand. The purchase prices are based on the actual purchase prices of cigarettes, baht 30 and baht 55 per packet, respectively. For all brands, factory and c.i.f. prices are assumed to be the same--baht 5 per 20 packet. Two important findings are, first, based on the WTO rate, the estimated trade margin on imported cigarettes (baht 17.40) is much greater than on local cigarettes (baht 6.83), and second, when the AFTA rate is applied, the trade margin on imported brands increased by baht 8.73 to baht 26.13. By changing country of origin, cigarette importers can earn a greater margin. Since the government controls cigarette prices, this means more profit or more resources for advertising and non-price promotion to increase shares of the total cigarette market. Table 4.8. Hypothetical price structure of cigarettes, Thailand, 2002 (baht) Price and taxes Local Import (WTO) Import (AFTA) a Factory price 5.00 ­ ­ b c.i.f. price ­ 5.00 5.00 c Customs tariff ­ 3.15 1.00 d = a + b + c 5.00 8.15 6.00 e Excise tax 15.00 24.45 18.00 f Health tax 0.30 0.49 0.36 g = d + e + f 20.30 33.09 24.36 h Margin 6.832 17.402 26.132 i Local tax 0.908 0.908 0.908 j = g + h + i 28.04 51.40 51.40 k Value-added tax 1.96 3.60 3.60 j + k Purchase price 30.00 55.00 55.00 Note: factory price does not include excise tax. Health tax, which is 2% of the excise tax, is assumed to come from the marketing margin, but could, instead be passed on to consumers as an increase in the price. Source: Author's calculation. Taxation and impact on cigarette demand and government revenue Elasticity estimations suggest that tax policies can be effective instruments for reducing smoking and raising revenue. Excise tax is preferred for many reasons. First, the rate on cigarettes can be changed easily in the light of policy objectives, without affecting prices/tax rates for other goods. Second, it is not constrained by any international agreements, so long as the same rate applies to imported and domestically produced cigarettes. Custom tariff rates and the value-added tax is less flexible. Changes in tariff rates are constrained by Thailand's commitment to the WTO. With some exceptions, the same value-added tax rate applies to all goods. Thus, a change in this rate will mostly affect consumer demand in terms of a change in real income. The following equation is a simplified version of the pricing equation Eq. 1 given above. Pc = P0(1+ tr)1+1 te (1+m)(1+ tv) - te = K[1 + te/(1 ­ te)] = K(1 + ) Eq. 6 where m = the rate of margin (as opposed to the margin itself as previously) K = P0(1 + tr)(1 + m)(1 + tv) = te/(1 ­ te). 21 This study estimates the impact of a change in the rate of excise tax from 75% to 76%. This is equal to a 1.33% increase in the existing rate of excise tax. In terms of , this is equivalent to a 5.56% increase from 300% to 317%. The tax increase is assumed to be fully passed on to consumers as a price increase, and raises the retail price by 4.17%. The impact of the change on cigarette consumption by income groups Q, and on government revenue T can be estimated by the following equations. dQ = ii d Q 1+ dT = 1+ ii d T 1+ Using the elasticity estimates presented above, the impact of an increase in the rate of excise tax from 75% to 76% would be as follows. Overall cigarette consumption would fall by 1.64%. With cigarette consumption in 2000 of around baht 50 thousand million and an average price of baht 30 per packet, this is equivalent to 27.3 million packets of cigarettes fewer. As noted, different price elasticities imply that impact will differ by income. For smokers in urban areas, from the poorest group (class 1) to the richest (class 5), cigarette consumption would be reduced by 4.18%, 1.48%, 0.53%, 0.41% and 0.17%, respectively. In the cases of smokers in rural areas, cigarette consumption would be reduced by 2.03%, 0.19%, 0.12%, 0.62% and 0.29%, respectively. Thus, an increase in excise tax rate will be successful in reducing cigarette consumption mainly in urban areas and among smokers in lower income classes. Figure 4.1. The reduction of cigarette consumption due to the impact of an increasing in the rate of excise tax from 75% to 76% 4.5 Urban 4 Rural 3.5 3 change 2.5 2 1.5 Percentage 1 0.5 0 1 2 3 4 5 Income class Second, excise tax revenue would increase by 3.92%. The total revenue from the excise tax on cigarettes of around baht 28 thousand million in 2000 would rise by around baht 1103 million for the government. Of this, baht 923 million would be derived from excise tax on Thailand Tobacco Monopoly (TTM) cigarettes. Another baht 180 million would come from excise tax on imported 22 cigarettes. At the same time, revenue from value-added tax (which is levied on the price after the excise tax has been applied) would increase by around baht 87 million. Government revenue from TTM profits and tariffs would decrease by baht 87 million and baht 16 million, respectively. Following the decrease in total cigarette demand of around 27.3 million packets, local tax revenue would also decrease by around baht 23 million. Thus, the increase in the rate of excise tax from 75% to 76% would not only reduce cigarette consumption but also extract extra revenue of around baht 1064 million for the government (Table 4.9). In the long term, there would also be additional benefit in terms of health care cost savings. An approach to the health care cost of smoking is outlined in Appendix 4. Table 4.9. Impact on government revenue, Thailand, 2000 (million baht) Total net Revenue from Increase Revenue from TTM Decrease Decrease increase excise tax1 in VAT profit in tariff in local Actual Increase revenue Actual Decrease revenue tax2 1064 28 135 1103 87 5310 87 16 23 Notes: 1. TTM cigarettes shared around 83.67% of the total excise tax revenue; 2. Survey results show that smokers in provincial areas shared around 92.68% of total cigarette consumption. Source: Author's estimation. Third, it is very important to note that the above results are based on an assumption that the prices of all cigarettes and other tobacco products increase. In actual fact, the tax increase will affect only the price of TTM cigarettes and legally imported cigarettes. Some smokers of legally manufactured and imported cigarettes may switch to cheaper brands, contraband cigarettes, self- rolled cigarettes, traditional tobacco products and other tobacco products, the prices of which are not fully affected by the increase in tax rate. The actual decrease in demand for manufactured cigarettes could be more and the actual positive impact on government revenue could be less. This depends on the degree of switching and the degree to which the prices of contraband cigarettes, raw materials for self-rolled cigarettes, and other tobacco products adjust in response to the increase in the rate of excise tax. The above discussion is based on an increase in excise tax rate from 75% to 76%. In reality, this is not the only choice. The government could decide to increase the excise tax rate by more. The table below summarizes the impact of an increase in excise tax rate from 75% to 76%, 77% and 80% (Table 4.10), assuming no switching to cheaper tobacco products such as contraband cigarettes, self-rolled cigarettes and bai jak. It should also be noted that smokers are not very perceptive of tax increases. Survey results showed that only 67% of smokers recalled the most recent cigarette tax increase in 2001. The recall rate was higher in Bangkok city (82%) than in provincial areas (66%). Moreover, more than one-third and around one-quarter of smokers realized that reasons behind the increase were smoking control and tax revenue, respectively. An increase in tax rate was supported by around 52% of smokers (Table 4.11). 23 Table 4.10. The percentage impact of changes in the excise tax rate on cigarette demand and revenue from cigarettes by income group, Thailand Increase in excise tax 75% to 76% 75% to 77% 75% to 80% Impact on overall ­1.64 ­3.41 ­9.81 demand Urban 1 ­4.18 ­8.72 ­25.09 Urban 2 ­1.48 ­3.09 ­8.89 Urban 3 ­0.53 ­1.09 ­3.15 Urban 4 ­0.41 ­0.85 ­2.45 Urban 5 ­0.17 ­0.36 ­1.05 Rural 1 ­2.03 ­4.23 ­12.17 Rural 2 ­0.19 ­0.40 ­1.16 Rural 3 ­0.12 ­0.24 ­0.70 Rural 4 ­0.62 ­1.28 ­3.69 Rural 5 ­0.29 ­0.60 ­1.72 Excise tax revenue 3.92 8.19 23.52 Note: The rates of decreases in revenue from TTM profit and local tax are equal to that of cigarette demand. Source: Author's estimation. Table 4.11. Opinions on the cause of the last cigarette price increase, Thailand, by region Reason for the price Region Total increase North North-east Central South Bangkok (%) (%) (%) (%) (%) (%) To raise more tax revenue 27.00 24.20 20.00 26.70 21.70 24.40 To reduce the number of smokers 31.50 38.30 34.00 30.80 38.40 34.00 To increase profit of cigarette companies 0.90 1.70 1.00 5.00 1.70 2.20 To match the increasing cost of 3.60 7.50 8.00 7.50 5.80 6.60 production Economic recession 8.10 5.80 5.00 ­ 9.20 5.00 There are too many smokers 4.50 5.00 2.00 3.30 5.00 3.90 Cigarettes are luxury goods 4.50 0.80 2.00 2.50 1.70 2.40 To adjust domestic prices to equal foreign prices 0.90 ­ ­ ­ 0.60 0.20 Other 18.90 16.70 28.00 24.20 15.90 21.30 Source: Author's survey results. 24 4.3 Tobacco and tobacco product trade and smuggling The General Agreement on Trade and Tariffs ruling in 1990 that Thailand had to open its markets to imports has led to an influx of imported cigarettes. In the 1980s and the beginning of the 1990s, the value of imported cigarettes was less than baht 0.5 thousand million. Following the entry of international brands into the Thai market, the import value rose dramatically. In 1995 and 1996, Thai smokers spent more than baht 3.5 thousand million on imported cigarettes. Because of the economic contraction and currency depreciation that followed the 1997 crisis, the import value fell to baht 1.873 thousand million in 1998 and baht 2.370 thousand million in 1999 (Figure 4.3). Taking into account the depreciation of the baht, the drop in the real value of imported cigarettes would be more. Figure 4.2. Value of imported cigarettes, Thailand, 1980­1999 (thousand million baht) 4 3.5 3 2.5 2 1.5 1 0.5 0 1980 1985 1990 1995 1996 1997 1998 1999 Imported Value (Billion Baht) The effort to reduce cigarette consumption has been weakened by foreign cigarettes imports, and more especially by an inflow of contraband cigarettes. Interview results indicate that slightly more than 15% of smokers buy imported cigarettes. By brand, around 53% are L&M, followed by Marlboro (29.1%), Moore (9.9%) and Mild Seven (2.9%). Many of these American brand cigarettes (L&M, Marlboro and Moore) are produced in neighbouring (AFTA) countries, especially Indonesia, and thus enjoy lower rates of customs tariff. Mild Seven is a Japanese brand (Table 4.12). Table 4.12. Cigarette market shares 2001, Thailand, by region (percentage) Type Total Provincial areas Bangkok Thai 84.7 85.7 72.7 Imported 15.3 14.3 27.3 of which brand is (100.0) (100.0) (100.0) L&M (53.4) (52.8) (57.1) Marlboro (29.1) (27.8) (37.5) Moor (9.9) (11.1) (1.8) Mild Seven (2.6) (2.8) (1.8) Other (5.1) (5.6) (1.8) Source: survey results. 25 Official figures indicate that less than 5% of cigarettes smoked in Thailand are imported (Table 3.4). But the survey of smokers found that 15.5% of their cigarettes packages had warning labels in English or other non-Thai languages or no warning labels, and were probably illegally imported (Table 4.13). Contraband cigarettes seems to be more common in provincial areas than in Bangkok. If the small survey is representative, it suggests that consumption of contraband cigarettes is significant--perhaps three times that of legally imported cigarettes, i.e. about 13% of all cigarettes. This would make the actual tobacco trade deficit larger than the official figure. Table 4.13. Warning labels and cigarette types, Thailand, by region Label language Total Provincial areas Bangkok Thai 84.5 83.3 92.6 English 10.4 11.1 5.6 Other 5.1 5.6 1.9 Total 100.0 100.0 100.0 Source: Survey results. Another survey of imported cigarettes was also conducted for this study in order to provide detailed information on the significance and sources of cigarette smuggling. The quantitative results of this survey are not statistically reliable. However, the qualitative results are indicative and should be very useful for policy-makers. In this survey, 809 cigarette packets were collected from all regions in Thailand. Of these, 229 were from the north, 45 from the north-east, 51 from the central region, 62 from the south and 422 from Bangkok. Around 46% of the imported cigarettes had no warning label in Thai and thus can be considered as contraband (Table 4.14). Among the contraband cigarettes, 18% had labels in English, suggesting that their sources were manufacturers for English-speaking countries. Around 8% had labels in other non-Thai languages. Surprisingly, the remaining 19% of the imported cigarettes had no warning label. It should be noted that Marlboro was the most common contraband cigarette, at around 58% of the packages collected that did not carry the mandatory Thai warning label. The contraband Marlboro had English warning labels and were mostly produced in the United States. Table 4.14. Warning label languages on imported cigarettes, Thailand Brand Thai English Other No label Total No. % No. % No. % No. % No. % Marlboro 152 42.34 72 20.05 15 4.18 120 33.43 359 44.38 L&M 248 89.53 23 8.30 1 0.36 5 1.81 277 34.24 Other 40 23.12 54 31.21 48 27.75 31 17.92 173 21.38 Total 440 54.39 149 18.42 64 7.91 156 19.28 809 100.00 Source: survey results. Customs valuation could also pave the way for tax evasion that lowers the price of and increases demand for imported cigarettes. Under the WTO, transaction prices should be used in customs valuation, unless there is sufficient evidence to prove that the declared prices of any imported item are not the actual transaction prices in the market (Table 4.15). The transaction prices include commission, brokerage, royalty and licence. This creates loopholes in cigarette taxation 26 and undermines the effectiveness of smoking control measures. Under-declaring the imported prices of cigarettes reduces the tax payable, and raises profits. Evidence suggests that the declared prices of imported cigarettes could be as low as 16% of customs prices. Given that many imported cigarettes come from AFTA member countries, from which imported products are taxed at lower rates, this issue becomes more complicated and requires further attention. Table 4.15. Declared price and customs price ratios, Thailand, by import origin Brand Origin Declared price­customs price ratio (%) Minimum Maximum A Philippines 21.82 50.84 B Philippines 24.49 72.52 C Malaysia 57.91 89.62 D Malaysia 54.93 84.69 E Malaysia 45.85 57.05 F Indonesia 16.55 27.16 G Indonesia 38.62 45.23 Note: Disclosure of brand-specific information is prohibited by law. Source: Thailand Customs Department. There are concerns that an increase in tax rate will not only reduce cigarette consumption but also induce more cigarette smuggling because it raises the potential profit to be made from contraband cigarettes. However, smoker survey results suggest that this may not be the case. Brand loyalty is significant among smokers. If prices were to rise by 10%, 93% of smokers of local cigarettes and 83% of smokers of legally imported cigarettes said they would not switch to other brands of cigarette. Only 1.5% and 1.8% of smokers of local cigarettes said that they would switch to imported and contraband cigarettes, respectively, while 12.6% of smokers of legally imported cigarettes would switch to local cigarettes. In 1999, total consumption of local cigarettes and legally imported cigarettes was worth around baht 45,718.82 million and baht 2,368.34 million, respectively. If the survey accurately and representatively predicts the actual behavior of smokers, assuming the same price elasticity for all smokers, a 10% increase in the prices of all legally produced or imported brands would reduce sales of local cigarettes by around baht 850 million from switching to contraband cigarettes, but increase sales of local cigarettes baht 263 million because of switching from legally imported cigarettes (Table 4.16). No respondent who smoked legally imported cigarettes said he would switch to contraband cigarettes. Table 4.16. Percentage brand switching after a 10% increase in prices After Thai Imported Contraband Other Before Thai 93.10 1.50 1.80 3.70 Imported 12.60 82.90 0.00 4.50 Contraband 0.00 0.00 100.00 0.00 Others 3.00 0.00 0.00 97.00 Note: "others" includes snuff and no answer. Source: survey results. 27 4.4 Smoking control measures: problems of law enforcement In Thailand, a number of important measures have been designed to reduce smoking. These are the prohibition of advertisement of tobacco products, prohibition of smoking in various public places and prohibition on selling tobacco products to children aged under 18. While the measures have received wide public support, their success or failure depends on the extent of compliance and effective enforcement and the existence of loopholes. Survey results show that these measures have not been fully effective. Nearly 21% of smokers had seen cigarette advertisements (Table 4.17). These were mainly advertisements on television (40%), through logos in various programmes. Another 12%, 9% and 8% saw signboards, magazines and stickers, respectively. It should be noted that violation was found to be more serious in the provincial areas than in Bangkok. Marlboro was the brand whose advertising was most frequently seen (nearly 78% of all cigarette advertisements). The term "advertisement" was self-defined by smokers, and that the question did not specify the time period during which the advertisement had been seen. Table 4.17. Experience of cigarette advertisements, Thailand Experience Total Provincial areas Bangkok No 79.1 78.5 87.5 Yes 20.9 21.5 12.5 Of which the medium was Television 47.0 47.4 40.0 Signboard 11.8 11.6 15.6 Magazine 9.1 8.4 24.4 Sticker 8.4 8.4 8.9 Showcase 6.0 6.3 ­ Poster 5.2 5.3 4.4 Theatre 2.0 2.1 ­ Other 10.4 10.5 6.7 Of which the brand was Marlboro 77.8 77.3 88.1 Krongthip 5.5 5.7 2.4 Falling Rain 4.6 4.5 4.8 Other 12.2 12.5 4.8 Source: Survey results. Measures to prohibit smoking in public places are violated widely. About half of all smokers interviewed (54%) said they had smoked in no-smoking areas (Table 4.18). The degree of violation was slightly more in provincial areas (nearly 59%) than in Bangkok (less than 50%). Surprisingly, more than 23% of smokers reported their experience of smoking in areas in which measures should be enforced strictly, such as schools and other educational institutions and air- conditioned shopping areas. Another 17%, 12%, 10% and nearly 10% had smoked in trains, taxis, buses and theatres, respectively. Smoking in government offices was also reported by 28 around 14% of smokers in both provincial areas and Bangkok. Smoking in other no-smoking areas was also reported. However, the degree was not so significant. Table 4.18. Percentage of smokers who had smoked in no-smoking areas, Thailand No-smoking area Total Provincial areas Bangkok Bus 10.4 10.4 10.3 Taxi 11.8 12.2 11.8 Train 16.9 17.1 16.9 Boat 10.7 5.6 10.7 Aeroplane 0.8 0.9 0.8 Elevator 2.2 2.2 2.2 Theatre 9.5 9.8 9.5 School 23.2 23.3 23.2 Shopping area 23.2 23.5 23.2 Government office 13.9 14.4 13.9 Total 54.72 58.79 49.60 Source: Survey results. Estimates of age at first smoking point to an urgent need to enforce measures to prohibit children smoking and to control cigarette selling to children age under 18 (Table 4.19). While average first-smoking age was found to be around 18 years old in all regions with a standard deviation of 4.8 years, the minimum first-smoking age in the north-east was as young as 7 years. Other regions also reported low figures--8 years old for Bangkok and the south, 10 years old for the central region and 11 years old for the north. Moreover, children smoking in smokers' households was also reported in all regions, especially the north and the Bangkok metropolis. Table 4.19. Average age at first smoking, Thailand (years) Region Mean Standard Minimum Maximum deviation Total 18.14 4.83 7 56 North 17.88 5.21 11 43 Northeast 18.81 5.56 7 56 Central 17.94 4.42 10 38 South 18.01 4.34 8 32 Bangkok 17.67 3.49 8 35 Source: survey results. 29 5. HEALTH CARE COSTS OF SMOKING 5.1 Introduction Cigarettes carry both benefits and costs for individuals and society. The benefits are the satisfaction and enjoyment that smokers receive from smoking. There are also incomes and profits to tobacco farmers, cigarette producers and retailers. Governments collect cigarette tax revenue and other revenues from cigarette production if they own manufacturing companies. The most significant cost of cigarette smoking is the cost of lost lives and productivity from disease and premature deaths from tobacco use, as well as the associated health care costs borne by patients and the government (net of health care costs that smokers would have incurred from other diseases if they had not smoked). There are also the costs associated with exposure to second-hand smoke, and the opportunity cost of using scarce income on cigarettes rather than on food or other things. Fire damage from lit cigarettes can also be substantial, and tobacco growing can have environmental costs through deforestation, pesticide use and soil degradation. The few studies that have attempted to assess the health care cost of smoking in Thailand are reviewed in the next section. Methodologies and assumptions of these studies are discussed and results are compared. Based on the data and results of the studies, this section presents an estimate of the overall health care cost of smoking. 5.2 Smoking-related diseases Results of epidemiological studies in many countries indicate that cigarette smoking directly or indirectly causes many diseases, both by substances in cigarettes and by destroying body resistance and increasing susceptibility to becoming ill. Thousands of studies in countries around the world have found that habitual smokers face especially heightened risk in three important groups of diseases. These are malignant neoplasms, cardiovascular diseases and respiratory diseases (Kunaluck, 1996). Details of these diseases are summarized in Appendix 3. Smoking has also been found to be an important cause of other diseases. Data from the numerous studies around the world indicate that women's exposure to smoking and smoke poses grave risks to their own health and to their babies, before and after birth. Spontaneous abortion, pre- term births, low birth-weight full-term babies, and foetal and infant deaths all occur more frequently among mothers who smoke during their pregnancies (US Department of Health And Human Services 2001). In men, erectile dysfunction is strongly associated with smoking (Jeremy 1998). In Thailand, the results of many studies also point to a relationship between cigarette smoking and disease. Theera (1994), based on the statistics of lung cancer patients who received treatments between 1967 and 1993, concluded that there was a significant relationship between smoking and lung cancer. Around 78% of his 1,750 lung cancer patients were smokers, most of them heavy smokers. The results of Sirikunya et al. (2000) also point to similar conclusions. Cigarette smoking is highly related to laryngeal cancer. Around 85% of laryngeal cancer patients 30 were smokers. Table 5.1 provides numbers of deaths and death rates for some of the main smoking-related diseases in Thailand, from 1996 to 2000. Table 5.1. Number of deaths and death rate per 100 000 population, by smoking-related disease, Thailand 1996 1997 1998 1999 2000 Disease Number Rate Number Rate Number Rate Number Rate Number Rate 1. Malignant neoplasm of trachea, 2 913 4.9 2936 4.9 3500 5.7 4220 6.9 5486 8.9 bronchus and lung 2. Malignant neoplasm of lip, oral 651 1.1 404 0.7 574 0.9 675 1.1 762 1.2 cavity and pharynx 3. Malignant neoplasm of cervix uteri 380 0.6 318 0.5 408 0.7 672 1.1 871 1.4 4. Malignant neoplasm of stomach 388 0.6 245 0.4 365 0.6 458 0.7 648 1 5. Malignant neoplasm of bladder 105 0.2 74 0.1 84 0.1 146 0.2 202 0.3 6. Malignant neoplasm of larynx 98 0.2 62 0.1 59 0.1 125 0.2 171 0.3 7. Malignant neoplasm of pancreas 148 0.2 89 0.1 202 0.3 523 0.8 479 0.8 8. Other heart disease 42 962 71.9 40 556 67.1 36 355 59.4 25 695 41.7 13 406 21.7 9. Cerebrovascular disease 6 297 10.5 5962 9.9 4283 7 6631 10.8 8260 13.4 10. Hypertensive disease 3053 5.1 2054 3.4 2029 3.3 2987 4.9 3403 5.5 11. Acute rheumatic fever and chronic 554 0.9 561 0.9 267 0.4 165 0.3 51 0.1 rheumatic heart disease 12. Ischaemic heart disease 2784 4.7 1870 3.1 2199 3.6 4849 7.9 6251 10.1 13. Pneumonia 6859 11.5 5532 9.1 5522 9 8645 14 8334 13.5 14. Respiratory tuberculosis 3445 5.8 2443 4 3150 5.2 4701 7.6 5941 9.6 Source: Health Statistic Department, Ministry of Public Health, 2000. 5.3 Health care cost of smoking Cigarette smoking has a significant cost for smokers, their families and society. The cost of smoking can be both tangible and intangible. Generally, only the tangible components can be measured. The health care costs of smoking-related diseases can be classified into two types: · direct health care cost such as the health service cost, treatment cost, transportation cost to hospital, food and medical cost · indirect health care cost includes forgone income that patients would have earned if they had worked, had worked more efficiently, or had not died early because of the illness. 31 Two important principles can be used to estimate the economic cost of diseases: the human capital and the willingness to pay principles. The human capital principle estimates the present value of the expected lifetime income stream of a person. The willingness to pay principle asks people what they would be willing to pay to avoid illness, or "buy" additional years of life. (Further details on these two principles are provided in Appendix 4.) 5.4 Health care cost of lung cancer: a literature review Wattana (1986) conducted research on economic loss suffered by cancer patients in order to estimate the loss to the economy caused by lung cancer. As Table 5.1 shows, the number of lung cancer cases is growing alarmingly in Thailand, most are caused by smoking. The human capital concept was used and the cost was evaluated by using the prevalence approach (see Appendix 4). Records of patients from the Central Chest Hospital, Chulalongkorn Hospital, Ratchavitee Hospital and the National Cancer Institute of Thailand between 1985 and 1986 were examined. Both inpatients and outpatients who had lung cancer at different stages were covered in the study. The study divided the economic loss into two categories: direct economic loss, including the treatment cost of inpatients and outpatients; and indirect economic loss, which calculated the loss in future income due to the early death of the patients. As some information was not available, the cost could not be estimated separately for each stage of lung cancer; only the total cost of treatment was determined. The study also collected information on lung cancer patients from the Statistics Department of the Ministry of Public Health. According to this information, in 1985 there were 22,313 patients with lung cancer, of whom 1,885 were inpatients and 20,428 outpatients. Of these, 1,093 patients--around 5%--of the patients died during the year, earlier than life expectancy. The study found that the average health care cost for inpatients per person per day was baht 1,332.24, the average hospital stay for each person was 19.39 days, and the average cost for each patient per case was baht 25,600.24; the average age of the patients was 59 years. Outpatients would see a doctor 4.53 times in one year. The average health care cost per outpatient visit for medicines was baht 326.24. The average cost per person per case was baht 1,777.60, and the average age of the outpatients was 61 years old. The direct economic loss in one year was found by calculating the numbers of inpatients and outpatients who had treatment within the year and multiplying it by the cost per patient. The study showed that the health care costs for inpatients was equal to baht 48,256,452 per year. The health care costs for outpatients was equal to baht 35,992,845 per year. This adds to total (gross) direct economic loss for the year of baht 84,249,297. Indirect economic loss was also estimated. Data were not available to estimate the opportunity cost of time lost due to transportation and treatment, or the income lost due to illness of patients or time spent caring for them by relatives. The income forgone due to premature death was estimated by multiplying the total time lost in years by average annual income (and applying a 32 10% discount rate). The age range of the patients was between 25 and 64 years old. The loss of years was calculated by each age group, subtracting the average age at death from the life expectancy for that age group. The annual economic loss from early death was calculated at baht 201,692,305. Further details are provided in Appendix 5. In sum, the total economic loss from lung cancer was estimated to be at least baht 286 million in 1985. This consists of health care cost for inpatients of baht 48 million, health care costs for outpatients of baht 36 million and loss of expected future income due to early death of baht 202 million. Wanchai et al. (1991) focused on the treatment cost of smoking-related heart and lung diseases such as lung cancer, coronary heart disease and chronic obstructive pulmonary disease (COPD) caused by smoking. The human capital principle was also used in this study and the cost was evaluated using the prevalence approach (see Appendix 4). The records of lung cancer, coronary heart disease and COPD patients from the Srinakarint Hospital and Khon Kaen Hospital Centre between 1989 and 1991 were examined. Full records of 540 patients were used, selecting 90 patients with each disease from each hospital, and dividing the patients into three stages: first stage, middle stage and final stage. An invitation letter was sent to 464 of the patients for interviews, and 259 or 56% of patients responded. Based on the interviews with the patients or their relatives, 75% of the patients smoked. The three stages were defined as follows: · first stage: outpatients who came for treatment to the outpatient department at least three times a year. · middle stage: patients treated as inpatients · final stage: inpatients who were treated in intensive care. The study divided the cost into direct cost, indirect cost and the cost of patients using clinic care and medicines from drug stores. Direct costs included health care services, beds, medical supplies and cost of operations. Indirect cost was based on the number of days the patients or family members were absent from work as a result of the illness. The study showed that the average direct cost for lung cancer patients at each stage was baht 5777.85 per person per year. The average direct cost for coronary heart disease patients at each stage was baht 4186.58 per person per year, and the average direct cost for COPD patients at each stage was baht 16 388.03 per person per year. Therefore, the average direct cost for these three diseases at each stage was baht 8784.41 per person per year. Based on interviews with patients and their relatives, the cost to patients of medications was estimated. The three diseases were evaluated together. The average cost of medicines that the patients bought from pharmacies was baht 386.70 per person per year. The average cost of medicines the patients bought at the clinics was baht 277.90 per person per year. These add to a total average cost for medications of baht 664.60 per person per year. The cost of absence from work was also estimated from interviews with patients and their relatives. The three diseases were evaluated together. The average number of days of absence of 33 the patients or their relatives was 47, with an average loss in income per day of baht 116. Therefore, the average indirect cost was baht 5,452 per person per year. Thus, the average total cost for the patients of these three smoking-related diseases was equal to baht 14,901 per person per year. This included the average direct cost of the treatment of the three diseases at each stage (baht 8,784.41), out-of-pocket spending on medicines (baht 664.60) and lost income (baht 5,452). The prevalence of lung cancer in Thailand found in men is 25 per 100,000 and for women it is 12 per 100,000. Therefore, the approximate number of people with lung cancer in Thailand at the time of the study was 6,750 men and 3,300 women, 10,050 persons in total. The study found that 74.6% of the patients with one of the three diseases were smokers. Therefore, at the time of the study, there would have been approximately 7,500 smokers with lung cancer. As the average cost of the patients with the three diseases was about baht 15,000 per person per year, the annual loss from lung cancer of smokers was about baht 112,500 000 per year. Adding the other two diseases, the average cost was equal to baht 1,274,810,352 per year. Theera (1994) attempted to estimate the economic loss from lung cancer caused by smoking. The human capital principle was used in this study, and the incidence approach was used to estimate the cost of treatment and the lung cancer patients' opportunity cost of work (see Appendix 4). In addition to this, the study evaluated the cost of smoking before illness. Theera stated that lung cancer was the second most prevalent cancer found in males. The ratio of lung cancer patients to all cancer patients had increased from 4.8% in 1971 to 12.5% in 1990. Based on this trend, in 1993 there would have been 10,000 new lung cancer patients. The probability of these patients' recovering or living more than five years was only about 3.6%. Among the lung cancer patients in the study, 72% were heavy smokers (more than 20 cigarettes a day for at least 20 years), 6% were light smokers and 22% were non-smokers. Thus 7200 heavy smokers and 600 light smokers were predicted to become new lung cancer patients in 1993. The total lifetime cost of smoking for all 7,800 smokers was estimated at baht 2,233,798,000. Heavy smokers averaged just over 24.8 cigarettes per day, and 36.6 years of smoking. Light smokers smoked half the number of cigarettes, but for the same average number of years. At 1993 prices (baht 0.85 per cigarette), the lifetime cost of cigarettes of heavy smokers and light smokers was estimated to be around baht 297,840 and baht 148,920 per person, respectively. With regard to income loss caused by illness, lack of data hampered an estimate. The study used the average annual income of a middle level government official in that year, baht 180,000, as the average income of the patient. Thus, the total income loss of 10,000 patients (included both smokers and non-smokers) was equal to baht 1,800,000,000 per year. Using the average income of a middle level government official as a proxy for the smokers' average income could bias the estimate up or down. On the one hand, the income of government officials is generally lower than market rates. On the other hand, smokers are generally from lower-income groups. And the ages of officials at the average government salary level may not correspond well to the age of lung cancer sufferers. 34 The study also estimated the medical cost using selected patients in Siriraj hospital from September 1988 to December 1993 (108 admissions) as the sample. The average medical cost was around baht 300,000 per person. This cost was for a public hospital, which was cheaper than a private one. The study analysed the cost by method of treatment. The breakdown by type of care and average cost per case was as follows: 2% of patients were treated by surgical methods (baht 40,000 per case), 7% by surgery and adjunctive treatment (typically chemotherapy) (baht 340,000 per case), 60% by chemotherapy and radiation (baht 300,000 per case), and the remaining 31% received supportive treatment (baht 150,000). The total medical cost was equal to baht 2,511,000,000. Kunaluck (1996) attempted to estimate the economic cost of lung cancer caused by smoking using both the human capital and the willingness to pay principles. A survey was conducted to collect information on the social and economic backgrounds of lung cancer patients, their smoking behaviour, their willingness to pay, and hospital data including medical and material costs. The sample consisted of 288 patients from Siriraj Hospital and 78 patients from the National Cancer Institute who were selected by stratified random sampling. The cost of lung cancer was estimated per incident, including cost since the beginning period of illness until recovery or death. Two categories of direct costs were collected: cost of treatment and transportation cost. Treatment cost included medical costs of baht 21,330 per person, labour costs of baht 6,369 per person, materials costs of baht 3,044 per person, equipment costs (i.e. depreciation) of baht 53 per person, and imputed building costs of baht 273 per person and land rent of baht 261 per person. Transportation costs for patients were baht 3571 per person, and for patients' relatives were baht 823 per person. The total direct cost was baht 35,724 per person. The indirect cost consisted of baht 8,251 plus baht 3,030 per person for the opportunity cost of lost time spent by patients and by their relatives during transportation and treatment, baht 6,126 per person in income loss of patients and baht 1,303 per person income loss of patients' relatives. Thus, the total indirect cost was baht 18,710 per person. From the results above, the annual cost of lung cancer was estimated to be baht 54,434 per person. The study also calculated the economic loss caused by lung cancer. From the value of cost in 1994, the value of cost in 1995 could be calculated (using an 11.5% rate of return). Assuming that there were 10 000 patients in 1995, there would be an economic loss of around baht 9,300 million. The differences in the direct and indirect costs reported by the studies in Table 5.2 reflect their different approaches. Wattana and Wanchai used the prevalence approach, multiplying the number of patients by cost in one year. Theera and Kunaluck evaluated cost using the incidence approach, multiplying the number of new patients by the cost since the beginning of the illness until recovery or death. The advantages of the prevalence approach are that it has lower research costs and is faster than the incidence approach. The disadvantage is that it is does not capture costs of chronic diseases beyond the year under study. However, the incidence approach requires a reliable estimate of the number of new lung cancer patients who get the disease each year, which may be problematic. 35 Table 5.2. Summary of cost associated with lung cancer, studies in Thailand Average Average direct cost indirect cost Year of Sample size (baht/person(baht/person/ study Title Author (persons) /year) year) 1988 Economic loss in cancer patients Wattana 25 600.24a 184 530.92 1 777.60b 1991 Determining the cost of treatment for Wanchai et al. 540 5 777.85 5 452.00 smoking-related heart and lung diseases 1994 Cigarette smoking--lung cancer: life Theera 108 300,000 180,000 and economic loss 1996 Economic loss assessment of lung Kunaluck 366 35 724.00 18 710.00 cancer caused by smoking Source: Various studies as noted in table. Notes: a: inpatients b: outpatients. Indirect costs calculated over lifetime, discounted at 10%. The cost definitions of each study also differ. In Wattana's study, the health care cost consisted of the medical cost as direct cost, and forgone earnings due to early death as indirect cost. In Wanchai's study, the health care cost included the medical cost as direct cost, income loss from work absence as indirect cost, and the cost to patients of clinic care and pharmacy-bought medicine. In Theera's study, the health care cost included the medical cost as direct cost and income loss from work absence as indirect cost. In Kunaluck's study, the direct cost included medical cost, labour cost, material cost, equipment cost, building cost and land rent. The indirect cost consisted of the opportunity cost of time loss due to transportation and the treatment process, income loss from the illness, and income loss of patients' relatives. Kunaluck's study also estimated the forgone earnings resulting from premature lung cancer mortality. The data used in the studies of Wattana, Wanchai, and Theera tended to underestimate cost because they were collected from public hospitals, which are generally subsidized by the government. Kunaluck had more detailed cost information, such as medical cost and material cost, and thus reflected the cost better. Wanchai's study estimated the number of lung cancer patients attributable to tobacco use as the fraction of all lung cancer patients in Thailand who smoke. This method can overestimate cost because smoking is not the only cause of lung cancer. Population attributable risk factors ­ the fraction of disease cases that can be attributed to smoking (or other risk factors) have been estimated for some countries, and could be used instead. However, these may differ across population groups, so that PARS estimated for the US, UK or China only provide an approximation for Thailand. 5.5 Health care cost of coronary heart diseases: a literature review Wanchai (1991) studied the treatment cost for smoking-related heart, chronic obstructive pulmonary disease (COPD) and lung diseases. The estimated average direct cost of coronary heart disease was baht 4,186.58 per person per year while the average direct cost of these three diseases caused by smoking was baht 8,784.41 per person per year. The average cost of patients using clinic care and drug store medicines was baht 664.60 per person per year. The average 36 indirect cost (absence from work) of these three diseases caused by smoking was baht 5,452 per person per year. Although the prevalence of coronary heart disease in Thailand was not available, the death rate for heart disease was 50 per 100,000 persons. The study assumed that the death rate for heart disease meant the death rate by coronary heart disease. So the number of those who died by coronary heart disease was estimated to be 27,250 persons. The study showed that 75% of patients with one of the three diseases are smokers. Thus, there were 20,328 coronary heart disease patients in 1991 who were smokers. The average cost of these three diseases caused by smoking was baht 14,901 per person per year (included: direct cost, indirect cost and cost of patients using clinic care and pharmacy-bought medicine). So the cost of coronary heart disease patients was baht 302,907,528 per year. Jayanton et al. (2001) estimated expenditure and quality of life lost due to chronic obstructive pulmonary disease (COPD) and coronary heart disease caused by smoking. The study collected data from 1 June to 30 November 1998 and used the principle of human capital to estimate the cost. A cross-sectional study was conducted in five provinces in five regions: Chiang Mai (north), Khon Kaen (north-east), Chon Buri (east), Songkhla (south) and Bangkok and its surrounding provinces. The study population included male and female patients with a clinical diagnosis of COPD or coronary heart disease who had smoked for at least 5 years (in the case of coronary heart disease) or 10 years (in the case of COPD) and had attended hospitals as outpatients or were admitted as inpatients during the study period. The comparison group comprised the people who accompanied patient to hospitals who did not have any chronic diseases or disabilities (patient's relatives). They were matched with the patients according to sex, age and place of residence. Data were collected between June and December 1998, using a standard questionnaire and records containing data on personal and socio-demographic characteristics, history of smoking and of the disease, direct and indirect medical cost and other indirect costs. The direct medical cost included medical cost, materials cost, X-ray cost, laboratory cost, service cost and surgery cost. The direct non-medical cost included food cost, travelling cost and accommodation cost. The indirect cost was the income loss of patients and relatives due to illness. An instrument developed by WHO to assess quality of life (WHOQOL-BREF) was used to measure each subject's assessment of their quality of life. Each patient's expenses and the quality of life lost compared to the comparison group were analysed by various statistics. Multiple regression was also used in a multivariable analysis to adjust for relevant variables. In this study, the average direct medical costs were calculated at baht 13,265.28 per person per year. The direct non-medical costs were baht 1,002.48 per person per year. The total direct cost of treatment associated with coronary heart disease that was estimated by using the geometric mean approach was baht 15,063.24 per person per year while the total direct costs of the comparison group were baht 284.28 per person per year. The indirect costs of treatment associated with coronary heart disease were estimated to be baht 669.36 per person per year, while the indirect costs of the comparison group were baht 24.48 per person per year. Thus, the total expenditure on treatment associated with coronary heart disease that was estimated using the geometric mean approach was baht 17,746.44 per person per year while the expenditure of 37 the comparison group was baht 351.12 per person per year. There were trends that decreased with age and the duration of illness, but increased with disease severity and in patients classified as having heart failure. Adjusting for sex, age, education, occupation and income differences, patients with coronary heart disease paid baht 14,767.06 per person per year more than the comparison subjects. The prevalence of coronary heart disease in Thai people aged over 30 years was reported at 1.05% (Janphen 1996, quoted in Jayanton 2001), and the proportion of coronary heart disease due to smoking was 20.60% (Amornrat 1997, quoted in Jayanton 2001). In 2001, the number of Thai people aged over 30 was 26,290,174 persons (Department of Local Administration, 2001). Assuming an estimated economic loss from coronary heart disease of baht 14,767.06 per person per year, the estimated total expenditure of coronary heart disease patients in a year would have been 14,767.06 × 1.05% × 20.60% × 26,290,174 or baht 840 million. The estimated economic losses due to coronary heart disease of the two studies were different. Jayanton (2001) estimated that in 1998 the economic loss due to coronary heart disease caused by smoking was baht 14,767 per person per year. Wanchai (1991) used the average cost of three diseases caused by smoking to estimate the economic loss due to coronary heart disease. The average cost of the three illnesses in 1991 from Wanchai's study was baht 14,901 per person per year. Adjusting to 1998 prices2 gives baht 21,519 per person per year, which is higher than Jayanton's estimates. Table 5.3. Summarizing the cost associated with coronary heart disease, studies in Thailand Year of study Title Author Sample Average direct cost Average size (baht/person/year) indirect cost (persons) (baht/person /year) 1991 Determining the cost of treatment for Wanchai et al. 540 4 186.58 5 452.00 smoking-related heart and lung diseases 2001 Expenditure and quality of life lost Jayanton et al. ­* 15 063.24 669.36 due to diseases caused by smoking Source: Wanchai et al (1991), Jayanton et al (2001). * data not available. There are many reasons to explain the differences between the two studies. Wanchai used the average cost of three diseases caused by smoking to estimate the economic loss from coronary heart disease. By contrast, Jayanton specifically estimated the cost for coronary heart disease patients. The direct costs of these two studies were different because of different definitions of cost. In Wanchai's study, direct cost is only the medical cost but in Jayanton's study, direct cost included the medical and non-medical cost. The estimated direct cost in Wanchai's study was baht 4,186.58 per person per year and baht 12 663.85 per person per year Jayanton's study. 2CPI 1991= 100; 1998= 145.3. 38 The indirect cost estimates of the two studies were also different because of differences in the framework for estimation and cost definition. Wanchai's included only the income loss of patients due to illness but Jayanton also included the income loss of the patients' relatives. Wanchai's estimated value was baht 5,452 per person per year while Jayanton's estimated value was baht 352.52 per person per year. The large gap between the two estimated values was because Wanchai used open questions in his questionnaire. He asks the patients how many days were lost due to illness but he did not specify in what time period. Jayanton was more specific. For example, he asked how many days were lost due to illness in one year. Moreover, Wanchai estimated the average days lost due to three diseases caused by smoking and used the average number of days lost to these three diseases to estimate the indirect cost of coronary heart disease. Both studies have weaknesses. First, the medical costs from public hospitals were used to estimate the medical costs. Because of subsidies that public hospitals receive from government, the real costs of treatment cannot be ascertained. Neither study estimates the income loss or other costs/benefits from premature mortality due to coronary heart disease, nor do they attempt to estimate what the medical costs would have been for patients from other diseases, if they had not smoked. 5.6 Health care cost of chronic obstructive pulmonary disease (COPD): a literature review Wanchai (1991) estimated the average direct cost of COPD at baht 16,388.03 per person per year and the average direct cost of all three diseases caused by smoking was baht 8,784.41 per person per year. The average cost of patients using clinic care and drug store medicine was baht 664.60 per person per year, and the average indirect cost (absence from work) of these three diseases caused by smoking was baht 5,452 per person per year. Thus, the average cost of these three diseases caused by smoking was baht 14,901 per person per year (included: direct cost, indirect cost and cost of patients using clinic care and pharmacy medicine) The prevalence of COPD patients in Thailand was 143.3 per 100 000 (Chitanondh 1991, quoted in Wanchai 1991). The Thai population in 1992 was 54 million. Thus, the number of COPD patients was estimated to be 77,382 persons, and 74.6% of them--57,727 persons--were assumed to be smokers. The cost of COPD patients in the study was calculated as the average cost of three diseases caused by smoking multiplied by the estimated number of COPD patients who were smokers; this was baht 860,190,027 per year. Jayanton (2001) estimated the expenditure and quality of life of patients with COPD caused by smoking. From his study, the direct medical cost was baht 6,081.12 per person per year. The direct non-medical cost was baht 100.68 per person per year. Thus, the total direct cost of treatment associated with COPD estimated using the geometric mean approach was baht 6,457.80 per person per year, while the total direct cost of the comparison group was baht 65.04 per person per year. The indirect costs of treatment associated with COPD were estimated to be baht 217.32 per person per year while the indirect cost of the comparison group was baht 8.76 per person per year. The total treatment cost associated with chronic obstructive pulmonary disease estimated by using the geo-matrix mean approach was baht 7,656.72 per person per year 39 while the expenditure of the comparison group was baht 138.60 per person per year. There were no trends according to age, duration of illness or severity. After adjustment for sex, age, education, occupation and income differences, patients with COPD paid baht 7,520.65 per person per year more than the comparison group. Table 5.4. Summarizing the cost associated with COPD, studies in Thailand Average direct Average indirect Year cost cost of Sample size (baht/person/yea (baht/person/year study Title Author (persons) r) ) 1991 Determining the cost of treatment for Wanchai et 540 16 388.0 5 452.00 smoking-related heart and lung diseases al. 2001 Expenditure and quality of life lost due Jayanton et ­* 6 457.08 217.32 to diseases caused by smoking al. Source: Wanchai et al (1991), Jayanton et al (2001). * data not available. Table 5.4 shows the estimated health care cost due to COPD of the two studies were very different. Jayanton (2001) estimated the economic loss due to COPD caused by smoking at baht 7,520.65 per person per year in 1998. The direct cost for COPD patients from Jayanton (2001) was equal to baht 6,457.08 per person per year while the average cost for COPD patients in 1991 from Wanchai's study was baht 16,388.03 per person per year. Adjusted to 1998 values,3 it was baht 23,811.81 per person per year, which is much higher than Jayanton's estimates. As with the other disease estimates, there are many reasons to explain the difference. Wanchai used the average cost of the three diseases caused by smoking to estimate the loss due to COPD. By contrast, Jayanton estimated the cost of COPD patients specifically. Their definitions of direct and indirect costs differ. Wanchai's study assumed that the medical cost of COPD patients depended on the severity of disease, and estimated costs for first, middle and last stages of the disease; Jayanton assumed that the medical cost was constant for all stages of illness. 5.7 A re-estimation of the health care cost of smoking-related diseases In this paper, the health care cost caused by smoking in Thailand in 1999 will be estimated using the results from previous studies, but using a prevalence approach rather than the incidence approach. This avoids the difficulty of having to estimate the number of new patients. The estimation of the direct and indirect health care cost caused by smoking is based on the epidemiological concept of the percentage of population-attributable risk (PAR%), the percentage of prevalence of a disease in a population that is caused by a risk factor, in this case, by smoking. 3CPI 1991= 100; 1998= 145.3. 40 PAR% = 1 Pe(RR -1) ×100 + Pe(RR -1) where Pe = proportion of exposed (smoking) population in total population and RR = relative risk for smokers compared to that for non-smokers This equation is used to estimate the number of cases caused by smoking; multiplying the PAR% by total illness cases in 1999 in Thailand. Data on relative risk in Thailand is not available, so relative risks from China were used (Liu, Peto et al., 1998). The Chinese risk ratios are presented in Appendix 6. In 1999 the sex ratio above 11 years old in Thailand was 49.68:50.32 (M:F). The average RR of the total population is equal to the sum of the RR for each sex weighted by its population share. RRtotal for lung cancer = (2.72 × 0.4968) + (2.64 × 0.5023) = 2.68 RRtotal for COPD = (1.43 × 0.4968) + (1.72 × 0.5023) = 1.575. Thailand's smoking prevalence in 1999 was 24.03%, hence PAR% for lung cancer was: 0.2403(2.68 -1) ×100 = 28.8%. 1+ 0.2403(2.68-1) This is much lower than the PAR for lung cancer in the USA and UK, where the great majority of lung cancer cases are attributed to smoking. In China, however, in rural areas, a large percentage of lung cancer cases are attributed to high exposure to indoor air pollution from cooking and heating fires (Liu at al 1998). To estimate direct and indirect costs of lung cancer caused by smoking, this paper uses the direct and indirect costs of lung cancer from Kunaluck (1996) because they are considered more reliable than the other studies and cover more cost components. The estimated direct and indirect costs of lung cancer of baht 35,724 and baht 18,710 per person per year were adjusted to 1999 values,4 to give baht 40,903.98 and baht 21,422.95 per person per year. In 1999, the number of lung cancer patients of Thailand was 9,589 (Appendix 7). The PAR implies that 2,758 cases were caused by smoking. Consequently, the direct cost of lung cancer caused by smoking in Thailand in 1999 was baht 40,903.98 × 2,758 or baht 112,813,176.84. The indirect cost of lung cancer caused by smoking was equal to baht 21,422.95 × 2758 or baht 59,084,496.10. In sum, the total cost of lung cancer caused by smoking in 1999 was baht 171,897,672.94 (Table 5.5). 4CPI 1996= 100; 1999= 114.5. 41 Table 5.5. Estimated direct and indirect costs of lung cancer cases caused by smoking, Thailand, 1999 Number of lung cancer cases Direct cost (baht) Indirect cost (baht) Total cost (baht) caused by smoking 2 758 112 813 176.84 59 084 496.10 171 897 672.94 Source: Author's estimate using cost data from Kunaluck (1996) and China PAR (Liu, Peto et al., 1998). To estimate the direct and indirect costs of COPD caused by smoking, this paper uses the direct medical cost per person from Jayanton (2001), estimated at baht 6,081.12 per person for 1998. Adjusted to 1999 values,5 the average direct medical cost was baht 6,099.97 per person. However, this direct medical cost does not include costs of labour, materials, equipment, buildings or land rent. This paper approximated these other costs by multiplying the direct medical cost of COPD by their percentage shares of total medical cost. Based on Kunaluck (1996), the percentages of labour cost, material cost, equipment cost, building cost, and land rent to total medical cost were 29.90%, 14.27%, 0.25%, 1.28%, and 1.22%. Therefore, the labour cost, material cost, equipment cost, building cost, and land rent were equal to 1,824, baht 870, 15, 78, 74 per person per year, respectively. Adding these gives an adjusted direct medical cost of COPD of baht 8,961 per person per year. The direct non-medical cost and indirect cost of COPD were borrowed from Jayanton (2001). Adjusted to 1999 values, the direct non-medical cost of COPD and indirect cost of COPD were baht 101 and baht 218 per person per year. Consequently, in 1999, the total cost of COPD was baht 9,280 per person per year. Of this, baht 9,062 was direct cost and baht 218 was indirect cost. PAR% for COPD is computed using the above formula, which gives a much lower PAR than for Western population groups: 0.2403(1.575-1) ×100 =12.14% 1+ 0.2403(1.575 -1) Prevalence of COPD in Thailand is 143 per 100,000 (Chitanondh, 1991). Thus, there were 56 780 COPD patients in Thailand (calculated from the population over 20 years old, the same population with lung cancer). Thus, in 1999 there were 6894 cases of COPD caused by smoking. Consequently, in 1999, the direct cost of COPD caused by smoking of Thailand was baht 9062 × 6894 or baht 62 473 428 per year. And the indirect cost of COPD caused by smoking of Thailand was baht 6894 × 218 or baht 1 502 892 per year. In conclusion, the total cost of COPD caused by smoking in 1999 was baht 63 976 320. 5Inflation rate: 1999 = 0.31%. 42 Table 5.6. The direct and indirect costs of COPD cases caused by smoking, Thailand, 1999 Number of COPD cases caused by Direct cost (baht) Indirect cost Total cost (baht) smoking (baht) 6894 62 473 428 1 502 892 63 976 320 Source: Author's estimate using cost data from Jayanton (2001) and Kunaluck (1996) and China PAR (Liu, Peto et al., 1998). This paper does not estimate the health care cost of other diseases caused by smoking, because there are insufficient empirical data. However, the health care cost of other diseases may be estimated use the methodology above. In conclusion, the author's estimates of the health care cost of lung cancer and COPD caused by smoking in Thailand are shown in Table 5.7 in terms of baht and US dollars in 2003. Table 5.7. The health care cost of lung cancer and COPD caused by smoking, Thailand, 2003 Total Direct cost Indirect cost Bath US$ baht US$ baht US$ Total 248 808 259.75 5 983 844.63 184 898 532.32 4 446 814.15 63 909 727.43 1 537 030.48 Lung cancer 181 323 766.67 4 360 840.95 118 999 343.07 2 861 937.06 62 324 423.60 1 498 903.89 COPD 67 484 493.08 1 623 003.68 65 899 189.26 1 584 877.09 1 585 303.82 38 126.60 Note: CPI 1998=100, 1999 =100.3; 2003 =105.8. Average exchange rate US$ 1 = baht 41.58 (calculated from exchange rate in 1999 ­ 2003). The health care cost in Thailand from lung cancer and COPD caused by smoking in 1999 was estimated at around baht 236 million. Thailand's total health expenditure in 1999 was around baht 239,892 million (National Economic and Social Development Board). Thus, the health care cost of the two diseases caused by smoking in 1999 was approximately 0.1% of Thailand's total health expenditure in that year. Although the smoking-attributable cost of the two diseases estimated by this study is not great and the cost of other smoking-related diseases is not estimated due to insufficient data, it is still necessary to be concerned about the health care cost due to smoking in Thailand. Not only does smoking cause many diseases that lead patients to suffer and to waste their time and money on treatment, but also it leads to early death, which means benefit forgone. Moreover, if actual relative risks among the Thai people are more like those calculated for the US and UK than for China, then this estimate greatly understates true tobacco-attributable health care costs in Thailand. 43 6. POLICY RECOMMENDATIONS Tobacco has played many conflicting roles in the Thai economy. Because of this, tobacco control policies have been debated by economists, health personnel and policy-makers. Advocates of the policies assert that policies to discourage smoking are crucial to avert the disease and premature deaths that result from smoking, and to counter the aggressive sales strategies of cigarette companies. Lower smoking rates also releases income for consumption of other goods and reduces future health care costs on smoking-related illnesses. At the same time, there has been concern that smoking reduction could adversely affect the employment and income of tobacco farmers and workers in tobacco-related industries and other development activities that could be funded by revenue from tobacco taxes. Using tax increases to reduce smoking The demand analysis shows that each 1% increase (decrease) in income will lead to a 0.70% increase (decrease) in demand for cigarettes. As incomes rise, so will cigarette consumption, unless tax policy is used to raise real cigarette prices and counter the income effect. A price policy that increases the rate of excise tax will not only reduce smoking but also earn more revenue for the government. Based on the elasticity estimate (­0.3925), the impact of an increase in the rate of excise tax from 75% to 76% would be as follows. The price of cigarettes would rise by an estimated 4.17%. Overall cigarette consumption would fall by around 1.64%. Given cigarette consumption in 2000, this is more than 27 million packets of cigarettes. Tax revenue would increase by 3.93%, earning nearly baht 1 billion for government revenues. In addition to this, in the long term, there will be additional benefits in health care cost savings. The different price elasticities among smokers in different income classes and age groups imply that the increase in excise tax rate will be more successful in reducing cigarette consumption of smokers who live in urban areas, are from lower income classes and are 30 to 40 years old. However, if tax rates on other tobacco products such as self-rolled cigarettes and bai jak are not increased by the same proportion, some smokers are likely to switch to other tobacco products, diluting the positive health impact. The rates ofexcise tax on these tobacco products have been very low and should be increased. There are concerns that an increase in the tax rate will induce more cigarette smuggling. Survey results suggest that the consumption of contraband cigarettes is significant and could be much larger than the official figure for imported cigarettes. Even though most smokers of local cigarettes and legally imported cigarettes said they would not switch to other types of cigarette; the survey results suggest that, following a 10% increase in the prices of all legally produced and imported brands, contraband cigarettes might gain around baht 850 million at the expense of local cigarette producers and legal cigarette importers. This points to an urgent need to combat smuggling of contraband cigarettes. It should be noted that a cigarette price increase will lead to a small decrease in real income of smokers who do not quit or cut back their consumption. This means a small adverse impact on demand for and tax revenue from other goods. 44 There are many other reasons to support the use of tax policy to increase the price of cigarettes. Survey results show that only two-third of smokers recalled the most recent increase in 2001. The recall rate was higher in Bangkok metropolis than in provincial areas. More than one-third and around one-quarter of smokers realized that reasons behind the increase were smoking control and tax revenue, respectively. Despite the impact on their cigarette expenditures, the majority of smokers supported the increase in cigarette tax rate. In sum, if the government wants to do more to reduce smoking, policy-makers could consider a national health campaign to coincide with a sharp rise in the rates of tax on cigarettes and other tobacco products. Public information and high prices can do much to deter new smokers and encourage established smokers to cut back or quit. A sharp rise in the prices of all tobacco products is likely to have a significant "shock" effect on smokers, although large rises can also generate public resistance. Regular increases (for example, increases of at least 5% over and above the inflation rate each year, as recommended by WHO) should be considered. Tobacco accounts for over 5% of all government revenues. In addition to revenue from all cigarette taxes, the Thai government also raises revenue from Thailand Tobacco Monopoly (TTM) profits. Although these revenues will continue for the foreseeable future, and are likely to continue to increase with tax rate increases, in the longer term, the government should prepare to be less reliant on tobacco revenue. Further attention is warranted to the valuation of imported cigarettes. Under-valuation reduces evades tax, and lowers the price of, and increases demand for, imported cigarettes. There are at least two incentives to under-declare the imported prices of cigarettes. Cheaper imported cigarettes could be an effective means to penetrate domestic markets and increase demand. And lower valuation that reduces tax liability could raise profits and increase resources for advertising. Other anti-smoking measures need to be enforced better The rate of smoking participation in Thailand is high among males but low among females. Thus, special preventive measures are needed, as women are often carefully targeted by cigarette producers. In many countries, smoking rates among young women are rising and are higher than among young men, which is a very worrying trend (GYTS data, various countries and years). Millions of Thais still smoke regularly or occasionally. Among many smoking control measures, warning labels have been used to educate smokers about the health consequences of smoking. The effectiveness of this measure in reducing tobacco consumption depends in part on the recall of smokers of messages on the labels. Survey results suggest that "Smoking causes lung cancer" has the best recall, following by "Cigarettes seriously damage health", "Smoking harms your family", "Smoking causes erectile dysfunction", and "Smoking causes emphysema". However, around 11% of smokers could not recall any of the messages on the labels. 45 Stronger enforcement of measures designed to reduce smoking is needed. These are the prohibition of advertisement of tobacco products, smoking in certain public places and selling of cigarettes to children age under 18. One in five smokers has seen cigarette advertising, especially on television, through drama and logos on various programs. Many smokers also admit to having smoking in public places where smoking is prohibited, with the extent of violation more in provincial areas than in Bangkok. One out of every four said they had smoked in areas in which measures should be enforced strictly such as schools, other educational institutions and air- conditioned shopping areas. A significant number of smokers have smoked in trains, taxis, buses, theatres and government offices, and continue to do so. The right of non-smokers, especially children, to live in a smoke-free environment needs to be protected. Estimates of age of first smoking point to an urgent need to enforce measures to control child smoking and cigarette selling to children under 18. In the north-east, the age at which smokers said they had their first cigarette was as low as 7 years old. In other regions, the figures were also low--8 years old for Bangkok and the south, 10 years old for the central region, and 11 years old for the north. 46 APPENDICES Appendix 1. Methodology and data Methodology The model for the estimation of consumer demand in this study is the linear expenditure system (LES), which is based on utility-maximizing behaviour of consumers subject to budget constraints. The strength of the LES lies on its two desirable properties of consumer demand, additivity and homogeneity. Its weakness is based on its restriction on a Geary­Stone utility function that assumes a linear Engel function, rules out inferior goods and treats savings as an exogenous factor. The LES assumes that the consumer has utility-maximizing behaviour and that total expenditure is exogenously determined. The total expenditure is allocated in two steps. First, at a given set of prices, the consumer consumes each good at a level called the committed level. Second, the consumer distributes the remaining expenditure in such a way that utility will be maximized. The unit of analysis in this study is a per capita basis--household consumption and expenditure are equally shared by members of a household. The consumer's behaviour can be explained by Equations A1 and A2. First-order conditions of utility maximization subjected to a budget constraint lead to Equation A3, which is used in the estimation of consumer demand parameters in a system of n ­ 1 demand equations. Maximize U = (Qi ­ i)i Eq. A1 Subject to PiQi = E Eq. A2 PiQi = Pii + i(E ­ Pii) + ui Eq. A3 where U = utility i = 1, 2, 3, ... , n Qi = consumption level of good i i = the consumer's committed consumption level of good i i = the marginal expenditure of good i out of additional expenditure E = consumer's consumption expenditure Pi = the price of good i ui = a disturbance term 47 Qi i 0 for all i 1 i 0 for all i i = 1 ui = 0. Estimation of a system of demand equations is used in this study. The strength of this method is based on the fact that a substitutionbetween different consumer goods is allowed in order that consumers' utility will be maximized. This is very important, especially when addictive goods are considered (Lanchaste, in Weeden, 1983). Based on LES, Lluch and Williams (1975) show that the expenditure elasticity, price elasticity and cross price elasticity can be estimated by Equations A4­A6. i = i/wi Eq. A4 ii = i[ ­ wi(1 + i)] Eq. A5 ij = ­iwj(1 + j) Eq. A6 where wj = PjQj/E and = ­1 + Pjj/E. Demographic background of consumers The incorporation of demographic effects in demand analysis is well discussed by Pollak and Wales (1978) and Barnes and Gillingham (1984). The general model, as discussed above, does not include any demographic variables. This is called pooled estimation. It is estimated on a sample in which observations with different demographic profiles are combined, and the demand parameters are constrained to be equal across demographic profiles. Alternatively, demographic variables can be incorporated into the model by making the model parameters either explicit or implicit functions of the demographic variables. In a general case, all parameters are allowed to vary freely across demographic profiles. This is called generally unpooled estimation. In this study, it is applied by dividing consumers into 10 income classes but cannot be applied to smokers of difference ages in the same household. An alternative is a more complicated unpooled estimation that constrains the functional relationship between the parameters and demographic profiles.6 In this study, the committed expenditure for cigarettes is assumed to depend on the age of the smoker. Because of an aggregation problem, the relationship between cigarette demand and the age of smokers in terms of the marginal budget share () is too complicated to model. Equation A7 demonstrates how consumption demand of two age groups, adult and child, can be modelled and estimated. 6Barnes and Gillingham (1984) divide this constrained relationship into three types: demographic translating, demographic scaling and a combination of demographic translating and scaling. 48 PQ = P(Raa + Rcc) + (Raa + Rcc)[E ­ P(Raa + Rcc)] Eq. A7 where Ra = ratio between the number of adults in the household and household size Rc = ratio between the number of children and household size a = an adult's committed level of consumption for good i c = a child's committed level of consumption for good i a = marginal budget share for good i of an adult c = marginal budget share for good i of a child PQ = per capita expenditure for good i E = per capita household consumption expenditure, is summed over all goods. For estimation purposes, the committed levels of consumption of non-tobacco products are assumed to be equal across age groups. Household consumption data Two sets of data used in examining the impact of changes in price and income on the consumption of cigarettes and other tobacco products are the household socio-economic survey (SES) of the Thai National Statistical Office (NSO), and the consumer price data sets of the Department of Business Economics in the Thai Ministry of Commerce. The SES began in Thailand in 1957 under the name of household expenditure survey. A subsequent survey was carried out in 1968­69, and repeated every five years. After the 1986 survey, the NSO intensified the survey to every two years. An extra SES was conducted in 1999 in order to gather information on the post-crisis conditions of households. The 2000 survey, SES2000, used in this study is the most recent survey. The number of households sampled in SES2000 was 24,747. Of this, 48.36% or 11,968 households spent part of their expenditure on cigarettes and other tobacco products. The SES provides detailed information of households' total income, total expenditure, expenditure on various consumer goods and services, size, composition and other socioeconomic characteristics. However, there is no detailed information on individualsmoking behaviour such as expenditure on cigarettes, contraband cigarettes, reasons for smoking or violation of smoking control measures. Prices of various consumer goods bought by sampled households are also not available. A weight is attached to each observation drawn from a stratified two-stage sampling technique. 49 Based on per capita household income, the present study divides households into 10 classes, five urban and five rural. Households with no expenditure for cigarettes and other tobacco products are not included. The characteristics and sample size of smoker households in these 10 classes are presented in the following table. Table A1.1 Characteristics of households, by income class, Thailand, 2000 Per capita household expenditure Income class Household (baht/month) Sample size size Mean Minimum Maximum Urban 1 1119.90 364.00 1 582.00 5.25 1856 Urban 2 1948.83 1585.00 2 357.00 4.77 1442 Urban 3 2813.08 2358.00 3 343.00 4.52 1192 Urban 4 4085.36 3348.00 5 111.00 3.79 958 Urban 5 8554.89 5114.00 55 973.00 3.72 783 Rural 1 752.11 217.00 993.00 5.55 1359 Rural 2 1168.50 994.00 1 370.00 4.53 1240 Rural 3 1580.08 1371.00 1 824.00 4.40 1231 Rural 4 2209.00 1825.00 2 733.00 4.13 1095 Rural 5 4191.94 2738.00 47 861.00 3.74 812 Source: calculated from SES 2000. In order to analyse the income and price responsiveness of smokers by age group, this study opts for an indirect estimation rather than a direct estimation. This indirect estimation assumes that the committed level of expenditure () and the marginal budget share () are dependent on the age of the smokers. Thus, they can be estimated from the consumption behaviour of smoker households containing people of different ages. The division of smokers into six age groups is based on survey results and Thai regulations on the sale of cigarettes. Survey results show that the first age of smoking could be as young as 7 or 8 years old, even though Thai regulations do not allow anybody younger than 18 years to buy cigarettes. The age groups are 8+ to 18, 18+ to 30, 30+ to 40, 40+ to 50, 50+ to 60, and 60 years and over. An estimation of these parameters directly from individual smokers in different age groups is constrained by the limited number of samples in the survey. Household expenditure on more than 50 goods and services are grouped into 12 categories. These are: food; clothing and footwear; housing and furnishing; health care; personal care; transport and communication; recreation; education; alcoholic beverages; cigarettes and other tobacco products; gambling; and other non-foods. The definition of food is straightforward. It includes rice, other cereal products such as flour, bread and noodles, all kinds of meat and fish, all kinds of fruit, green vegetables, and all other foods including prepared food, meals taken home and non-alcoholic beverages. Other consumer goods are defined as follows. Clothing and footwear consists of cloth and clothing, including school uniform, and footwear. Housing and furnishing includes house rent, 50 housing operations, textiles, house furnishing, minor and major equipment, furniture, cleaning supplies, electricity, cooking gas, wood, kerosene, batteries, light bulbs, lamps, matches and water. Health care includes all medical services and medical supplies. Personal care comprises all personal care items, and personal care services. Transport and communication includes local transportation, travelling out of the area, telephones, paging, telegraphs, facsimiles, postage, envelopes, ink, pens, pencils and other stationery. Recreation includes admission to fairs, amusement parks, sports stadiums, theatres and museums, gardening, sightseeing, and sport and recreational equipment such as radio and television. Education includes school fees, textbooks, school equipment, fees for special lessons, pocket money for children going to school and other educational expenses. Cigarettes include snuff and other tobacco products. The definitions of alcoholic beverages and gambling are self-explanatory. Gifts, social contributions, occupational expenses, ceremonial expenses, charities, religious contributions, donations and insurance premiums are included in other non-foods. Price data The price data consist of nine data sets: one for the Bangkok metropolitan area, four for urban areas in the north, the north-east, the south and central regions, and four for rural areas in each of the four regions. The prices of more than 250 goods and services are included in each data set. Thus, there are nine price indexes for each good and service. The data sets allow different prices across regions and communities (urban and rural areas), although they still assume a single commodity price in each regional urban and rural area. In absolute terms, these price data sets may not be the actual prices faced by the sampling households. In relative terms, these price data sets are expected to reflect regional price differences. This is preferable to assuming a single price for each consumer goods across areas and regions. It should be noted that data on prices of gambling and other non-foods are not available. Moreover, the prices of legally produced lottery tickets and cigarettes are controlled and are the same in every region. Therefore, regional differences in the prices ofthese goods are the aggregation of prices of different brands and are found to be minor. The aggregation of the prices of more than 250 consumer goods and services is carried out in three steps. First, Bangkok is used as a numeraire or base price for all consumer goods and services. This is equivalent to choosing a unit of every good and service so that its Bangkok price is 1. Second, prices in other regions are then normalized by Bangkok prices. Third, the resulting relative prices are aggregated by consumption weights provided by the Department of Business Economics, Ministry of Commerce, so that the group relative prices are comparable with the 12 consumer goods and services groups, as classified by this study. A general aggregation formula is presented by the following equation. Rr = Hr (Pr /P0 ) i i i Eq. A7 where Rr = the aggregated relative price of any good in region r 51 Hr = the share of good i in the consumption expenditure of household living in region r i Pr = the price of good i in region r i P0 = the price of good i in Bangkok. i The average regional relative prices of these goods by urban/rural division and income class are summarized in the following table. TableA.1.2. Average regional relative prices, by income class, Thailand Household Food Clothing Housing Health Personal Transport category care care Whole 0.9490 0.6342 0.7719 0.7193 0.6904 1.4474 country Urban 1 1.0775 0.9621 0.7917 0.8929 0.9911 1.3974 Urban 2 1.0532 0.9840 0.8227 0.8839 0.9820 1.2800 Urban 3 1.0392 0.9920 0.8556 0.8952 0.9805 1.2127 Urban 4 1.0244 0.9983 0.8996 0.9236 0.9855 1.1312 Urban 5 1.0211 0.9971 0.9193 0.9402 0.9888 1.1126 Rural 1 0.9265 0.5422 0.7461 0.6733 0.6143 1.5358 Rural 2 0.9191 0.5425 0.7465 0.6692 0.6144 1.4965 Rural 3 0.9260 0.5428 0.7571 0.6709 0.6097 1.4948 Rural 4 0.9252 0.5427 0.7611 0.6699 0.6103 1.4686 Rural 5 0.9193 0.5421 0.7584 0.6683 0.6164 1.4371 (Continued) Household Recreation Education Alcoholic Cigarettes Gambling Other non- category beverages foods Whole 0.8191 0.7004 0.5131 0.9817 1.0000 1.0000 country Urban 1 1.0806 0.8560 1.0867 1.0294 1.0000 1.0000 Urban 2 1.0930 0.8822 1.0697 1.0137 1.0000 1.0000 Urban 3 1.0889 0.9038 1.0587 1.0059 1.0000 1.0000 Urban 4 1.0624 0.9360 1.0368 1.0031 1.0000 1.0000 Urban 5 1.0503 0.9476 1.0314 1.0030 1.0000 1.0000 Rural 1 0.7425 0.6585 0.3683 0.9771 1.0000 1.0000 Rural 2 0.7468 0.6482 0.3699 0.9772 1.0000 1.0000 Rural 3 0.7556 0.6461 0.3696 0.9703 1.0000 1.0000 Rural 4 0.7639 0.6386 0.3707 0.9674 1.0000 1.0000 Rural 5 0.7701 0.6306 0.3726 0.9683 1.0000 1.0000 Source: calculated from the consumer price data sets of the Department of Business Economics, Ministry of Commerce. Based on these data, LES parameters are estimated. The estimates of parameters in the model are summarized in Tables 7.5­7.22 at the end of this Appendix. 52 Field surveys The main purpose of field surveys was to collect information to supplement the household consumption data of SES2000. This is information such as age at first smoking, reasons for smoking, tobacco and cigarette smuggling, and the violation of smoking control measures. A total of 810 smokers were sampled and interviewed between 26 September and 8 December 2001. Of these, 111 samples were from Chiang Mai in the north, 120 samples from Khon Kaen in the north-east, 120 samples from Chumphon in the south, 100 samples from Chon Buri in the central region and 359 samples from metropolitan Bangkok. A weight was attached to each observation drawn from a stratified sampling technique. The weight was 0.0892 for Bangkok and 0.9108 for other regions. The background of these samples is as follows. More than 97% of the samples were males and less than 3% were female. The average age of these smokers was 37.5 years. The average age was highest for the north-east (39.67 years), followed by the south (38.06 years), the north (37.77 years), central region (35.10 years) and metropolitan Bangkok (33.97 years). The majority of smokers had educational backgrounds not more than lower secondary level. Only around 7.6% had had university education. TableA1.3. Age of samples, by region, Thailand Region Mean Standard Minimum Maximum deviation Total 37.49 12.42 13 77 North 37.77 13.64 17 70 North-east 39.67 12.32 13 69 Central 35.10 10.52 17 70 South 38.06 12.93 17 74 Metropolitan Bangkok 33.97 10.64 16 77 Source: survey results. Table A1.4. Education background of samples, by region, Thailand Educational background Total Region (%) (%) N NE C S Bangkok Lower than lower 1.9 1.8 1.7 1.0 3.3 0.0 elementary Lower elementary 25.5 19.8 29.2 27.0 28.3 17.3 Upper elementary 18.2 17.1 17.5 23.0 15.0 20.6 Lower secondary 17.5 10.8 22.5 19.0 17.5 16.7 Upper secondary, vocational 28.7 40.5 21.7 22.0 31.7 24.5 or diploma Bachelors degree and higher 7.6 9.0 6.7 7.0 4.2 20.1 Others 0.6 0.9 0.8 1.0 0.0 0.9 Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: survey results. 53 Table A1.5. Estimates of model parameters, Thailand i i Good I Mean t statistic Mean t statistic Food 0.2048 139.5300 518.8373 250.4700 Clothing 0.0491 60.9260 48.1331 54.1090 Housing 0.2048 122.8300 267.3225 132.9600 Health care 0.0403 50.2090 28.0699 58.8690 Personal care 0.0192 80.1590 53.5897 139.2800 Transport 0.3092 123.4600 0.0000 0.0123 Recreation 0.0179 46.9150 0.0000 0.0001 Education 0.0648 79.1410 64.5757 46.3420 Alcoholic beverages 0.0299 44.2690 40.2806 30.1900 Cigarettes 0.0201 60.7380 27.3801 80.3890 Gambling 0.0209 29.9950 12.9147 19.3670 Other non-foods 0.0191 n.a. 17.1901 30.5340 Source: Author's estimates Table A1.6. Estimates of model parameters, urban class 1, Thailand Good I i i Mean t statistic Mean t statistic Food 0.3937 49.7300 233.4173 37.5500 Clothing 0.0400 20.9880 0.0001 0.0075 Housing 0.2284 27.0980 134.4440 19.2270 Health care 0.0292 6.6347 6.0050 2.7859 Personal care 0.0262 16.1860 24.4570 30.7050 Transport 0.0926 19.3500 9.9490 5.8681 Recreation 0.0021 3.8162 0.8210 1.9783 Education 0.0851 24.0470 2.0802 1.3405 Alcoholic beverages 0.0191 5.6538 11.7924 8.9792 Cigarettes 0.0439 25.6400 0.0001 0.0031 Gambling 0.0273 17.8280 0.0000 0.0007 Other non-foods 0.0124 n.a. 0.0021 0.0030 Source: Author's estimates 54 Table A1.7. Estimates of model parameters, urban class 2, Thailand Good I i i Mean t statistic Mean t statistic Food 0.3130 16.2190 720.6003 95.3710 Clothing 0.0196 2.0970 54.3700 18.7880 Housing 0.0938 5.8622 467.6406 78.3750 Health care 0.0252 5.0139 26.2216 15.9160 Personal care 0.0000 0.0000 72.0360 165.6800 Transport 0.1474 10.7930 103.5917 26.4720 Recreation 0.0119 2.8818 3.2696 2.7795 Education 0.2506 25.8230 0.0000 0.0000 Alcoholic beverages 0.0000 0.0000 50.0542 37.4200 Cigarettes 0.0505 8.1252 51.7795 23.8560 Gambling 0.0881 19.2160 0.0000 0.0000 Other non-foods ­0.0001 n.a. 18.9025 12.1210 Source: Author's estimates Table A1.8. Estimates of model parameters, urban class 3, Thailand Good i i I Mean t statistic Mean t statistic Food 0.2383 9.7952 1037.0976 97.2840 Clothing 0.0499 5.3684 70.7533 22.0110 Housing 0.1438 8.0314 615.4369 83.2700 Health care 0.0000 0.0000 72.6262 43.8140 Personal care 0.0311 8.6735 68.9232 50.5170 Transport 0.1735 10.3460 212.6931 34.1270 Recreation 0.0092 2.0352 19.0393 13.4700 Education 0.1903 13.1940 88.4916 10.9790 Alcoholic beverages 0.0420 3.4543 76.5783 18.3010 Cigarettes 0.0215 3.1336 98.6784 40.2480 Gambling 0.0923 12.9980 0.0000 0.0000 Other non-foods 0.0081 n.a. 29.2941 12.8320 Source: Author's estimates 55 Table A1.9. Estimates of model parameters, urban class 4, Thailand Good i i I Mean t statistic Mean t statistic Food 0.1088 4.5031 1419.1042 87.5650 Clothing 0.0471 7.3856 51.6846 10.7020 Housing 0.2278 10.5260 855.0946 51.8740 Health care 0.0087 0.9976 94.4920 15.3660 Personal care 0.0147 2.5237 124.7019 32.9980 Transport 0.2594 16.8220 251.4762 21.0580 Recreation 0.0195 2.6569 31.4620 6.5053 Education 0.2255 16.1810 0.0000 0.0000 Alcoholic beverages 0.0242 3.1919 112.1693 18.5270 Cigarettes 0.0131 1.8762 142.7547 31.3910 Gambling 0.0411 7.2814 28.6546 7.3358 Other non-foods 0.0102 n.a. 44.3809 15.9530 Source: Author's estimates Table A1.10. Estimates of model parameters, urban class 5, Thailand Good i i I Mean t statistic Mean t statistic Food 0.0933 15.8000 2086.2970 97.0650 Clothing 0.0755 14.5300 246.9927 11.8840 Housing 0.2107 23.9410 1593.6064 66.7390 Health care 0.0223 3.4702 451.6900 21.9540 Personal care 0.0131 9.7217 186.8142 41.1710 Transport 0.4313 30.9290 1130.1699 24.2220 Recreation 0.0376 11.2180 70.6289 7.2550 Education 0.0655 12.0410 607.9676 31.0980 Alcoholic beverages 0.0348 9.7748 192.5156 16.7690 Cigarettes 0.0043 3.0996 172.6859 41.7070 Gambling 0.0108 3.9635 70.7617 8.0760 Other non-foods 0.0008 n.a. 82.0021 20.1700 Source: Author's estimates 56 Table A1.11. Estimates of model parameters, rural class 1, Thailand Good I i I Mean t statistic Mean t statistic Food 0.4016 36.3220 229.4013 36.3170 Clothing 0.0339 5.2563 21.4962 7.2072 Housing 0.2346 26.0330 104.7962 21.4590 Health care 0.0274 7.2166 8.0021 5.5760 Personal care 0.0265 15.4900 24.2596 29.5410 Transport 0.1003 15.5580 2.3351 2.2945 Recreation 0.0035 6.9381 0.0000 0.0001 Education 0.0933 20.3470 0.0000 0.0000 Alcoholic beverages 0.0209 5.0879 15.6959 5.7530 Cigarettes 0.0183 7.0812 9.3159 13.8990 Gambling 0.0259 15.0130 0.0000 0.0000 Other non-foods 0.0137 NA 0.0000 0.0000 Source: Author's estimates Table A1.12. Estimates of model parameters, rural class 2, Thailand Good I i I Mean t statistic Mean t statistic Food 0.3561 21.2290 474.8041 46.3440 Clothing 0.0722 5.9216 42.8580 7.6857 Housing 0.1293 6.9941 325.9469 48.4360 Health care 0.0233 3.3213 41.0163 17.0610 Personal care 0.0306 13.5470 50.9339 39.5650 Transport 0.1040 9.9610 50.9996 29.0730 Recreation 0.0000 0.0005 6.1024 14.1810 Education 0.1724 14.3240 17.4674 2.5823 Alcoholic beverages 0.0274 5.3052 67.6753 26.2840 Cigarettes 0.0037 0.6884 27.2338 26.7630 Gambling 0.0642 7.6215 0.0000 0.0001 Other non-foods 0.0167 n.a. 6.6203 5.7486 Source: Author's estimates 57 Table A1.13. Estimates of model parameters, rural class 3, Thailand Good I i I Mean t statistic Mean t statistic Food 0.0825 5.2982 727.8125 320.0800 Clothing 0.0304 3.6423 165.8686 75.1620 Housing 0.0218 1.8392 478.2969 198.6800 Health care 0.0017 0.1788 76.0367 62.0760 Personal care 0.0065 2.0995 89.2477 121.0100 Transport 0.0411 2.8268 118.2439 92.9530 Recreation 0.0000 0.0000 9.5846 25.8640 Education 0.0654 8.8070 130.5078 60.8210 Alcoholic beverages 0.0041 0.6137 121.2201 51.5940 Cigarettes 0.0121 2.6597 44.8244 67.3170 Gambling 0.7258 59.3850 0.0000 0.0005 Other non-foods 0.0088 n.a. 24.6165 38.5430 Source: Author's estimates Table A1.14. Estimates of model parameters, rural class 4, Thailand Good I i I Mean t statistic Mean t statistic Food 0.2018 12.7390 848.6152 163.7400 Clothing 0.0494 5.5495 170.2242 49.3960 Housing 0.0952 5.9646 588.8873 114.1400 Health care 0.0406 3.3237 103.3069 33.9570 Personal care 0.0187 4.6574 102.9210 63.2540 Transport 0.1879 18.5500 181.9531 73.7820 Recreation 0.0005 1.4763 17.6770 21.1320 Education 0.1548 14.8560 109.7256 19.3550 Alcoholic beverages 0.0170 3.0149 167.2108 44.2310 Cigarettes 0.0270 6.0315 55.5860 47.0600 Gambling 0.1547 17.3600 0.0000 0.0001 Other non-foods 0.0523 n.a. 84.8794 37.5000 Source: Author's estimates 58 Table A1.15. Estimates of model parameters, rural class 5, Thailand Good I i I Mean t statistic Mean t statistic Food 0.0545 7.9506 1114.7585 93.6260 Clothing 0.0200 4.9393 352.5757 35.1940 Housing 0.1740 12.8940 678.3941 29.9850 Health care 0.0230 4.6469 133.3332 12.0570 Personal care 0.0072 6.3169 135.2104 51.5560 Transport 0.6518 37.5780 0.0000 0.0004 Recreation 0.0049 2.3664 50.8027 13.3440 Education 0.0121 3.0713 264.0950 28.3610 Alcoholic beverages 0.0166 4.8145 243.6409 24.1530 Cigarettes 0.0041 2.1404 102.6777 38.4420 Gambling 0.0219 7.3446 56.3115 14.8150 Other non-foods 0.0100 n.a. 169.2861 22.1280 Source: Author's estimates Table A1.16. Estimates of model parameters, age 0­8 years, Thailand Good I i i Mean t statistic Mean t statistic Food 0.3001 67.6480 554.0845 164.8200 Clothing 0.0301 12.6930 61.6084 34.5410 Housing 0.2387 47.6990 313.9984 73.4020 Health care 0.1084 44.3340 37.6112 25.1800 Personal care 0.0324 45.5690 58.0888 109.1100 Transport 0.0842 15.2440 36.8619 12.9460 Recreation 0.0100 12.5430 0.2037 0.3653 Education 0.0964 41.6900 76.3526 39.7400 Alcoholic beverages 0.0000 0.0000 52.2382 35.0170 Cigarettes 0.0118 15.1410 15.9528 9.5883 Gambling 0.0321 21.1870 15.6428 22.2270 Other non-foods 0.0559 n.a. 20.3563 26.8030 Source: Author's estimates 59 Table A1.17. Estimates of model parameters, age 8+­18 years, Thailand Good I i i Mean t statistic Mean t statistic Food 0.2263 67.4440 554.0845 164.8200 Clothing 0.0243 11.9390 61.6084 34.5410 Housing 0.1604 43.8410 313.9984 73.4020 Health care 0.0170 9.4129 37.6112 25.1800 Personal care 0.0206 41.5340 58.0888 109.1100 Transport 0.3040 54.8780 36.8619 12.9460 Recreation 0.0000 0.0000 0.2037 0.3653 Education 0.1549 67.5600 76.3526 39.7400 Alcoholic beverages 0.0289 19.6720 52.2382 35.0170 Cigarettes 0.0181 26.9190 15.2178 10.7030 Gambling 0.0456 26.5890 15.6428 22.2270 Other non-foods ­0.0002 n.a. 20.3563 26.8030 Source: Author's estimates Table A1.18. Estimates of model parameters, age 18+­30 years, Thailand Good I i i Mean t statistic Mean t statistic Food 0.2590 138.4300 554.0845 164.8200 Clothing 0.0662 67.2320 61.6084 34.5410 Housing 0.1687 87.9460 313.9984 73.4020 Health care 0.0150 19.3140 37.6112 25.1800 Personal care 0.0232 80.2090 58.0888 109.1100 Transport 0.2973 103.4800 36.8619 12.9460 Recreation 0.0198 33.5650 0.2037 0.3653 Education 0.0783 68.2360 76.3526 39.7400 Alcoholic beverages 0.0423 54.9230 52.2382 35.0170 Cigarettes 0.0238 56.4970 49.5151 34.8630 Gambling 0.0046 5.1711 15.6428 22.2270 Other non-foods 0.0017 n.a. 20.3563 26.8030 Source: Author's estimates 60 Table A1.19. Estimates of model parameters, age 30+­40 years, Thailand Good I i I Mean t statistic Mean t statistic Food 0.1729 106.1900 554.0845 164.8200 Clothing 0.0574 55.7670 61.6084 34.5410 Housing 0.1492 72.2110 313.9984 73.4020 Health care 0.0068 9.3005 37.6112 25.1800 Personal care 0.0185 58.4360 58.0888 109.1100 Transport 0.4912 162.1600 36.8619 12.9460 Recreation 0.0111 22.8050 0.2037 0.3653 Education 0.0000 0.0000 76.3526 39.7400 Alcoholic beverages 0.0405 57.9200 52.2382 35.0170 Cigarettes 0.0286 69.6210 51.4275 31.2640 Gambling 0.0140 15.2800 15.6428 22.2270 Other non-foods 0.0100 n.a. 20.3563 26.8030 Source: Author's estimates Table A1.20. Estimates of model parameters, age 40+­50 years, Thailand Good I i I Mean t statistic Mean t statistic Food 0.1552 50.7610 554.0845 164.8200 Clothing 0.0172 11.7520 61.6084 34.5410 Housing 0.2596 80.8900 313.9984 73.4020 Health care 0.0346 26.0100 37.6112 25.1800 Personal care 0.0117 31.3440 58.0888 109.1100 Transport 0.3384 72.0240 36.8619 12.9460 Recreation 0.0213 27.8380 0.2037 0.3653 Education 0.0704 41.9340 76.3526 39.7400 Alcoholic beverages 0.0092 7.6832 52.2382 35.0170 Cigarettes 0.0146 28.0190 27.3017 10.8260 Gambling 0.0425 28.3220 15.6428 22.2270 Other non-foods 0.0254 n.a. 20.3563 26.8030 Source: Author's estimates 61 Table A1.21. Estimates of model parameters, age 50+­60 years, Thailand Good I i I Mean t statistic Mean t statistic Food 0.1278 50.4320 554.0845 164.8200 Clothing 0.0000 0.0000 61.6084 34.5410 Housing 0.1980 55.0750 313.9984 73.4020 Health care 0.0300 17.8880 37.6112 25.1800 Personal care 0.0076 16.2560 58.0888 109.1100 Transport 0.4038 84.4340 36.8619 12.9460 Recreation 0.0698 78.4140 0.2037 0.3653 Education 0.0711 41.0690 76.3526 39.7400 Alcoholic beverages 0.0253 23.8300 52.2382 35.0170 Cigarettes 0.0171 26.4980 26.2749 13.6880 Gambling 0.0250 15.7470 15.6428 22.2270 Other non-foods 0.0244 NA 20.3563 26.8030 Source: Author's estimates Table A1.22. Estimates of model parameters, age over 60 years, Thailand Good I i I Mean t statistic Mean t statistic Food 0.1638 50.3060 554.0845 164.8200 Clothing 0.1513 67.8390 61.6084 34.5410 Housing 0.3718 101.2400 313.9984 73.4020 Health care 0.1815 84.4890 37.6112 25.1800 Personal care 0.0187 33.7380 58.0888 109.1100 Transport 0.0000 0.0000 36.8619 12.9460 Recreation 0.0000 0.0000 0.2037 0.3653 Education 0.0191 10.7220 76.3526 39.7400 Alcoholic beverages 0.0309 20.9300 52.2382 35.0170 Cigarettes 0.0000 0.0000 23.1650 15.5090 Gambling 0.0000 0.0000 15.6428 22.2270 Other non-foods 0.0628 n.a. 20.3563 26.8030 62 Appendix 2. Questionnaire Location________________Amphoe_________________Province_____________ Interviewer_____Date of interview_____ Section 1: general interviewee data 1. Sex ( ) Male ( ) Female 2. Age ________ years old 3. Education level ( ) Under grade 4 ( ) Grade 4 ( ) Grade 6 ( ) Secondary school ( ) High school or diploma ( ) Bachelors degree ( ) Masters degree or higher 4. Occupation ( ) Unemployed/housekeeper ( ) Student ( ) Government official ( ) Private company employee ( ) Freelance ( ) Own business Do you have any income from working? ( ) No ( ) Yes. Please specify _______ baht/month or ___________ baht/day 5. Number of persons in your household __________ persons including Adult (age over 18) ___ persons that are ___male(s) and ___ female(s) Children (age under 18) ___ persons that are ___ male(s) and ___ female(s) Total ___/___smokers that are ___/___ male(s) and ___/___ female(s) 6. Income of household __________ baht/month 63 7. Do you have any persistent disease conditions? ( ) No. ( ) Yes. Please specify _______________ If yes, do you have any health care costs for those diseases? ( ) No. ( ) Yes. Please specify _____ baht/month 8. Your home town ______________ If you immigrated from another amphoe, please specify the reasons why you immigrated to this amphoe? _____________________________________. Section 2: smoking data 9. When did you first smoke? ___ years old 10. Why did you smoke? Please specify ________________ 11. How did you get your first cigarette? ( ) bought ( ) friend ( ) parents ( ) other relative ( ) stole. From whom? __________ 12. Quantity of smoking in the first 3 months _____ stick(s)/day 13. Source of smoking expenditure in the first 3 months of smoking ( ) All bought by yourself ( ) Most bought by yourself ( ) Most bought by others ( ) All bought by others 14. Which type of cigarette did you smoke first? ( ) Thai cigarette ( ) Legally imported cigarette ( ) Illegally imported cigarette 15. Have you continued to smoke the same type of cigarette as the one you first smoked? ( ) No, because __________________________ ( ) Yes, because __________________________ 16. Now you usually smoke ___ stick(s)/day 64 17. Now, you get the cigarettes from ( ) buying ___ cigarette(s)/day that cost ___ baht/day ( ) friends ___ cigarette(s)/day ( ) parents ___ cigarette(s)/day 18. In the case of buying by yourself, have you ever seen the warning label on the packet? ( ) No ( ) Yes. Please specify the warning that you can remember best _________________________ 19. Do you have any brand of cigarette that you usually smoke? ( ) No ( ) Yes. Please specify __________. 20. Most cigarette types that you have smoked are ( ) Thai cigarettes ( ) legally imported cigarettes ( ) Contraband cigarettes 21. Where do you usually buy cigarettes? ( ) from cigarette stands ( ) from convenience/grocery stores ( ) from supermarkets ( ) Others 22. Have you ever quit smoking? ( ) No ( ) Yes. About ___ month(s) and smoked again because _______________. Now, do you think that you want to quit smoking? ( ) No, because _______________. ( ) Yes, because _______________. 65 23. The price of cigarettes that you usually smoke is ___ baht/packet 24. What do you think is the reason behind the government policy to increase cigarette prices? ( ) to raise more tax revenue ( ) to reduce the number of smokers ( ) to increase the profits of cigarette companies ( ) high cost of production ( ) Other. Please specify ________ 25. Do you know when the most recent cigarette excise tax increase was? ( ) No (answer question 28) ( ) Yes. Please specify _____ 26. Was it a good idea to increase in cigarette excise tax last time? ( ) No, because _______________ ( ) Yes, because _______________ 27. After the increase in cigarette excise tax at that time, how did it affect your smoking behaviour? ( ) decreased smoking by about ___ cigarette(s)/day ( ) smoking the same amount that smoked before the tax increase ( ) increased smoking by about ___ cigarette(s)/day 28. How should the government use the revenue from cigarette taxes? ( ) to cure the illnesses caused by smoking ( ) to campaign against smoking ( ) to develop the country ( ) for educational activities. ( ) for public health activities. 29. If there is a 10% increase in cigarette prices, how will it affect your smoking behaviour? ( ) decrease smoking about ___ cigarette(s)/day ( ) increase smoking about ___ cigarette(s)/day 66 ( ) smoking the same amount as before the tax increase ( ) quit smoking 30. If there were a 10% increase in cigarette prices from now, would you switch to another cigarette type? ( ) No (answer question 31) ( ) Yes If yes, you will change to ( ) Thai cigarettes. Please specify the brand name __________ ( ) Legally imported cigarettes. Please specify the brand name __________ ( ) Contraband cigarettes. Please specify the brand name __________ ( ) Other. Please specify the type Section 3: health protection for non smokers 31. Have you ever seen any cigarette advertising? ( ) No (answer question 32) ( ) Yes If yes, please specify the advertisement source _____________________ Please specify the brand name of the cigarettes ___________________ Please specify the details of that advertisement ___________________ 32. During the past year, have you ever smoked in the following places? (please v if you have ever smoked in those places and X if you have never smoked in those places) Place Have/have not Buses (both with and without air conditioners) and air-conditioned bus terminal buildings. Taxis (both with and without air conditioners) including school bus Trains (both with and without air conditioner) Boats including boats with air conditioners Domestic aeroplanes Elevators National museums, art museums, libraries, exhibition halls or indoor 67 stadiums that have air conditioners Nursery schools, schools or university buildings Restaurants, cafeterias or shopping centres with air conditioners Public areas of hospitals, government offices or banks For interviewer 1. Can I take a look at your cigarette packet? ( ) No (end of the interview) ( ) Yes 2. Type of cigarette ( ) Thai cigarettes (end of the interview) ( ) Imported cigarettes Specify the brand name of imported cigarette _______________ 4. Does it have a warning label? ( ) No (end of the interview) ( ) Yes. If yes, please specify the language of the warning ( ) Thai. Please specify _______________ ( ) English. Please specify _______________ ( ) Other language 68 Appendix 3. Detailed information for smoking-related diseases Malignant neoplasm group consists of Lips, oral cavity and pharynx cancer: 80% of them caused by smoking. Oesophagal cancer: 79% of it caused by smoking. Pancreatic cancer: 28% of it caused by smoking. Laryngeal cancer: 79% of it caused by smoking. Trachea, bronchus, lung cancers: 86% of them caused by smoking. Cervix uteri cancer: 31% of it caused by smoking. Urinary bladder cancer: 42% of it caused by smoking. Kidney and other unspecified urinary organ cancers: 35% of them caused by smoking. Stomach cancer. Cardiovascular disease group consists of Rheumatic heart disease: 17% of it caused by smoking. Hypertensive disease: 19% of it caused by smoking. Ischaemic heart disease: 24% of it caused by smoking. Other heart disease: 20% of it caused by smoking. Cerebrovascular disease: 19% of it caused by smoking. Atherosclerosis: 41% of it caused by smoking. Aortic aneurysm: 5% of it caused by smoking. Other arterial disease: 43% of it caused by smoking. Respiratory disease Respiratory tuberculosis: 29% of it caused by smoking. Pneumonia: 28% of it caused by smoking. Chronic bronchitis and emphysema: 82% of them caused by smoking. Asthma: 25% of it caused by smoking. Chronic obstructive pulmonary disease: 82% of it caused by smoking. 69 Appendix 4. Detailed information for health care cost estimating principles The human capital principle assumes that investments in health, education and training build "human capital" for which there are returns earned through incomes that are higher than they would be at lower levels of education, training or poorer health. The value of each individual is estimated on the basis of their future productive ability. It is usually calculated as the present value of the expected income that each individual can earn in a working life. This approach divides the social cost of illness in three ways: · Forgone earnings: the income or the output that would have been generated if the patients had not stopped working before usual retirement age as a result of diseases · Medical expenditure: the health service cost that each patient and the society (government) has to pay for treatment. Other associated expenditures (such as transport to get health care, foregone earnings of family members to care for the patient) are sometimes (and should be) added as well. · Psychological cost: the depressive cost of the illness of patients and their families. This is difficult to estimate in terms of money and is usually ignored in this approach. This approach has both advantages and disadvantages. The major advantage of this approach is that the values can be easily estimated in terms of money. The disadvantages are that this approach does not take into account the psychological cost and other non-monetary costs as costs of illness. Moreover, a discount rate has to be assumed in order to calculate the present value of future income and cost. The human capital approach to the economic cost of diseases can take two forms: the prevalence approach and the incidence approach. The prevalence approach is a static approach that studies a group at a point in time. With this approach, it is possible to compare the health conditions of a sampling group at a specific time, with a different time or different group. Health care cost assessment using the prevalence approach calculates both direct and indirect health care costs in a static manner, for the current period. It assesses the mortality cost at death. The advantages of this approach are a shorter study period and a low study cost. However, the disadvantage of this approach is that people with chronic diseases haw health care costs that typically persist beyond the study period. Studies that consider multiple periods need to guard against double counting. The incidence approach, unlike the prevalence approach, is a dynamic approach that studies the sampling group over a longer period, such as one year. This approach seeks to measure the number of new lung cancer patients in one year. Health care cost assessment using the incidence approach calculates both direct and indirect health care costs from the time that a disease first manifests itself until the patient recovers or dies. The longer study period, higher study cost and complexity are disadvantages of this approach. 70 The willingness to pay principle is the approach that estimates how much an individual would be willing to pay to reduce the risk of illness or death. In this approach, the value of a human life is measured on the basis of the amount of money that individuals say they would be will pay to reduce the risk of illness or death. There are a number of problems with this approach, including the ability of people to assess realistically how an illness would impact their life. This approach requires care in the way that questions are framed and asked, the methodology of estimation, size and quality of samples, questionnaire and data analysis. The most important advantage of the willingness to pay approach is that while the human capital approach can be used to estimate only medical cost and forgone earnings, this approach can be used to estimate not only medical cost and forgone earnings but also psychological costs. The weak point of this approach is that data usually come from hypothetical situations not reality. Thus, complicated questions or questions that are too short could confuse interviewees, and answers may be biased. Moreover, the willingness to pay differs for, and depends on, the income situation of each person. Thus, any difficulty individuals may have in predicting their loss may lead to biased results. 71 Appendix 5. Detailed information for estimating economic loss from early death of lung cancer patients: Wattana's study (1986) Table 0.23. Number of lung cancer deaths and economic loss from early death patients: 1985 Number of lung cancer Time lost1 Economic loss2 Age group deaths (persons) (years) (baht) 25­29 10 454.12 3 382 171 30­34 14 539.42 4 736 598 35­39 31 1111.43 10596 019 40­44 49 1555.69 16 649 217 45­49 92 2875.79 30 755 118 50­54 125 2967.15 40 009 497 55­59 165 3047.70 50 120 098 60­64 160 2643.14 45 352 587 Total 646 15 454.44 201 692 305 Source: 1. Calculated by multiplying the number of lung cancer death by average age expectancy by age group. 2. Calculated by multiplying time loss by average income per year and using 10% as a discount rate. 72 Appendix 6. Detailed information on relative risks in China Table A6.1. Relative risks for major diseases in China (men aged 35 and above) Cause of death RR (SE) All China (ICD-9) Urban Rural RR(SE) PAR(%) Lung cancer (162) 2.98 2.57 2.72 52.3 Oesophageal (150) 2.06 1.57 1.61 27.9 Stomach (151) 1.36 1.35 1.35 18.1 Liver cancer (155) 1.39 1.41 1.40 20.2 All cancer (140­208) 1.62 1.48 1.51 24.6 COPD 1.57 1.41 1.43 22.6 TB (011, 012, 018) 1.42 1.17 1.20 11.3 Stroke (430­9) 1.18 1.17 1.17 10.0 IHD (410­4) 1.28 1.28 1.28 14.7 All deaths 1.29 1.22 1.23 13.0 Source: Liu B, Peto R et al., 1998. British medical journal, 317(7170):1411­22. TableA6.2. Relative risks for major diseases in China (women aged 35 and above) Cause of death RR (SE) All China (ICD-9) Urban Rural RR(SE) PAR(%) Lung cancer (162) 3.24 1.98 2.64 19.4 Oesophageal (150) 1.65 1.28 1.34 2.8 Stomach (151) 1.30 1.13 1.17 1.7 Liver cancer (155) 1.49 1.12 1.22 2.4 All cancer (140­208) 1.67 1.21 1.37 4.0 COPD 2.51 1.50 1.72 9.3 TB (011, 012, 018) 1.56 1.25 1.29 2.8 Stroke (430­9) 1.11 0.88 0.97 ­ IHD (410­4) 1.37 1.22 1.30 4.1 All deaths 1.40 1.14 1.23 2.7 Source: Liu B, Peto R et al., 1998. British medical journal, 317(7170):1411­22. 73 Appendix 7. Estimated number of lung cancer patients in Thailand, 1999 Table A7.1. The number of lung cancer patients, Thailand, 1999 Prevalence of lung Lung cancer patients in 1999 Age Population structure in 1999 (persons) cancer per 100 000 (persons) Male Female Male Female Total Female Male 0­4 ­ ­ 2 654 330 2 608 074 ­ ­ ­ 5­9 ­ ­ 2 717 478 2 678 370 ­ ­ ­ 10­14 ­ ­ 2 717 478 2 718 438 ­ ­ ­ 15­19 ­ ­ 2 892 981 2 816 339 ­ ­ ­ 20­24 0.6 0.5 2 921 187 2 830 188 31.68 14.151 17.527 25­29 1.5 0.9 2 826 281 2 723 500 71.91 24.512 47.394 30­34 2.9 1 2 614 588 2 569 573 101.52 25.7 75.823 35­39 7.5 3.1 2 362 235 2 397 131 191.48 74.311 117.168 40­44 12.7 6.9 2 127 974 2 162 204 319.45 149.192 170.253 45­49 23.2 13.3 1 758 196 1 830 414 651.35 243.445 407.901 50­54 45.1 23.9 1 339 268 1 416 708 942.60 338.593 604.009 55­59 72.2 36.1 1 114 202 1 218 434 1244.31 439.855 804.454 60­64 137.7 54.1 948 209 1 058 811 1878.50 572.817 1305.684 65­69 193.3 64.8 693 704 804 105 1861.99 521.06 1340.93 70­74 195.9 88.1 438 617 513 943 1312.04 452.784 859.251 75 + 156.7 49.1 439 546 596 694 981.75 292.977 688.769 All 849.3 341.8 30 620 906 30 943 074 9588.56 3149.40 6439.16 Source: Prevalence of lung cancer of Thailand in 1993 is from Thailand Cancer Institution. 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WHOQOL-BREF Available on line at http://www.who.int/evidence/assessment-instruments/qol/ (explanation) and http://www.who.int/evidence/assessment-instruments/qol/documents/WHOQOL_BREF.pdf (instrument) 77 Aboutthisseries... This series is produced by the Health, Nutrition, and Population Family (HNP) of the World Bank's Human Development Network. The papers in this series aim to provide a vehicle for publishing preliminary and unpolished results on HNP topics to encourage discussion and debate. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations or to members of its Board of Executive Directors or the countries they represent. Citation and the use of material presented in this series should take into account this provisional character. 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