Production and sales of tobacco goods

The first years in the history of the Tobacco Monopoly was characterized by World War I. The war was associated with increased demand for tobacco products, but at the same time interrupted trade flows and supply links. In 1917, the import of raw tobacco only constituted 25 percent of the total amount needed to satisfy demand. Other inputs were also scarce and attempts were made to find

Figure 5.1 Total sales of tobacco products in Sweden (tons), 1916-1939

0 2000 4000 6000 8000 10000 12000

1916 1919 1922 1925 1928 1931 1934 1937

Source: Vasseur 1940, p 429.

substitutes.¹ As sales increased gradually, the company found that it could not meet the incoming orders.² As evident in figure 5.1, the sales increased even more after the end of the war. From 1918 to 1919 the quantity of cigars delivered increased by about 50 percent. Sales of cigarettes and chewing tobacco also increased remarkably fast.³ Because of the continuing shortage of raw tobacco, the management announced changes in the range of goods and transfers of workers in June 1918, which resulted in the strike mentioned in section 4.6.⁴

Eventually, raw tobacco became less scarce, and sales continued to rise. In the early autumn of 1919, the board considered it impossible to meet the demand and made an agreement with the German firm Leopold Engelhardt & Biermann to import 50 million cigars.⁵ This turned out to be a mistake as the company began to experience signs of a severe recession in the following year. Stocks increased at a worrying pace and Nilsson held that the situation was partly

1 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1917: Styrelsens förvaltningsberättelse, p 12.

2 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1917: Styrelsens förvaltningsberättelse, p 9.

3 For sales of particular products, see appendix 3.

4 ARAB, STF, Cirkulär, B03: 2, 21 June 1918, ”P. M. Omläggning av cigarr- och cigarrcigarett-tillverkningen”.

5 SM, STM, Styrelsens protokoll, 18 August 1919, STM, SM; Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1920: Styrelsens förvaltningsberättelse, p 25.

inflicted by the import agreement.⁶ Attempts were thereafter made to cancel the contract. After negotiations in the spring of 1920, the German firm agreed to stop deliveries in return for reparation amounting to 800,000 reichmark, which was considered to be “quite advantageous” by the company board.⁷

The difficulties experienced by the tobacco industry were not unique. The Swedish government’s attempt to re-establish the gold standard made imported goods cheaper and put industries exposed to foreign competition under great pressure. Although protected by a licence fee, domestically produced tobacco goods lost market shares. A more specific factor was that the company lacked expertise in marketing and forecasting and had to rely on the judgement of retailers.⁸ Time after time, sales forecasts proved to be wrong. The company board was aware of this problem, but did not initiate any systematic work in the area.

The negative development continued in 1921, when sales of cigars almost halved. Sales of cigarettes, chewing tobacco and snuff also decreased considerably, whereas sales of cigar-cigarettes were stable and smoking tobacco increased somewhat. In order to encourage sales of domestically produced cigars, retailers were given discounts and sales bonuses.⁹ At first, this initiative seemed to be a success and the board observed a slight increase in the sales of cigars in 1922,¹⁰ but in the following year cigar sales again went down.

Encouraged by the discounts, some retailers had probably bought more cigars than needed in 1922.¹¹ Anyway, the behaviour of the company is interesting.

The attempts to first renegotiate the agreement with the German exporter and, later, to encourage the sales of domestic products show that the company tried to protect the employment of its workers.

In 1923, sales of tobacco products stabilized at a level that was retained throughout the inter-war period (see figure 5.1). Overall, the Swedish tobacco industry was spared from the Great Depression. As the currency depreciated

6 SM, STM, Styrelsens protokoll, 13 December 1920; SM, STM, Styrelsens protokoll, 14 March 1921;

ARAB, STF, Inkomna skrivelser från Tobaksmonopolet, E03: 1, 15 July 1921.

7 SM, STM, Styrelsens protokoll, 18 April 1921.

8 af Trolle 1965, pp 59-63.

9 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1920: Styrelsens förvaltningsberättelse, p 24.

10 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1922: Styrelsens förvaltningsberättelse, p 22.

11 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1923: Styrelsens förvaltningsberättelse, p 17.

Figure 5.2 Production of cigars and cigar-cigarettes (million pieces), 1916-1939

0 50 100 150 200 250

1916 1919 1922 1925 1928 1931 1934 1937

Cigars Cigar-cigarettes

Source: Vasseur 1940, pp 432-433.

there was also a clear trend for foreign imports to decrease. By the late 1920s this trend had become so strong that the government proposed to lower the taxes on imported cigars, since it was thought that the Tobacco Monopoly needed competitive pressure to uphold quality and cost efficiency.¹²

Looking at specific branches, the composition of tobacco consumption underwent considerable changes in the inter-war period. While demand for cigars collapsed in the early 1920s and continued to fall throughout the whole period of our investigation, the demand for cigar-cigarettes showed a positive trend, as shown in figure 5.2. Many smokers abandoned cigars for the cheaper cigarettes during the post-war depression and continued to buy cigar-cigarettes after the crisis as well.¹³ There were also other changes in the composition of tobacco production over time.¹⁴ Cigarettes, which had already been the most important product with regard to total sales value at the beginning of the company’s existence, increased its share of the total turnover at a particularly high pace in the latter part of the 1920s. The expansion was interrupted in the early 1930s and stabilized at a new higher level. Demand for chewing tobacco and snuff was declining, although more rapidly in the former case than in the latter, whereas demand for smoking tobacco was stable.

12 Bihang till riksdagens protokoll 1927, Proposition nr 187.

13 Aktiebolaget Svenska Tobaksmonopolets verksamhet år 1923: Styrelsens förvaltningsberättelse, p 17.

14 See table A3.1.