Helping Mexico Smoke: British American Tobacco, Phillip Morris, and Their Mexican Partners, 1974–93

In the mid-1960s, smoking rates in developed nations began to decline, prompting tobacco multinationals to look to the “Third World” to compensate. Latin America was an early target. In Mexico, British American Tobacco (BAT) already owned the leading manufacturer, La Moderna, while Phillip Morris (PMI) bought a 27% stake in second-placed Cigatam in 1974. Soon the industry consolidated, La Moderna and Cigatam bought out smaller firms, creating a duopoly. In 1981, PMI was joined by an aggressive new partner in Cigatam: Carlos Slim, who took a majority stake.

            Mexicans’ uptake of smoking would stall for most of the 1980s, due to the prolonged recession, but freedom from price controls (until Dec. 1987) allowed for profit growth, and by 1989 consumption by volume was rebounding. Boosting revenues further was a concurrent switch by smokers towards more expensive brands, notably PMI’s Marlboro. A further boost came in 1991, when the government freed cigarettes from several years of price controls and lowered a special tax on tobacco. Despite the long recession, therefore, Mexico proved a lucrative market for PMI and BAT.

            This paper argues that Big Tobacco profited in Mexico due to three key factors: aggressive pursuit of dominance in a fragmented market; Slim’s unusual gift for cost-cutting; and a series of favorable decisions by the state. These favors included the non-application of laws against monopolistic practice; the non-application of price controls on cigarettes for the first six years of the recession; the privatization of tobacco-growing monopoly Tabamex in 1990, allowing La Moderna and Cigatam to buy most of its assets (and way below book value); and the scant application of tobacco controls.