Jeff Rogut: Plain packaging and Australian politicking has failed profoundly

SPECIAL TO THE SUN, JEFF ROGUT
MAY 27, 2016
CALGARY SUN
For nearly four years, tobacco products in Australia have been sold in plain packaging.
It comes as no surprise to retailers that the impacts of the policy over this time are vastly different to the legislation’s initial intentions.
In fact, the issue of what constitutes fair and reasonable tobacco regulation has been skewed as a result of plain packaging and excessive excise increases, our Australian government no longer even bothers with the pretense these measures have anything to do with improving health.
It’s a preposterous position we find ourselves in, in Australia, and one other countries should avoid at all costs.
Firstly, it should be noted the regulatory environment for tobacco in Australia makes it impossible to accurately judge the impact of plain packaging solely on its merits.
The exorbitant rate of excise — the Australian government in its latest budget committed to four more staged 12.5% excise increases — has made Australia one of the most expensive countries in the world to buy legal tobacco.
This obviously affects the stability of the legal tobacco market and consequently makes Australia one of the world’s most lucrative markets for illicit or illegal tobacco.
The explosive growth of the illicit market coincides directly with the introduction of plain packaging.
However, no-one could have foreseen just how serious the issue would become, and how much criminals would profit.
Nor did the government — presumably — have any notion just how much it would lose in revenue.
The latest KPMG Illicit Tobacco in Australia Report shows the share of illicit tobacco has now grown to approximately 14% of the total tobacco market in Australia, costing an estimated $1.49 billion in unpaid excise.
This is up from 11.5% of the total tobacco market in 2012.
One in seven cigarettes are now sold illegally. The KPMG report found that more branded illegal cigarette packs are being smuggled into Australia than ever before.
Contraband cigarettes are now the largest component of the black market and contraband cigarette consumption — imported to Australia without excise paid — is growing.
Of course, the more the illegal market grows, the more pressure is placed on legal tobacco prices. This is exacerbated by an endless stream of excise increases.
It also particularly discriminates against those adults from lower socio-economic backgrounds who choose to smoke.
The amount of robberies that have occurred in convenience stores in Australia targeting tobacco products specifically has spiked as plain packaging and price rises have taken effect.
Many Australian tobacco consumers are from lower socio-economic backgrounds and the price impacts of our regulatory approach to tobacco hit them the hardest.
And for what? The uncomfortable truth is, since the introduction of plain packaging the amount of tobacco sold in Australia has remained stable, though the landscape for responsible retailers has changed dramatically.
Tobacco continues to play a key role in driving the performance of the convenience industry. Despite slowing growth — as the illicit market grows and the incidence of smoking naturally declines — tobacco still accounts for approximately 37% of a typical Australian convenience store’s sales.
Those who championed plain packaging have become increasingly silent in claiming the policy has had any positive impacts on health.
From the government’s perspective, it’s much simpler: tobacco regulation is about filling the budget black hole; health isn’t even a consideration any longer.
However, despite the strong performance of tobacco as a product category, the imposts of plain packaging on retailers and suppliers demand attention.
Extra costs for retailers as a direct result of plain packaging include additional staff training, labour, product handling errors, increased inventory management procedures and increased customer frustration. These costs have been absorbed entirely at retailers’ expense.
The share of super-value tobacco products like cheaper brands and roll your own products is growing rapidly as price-conscious consumers trade down. Sales in the premium segment have declined considerably.
With all packs looking the same, price has clearly emerged as the key driver.
To qualify the AACS’s position, we are not an arm of or lobby group for the tobacco industry. Instead, we represent the interests of more than 6,000 convenience stores in Australia.
Our primary concern is the negative impacts this flawed policy is having on them.
As the only country to directly experience plain packaging — knowing what it means for small businesses — it is unsettling to witness other countries including Canada debate its merits.
Those in the retail sector were always best positioned to understand the implications of plain packaging. Legislation introduced with no evidential basis, driven by emotion for the purposes of politics, always has consequences.
Canada has the opportunity to learn from the previous Australian government’s mistake and support its small businesses in the process.
Jeff Rogut is the CEO of the Australasian Association of Convenience Stores (AACS)