Plain wrong? Here are the facts: cheap smokes are on the rise since plain packaging

Adam Creighton
JUNE 18, 2014
THE AUSTRALIAN
ANTI-smoking measures are driving a boom in cheap cigarettes, with smokers buying more cigarettes from the lowest market segment and, industry data ­suggests, pushing up sales and frustrating health policies.
Neilsen data indicates that 42.3 per cent of all cigarettes now purchased are priced at less than $15 a pack — a rise from 25.6 per cent of the market in 2011 and 35.2 per cent at the end of last year.
“While we understand the government is trying to reduce smoking rates by raising excise, combined with plain packaging, it’s actually increased the number of smokers buying cheaper legal cigarettes and well as black market tobacco,” Mark Connell, director of corporate and regulatory affairs at British American Tobacco Australia said. Mr Connell said market pressures had prompted the company to launch its $13 Rothmans packs, the cheapest on the legal market. “It really is a race to the bottom,” he said.
Brisbane’s Marianna Tigani, 31, said she was a “proud smoker” who had stuck with the same brand since the laws came into effect but “definitely had not cut down” on the number of cigarettes she smoked. Industry executives and economists believe Labor’s plain packaging legislation, which came into effect in December 2012, has prompted the shift to cheaper cigarettes, as tobacco companies respond to the loss of the branded products that could command higher margins by cutting prices to increase the volume of cigarettes sold.
Several tobacco companies are now offering “loosies” — and an extra cigarette or two in packets of 20 or 25 — to attract customers.
The effects of the plain packaging legislation have been hotly debated since The Australian last week revealed industry figures showing an extra 59 million sticks, or cigarettes, were sold in the first 12 months under the new laws — a rise of 0.3 per cent after years of falls. Australian Bureau of Statistics figures show total consumption of cigarettes rose 0.3 per cent between December 2012 and December last year, although total consumption of cigarettes was slightly lower over the whole of last year than in 2012.
There was a dramatic fall in cigarette consumption in the March quarter of this year, which the industry and economists attributed largely to the 12.5 per cent increase in the commonwealth tobacco excise in December. And economists, including RMIT ­professor of economics Sinclair Davidson, noted flat or falling consumption as measured by the ABS did not necessarily mean fewer cigarettes were being sold if the average price of the “sticks” was falling in line with industry estimates.
“Put more simply, expenditure might be the same but the average real cost per cigarette might have fallen,” Professor Davidson said.
On Monday night, the ABC’s Media Watch called The Australian’s report “just plain wrong”. The program relied on health advocate Mike Daube, who chaired the panel that recommended the plain packaging legislation to the Labor government, and economist Stephen Koukoulas, a former adviser to the Gillard government who was in the then prime minister’s office when the legislation was being developed by Labor.
Media Watch yesterday declined to explain why it failed to disclose Mr Koukoulas’s links to the Labor government while suggesting The Australian’s ­reporter Christian Kerr had been influenced by his occasional ­contributions to the free market think tank, the Institute of Public Affairs.
Media Watch also sought to support its argument by quoting an April press release from British American Tobacco Australia suggesting the number of people smoking had fallen 1.4 per cent last year — below the 3.3 per cent rate in the five previous years — with the number of cigarettes smoked daily also down 1.4 per cent.
But Media Watch omitted quotes from the press release ­revealing “industry volumes have actually grown for the first time in a long time to +0.3 per cent” and a rise in illegal tobacco on the black market. “With growth in industry volumes, fewer people quitting and a jump in the amount of cheap illegal cigarettes on the streets, you could draw the conclusion that people are actually smoking more now than before plain packaging came into effect,” a BATA spokesman said.
Figures compiled by InfoView, an independent firm that uses ­industry sales figures, reveal that almost 45 per cent of sales are now considered “deep discount” or “low price” cigarettes — up from 32 per cent in 2012. The percentage of premium sales has fallen from 17.5 per cent to 13.6 per cent.
Mr Connell said the number of younger people buying low-price cigarettes has doubled in the past 2½ years. “Industry data shows that in 2011 the number of 18 to 29-year-old (smokers) smoking low-priced cigarettes was 16.4 per cent,” he said. “At the end of 2013 it had grown to 34.6 per cent.”
He expects the figure has ­increased further in the past six months, with the low price segment growing another 5 per cent overall. He pointed to Roy Morgan research suggesting higher cigarette consumption. “Smokers of low-price brands claim to smoke more cigarettes per day ranging from 14-17 cigarettes a day versus smokers of higher priced cigarettes who claim to smoke 9-12 cigarettes a day,” he said.
Mr Connell said sales of roll-your-own tobacco was also booming with the shift to cheaper alternatives. “Volume of roll-your-own has grown 25 per cent since 2008 and today is equal to 2.3 billion cigarettes,” he said, adding it highest users were 18 to 29-year- olds and the most growth has come from this age group.
Mr Connell warned against drawing conclusions from the ABS consumption figures. “Comparing our volume figures from InfoView and smoking incidence rates from Roy Morgan in the year after the introduction of plain packaging with ABS data is comparing apples and watermelons,” he said. “ABS data is based on consumption expenditure. That’s money spent on cigarettes, not volume like our InfoView data or number of people quitting which is the incidence figures from Roy Morgan.”
Mr Connell said drops in consumption in ABS figures were a reflection of smokers spending less money on cigarettes. “They’re now looking for cheaper brands and paying $13 a pack instead of $25, he said, adding “people were generally buying more cigarettes and paying less for them”.
“Plain packs and excise has seen smokers look for cheaper products, and instead of quitting they’re saving money,” he said.
John Gledhill, the managing ­director of Philip Morris, echoed his remarks. “As industry and market experts have previously warned, the government’s forced removal of tobacco brands and trademarks has triggered intense price competition,” he said.
“By effectively commoditising the industry the government has encouraged consumers to trade down from their preferred brands to cheaper cigarettes — a trend exacerbated by excessive excise increases.”
Mr Gledhill pointed to KPMG on tobacco sales and the black market published in April.
“As multiple studies have now demonstrated, this destruction of our brands has had zero public health benefit, instead leading to enormous growth in the cheapest legal tobacco category, an unprecedented rise in sales of roll your own tobacco, and a 19 per cent increase in black market tobacco,” he said. “Industry volume data, upon which we base many of our business decisions, show an increase in legal sales volumes in 2013 of 59 million cigarettes.”
Additional reporting: Chris Merritt