Tobacco profit twice NZ rate

NEIL CHENOWETH AND YOLANDRA REDRUP
3 JULY 2014
FINANCIAL REVIEW

Average prices of nine leading brands rose 12.2 per cent between August 2011 and February 2013. Photo: Paul Rovere
Tobacco firms are charging almost double the margins on Australian ­cigarette sales as those for the same leading brands in New Zealand.
A survey of six brands sold in both countries in December 2012 showed the packs cost 17 per cent more in Australia.
This premium is despite lower goods and services tax (GST) in Australia of 10 per cent as opposed to 15 per cent in New Zealand, and lower excise – $10 for a pack of 25 in New Zealand compared with $8.72 at the time in Australia.
Excluding excise and GST, the ­portion of the sale price that goes to tobacco firms and retailers was up to 200 per cent more in Australia than in New Zealand.
On Wednesday, The Australian Financial Review revealed that tobacco firms had raised recommended retail prices sharply for leading brands in the 18 months before plain packaging was introduced in December 2012.
Average prices, in a survey of nine leading brands, rose 12.2 per cent between August 2011 and February 2013, more than four times higher than the 2.8 per cent rise in excise.
This helped lift tobacco company pre-tax profits 30 per cent in the first year of plain packaging. Profits have doubled despite fewer smokers.

“The issue is what economies and procedures tobacco companies can implement to cushion the fall in consumption,” Professor Simon Chapman, of the school of public health at the ­University of Sydney said on Wednesday. “It’s a display of duplicity when they blame price increases on tax rises and plain packaging. The tobacco companies know exactly the relationship between the price of their products and what happens in the market.
“When an order is taken by a retailer, everyone in the country within the company knows instantly, because it’s transmitted back through computer systems to headquarters. Using these systems they can experiment with the results and look at what happens if taxes are increased further or prices are raised,” Professor Chapman said.
International comparisons are ­possible because under New Zealand law, British American Tobacco, Philip Morris and Imperial Tobacco are required to report the sale price and the number of packets sold for every brand they sell.
The three firms did not respond to questions by the Financial Review.
Previously, tobacco firms said that in both countries, most cigarettes sell at a discount on the recommended retail price. Winfield 25s in December 2012 sold for $17.39 in New Zealand and $17.55 in Australia. Discounting excise and GST, tobacco firms and retailers kept $5.12 per pack in New Zealand and $7.23 in Australia.