British American Tobacco’s long-threatened campaign against plain packs kicked off today. Has there ever been a more complete demonstration of Shakespeare’s “the lady doth protest too much”?
It’s now very plain the global tobacco industry sees the move as arguably the greatest single threat it has ever faced, and is spending millions to say that — really, honestly — plain packs just won’t work and will cause chaos throughout the economy. I’ve done many interviews on this in the past year and even normally sceptical radio hosts quickly make the point that ordinary Australians are asking “well, if it won’t work, why are they so concerned and spending all this money?”
This farcical opposition is causing the industry to inhabit truly bizarre personae. We’ve seen the industry-as-friends-to-Treasury (“it will cause a tsunami of smuggling that will cause tax losses”). Compassionate friends of confused shop staff (“they won’t know where to find a brand … they all look the same” — actually, they will continue to be stacked in the same brand rows, fellas). But most amusing of all, is when it tries to cosy up to public health concerns, arguing it too really wants the government to introduce effective controls that will really cut use. Sure guys, we believe you.
Then we have the peculiar argument that given no country has ever introduced plain packaging there is no evidence that it will work in reducing sales. This has become a centrepiece of tobacco industry opposition — a modern example of satirist F. M. Cornford’s 1908 Principle of the Dangerous Precedent: “Every public action which is not customary either is wrong, or if it is right it is a dangerous precedent. It follows that nothing should ever be done for the first time.”
Today’s focus from BAT — splashed across today’s newspapers — is on the alleged impact on illegal sales, with an industry commissioned Deloitte report that claimed — wait for this — that 16% of all tobacco sales are illegal (that is, loose “chop chop” tobacco, counterfeit brands and duty-not-paid smuggled brands). This figure has been conjured from economic alchemy originally undertaken by Price Waterhouse Coopers that I critiqued on Croakey last year. So while one in six smokers apparently know where they can repeatedly buy illegal tobacco, strangely, with more than a billion dollars supposedly being lost, the gormless Federal Police with all their intelligence and resources and impressive history of major smuggling busts cannot find any of these same retail outlets and prosecute.
The PWC and Deloitte estimates contrast this with findings of the 2007 National Drug Strategy Household Survey (amazingly, not compared or even referenced by PWC) , which found that while 8.7% of adult Australians had ever smoked unbranded, only 0.2% of the population (about 33,000 people) used it more than half the time.
Smuggled tobacco is a major issue in nations with high corruption indexes and open borders. It has never been a major problem in Australia.
A leaked BAT internal training DVD from 2002 explains much about the industry’s real fears in plain packaging. Profitability in the tobacco industry today rests largely on high-priced premium brands, which are able to attract higher retail prices purely on the strength of branding and pack image. If all packs will look the same, many smokers will wonder why they should shell out far more for a pack that looks the same as every other brand except for brand name and that internal tobacco industry research shows cannot be distinguished from cheaper brands in blinded smoking experiments. The illusion that premium brands are “better” will evaporate, and much profitability with it.
David Crowe (now BAT CEO): “I mean, I can tell you categorically … [total sales] volume isn’t going to go up. OK, in this market we’ve got a government that’s very smart, they’re world class, they know exactly how to manage the tobacco industry and they’re doing it very well. Guys, the days of managing volume with the current business model is probably not relevant anymore. We’ve got to manage the market, we’re got to manage this percentage of trading profit.”
Romano Espinoza: “Another example is our guys in marketing and trade marketing, they need to sell five packs of Holidays to get the same profit they would get from one pack of Dunhill.”
Crowe: “I mean, five packs of Holidays for every pack of Dunhill, I mean it’s just a clear statement of fact of what our intentions are. If we don’t sell Dunhills and Bensons and Winfield, the amount of sheer volume we have to do of Holiday to make up for that is just ridiculous. I mean, the factory couldn’t produce it.”
Public health is not concerned about industry profitability, but with smoking rates and the diseases caused. If smokers were to drift down to lower-priced brands, smoking rates could well rise, particularly among low-income groups and kids who are most price responsive.
But there is an obvious solution, should this happen or if, as threatened, BAT slashed its prices by 70% (which would cut only $2 from the cost of the pack). The government could easily restore the price by increasing excise duty by 20% overnight as it did in April 2010 when first announcing plain packs and the tax rise. Consideration could also be given to introducing a minimum or floor price on tobacco, as the Scottish parliament is actively considering for alcohol.