British American Tobacco Australia - Response to the draft National Tobacco Strategy 2012-2018 - 25 June 2012
Continue to reduce the affordability of Tobacco products;
BATA welcomes the stated intention in the draft NTS to “ensure that increases in the price of tobacco are accompanied by efforts to prevent and minimise illicit trade in tobacco”13.
We believe that acknowledging the link between the price of tobacco and the impact this can have on the illicit market is an important step forward and reflects the productive and co-operative work that is currently being undertaken between various government bodies
and the industry.
The following section outlines BATA’s position on the actions proposed under the above priority area.
Illicit trade of tobacco in Australia: measuring the problem.No discussion on measures to reduce the affordability of tobacco products is complete without acknowledging the real and serious impact that such a move is likely to have on the illicit tobacco market in Australia, a point reinforced in the draft NTS.
Unfortunately, at present there is no agreed measure of the size of the illegal tobacco market in Australia, indeed a variety of health organisations have their own methodologies to assess the size of the illicit market and these sometimes differ from those adopted by government departments.
To try to fill this information vacuum, BATA, in cooperation with Philip Morris Limited (PML) and Imperial Tobacco Australia Limited (ITA) commissioned Deloitte in 2011 to look into the size of the illegal tobacco market in Australia.
Deloitte was deliberately selected to prepare this report as it has a proven record of impartiality and sound research skills. Indeed, so valued is their work that between 2008 and 2011 Deloitte contracts from the Federal Government totaled $25,094,523.23.
Whilst BATA, of its own accord, had commissioned similar reports since 2005, 2011 saw the industry come together to establish an industry agreed methodology that could then be shared with government.
The purpose of the report is to track changes in the nature and size of the illicit tobacco market in Australia and it relies on two key sources of information:
1. a telephone based survey of adult tobacco users in Australia conducted by Roy Morgan Research in November 2011; and
2. a literature review conducted by Deloitte of reports and commentary on the issue of illicit tobacco published over the previous 12 months.
Given the importance that the draft NTS has placed on ensuring that increases in tobacco prices are accompanied by efforts to prevent and minimise the illicit trade in tobacco, we would suggest that fewer people using illegal tobacco and a decrease in the illicit tobacco market should be included as an ‘outcome indicator’ in section 7 of the draft NTS to identify progress in meeting the objectives of the draft NTS.
Illicit trade in Australia – current trendsBased on industry research, the illicit tobacco market in Australia in 2011 is estimated to total 2.264 million kilograms of tobacco; and is equivalent to 13.4% of the estimated legal tobacco market.14
While this represents a decrease in the estimated illicit tobacco market size for 2010 (2.6 million kilograms of tobacco), there appears to have been significant shift in composition of the illicit tobacco market - from purchasing unbranded tobacco to purchasing counterfeit and contraband tobacco.
Indeed, counterfeit tobacco consumed in 2011 is estimated at 407,000kg more than triple the 116,000kg estimated for 2010. Contraband tobacco consumed in 2011 is estimated at 430,000kg more than triple the 134,000kg estimated for 2010.
Unbranded tobacco consumed in 2011 is estimated at 1,427,000kg which represents a decrease of nearly 40% from the 2,430,000kg estimated for 2010.
It should be noted that this reported structural change is consistent with published data from the Australian Customs and Border Protection Service which reported a significant increase in the proportion of illicit cigarette sticks seized in 2010–11.
Based on the estimate of illicit tobacco consumed in 2011, the total equivalent tobacco excise revenue foregone by the Federal Government was close to $1 billion.
The proportion of survey respondents who reported purchasing illicit tobacco has increased since 2010, and there has also been an increase in the number of people reporting they bought illicit tobacco from family and friends.
Excise increases – impact on market and illicit tradeThe draft NTS aims for tobacco excise increases and analysis of the impact that these increases would have.
Any form of impact analysis needs to look at both the impact an excise increase would have on smokers themselves and also at the impact on the cigarette market.
Since the Federal Government’s last 25 per cent tobacco excise increase in 2010, the segment in the market for ‘cheaper’ priced legitimate cigarettes has grown 63 per cent.
In 2005 the ‘cheap’ price segment did not exist, while last year nearly two billion cigarettes were sold to consumers in that sub category, which today equates to around 11 per cent of the entire tobacco market.
It is for this reason that BATA believes any sort of excise impact analysis must include a review of the impact such a measure would have on the uptake of illegal tobacco, given its comparatively low price point.
In fact, the higher the relative global price, the bigger the risk of illicit trade escalation. Australia already ranks as one of the most expensive countries in the world for tobacco, which attracts illegal tobacco dealers and is facilitated by a consumer looking for the less expensive option.
BATA supports measures contained in the draft NTS to crackdown on the importation and sale of illegal tobacco, but we raise some caution on the technologies that could be pursued in this area.
Whilst many technological options may be discussed during the drafting of the NTS as they relate to illegal tobacco, BATA believes that the existing anti-illicit tobacco regulations along with the proposed increases in penalties for engaging in the illicit market, combined with well resourced enforcement activities, should be given an opportunity to demonstrate their effectiveness, or otherwise, before any further forms of technology are attempted.
BATA looks forward to working further with the Government should it seek to fully explore what technological options are available in this field.
The most effective way to ensure monitoring and enforcement of anti-illicit trade measures is for full industry and government co-operation, working together to achieve meaningful results.
The WHO Framework Convention on Tobacco Control (FCTC) – Protocol to Eliminate the Illicit Trade in Tobacco Products
Not only is the illicit tobacco trade a serious problem in Australia, it is recognised as a serious problem internationally, with many countries having an industry estimated incidence level of over 10%.
Indeed the Framework Convention Alliance (FCA) estimates that 657 billion cigarettes smoked each year are illicit, representing 11.6% of the global cigarette market. Illicit trade in tobacco products has a substantial impact on global government budgets. According to the FCA US$40-50 billion is lost internationally in unpaid cigarette taxes annually.
BATA is committed to fighting the illicit trade in tobacco and supports the work led by the World Health Organisation in developing the FCTC Protocol to Eliminate the Illicit Trade in Tobacco Products.
The work conducted by the FCTC Parties during their Intergovernmental Negotiating Body sessions has resulted in a robust draft Protocol that, once adopted and then implemented should function as an effective framework for tackling illicit trade.