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Plain packaging of cigarettes

I am trying to get some thoughts together on the recently passed ‘plain packaging’ legislation in Australia. Comments very welcome on these notes which are based on a relatively  quick Goggle search.

From December 2012 cigarettes in Australia will only be able to be sold in ‘plain packaging’.  Government legislation will force vendors to sell their cigarettes in a logo-free drab dark brown packaging that is, in fact, anything but ‘plain’ – it is dominated by graphic health warnings with only small areas of drab brown. The key issue is lack of a trademark or logo although there is a brand name printed in font large enough to be identified by retailers.  The packaging is dissuasive rather than persuasive – the intention is to make the product unattractive and unappealing to customers. With accompanying tax increases – from 29 April 2010, the government increased the excise on cigarettes from $0.2622 to $0.32775 per stick – the Government aims to bring down smoking rates from 16.6 per cent in 2007 to less than 10 per cent by 2018.

The plain packaging’ legislation has been strongly supported by groups such as Quit Australia and strongly opposed by tobacco vendors – both producers and retailers.

Is the legislation likely to reduce the incidence of smoking? A direct answer to this question is impossible since, the Australian move is the first time plain packaging has been legislated.    A useful survey supportive of plain packaging is Quit Australia (2011). A study for Phillip Morris Australia (Padilla & Watson, 2010) provides a comprehensive list of references to work in this area.

Health Canada (1995) surveyed 4 studies that produced some evidence that plain packaging made cigarettes less appealing and threw into greater prominence the health warnings on cigarette packets.  They also conducted a number of studies – particularly of adolescents – that showed the importance of branding in selecting type of cigarette to smoke. The study concluded:

‘Plain and generic packaging…would likely depress the incidence of smoking by non-smoking teens, and increase the incidence of smoking cessation by teen and adult smokers.’ (HC, p.158).

Further studies have shown that plain packaging reduces false beliefs that certain coloured packs (gold, silver) provide cigarettes with lower health costs than cigarette packs which are coloured bright red (Quit Australia, 2011). HC however found that most teenagers believed that making cigarettes more expensive or more difficult to purchase would have larger effects on consumption than packaging so that effects are likely to be ‘slight to moderate’ (HC, page 76).

More recent studies (Germain et al. 2009) confirm that reducing brand information from cigarette packs reduces positive brand image among adolescents while accompanying this removal with graphic images of health consequences of smoking intensifies this effect.  While this is hardly surprising it does suggest the common sense idea that introducing dissuasive packaging will reduce the appeal and therefore the incidence of smoking among youth.

The tobacco industry response to plain packaging claims that (i) there is no evidence it is effective in reducing smoking; (ii) that it violates trademark rights that will require $3 billion dollar annual compensations to cigarette providers and (iii) will increase illicit trade.

Claim (i) seems literally correct at least in the sense of ‘direct evidence from experience’.  The predictable counterargument is that if these firms believe consumption will not be impacted then why are they concerned with the impacts of plain packaging.  It could be that cigarette producers are pursuing issues of truth in a disinterested way though on the basis of history this is unlikely. It could also be argued that particular brands will suffer reduced demand through switching or that barriers to entering the cigarette industry might be reduced including perhaps increased supplies from illegal sources.

Indirect evidence for (i) is claimed to arise from the fact that use of health warnings has not led to a reduction in consumption.  Thus the claim is that simply altering package design will not affect consumption. That is a debatable historical claim that must reflect a view that the decline in smoking that has occurred worldwide is entirely due to tax-induced price increases and not to health warnings.  This certainly does not seem to be a robust finding given the plausibly distributed lag relations between health warnings and consumption levels.

There are also claims that the Australian legislation involvers an implied acquisition of intellectual property by government that would be prohibited by various international trade agreements.   This has been promoted by the Institute of Public Affairs, which, in the past, has received funding from British American Tobacco and Phillip Morris. These claims will be determined in the courts but do not seem strong. If the companies did win this case the Government has indicated then trademarks would be allowed but would be subject to size restrictions.  The $3 billion figure is nonsense – it seems to measure the lost value of sales and hence does not net out costs of production and distribution.

A more substantive objection is that plain packaging will lead to intensified competition due to reduced product differentiation and new firm entry and hence lower cigarette prices. Of course increasing tobacco excises can immediately offset this trend.

The role of illegal trade is probably of greater potential concern since it will not be subject to taxes. If such trade did develop partly as a consequence of plain packaging that made illegal substitutions easier and because of increased taxes, then additional resources would need to be devoted to controlling illegal supplies. Illegal trade can take the form of smuggled foreign cigarettes – this is important in Canada (where there are significant illegal imports from the US) but probably less so than in Australia. Illegally produced local tobaccos could also be repackaged in the plain packaging and sold as a counterfeit brand.  Clearly the plain packaging must be unattractive but also complex enough so it is difficult to duplicate.

Final Comments.

The issues here are complex and the effectiveness of plain packaging in reducing smoking can only be ascertained by doing it and by then monitoring outcomes.  This was recognized by the Canadian study (Report of the Standing Committee on Health, 1994). A welcome feature of the Australian legislation is that bit will provide evidence on these issues.  Many countries are watching Australia to gain insights into their own tobacco control policies.

If zero weight is placed on the welfare of the tobacco companies then the major possible cost of the policy is the unlikely outcome that it could lead to increased smoking. This will not occur if cigarette price reductions on legally supplied cigarettes are offset by excise tax increases. A potential difficulty might be an increased use of illegally supplied tobacco and caution might need to be exercised on this one.

The more plausible outcome is that the move toward plain packaging will reduce the recruitment of youngsters into becoming smokers because of the reduced product appeal of the cigarette product.   Given that advertising cigarettes is illegal in many countries, including Australia, and those retailing the product cannot display marketing material, the main way cigarettes can be promoted is through their packaging.

Most plausibly, making this packaging unattractive and focusing attention on the health warnings on cigarette products will reduce the incidence of smoking by some degree.  Whether that effect will be large or small requires some real-world experience. The most likely adverse outcome is that plain packaging will have favourable effects in limiting smoking but that this will have limited extent.  This does not seem to be a critical concern if plain packaging is seen as a component of a package of policies designed to eliminate cigarettes. These will include increasing taxes, education campaigns, targeted policies that address specific concerns of indigenous Australians and so on.

References

D. Germain, M. Wakefield & S. Durkin, ‘Adolescents’ Perceptions of Cigarette Brand Image: Does Plain Packaging Make a Difference?”, Journal of Adolescent Health, 2009, 1-8.

Health Canada, When Packages Can’t Speak: Possible Impacts of Plain and Generic Packaging of Tobacco Products, Expert Panel Report, Health Canada, March, 1995.

J. Padilla & N. Watson, A Critical Review of the Literature on Generic Packaging for Cigarettes, LECG Consulting, Belgium, January 2010.

Quit Australia, Plain Packaging of Tobacco Products: A Review of the Evidence, Cancer Council Victoria, May 2011.

Report of the Standing Committee on Health, Towards Zero Consumption: Generic Packaging of Tobacco Products, Report of the Standing Committee on Health, Library of Parliament, Canada, 1994.

 

3 comments to Plain packaging of cigarettes

  • John Mashey

    This will be interesting to watch and of course tobacco companies will fight it hard.
    I would propose that only one effect really matters: does it change smoking adoption around ages 14-16?

    From The Importance of Younger Adults” (i.e., 12-18), we get:
    Less than 1/3 of smokers (31%) start after age 18.
    Only 5% start after 24.

    From that, one can estimate the age of first smoking in this graph, although Allan M. Brandt’s “The Cigarette Century” (2007) says, p.387:
    “… the average age at which smokers had started smoking had declined over the last decade until by 1985 it was around 16.”

    and this says:
    “Overall, nearly 80 percent of all adult smokers first become regular smokers before the age of 18 and 90 percent do so before leaving their teens.

    So, I think that more recent data says that curve has shifted left, as vendors have tried to get smokes earlier, given well-known allegiance to first-brand effect.

    Anyway, I would claim that the only thing that really counts much is the rate of children taking up smoking.
    I would speculate that most adults unable to stop smoking despite fervent wishes to do so, won’t be deterred by any packaging.

  • hc

    I think you are certainly correct John and that is the main target of the Australian legislation. I think for older smokers the effect is likely to be marginal although we do know older smokers quit after a serious health insult – a heart attack etc. Advertising emphasising these costs is important for older smokers and would be prominently displayed on the “plain packaging”.

    Americans must be more mature than Aussies. The average age of initiating smoking in Australia is 14.9 years. That said smoking rates among youth have fallen strongly although overall smoking rates in australia are comparable to the US.

    Something has happened among well-educated youth in Australia. They have come to see smoking as something very negative. Kids from less well-educated and poorer backgrounds smoke more.

  • conrad

    “Something has happened among well-educated youth in Australia.”

    Perhaps they’re just more conservative than previous generations — my feeling is that the rate of marijuana use is down also (it’s now seen as a bit of a loser drug), although I don’t know of any believable figures in this regard. That would probably contribute to smoking as I think a lot of kids get hooked on cigarettes because of mixing it with pot.

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