Tobacco sales in Australia since plain packaging
12 March 2015
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The Guardian reports today that ‘Australians are ditching cigarettes at record levels’ and says that the Australian Labour party ‘attributes the decline in smoking to its plain packaging legislation’. The report is based on new figures from the Australian Bureau of Statistics which show seasonally adjusted tobacco clearances for each quarter up to December 2014. Since the Westminster parliament passed a plain packaging law this week, these data are of some interest to people in Britain.
It is true that there has been a decline in legal tobacco sales in the last two years, but this is part of a secular trend that has been going on since the 1970s in Australia, as in many other developed countries, and it would be a post hoc ergo propter hoc fallacy to say that ‘there has been a decline, therefore Policy X caused it’. Based on the longterm trend, we would expect to see a decline. The question is whether the decline sped up as the result of any particular policy.
As the graph below shows, plain packaging does not seem to have led to an acceleration in the decline of tobacco sales. On the contrary, the first year in which plain packaging was in force was the first time since the 1990s that sales rose in three consecutive quarters.
However, in December 2013, the Australian government introduced a large tax rise on cigarettes (of 12.5 per cent) and sales began to fall again, quite sharply at first. It is, of course, well known that higher prices tend to lead to fewer sales, but it is also well known that higher tobacco taxes tend to increase sales on the black market. Consequently, we do not know what total tobacco sales (legal plus illegal) are in Australia. But even if we look only at legal sales, it is not true that ‘Australians are ditching cigarettes at record levels’, let alone that plain packaging has been responsible for a record decline in tobacco sales. Overall, the secular decline has continued, albeit interrupted by an unusual rise in sales in the first year of plain packaging that was subsequently offset by a large tax rise.
It is true that there has been a decline in legal tobacco sales in the last two years, but this is part of a secular trend that has been going on since the 1970s in Australia, as in many other developed countries, and it would be a post hoc ergo propter hoc fallacy to say that ‘there has been a decline, therefore Policy X caused it’. Based on the longterm trend, we would expect to see a decline. The question is whether the decline sped up as the result of any particular policy.
As the graph below shows, plain packaging does not seem to have led to an acceleration in the decline of tobacco sales. On the contrary, the first year in which plain packaging was in force was the first time since the 1990s that sales rose in three consecutive quarters.
However, in December 2013, the Australian government introduced a large tax rise on cigarettes (of 12.5 per cent) and sales began to fall again, quite sharply at first. It is, of course, well known that higher prices tend to lead to fewer sales, but it is also well known that higher tobacco taxes tend to increase sales on the black market. Consequently, we do not know what total tobacco sales (legal plus illegal) are in Australia. But even if we look only at legal sales, it is not true that ‘Australians are ditching cigarettes at record levels’, let alone that plain packaging has been responsible for a record decline in tobacco sales. Overall, the secular decline has continued, albeit interrupted by an unusual rise in sales in the first year of plain packaging that was subsequently offset by a large tax rise.
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I think that Lynton Crosby is worth every penny of what he was/is paid by the tobacco companies. Why?
Well:
1) The tobacco companies are sitting on some (currently) valuable brands and IP, but ones that are going to depreciate in value over the next few years as tobacco sales go down. Normally companies in this position would sell the brands and recoup any residual value – however, in this case it is difficult to see who would buy them. In that case the best course of action is to, effectively, sell them to the government. And plain packaging legislation does just that. Just about any (non political) court is going to side with them and award massive damages (possibly over 10 billion). Brilliant!
2) It also helps to portray the tobacco companies as the underdogs – legitimate companies fighting against the tyranny of a ruthless government. Now that really takes some doing.
Other side effects are:
1) It has devalued the ‘brand’ of the public health fanatics. The majority of people in the UK did not see the necessity for (nor, indeed, want) this piece of worthless legislation. They will be further diminished when the bills for the court cases land on the exchequer’s doormat.
2) It showed the majority of MPs giving the finger to a goodly chunk of the electorate – on the eve of an election. Class!
3) It sends the message that the UK will not honor intellectual property rights. Let’s see the long term effects of that on inward investment.
4) It puts the UK at odds with both the WTO and some important emerging markets.
5) It will diminish any further public health initiatives when it is proven not to have worked (lots of pain – no gain)
A brilliant day for democracy.