Plain Packaging: Have Illicit Levels Risen in Australia?

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Background

Before the introduction of plain packaging in Australia in December 2012, the tobacco industry and its consultants repeatedly argued that the introduction of the public health measure would lead to an increase in illicit tobacco, including counterfeited plain packs, in the country. For more see:

PMI Contends Illicit Levels “Exploding”

Since December 2012, the tobacco companies have warned that their predictions have come true and that illicit rates have increased dramatically in Australia since plain packaging was introduced. In Australia, PMI commissioned the accountancy firm KPMG to investigate the growth of illicit since plain packaging was introduced. In October 2013, KPMG published its initial research which claimed that “volumes of illicit manufactured cigarettes have increased by 154% since 2012”. [1]

PMI continued this line in oral evidence given to Sir Cyril Chantler’s review on plain packaging, with company executives arguing the illicit market “had been exploding” since plain packaging had been introduced. [2]

The KPMG research was also circulated to Scottish MPs, [3] and has been quoted in the Australian and British press, with some commentators arguing it is a reason not to introduce plain packaging. [4] [5] [6]

Industry-Funded Evidence Is “Flawed”

The Chantler team visited Australia and met, amongst others, representatives from the Australian Government, including the Department of Health and Customs and Border Protection Service. In his review, Sir Cyril Chantler questioned the reliability of PMI’s KPMG study. Chantler noted that:

“Australian Government departments, both Health and Customs, appear to be strongly of the view that KPMG’s methodology is flawed.”

The Chantler review commented that:

These Departments point to official Customs data, which shows no significant effect on illicit tobacco following the introduction of plain packaging, backed by analysis undertaken by the Cancer Council Victoria.” [7]

Illicit Estimates "not Accurate"

Notes from the Chantler team’s meeting with the Australian Government and Customs reveal the detailed concerns the Government have over the KPMG report:

“The Australian Government does not consider the KPMG report estimates of illicit tobacco in Australia to be accurate. Like previous illicit trade reports commissioned by the tobacco industry, the KPMG report appears to substantially exaggerate the size of the illicit tobacco market in Australia and the consequent loss of excise and duty revenue.
… The KPMG report is based on an online survey (of only 2,107 people) and an empty pack survey. There are fundamental problems with the representativeness of these two surveys which produce the foundation data for the report.
The empty pack methodology is not representative, as empty packs discarded outdoors are not representative of all packs used in Australia. For example the empty pack survey collects packs discarded in rubbish bins and public places, and packs in litter on the street but not in domestic rubbish, or bins and rubbish receptacles in offices and other.
It is also highly likely that the empty pack survey over-represents the packs used by tourists who are more likely than the average Australian smoker, to be eating out and socialising at outdoor venues, and much more likely to be in possession of packs purchased overseas.
KPMG calculated its estimate of the illicit proportion of cigarettes brought in from overseas by deducting from its estimate of the prevalence of foreign packs, the proportion of packs that is legitimate. KPMG’s very low estimate of legal consumption of foreign cigarettes is highly problematic, and is fundamental to KPMG’s estimate of prevalence of contraband cigarettes.” [8]

KPMG’s analysis of the illicit market has also been questioned in Europe by the Tobacco Control Research Group and others. For more on this go here

Implementation of Plain Packaging has had no "Significant Impact" on Tobacco Smuggling

The Chantler team's notes from the meeting with the Australian Government and Customs and Border Protection Service add that "Customs noted that the implementation of tobacco plain packaging does not appear to have had a significant impact on illicit tobacco smuggling and and reiterated that to date, only one detection of smuggled cigarettes in plain packaging has been made at the border." [9]

“No Evidence” that Counterfeit has Increased in Australia

In both Australia and the UK, the industry has repeatedly argued that plain or standardised packaging would be much easier to counterfeit than branded cigarettes. However, in his review, Chantler concluded that:

I am not convinced by the tobacco industry’s argument that standardised packaging would increase the illicit market, especially in counterfeit cigarettes. There is no evidence that standardised packaging is easier to counterfeit, and indeed in Australia, hardly any counterfeit standardised packages have been found to date.

The review went on to argue that:

I understand that there is no evidence of increased counterfeiting following the introduction of plain packaging in Australia and that this is now accepted by tobacco manufacturers locally”.

In fact, the tobacco industry conceded that levels of counterfeit had actually decreased. Giving evidence to the Chantler review team, Mark Connell of BAT said: “One of the things that we did say… is that there would be an increase in counterfeit of the standardised packaging. In other words, the legislation was virtually a blueprint that was given to counterfeiters… that hasn’t happened, well it may have happened in small quantities…”

When asked by the Chantler review team “have you actually seen a reduction in counterfeit?” Connell replied: “Absolutely. Absolutely.” [10]

BAT Accused of “Lying” Over Illicit Claims

Meanwhile, BAT told investors in March 2014 that total illicit activity in Australia had risen by more than 30 per cent since plain packaging introduction. [11]

That month, the Sydney Morning Herald ran an article examining the issue of whether illicit rates had actually increased after the introduction of plain packaging. The article claimed that BAT had been “accused of lying after it claimed plain packaging of cigarettes has had ‘no impact’ in Australia except to increase illegal cigarette smuggling.”

Although senior executives at BAT had boasted to investors that plain packaging had increased smuggling by about a third, official Customs figures obtained by the newspaper had indicated that “plain packaging has had almost no effect on tobacco smuggling” argued the paper. The Australian Customs and Border Protection Service had seized only one haul of “plain packaged” counterfeited cigarettes since the health measure had been introduced in December 2012. Professor Mike Daube from Curtin University accused the tobacco companies of “tripping over their own misinformation”.

He told the paper: “This official information from Customs deals a death blow to the tobacco industry's biggest scare campaign”. [12]

Imperial Tobacco’s Predictions “Simply Wrong”

In response to the Sydney Morning Herald article, the paper was contacted by is Sonia Stewart, the former Head of Corporate Affairs & Legal for Imperial Tobacco Australia, who has now left the industry.

By her own admission Stewart had “commented numerous times in the media during 2011-2013 about the anticipated impact of plain packaging, on behalf of Imperial Tobacco.”

For example, Stewart had been quoted by the BBC saying that "the legislation will make the counterfeiters' job both cheaper and easier by mandating exactly how a pack must look". [13]

That same month she was quoted by Sky News: "Plain packaging will simply provide counterfeiters with a road map. The legislation will make the counterfeiters' job both cheaper and easier by mandating exactly how a pack must look." [14]

Stewart wrote to the paper that she agreed “with the comments from Professor Daube and Customs authorities” and that “based on these figures from Australian Customs authorities, there doesn't appear to be any evidence that plain packaging itself has caused an increase in tobacco smuggling.”

Stewart added: “Imperial Tobacco did expect to see an increase in tobacco smuggling because of plain packaging, but based on the figures from Australian Customs it looks like those predictions were simply wrong.” [15]

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External Links

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Notes

  1. KPMG, Illicit Tobacco in Australia, 2013 Half Year Report, October 2013
  2. Report of the independent review undertaken by Sir Cyril Chantler, Philip Morris Limited Meeting, 29 January 2014
  3. E. Dardis, Scottish Government Plans for Standardised Packaging, November 2013
  4. A. Howe, Illicit tobacco funding gangs and increasing use, Herald Sun, 3 November 2013, accessed April 2014
  5. G. Bentley, “Here's how government policy fuelled a booming black market in tobacco”, City AM, 23 April 2014, accessed April 2014
  6. P. Farrell, “Illegal tobacco consumption increases, survey funded by cigarette firms says”, The Guardian, 4 November 2013
  7. Report of the independent review undertaken by Sir Cyril Chantler,Standardised packaging of tobacco, April 2014
  8. Chantler Review, Notes-of-Australia-based-meetings, undated,
  9. Chantler Review, Notes-of-Australia-based-meetings, undated,
  10. Report of the independent review undertaken by Sir Cyril Chantler,Standardised packaging of tobacco, April 2014
  11. E. Greenblat, Plain packaging making 'no impact' on Australian smokers, say tobacco chiefs, Sydney Morning Herald, 4 March 2014, accessed April 2014
  12. A. Corderoy, “Tobacco industry claims on impact of plain packaging go up in smoke,” Sydney Morning Herald, 12 March 2014, accessed April 2014
  13. BBC News, Australia cigarette plain packaging law upheld by court, 16 August 2012, accessed April 2014
  14. Sky News, Australia Upholds Logo Ban On Cigarette Packs, 15 August 2012
  15. Sonia Stewart, Unpublished Letter to the Sydney Morning Herald, 12 March 2014