Transcript

Harry Clarke – Plain Packaging of Cigarettes

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Matt Smith:

Welcome to a La Trobe University podcast.  I would be your host Matt Smith.  In November 2012, a plain packaging ruling will be imposed on the tobacco industry, restricting the final advertising avenue they had, the packaging of the cigarettes themselves.  Joining us today is Professor Harry Clarke from the School of Economics at La Trobe University to talk about the effects of plain packaging on cigarettes and the opposition that the tobacco industry has to it.

Harry Clarke:

Plain packaging is basically removing the last opportunity that the cigarette companies have to market their products.  Advertising cigarettes in Australia is almost non-existent.  They can't be advertised in the electronic or the print media, they're concealed at the point of sale, so the last way that the cigarette companies can market their product is via their packaging.  This is very important to the cigarette companies because there are several brands that have a very well-established reputation in the market and the companies depend very much on this branding to achieve their sales.

Matt Smith:

So from November 2012, they won't have that available to them at all.  What will the packaging consist of after that date?

Harry Clarke:

The packaging itself will be a kind of a dirty green colour, covered with a large health warning.  There'll be a significant health warning on the pack.  The name of the brand and the company will be indicated in a standard kind of font but there'll be no decorative or elaborate packaging.  The packaging itself will be quite unattractive.

Matt Smith:

For the purpose of making it as unappealing as possible, and for making it as standardised as well.

Harry Clarke:

They'll still be distinguished by their name, the brand, which is still on the packet – it's just in very plain font so a retailer can easily work out what brand they're selling and a buyer can work out the brand that they're buying.  But yes, you're quite right – the products themselves will become closer substitutes, they'll become more like commodities because there won't be any emphasis on a particular brand associated with a particular packet of cigarettes.

Matt Smith:

And the Australian parliament isn't just going out of their way to restrict how cigarettes are advertised and how they're sold, they're actively trying to make sure that people don't buy them and that they're aware of the risks, by putting the most unappealing pictures that they can, and health warnings that they can on it.

Harry Clarke:

Well, I think the main target is youth.  Young people, it's claimed, are seduced by the attractive packaging and the brand names that are associated with cigarettes.  I guess for confirmed smokers it won't make so much difference, but certainly for youth, it's well recognised that branding does have an impact on purchasing choices.  We've currently done pretty well in Australia in reducing smoking rates among young people, but this is really trying to clinch the deal and to reduce the initiation of smoking among young people as much as possible.

Matt Smith:

The tobacco industry have lodged an appeal against this decision for plain packaging.  What is the argument put towards the High Court?

Harry Clarke:

The basic argument is that the Commonwealth government has taken away their trademarks without compensating them for the value of those trademarks.  So the value of those trademarks, they claim is several billion dollars, and they're claiming that the government is planning to take away the value of those brands without compensating them in any way.

Matt Smith:

Is that a fair claim?

Harry Clarke:

Well, trademark protection law is really designed to protect the community.  It's supposed to promote the community interests.  It's not intended to defend the output of producers who are producing a product which, when consumed, as the producer's intend, kills people, and causes them ill health.  I think the government has a perfect right to intervene in this way.  Trademark protection is really trying to prevent one producer from using the brand name of another producer.  That's not the issue here.  The issue here is that the government is intervening quite correctly to minimise the terrible damages that can be associated with cigarette smoking.

Matt Smith:

They've also put forward the argument that it will flood the tobacco market with cheap knock-offs.  Is that a valid argument?

Harry Clarke:

There could be pressure on prices as a result of this legislation, because the products are going to become closer substitutes.  There'll be more competition between different producers so there might well be a reduction in price.  That can easily be addressed by the government simply raising the tobacco excise.  So if prices should fall, the thing for the government to do is to increase the excise so that in real terms the price of cigarettes doesn't fall.  With respect to illegal and counterfeit production, one of the features of the plain packaging legislation is that it makes the market less attractive, rather than more attractive, so that if illegal producers had incentives to enter the market in the past, they should have lower incentives to enter in the future, because the profits are not going to be so attractive.  They're going to face more competition from existing brands.  So I don't see those kind of issues as a serious problem.  I don't think that illegal production is really going to take off, and I think that the extra legal competition can easily be offset by increasing the excise on cigarettes.

Matt Smith:

Now, you've been looking at a couple of historical examples of changes that have been imposed on the tobacco industry to see how those have affected sales and how this might likely affect sales.  What did you find?

Harry Clarke:

We don't have direct evidence on plain packaging because it's never been tried before, so what we looked at were two previous episodes of imposing restrictions on the advertising of cigarettes.  In 1976 there were restrictions on promoting cigarettes in the electronic media and in 1990 there were restrictions on the print media.  And what we found particularly in the first episode, the restrictions on the electronic media, was that there was a pressure to discount cigarettes and that pressure was met partly by tax increases.  There wasn't a great deal of investment in new brands because new brands became less attractive, following the legislation which essentially reduces the value of branding.  And the same with the 1990 moves.  What we try to learn from that is what might happen if you further reduce the importance of branding on cigarettes, and our guess is, the industry will become less profitable for existing producers, branding will become less important, at worst you might expect small effects of this legislation in reducing cigarette consumption, but you shouldn't expect bad effects of this legislation.  It should at least reduce the attractiveness of cigarettes.  If prices do fall, they can be offset by tax increases, so we're very confident that this legislation will have at least some effect in reducing smoking.

Matt Smith

Are tobacco industries worried about this?

Harry Clarke

Oh, for sure.  For sure.  They're certainly worried about their loss of profits, and as I say, I'm not concerned about protecting the profits of an industry that shortened the lives of a hundred million people in the twentieth century.  This is a terrible industry.  Of course we should have some sympathy for people who are addicted to cigarettes, but we're certainly not interested in protecting the profits of this industry.  What we're interested in is promoting the community interest, in promoting community health, and that's best done by, particularly inducing young people not to take up the disastrous habit of cigarette smoking.

Matt Smith

Do you think at any point that the tobacco industry will become unviable?

Harry Clarke

I don't think it will become non-viable because the tobacco industry itself believes that the new markets it's opening up in developing countries will largely replace the markets that it's losing in developed countries – in Australia, the United States and Canada, there are big falls in cigarette smoking, but the demand for cigarettes is growing in aggregate in countries like China and India, partly in response to the growing number of people who are becoming adults.  The population's been growing, and it's ageing and so you're having a much bigger population base who can purchase cigarettes.  But eventually these moves are going to have an impact in these countries as well.  Already countries like Uruguay have moved towards plain packaging legislation, they were defeated by the companies.  The Chinese government have initiated a whole set of measures to restrict smoking, and I imagine they'll be very interested in the sort of policies that are being introduced in countries like Australia now.

Matt Smith

Now how come Australia is such a trail blazer in this kind of field, because there's not a lot of other countries that are approaching or have made such an impact when it comes to plain packaging legislation.

Harry Clarke

That's a good question.  I'm not quite clear why we've taken on this role.  One thing I can say is that Australia's got benefits in terms of national prestige for undertaking this action.  So already Canada is talking about doing the same thing, the UK is looking at the same thing, the EU Health Commissioner is looking at the same kind of issue, of plain packaging legislation, and I think Australia is delivering a public good to the world by undertaking these kind of moves.  Assuming that the bills for compensation don't hit home, it's a relatively low cost move for the Australian government, it's improving the health of Australians, and it's providing information to the international community about the sorts of measures that can be taken to further reduce cigarette smoking.  So I think Australia as a whole gets to gain from being the first country to take these pioneering moves.  Australia generally has some of the toughest anti-smoking laws on the planet.  They're even tougher than the United States and countries like Canada.  We have quite high cigarette taxes, we have total bans on advertising, we have bans on smoking in all public places, we even have bans at the state level on smoking in a vehicle if you've got a child in the vehicle with you.  So things are tough in Australia if you want to be a smoker, and it seems to me that this kind of legislation is a continuation of that kind of tough policy.

Matt Smith

One solution of the government has tried it seems in the past is to impose so many taxes on cigarettes that it becomes too expensive for people to buy, is that kind of approach being abandoned?

Harry Clarke

Well, no, there's recently been a major increase in the cigarette excise and we know that increasing the cost of smoking has important effects in reducing smoking, particularly among low income earners and among young people, so it's part of the policy package.  Increasing cigarette prices too much does raise the prospect of illegal sales of cigarettes, so there are constraints on the extent to which you can use price as a way of controlling tobacco smoking.  But another component of the package is just to reduce the way the companies offer enticements to new smokers.  So I think you need to think about smoking policies in a comprehensive way.  We want Quit campaigns.  We want high cigarette excises.  We want total bans on the promotion and marketing of cigarettes, and hopefully, the whole package of policies will end the practice of cigarette smoking.

Matt Smith:

Professor Harry Clarke there, and he published his findings in a working paper written with Dr David Prentice titled "Will Plain Packaging Reduce Cigarette Consumption?" That's all the time we have today for the La Trobe University podcast.  If you have any questions, comments or feedback about this podcast, or any other, then send us an email at podcast@latrobe.edu.au.