Cigarette sales up in smoke

2003-06-10 22:20

Johannesburg - Cigarette consumption in South Africa has decreased by about a third since the early 1990s, a study by the University of Cape Town's school of economics revealed on Monday.

The Economics of Tobacco Control Project report said the decrease could be attributed to rapid hikes in the price of cigarettes and the creation of an environment, through legislation, in which smoking is no longer seen as socially acceptable.

Since 1991, retail cigarette prices have increased by about 600%, the report said.

"The average retail price per pack of cigarettes has increased from R1.71 in 1991 to more than R10 last year," said chief researcher and economist Corne van Walbeek at the presentation of the 61-page report.

"Even if one takes out of the impact of the general increase in consumer prices, this means that cigarettes have become much less affordable."

He said the study was the first anywhere in the world.

Van Walbeek said the blame for the increase in the retail price of cigarettes since the mid-1990s was usually ascribed to the rapid hike in cigarette excise taxes.

Pricing strategy

However, an aspect that had received much less publicity was the pricing strategy of the industry.

"The tobacco industry use the excise tax increases as camouflage to hide much larger increases in the retail price than the increase in the excise tax," he said.

"The near monopoly British American Tobacco South Africa has on the domestic market places them in a position to exploit this power."

The report said smoking prevalence among South African adults and youth went down from 32% in 1993 to about 27% in 2000.

The percentage of male smokers dropped from 51% in 1993 to 43% in 2000. The drop in figures among women was 12.9 to 11% in the same period.

The country's consumption in this period dropped from 1.8 billion cigarette packs in 1993 to 1.3 billion in 2000.

Demographic groups that had experienced the most significant decrease in smoking were blacks, poor people and males.

The opposite could be said about females, whites, coloureds and other more affluent groups.

The report said poorer households that smoke generally bear a large cigarette excise tax burden than richer ones.

"However, we found that an increase in the excise tax tends to reduce the relative tax burden on the average poor household because the poor are generally more price sensitive than the rich.

"The poor reduce their cigarette intake by a greater percentage, or become more likely to quit than the average rich smoker."

Bans

National Council Against Smoking executive director Yussuf Saloojee said at the presentation legislation banning tobacco advertising and smoking in public places had made an impact on cigarette sales.

"Statistically we find that the single most influence on cigarette demand, by far, is the price.

"It is too soon to determine the quantitative impact of the legislation on cigarette consumption. However, through the law, smokers' right to pollute the air with second-hand smoke is replaced by non-smokers right to clean air."

He said that previously those rights were contested but now property rights had been firmly established in favour of non-smokers.

Smuggling

Saloojee said tobacco smuggling was a major problem and he accused the tobacco industry of taking part in the crime.

About a third of all cigarettes that are exported, disappeared en route and ended up on the contraband market, he said.

Worldwide, about 355 billion cigarettes are eventually sold illegally, with no duty paid.

Saloojee said tobacco companies used smuggling to enter "closed" markets and to avoid paying tax.

He said the European Union, Canada, Ecuador and Honduras are among countries that had filed lawsuits against international tobacco companies for smuggling cigarettes.

"Tobacco companies always say countries, including South Africa, that substantially increase excise taxes will encourage smuggling," Saloojee.

"They are aware, however, that smuggled cigarettes are cheap and keep people smoking who might otherwise quit and tempt children to get into the habit."

He said companies also claim that an increase in excise tax would reduce revenue for the government.

"In reality this is totally the opposite because the government has for instance pocketed about R5bn in the last financial year in excise tax (on cigarettes) excluding the value added tax," he said.

- SAPA