Tobacco consumption poses real risks to health, so we agree that tobacco products should be regulated in appropriate ways. We support, and want to help deliver, balanced and enforceable tobacco regulation. Plain packaging is a policy with potentially significant consequences, not all of which are well understood
Plain packaging, also known as generic packaging or standardised packaging, is the complete removal of all brands, designs, and trademarks in order to make the appearance of tobacco product packaging uniform.
Plain packaging is not a World Health Organisation requirement or recommendation. Despite this, South Africa’s Health Minister announced in May 2016 that the Health Department is considering introducing plain packaging.
Based on what we have seen in other markets, there is no doubt that this would have serious unintended consequences.
Plain packaging removes the ability of tobacco manufacturers to use brands to differentiate their products. Without brands, tobacco manufacturers are forced to differentiate their products on the basis of price alone. This is called commoditisation. Commoditisation results in manufacturers using price as the only competitive advantage, so prices go down. This will lead to an increase in smoking consumption. Lower prices also make cigarettes more accessible to the youth.
Plain packaging also makes it easier for criminals to produce and sell counterfeit cigarettes. This will increase the size of the already high illegal market and further fuel organised crime in South Africa. The illegal market in South Africa is already around a quarter of the total market and is strongly linked to organised crime.
In the first 12 months following the introduction of plain packaging in Australia, illegal trade in cigarettes increased by nearly 30%.
Evidence from Australia also shows that plain packaging does not reduce youth smoking, has not discouraged people from taking up smoking and has not increased the effectiveness of health warnings. It is too early to tell if plain packaging has had any effect in Europe.
Plain packaging would make counterfeiting and smuggling even easier, and this in turn makes the distribution of products through unregulated, untaxed criminal networks also much easier. As a result, it would be harder for honest retailers to compete in the South African market, which will have a serious impact on their profitability in favour of illegal sales. Smaller retailers will be worse off and can expect lower profit margins and loss of business to larger retail chains and illegal traders should plain packaging come into effect.
The loss would be to the economy too, and it would be serious. In 2015, British American Tobacco South Africa contributed R14.5 billion in taxes. British American Tobacco’s contribution to South Africa’s Gross Domestic Product (GDP) amounted to R18.4 billion, or 0.52% of the country’s GDP in 2015.
South Africa has lost R5 billion in 2015 alone, and in excess of R25 billion over the past five years due to illicit trade. If increased by 30% following the introduction of plain packaging (as it happened in Australia) illicit trade could cost the economy an additional R6 billion. The decrease will come from an increase in the illegal industry, lower profitability from the legal players together with the loss of jobs. In South Africa, job losses could be as many as 20,000 across the tobacco value chain should plain packaging be introduced.
British American Tobacco South Africa’s supply chain sustained operation supports more than 72,000 jobs the company purchased 90% of all locally-grown tobacco leaf, worth some R550 million. This supports around 5,800 farming jobs. And with over 179,000 spazas, house-shops, taverns and convenience stores deriving an income from the sale of our products, we help sustain over 25,000 jobs in the retail sector”.
British American Tobacco South Africa strongly believes that enforcing existing laws and preventing retailers from selling tobacco products to minors, as well as targeted education and awareness programmes, are some examples of effective alternatives.
Furthermore, British American Tobacco South Africa takes harm reduction very seriously, and would like to partner with other organisations to achieve this. Our business plan is focused on selling fewer products for more, which will help reduce consumption.
We also have an international team of highly qualified scientists and engineers working on safer products that we can, in time, bring to market.