Will Scotland suffer same plain packs fate as Oz?

Following the introduction of plain packaging of tobacco products in Australia in December 2012, KPMG has published the first extensive evaluation of how this effected the illicit market – SLR spoke to Imperial Tobacco’s General Manager Eugene Walsh to discuss what this could mean for Scottish retailers.

By Kevin Scott

According to KPMG’s Illicit Tobacco in Australia report, the country’s illicit tobacco market has now increased to 13.3% of total tobacco consumption and is at its highest ever level, with more than AUS$1bn (£565m) a year lost in revenue. Following the publication of the report John Drummond, Chief Executive of the SGF, called on the Scottish Government to carefully reflect on KPMG’s findings ahead of its planned consultation into plain packaging in Scotland. “The figures on the increased Australian illicit trade highlighted by KPMG are alarming and should not go unnoticed,” he said. “Unlike the many predictions that have been made, this provides real data that the black market has grown while tobacco consumption has failed to drop. It would not be wise to press ahead with a policy which will exacerbate the already prevalent illicit trade in Scotland.” The tobacco industry in the UK too has highlighted the study as proof that plain packaging will only increase the illicit trade and harm legitimate retailers.

To get an idea of exactly what effect plain packaging would have, SLR sat down with Imperial Tobacco’s Imperial Tobacco’s General Manager, Eugene Walsh to discuss the findings and how the company expects the Scottish market to change if the planned legislation is introduced here. What effect does ITUK believe plain packaging would have on the tobacco market in Scotland? “If plain packaging comes to Scotland I can see the illicit trade being much worse. Australia is an island – Scotland has land borders with England that would be difficult (and costly) to patrol – Scotland would have plain packaging but England and continental Europe would have alternatives that would be cheaper and similar to the packs that Scottish smokers have been accustomed to.

“We’re still in the early days of plain packaging in Australia – legislation’s been in place for less than 12 months and we should remember there are a number of drivers of illicit trade. But it seems that this evidence is not currently being taken seriously by the Scottish Government in its pursuit of its Tobacco-Free Generation campaign.” The KPMG report into the Australian market has shown an increase in illicit trade – do you believe a similar pattern will following in Scotland?

“The KPMG report, based on pack collections and consumer surveys, showed that illicit trade has increased from 11.8% of total consumption in 2012 to 13.3%. There has been a significant change in the mix: while consumption of ‘chop chop’ is down by 40%, counterfeit is up 71% and illicit whites are up by more than 250%. The illicit white brand Manchester, if sold legally, would have an Australian market share of 1.3%. But it isn’t being sold legally… it doesn’t comply with plain packaging laws and sales aren’t taxed. Are illegal imports a bigger issue in terms of lost tax revenue, than counterfeit products? “Yes – although counterfeit is still a large problem which is unregulated, untested and unknown. In Australia, the emergence of illicit whites – branded cigarettes from small manufacturers with poor supply chain controls – is of particular concern. 2% of cigarettes consumed in Australia are illicit whites, up from 0.5% in 2012.

“The report indicated smoking levels have not decreased since plain packs were introduced – what can the Scottish Government take from that estimate? “There is no firm evidence that plain packaging does anything to reduce youth smoking or reduces the total number of current smokers. The Australian Association for Convenience Stores (AACS) has also conducted research which confirms that admin and labour costs have increased, as have transaction times since plain packaging was introduced down under. It is important that the Scottish Government base any regulation on credible and robust evidence. Whilst it is still early days since plain packaging was introduced in Australia, Scotland would be well served to wait, as Westminster is, to safeguard against producing disproportionate and unreasonable legislation.”

Why is the illicit trade on the increase in UK? “HMRC faces a very difficult task as the UK has one of the highest excise tax regimes in the world for tobacco taxation. It is taxed much higher in the UK than in continental Europe. The difference in price is the single most important driver of illicit trade. The current economic conditions, allied to the ever increasing sophistication of the organised criminal gangs that peddle illicit tobacco and the difficulty in taking these criminals permanently out of circulation makes it very difficult to gain traction. We need more commitment and resources from the Government for HMRC, the Border Force and the law courts to effectively stamp down on these activities. How should the Scottish Government pursue its goal of reducing smoking rates, while minimising the effect of the illicit trade?

Education and enforcement are key, we don’t want children to smoke and we support effective measures to ensure tobacco products do not get into the hands of children. We support retailer programmes designed to discourage tobacco sales to children (e.g. ‘No ID, No Sale’ and Citizencard campaigns). We also support penalties for retailers who sell tobacco to children. The Scottish Government recognised the problem of Proxy purchasing (adults buying for under 18s) and outlawed this practise.

There now needs to be education and increased enforcement to make sure this works. “Furthermore, an increase in resources to tackle illicit tobacco and stronger punishments to those who are found guilty are also needed. Those who peddle in illicit tobacco do not ask for ID and are not concerned about the contents of the tobacco they sell or who they sell to.” Local retailers can contact their local MSP to voice their concerns about the proposed introduction of plain packaging. If you are unsure of who this is and/or require their contact details go to www.writetothem.com

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