Ideas: Can smaller cigarette packs deter the illicit trade?

This article first appeared in Forum, The Edge Malaysia Weekly, on October 9, 2017 - October 15, 2017.
-A +A

Legally sold cigarettes in Malaysia come in packs of 20. Now, the government has proposed to reintroduce smaller packs of 10 sticks. The idea was immediately criticised by certain groups, who say that the Ministry of Health is playing into the hands of cigarette manufacturers. Their main criticism is intuitively appealing. They say smaller packs will be cheaper and easier to keep and, therefore, encourage young adults and children to start smoking.

The anti-tobacco groups pejoratively call the smaller packs “kiddie packs”, creating an emotional appeal to the public by linking harmful cigarettes to the risk of their consumption by children. This label was created and popularised by anti-tobacco campaigners as part of their campaign against cigarettes, even though none of the legal cigarette manufacturers in Malaysia want to target children.

The assumption of an increased incidence of smoking in the young, especially those under 18, as a result of the introduction of smaller packs can be questioned on a number of grounds.

First, selling to underage children remains an offence, regardless of the size of the pack. No one is asking for this law to be changed. Selling even one cigarette to an individual under 18 years old will remain an offence. The size of the packs will not legalise underage selling.

Second, smokers have a tendency to want to finish a pack once they have opened it, and then wait until they can buy another pack. This means that if a pack contains only 10 instead of 20 sticks, there is a chance that consumption of tobacco will decrease because there will be an indirect “spacing out” impact to moderate consumption.

While those points may be debatable, there is one fact that is not. The government has failed to control the flood of illegal cigarettes into the country. Due to this failure, Malaysia is now among the world’s biggest illegal tobacco consumers — almost 60% of cigarettes sold in the country are illegal. Only two other countries are worse than we are — Brunei and Panama.

Illegal tobacco is bad news for the formal business because it creates an uneven playing field. It is bad news for the government because we lose tax revenue at a time when our country could use the money. And it is bad news for consumers because the high excise duty imposed on legal cigarettes means they can only afford the illegal ones, thereby exposing them to dangerous products with unverified content.

Let’s run some simple numbers. Let’s say the current pack of 20 sticks is sold for RM11 to RM17. An illegal pack of 20 sells today at just RM3 to RM6. The huge price difference, caused by the extremely high excise duty, has resulted in about three million out of the five million smokers in the country buying illegal cigarettes.

A smaller pack of 10 sticks would probably be sold at half the price — RM6 to RM9. That is still higher than the price of illegal cigarettes, but there is a better chance of consumers opting for the real deal because of the lower pricing. At the very least, it creates a possibility that consumers will choose legal products rather than illegal ones, thereby reducing the amount of illegal cigarettes in the country.

The reintroduction of smaller packs might also incentivise companies to reduce the prices of the legal products so they can compete with the illegal cigarettes. It is sad that we have been reduced to talking about “competing” with illegal products. But in terms of curbing illegal cigarettes, this is one strategy that might just work.

Of course, this is all hypothetical. But being the world bronze medal winner in failing to curb the availability of illegal products within our borders makes it worthwhile to pilot the idea for, say, five years. In fact, the government might even want to experiment by allowing it only in specific localities and then observe the results. If the strategy works in curbing illegal cigarettes, and perhaps even in reducing overall smoking due to the spacing out effect, then this might be a win-win-win experiment.

Ali Salman is director of research at the Institute for Democracy and Economic Affairs (IDEAS)