Tobacco makers push for return of small packs

This article first appeared in The Edge Financial Daily, on August 30, 2017.
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KUALA LUMPUR: Tobacco companies are proposing to reintroduce small packs of cigarettes in the country to regain cigarette volume lost to the illicit tobacco trade.

According to British American Tobacco (Malaysia) Bhd (BAT Malaysia) managing director Erik Stoel, the reintroduction of smaller cigarette packs to the market, together with enforcement efforts, can reduce the illicit trade in tobacco by 55% over the next three years from a record high of 57.9% as at May this year.

“It won’t totally stamp out the illicit tobacco trade but, at least, it will help in bringing it down to 2010 level (of 36.3%). The government will also see an increase in revenue from tobacco taxes,” he told The Edge Financial Daily.

In a rare interview with the managing directors of both BAT Malaysia and JT International Bhd (JTI Malaysia), they said that over the last couple of months the two companies and Philip Morris (M) Sdn Bhd — which together control 95% of the legal tobacco market — have been engaging with the government to approve the sale of 10-stick cigarette packs.

“No decision has been made yet. The proposal has to be passed by the Cabinet. We have talked to the government to see what we can do about the illicit [cigarette trade] problem. Clearly, some news have gone out and we think they are misrepresenting some of the facts. But, clearly, the ministry of health is aware of this proposal,” said Stoel.

JTI Malaysia managing director Guilherme Silva concurs, noting that the tobacco companies have been holding talks with the relevant authorities, including the health ministry, on the matter.

“It should come as no surprise to any part of the government [that we are seeking to introduce the sale of 10-stick cigarette packets]. We believe this is one of the most viable options,” he added.

They were responding to news reports last week that quoted non-governmental organisations (NGOs) as saying that a proposal to reintroduce small cigarette packs in Malaysia is making the rounds. The NGOs and opposition lawmakers have lambasted the tobacco industry’s move again, saying it would further encourage the smoking habit among children and teenagers in the country.

Stoel said the introduction of the 10-stick packs would help breach the current wide price gap between illegal cigarettes and the legal packs of 20 sticks.

“The legal cigarettes are sold today at RM12-RM17 and more smokers are just buying what they can afford due to their cash outlay, namely illegal cigarettes. The cash outlay of those who want to continue to smoke is not more than RM9 per pack of 20-stick cigarette, so legal cigarettes for them are out of reach.

“Even with the smaller packs, the price per stick is likely to be at least equivalent or more expensive than the price per stick of a pack of 20 sticks, but we can offer a legal alternative for consumers to step back into the legal market.

“From our studies, we do know there is a lot of consumers who would prefer to smoke legal brands but they can’t afford it [at current prices],” explained Stoel.

The cost of cigarettes in Malaysia is the second highest in Asean, after Singapore.

Meanwhile, Silva dismissed claims that smaller cigarette packs would promote smoking in young children or encourage youths to smoke more, saying that youths today already have easy access to cigarettes in the form of cheap illegal cigarettes sold at RM3-RM5 per pack of 20 sticks.

“Already, over 70% of youth starts with illegal cigarettes. And, there is no rationale that smaller packs are cheaper for youths compared with what they are already purchasing at RM3 per pack of 20s,” he said.

“We are not saying that we want sales of the 10-stick packs to be allowed in Malaysia forever. That can be reviewed at the later stage. The key question is let’s address the current illicit problem and make sure that we make illicit less relevant. Overtime we can progressively start phasing out some of these measures that we did take to address this problem,” said Silva.

Stoel said according to the tobacco companies’ estimates, if nothing is done to tackle illicit trade, the illegal market may climb by another 27% by 2020 and market consumption by another 6%.

“The ban on smaller packs back in 2010 had resulted in a rise in daily consumption of cigarettes from 14 sticks to some 18 sticks,” he noted.

“We don’t think that the reintroduction of smaller packs alone or enforcement efforts alone can tackle the problem. We think you need to do both. Look at it for a couple of years, work hard on it, and then we can review it (the measures) again,” added Stoel.