May 9th, 2014
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Regulation of e-cigarettes will be one of tobacco’s greatest saviours
Yesterday, Imperial tobacco announced it would be shutting its factories in England and France. The maker of French tobacco favourites such as Gauloises and Gitanes will be moving production to Spain.
Declining sales and a hostile regulatory environment have been the dominant story of the tobacco world for the past decade.
However, there may still be an alternative future for the industry. Here are three reasons why those in the tobacco industry may not be looking to throw in the towel in just yet.
E cigarettes
E cigarettes have been revolutionising the world of tobacco, translating smokers to vapers with extraordinary success. Some have even claimed the new devices represent a “Kodak moment” for regular cigarettes. American lender Wells Fargo has even gone so far as to predict that e cigarettes could outsell conventional cigarettes within a decade.
Japanese banking giant Nomura believes e cigarettes are set to rise to 15 per cent of equivalent units in the US by 2023. The rise of the e cigarette has the potential to spell disaster for the tobacco industry. However, this could all be about to change, as a host of national and supranational regulators seek to exert control over the development, strength and marketing of e cigarettes.
Parts of the World Health Organisation (WHO) have suggested plans to regulate the electronic devices as stringently as conventional tobacco, according to leaked documents seen by the Financial Times (FT).
The WHO’s considerations follow the same line of thinking as the US Food and Drug Administration (FDA), which has said it plans to regulate e cigarettes as tobacco products.
In February, the EU banned the sale of e cigarettes with a nicotine concentration of over 20mg/ml. The decision was widely criticised as a mistaken application of the precautionary principle, as modelling conducted by London Economics estimated that the ruling could prevent the saving of 105,000 European lives per year.
Tobacco control failing to cut smoking rates
Smoking rates have been on a downward path ever since the link between smoking and several fatal diseases was proved beyond a reasonable doubt.
However, the steep fall in smoking rates has slowed in many developed countries, including those with some of the most draconian tobacco control measures
Ireland has one of the strictest tobacco control regimes in Europe but the smoking rate is the third highest in Europe at 29 per cent, according to Eurobarometer.
Australia has been a pioneer in tobacco control, introducing plain packaging in 2012. Since the measures were passed, the illicit trade in tobacco has soared by 20 per cent, with the amount of tobacco tax avoided estimated at $1.1bn.
Smoking usage in Australia has also remained relatively stable between July 2012 and June 2013, according to a KPMG report.
Tobacco companies and consumers are adjusting behaviour
Instead of quitting, cigarette smokers are trading down from premium brands, in response to price rises. The market for pipe and roll your own tobacco has also rapidly expanded in recent years.
Tobacco giant Altria saw the stick volume of its cigarettes decline by four per cent based on full year 2013 results. However, the company’s discount brand L&M cigarettes rose by three per cent over the period. The tobacco industry is increasingly adopting a more value oriented model.
The number of premium cigarettes sold as a percentage of the overall volume of cigarettes sold within the United States has now fallen from just over 70 per cent to 58.6 per cent.
