Tobacco cost cuts ‘not an idle threat’

THE threat by big tobacco companies to slash cigarette prices should be taken seriously given the scope for retailers to import cheap tobacco, promote ”home” brands, and force a price war, a leading researcher said yesterday.

The executive director of the Australia Institute, Richard Denniss, said the government should signal it was prepared to raise taxes or establish a floor price to maintain the high cost of cigarettes in an era of plain packaging.

”It’s not an idle threat by big tobacco,” Dr Denniss said.

"What's to stop the person at the counter offering a cheaper home brand?" ... Richard Denniss, Australia Institute executive director  Read more: http://www.smh.com.au/national/tobacco-cost-cuts-not-an-idle-threat-20110518-1et8f.html#ixzz1MmBj5sgm

”What’s to stop the person at the counter offering a cheaper home brand?” … Richard Denniss, Australia Institute executive director Read more: http://www.smh.com.au/national/tobacco-cost-cuts-not-an-idle-threat-20110518-1et8f.html#ixzz1MmBj5sgm

It said the threat to drastically lower the price proved tobacco companies were charging customers well above the cost of production and the relevant taxes. About half the profits made by the industry flowed from companies being able to ”brand” their products, it said.

The chief executive of British American Tobacco Australia, David Crow, said this week that plain packaging would lead to a flood of cheap and illegal products, sparking a price war with the illegal tobacco market.
Dr Denniss said the main problem for the companies was to maintain their market share in the face of competition from supermarkets rather than from illicit tobacco. At present it was difficult for retailers to promote alternative cheaper cigarettes.

”But with plain packaging when a customer asks for a packet of Winfield, what’s to stop the person at the counter from offering a cheaper home brand?” he said.

A spokesman for British American Tobacco Australia said yesterday that whether it be cheaper legal or illegal cigarettes coming into the country, the result would be more competition and lower prices.

Dr Denniss said the government should assure Australians it was not a choice between two health measures to deter smoking – plain packaging or high prices, and that it would maintain high prices.

A spokesman for the Minister for Health, Nicola Roxon, said the government had no plans to set a floor price on cigarettes. ”Big tobacco is running a campaign against plain packaging and will use many slippery tricks and tactics in its fight,” he said.

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