10.22 The future of the tobacco industry

10.22.1 In Australia and other developed country, mature markets

Australia is regarded in tobacco industry parlance as a 'mature' market, meaning that consumption is in decline. The best the tobacco companies can hope for is to gain a larger slice of a shrinking market, to sell more of their most profitable brands, and that reductions in the volume of cigarettes smoked and the numbers of people smoking will be gradual. Euromonitor, an international organisation that compiles business intelligence and industry data, predicts that 'due to tighter legislation and the ongoing health and wellness trend in the country, smoking prevalence is expected to further decrease...with volume sales...continuing to decline'.1 Nonetheless, this does not mean that the industry will not continue to be profitable in Australia in the short term. The industry can be expected to continue defending its interests as evidenced by its lobbying efforts against plain packaging reforms.2

In January 2011, Citigroup issued a report that suggested that smoking could virtually disappear in developed countries by the year 2050.3 While acknowledging that in the short term tobacco will continue to be a highly profitable industry, Citigroup reasoned that in the 'very long view, it's hard to ignore 50 years of data. Smoking rates appear to be falling in a series of straight lines. If this continues, and it has for 50 years, then it means that the percentage declines in volumes will gradually accelerate. This seems to have been what is happening'.3 As a consequence of its findings, Citigroup downgraded its investment rating on tobacco stocks. Euromonitor summarises Citibank's reasons for adopting a less positive view of the industry's prospects as being primarily due to an inability to raise prices, the advent of plain packaging, and that smoking rates will keep falling. The net result is that eventually cigarette price rises will no longer be able to sustain profit growth.4 Euromonitor's long-term volume forecast (to 2014) does not indicate a fall in total global cigarette consumption, provided China is included. However, despite the advent of Chinese Marlboro, it admits it is difficult 'to envisage any of the international companies enjoying a major share of the Chinese market, even by 2040'.4

In the same forecasting report, Citibank upgraded the investment status of Swedish Match—the smokeless tobacco (snus) company—because of pricing strength and volume growth.4 This is consistent with the smokeless tobacco product test marketing that the tobacco industry has undertaken in the US. These products appear to be targeting consumers and smokers in smokefree environments in order to expand the tobacco market and undermine smoking cessation.5 Given the current Australian sales ban on smokeless tobacco products, this is very unlikely to have a similar effect in Australia.

All the companies acknowledge the reality that their markets are likely to become yet more tightly controlled. Regulatory constraints that have been debated in the tobacco control arena include prescriptive controls on emissions and ingredients,6 deletion of brand names and imagery and the introduction of generic packaging,7 government controlled non-profit tobacco distribution and sale8 and even discussion of the ban on the commercial sale of products.9 But Philip Morris International, for one, is sanguine about the regulatory environment it confronts. Philip Morris International notes that, 'These matters constitute largely un-chartered territory for regulators', therefore raising the prospect that the company can influence the process (or, as the company puts it, offering 'a good opportunity for PMI to provide expertise and comprehensive solutions as a result of our transparent and supportive approach to reasonable regulation').10

Litigation remains a real concern for the tobacco industry, in the US and elsewhere. While acknowledging that the litigation environment may be unpredictable, the companies state on their respective websites that they will vigorously contest any cases brought against them and that they have every confidence that they will prevail.11-13 Litigation against the tobacco industry is discussed in detail in Chapter 16.

In Australia and other developed countries, smoking will continue to become concentrated among the most disadvantaged sectors of the community and the industry will doubtless seek new ways to keep tobacco products as affordable as possible. In the US, the industry has reached its more 'downscale' customers by making donations to key groups supporting the homeless and the mentally ill, thereby giving them access to an important market, while permitting the industry a nod in the direction of corporate responsibility.14 In Australia, very low-cost, discount brands have been imported to appeal to this price sensitive market.15

10.22.2 Low and middle income country markets

The global outlook for the tobacco industry is far from pessimistic. According to the World Health Organization:

'Tobacco use continues to be the leading global cause of preventable death. It kills nearly 6 million people and causes hundreds of billions of dollars of economic damage worldwide each year. Most of these deaths occur in low- and middle-income countries, and this disparity is expected to widen further over the next several decades. If current trends continue, by 2030 tobacco will kill more than 8 million people worldwide each year, with 80% of these premature deaths among people living in low- and middle-income countries.'16

The comparative lack of tobacco regulation in many countries and government willingness to embrace tobacco growing and manufacturing in return for substantial financial inducements makes these markets ripe for industry exploitation and there is every sign that this is occurring.17 Investment by the international tobacco companies in foreign markets is typically associated with increased per capita consumption, particularly in low and middle income countries.18-20 Coupled with this is that in many countries smoking prevalence among young teenage girls is catching up with that of boys, use of cigarettes and other tobacco products is widespread among children, and many children are contemplating taking up smoking.20 Added to this, in countries where few women smoke, the female market is being aggressively targeted and the prevalence of female smoking is rising.21 And as British American Tobacco Australia points out, even if 'smaller percentages of populations will smoke ... the number of adults in the world over the age of 20 is forecast to grow by 11% by 2015'.22

The 2011 World Health Organization report on the global tobacco epidemic shows that while progress has been made in advancing global tobacco, a minority of the population is still not protected by key policy reforms. See Figure 10.22.1.

/images/content/ch10industry/10.22.1.jpg

Figure 10.22.1
Share of the world covered by selected tobacco control policies, 2010

Note: The tobacco control policies depicted here correspond to the highest level of achievement at the national level

Source: WHO 201116

Recent news and research

For recent news items and research on this topic, click here (Last updated October 2017) 

References

1. Euromonitor International. Tobacco-Australia, September. London: Euromonitor International, 2010, [viewed 30 June 2011]. Available from: http://www.euromonitor.com/tobacco

2. Casben L. Tobacco companies rally against plain packaging. ABC News. Sydney: Australian Broadcasting Corporation, 2010, [viewed 16 August 2011]. Available from: http://www.abc.net.au/news/2010-04-29/tobacco-companies-rally-against-plain-packaging/414540

3. Fletcher N. Imperial Tobacco and BAT fall as Citi says smoking could disappear by 2050. The Guardian, (London) 2011:7 Jan. Available from: http://www.guardian.co.uk/business/marketforceslive/2011/jan/07/imperial-bat-smoking-disappear

4. Euromonitor International. So is tobacco heading for the exit over the next 30 years? London: Euromonitor International, 2011, [viewed 17 August 2011]. Available from: www.euromonitor.com/industries

5. Mejia A and Ling P. Tobacco industry consumer research on smokeless tobacco users and product development. American Journal of Public Health 2009;100(1):78–87. Available from: http://ajph.aphapublications.org/cgi/content/full/100/1/78?view=long&pmid=19910355

6. Deyton L, Sharfstein J and Hamburg M. Tobacco product regulation—a public health approach. The New England Journal of Medicine 2010;362(19):1753-6. Available from: http://www.nejm.org/doi/full/10.1056/NEJMp1004152

7. Freeman B, Chapman S and Rimmer M. The case for the plain packaging of tobacco products. Addiction 2008;103(4):580-90. Available from: http://www.ncbi.nlm.nih.gov/pubmed/18339104

8. Callard C, Thompson D and Collishaw N. Transforming the tobacco market: why the supply of cigarettes should be transferred from for-profit corporations to non-profit enterprises with a public health mandate. Tobacco Control 2005;14(4):278-83. Available from: http://tobaccocontrol.bmj.com/cgi/reprint/14/4/278

9. Shahab L and West R. Public support in England for a total ban on the sale of tobacco products. Tobacco Control 2010;19(2):143. Available from: http://www.ncbi.nlm.nih.gov/pubmed/20378589

10. Calantzopoulos A. Remarks by Andre Calantzopoulos, Chief Executive Officer Philip Morris International Inc. JP Morgan Global Tobacco Conference, London, United Kingdom, June 29, 2007. Lausanne: Philip Morris International Inc, 2007, [viewed 12 February 2008]. Available from: http://www.altria.com/media/press_release/03_02_pr_2007_06_29_01.asp

11. Philip Morris International. Litigation. New York: Philip Morris International, 2011, [viewed 17 August 2011]. Available from: http://www.pmi.com/eng/tobacco_regulation/pages/litigation.aspx

12. Imperial Tobacco Group. Principal risks and uncertainties. Tobacco-related litigation. Bristol, UK: Imperial Tobacco Group, 2011, [viewed 17 August 2011]. Available from: http://www.imperial-tobacco.com/files/financial/reports/ar2010/index.asp?pageid=38

13. British American Tobacco. Litigation overview. London: British American Tobacco, 2011, [viewed 17 August 2011]. Available from: http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO5WPF25?opendocument&SKN=1

14. Apollonio DE and Malone RE. Marketing to the marginalised: tobacco industry targeting of the homeless and mentally ill. Tobacco Control 2005;14(6):409-15. Available from: http://tobaccocontrol.bmj.com/cgi/reprint/14/6/409

15. Squires R. Coles importing cheap cigarettes from Germany and selling them at discount prices. The Sunday Telegraph, (Sydney) 2010:18 Jul. Available from: http://www.news.com.au/business/coles-importing-cheap-cigarettes-from-germany-and-selling-them-at-discount-prices/story-e6frfm1i-1225893467835

16. World Health Organization. WHO report on the global tobacco epidemic, 2011. Executive summary. Geneva: WHO, 2011, [viewed 17 August 2011]. Available from: http://whqlibdoc.who.int/hq/2011/WHO_NMH_TFI_11.3_eng.pdf

17. Yach D and Bettcher D. Globalisation of tobacco industry influence and new global responses. Tobacco Control 2000;9(2):206-16. Available from: http://tobaccocontrol.bmj.com/cgi/content/abstract/9/2/206

18. Gilmore AB and McKee M. Exploring the impact of foreign direct investment on tobacco consumption in the former Soviet Union. Tobacco Control 2005;14(1):13-21. Available from: http://tobaccocontrol.bmj.com/cgi/reprint/14/1/13

19. Stanton H. National economies suffer from tobacco scourge. CECHE Global Health and Environment Monitor 2005;13(Winter)

20. Wen CP, Cheng TY, Eriksen MP, Tsai SP and Hsu CC. The impact of the cigarette market opening in Taiwan. Tobacco Control 2005;14(suppl.1):i4-9. Available from: http://tobaccocontrol.bmj.com/cgi/reprint/14/suppl_1/i4

21. World Health Organization. Gender, women, and the tobacco epidemic. The marketing of tobacco to women: global perspectives. Geneva: WHO, 2010, [viewed 17 August 2011]. Available from: http://www.who.int/entity/tobacco/publications/gender/en_tfi_gender_women_marketing_tobacco_women.pdf

22. British American Tobacco. Annual report and accounts 06. London: British American Tobacco, 2007, [viewed 17 August 2011]. Available from: http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO52AK34/$FILE/medMD6ZPCA4.pdf?openelement

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