13.4 The affordability of tobacco products

The affordability of cigarettes is affected not just by their price and not just by their price compared to the costs of buying other goods and services. Affordability of cigarettes is also affected by the amount of disposable income people have to buy them. As Blecher and van Walbeek put it, 'affordability considers the simultaneous effect of income and price on a person's buying decision'(p167).

13.4.1 Changes in affordability of cigarettes over time in Australia

The World Health Organization has suggested that the affordability of cigarettes can best be assessed by examining prices relative to earning capacity.2 Figure 13.4.1 shows the time taken by an Australian worker on average wages in minutes to earn a day's worth of cigarettes in the most popular brand category sold at recommended retail prices since 1984. Table 13.4.1 shows detailed calculations.

Figure 13.4.1
Time (in minutes) needed on average weekly earnings to earn enough to buy one day's worth of leading brand of cigarettes (between 15 and 21 cigarettes per day), 1984–2011

Sources: Australian Bureau of Statistics 1983, 1985, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993,3–12 ABS 1995, 1996, 1998, 1999, 2001, 2003, 2005, 2009, 2011;13–21 ABS 2011;22 NSW Retail Tobacco Traders' Association, 1980s, 1990s, 2000s, 2010, 201123–28

Notes: ABS 6306.0 Distribution and contribution of employee earnings and hours,3–12 ABS Employee earnings and hours;13–21 ABS 6302.0 Average weekly earnings, February 1984 to 2011;22 Australian Retail Tobacconist price lists, February for each year23–28

Table 13.4.1
Time needed on average weekly earnings to earn enough to buy leading brand of cigarettes, Australia, 1984–2011: per cigarette, per 20 cigarettes, per week @ average number of cigarettes smoked per day

Sources: Australian Bureau of Statistics 1983, 1985, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993,3–12 ABS 1995, 1996, 1998, 1999, 2001, 2003, 2005, 2009, 2011;13–21 ABS 2011;22 NSW Retail Tobacco Traders' Association, 1980s, 1990s, 2000s, 2010, 201123–28

Notes: ABS 6306.0 Distribution and contribution of employee earnings and hours,3-12 ABS Employee earnings and hours;13–21 ABS 6302.0 Average weekly earnings, February 1984 to 2011;22 Australian Retail Tobacconist price lists, February for each year23–28

* Current dollars and cents: the price in the applicable year; no adjustment has been made for inflation

In 1984, it was possible for a 20-cigarette-per-day smoker to earn enough money to purchase a week's supply of cigarettes in just over one hour. By 1998 it took two hours to buy the same number of cigarettes, and by February 2005, more than two and a half hours. In February 2011 it took three hours and 36 minutes. Clearly cigarettes have become significantly less affordable to Australian workers over the past 25 years.

13.4.2 Affordability of cigarettes to Australian children

As with adults, young people's perceptions of the costliness of cigarettes are affected not just by recent price changes and the price of other goods and services but also by the amount of money they have available to spend on themselves. A study by the National Centre for Research into the Prevention of Drug Abuse29 demonstrated that the probability of children having smoked in the last month was clearly related to the amount of pocket money they had at their disposal. The study showed further that between 1992 and 1994 increases in pocket money resulted in cigarettes becoming more rather than less affordable to students in Perth and Sydney, despite increases in cigarette prices (see Section 5.22 for further discussion of factors affecting uptake).

Table 13.4.2 shows the recommended retail price of the most popular brand of cigarettes among children in selected years between 1996 and 2011. It also indicates the average amount of pocket money that Australian teenagers reported having to spend on themselves in each of the years of the Cancer Council's triennial survey of smoking among secondary school students. Based on these data, Figure 13.4.2 plots the number of cigarettes that could have been purchased by a teenager aged 15 years on average levels of pocket money as determined in the surveysi.

Table 13.4.2
Affordability of cigarettes for students aged 15 years in Australia, 1996, 1999, 2002, 2005, 2008 and 2011

Year

Recommended retail price of a
packet of Peter Jackson 30s

Average money 'to spend on myself'
among students aged 15 years

 


$*

$*

1996

7.20

22.00

1999

7.96

27.00

2002

10.60

32.00

2005

11.85

34.00

2008

13.50

37.31

2011

18.70

45.48

Sources: NSW Retail Tobacco Traders' Association 1984, 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008;30 V White, Secondary School Survey of Smoking and Alcohol, 1996 to 2011, CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD)

* Current dollars: the price in the applicable year; no adjustment has been made for inflation

 

Figure 13.4.2.jpg

Figure 13.4.2
Affordability of cigarettes for students aged 15 years in Australia, 1996, 1999, 2002, 2005, 2008 and 2011 (number of cigarettes that could have been purchased on average pocket money)

Sources: NSW Retail Tobacco Traders' Association 1984, 1987, 1990, 1993, 1996, 1999, 2002, 2005, 2008, 2011;30 V White, Secondary School Survey of Smoking and Alcohol, 1996 to 2011, CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD)

Table 13.4.2 and Figure 13.4.2 make it clear that cigarettes became significantly less costly to young people between 1996 and 1999 relative to the amount of money they had available to spend on themselves. This reversed markedly after 1999, since which time pocket money has increased enough to almost keep pace with rising cigarette prices. On average pocket money, a person aged 15 years could afford to buy 29 fewer Peter Jackson cigarettes each week in 2011 compared with 1999, a decline of almost 30%. Some commentators have speculated that greater spending on mobile phone calls, messages, ring-tones and so on may have contributed to declining smoking rates among teenagers, providing both an alternative item to denote social status, and resulting in less disposable pocket money for cigarettes.ii

13.4.3 International comparisons in cigarette affordability

Cigarettes tend to cost more in high-income than in middle-income and low-income countries. This is not surprising given that people also earn more in high-income countries.31 While Guindon and colleagues showed that cigarette prices in relation to earnings (of 12 monitored occupations) rose between 1990 and 2000 in 19 of 25 developed countries and 7 of 11 low-income and middle-income countries,32 Kan showed in an analysis of
60 countries in 2006 that cigarettes remained highly affordable to people even in the lowest-paid jobs.33

To compare the relative affordability of cigarettes in a range of counties Blecher and van Walbeek have calculated the cost of 100 packs of cigarettes as a percentage of per capita gross domestic product (GDP) for 1997–2006.1 They have also compared this measure of affordability with simple comparisons of the price per standard pack in US dollars, and minutes of labour measures such as those described in Section 13.4.1, and those used in the work of Guindon and colleagues32 and Kan.33 Australia ranked seventh of 32 high-income countries (and well above all the middle and low-income countries) in terms of the price per pack as measured in the Economist Intelligence Unit's cost of living survey (Figure 1 in Blecher and van Walbeek). It ranks sixth of the 32 high-income countries in terms of price as a percentage of annual per capita GDP required to buy 100 packs of cigarettes (Figure 2 in Blecher and van Walbeek). Interestingly, on this measure, most of the upper–middle income countries and all but one of the lower–middle and low-income countries rate higher (i.e. less affordable) than Australia and other high-income countries. Using median income of all occupations, Australia rated 10th of 32, behind Singapore, Hong Kong, Norway, the UK, New Zealand, Portugal, Czech Republic, France and Ireland (Figure 3 in Blecher and van Walbeek). Between 1990 and 2006, relative income price (price of 100 packs as a percentage of GDP) increased more in Australia than in most middle and low-income countries and than in any other high-income country except France and Chinese Hong Kong (Figure 4 in Blecher and van Walbeek).

Blecher and van Walbeek found that affordability measures correlated reasonably well for high-income countries, but not for low and middle-income countries. They argue that affordability measures are superior to price-based measures, particularly in low and middle-income countries experiencing rapid economic growth.1 34

In 2010, cigarettes in Australia became less affordable in relation to per capita GDP than in all high-income countries other than Norway.35

13.4.4 On a lighter note

The Big Mac Index of Cigarette Affordability was proposed in 1996 as another, more light-hearted way of assessing the relative affordability of cigarettes internationally.36 The index calculates the number of cigarettes that can be bought for the price of a Big Mac hamburger in each country. The index uses figures from the Big Mac index published every few years by The Economist magazine,37 which lists the price of a Big Mac in US dollars in a range of countries. Despite distortions caused by trade barriers on beef and other differences in input costs, several academic studies have concluded that the Big Mac index provides a good indicator of purchasing power in each country, and an unexpectedly accurate predictor of exchange rates in the long run.38 39

A comparison of the Big Mac Index of Cigarette Affordability for 1996 and 200240 showed that 15 of the 16 countries included in both analyses reported declines in this indicator of affordability over the period. A further update showed that 12 of the 20 countries for which data were collected in both periods showed declines between 2002 and 2006.41 42

Figure 13.4.3 shows relative affordability for 40 countries for which data were available in 2011 on both Big Mac and cigarette prices.

Figure 13.4.3 indicates that in 2011 Australia ranked fourth in the Big Mac Index of Cigarette Affordabilityiii meaning that cigarettes in Australia were much less affordable relative to the price of McDonald's fast foods than cigarettes and McDonald's fast foods in most other countries.

 

Figure 13.4.3.jpg

Figure 13.4.3
The Big Mac Index of Cigarette Affordability for 2011 (number of cigarettes that can be purchased for price of a Big Mac)

Source: The Economist 2012; 43 Eriksen et al35 using data collected from Economic Intelligence Unit 201244 

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i The average is calculated using mid-points of the ranges in which students nominated the usual level of pocket money they received: $0; $1 to $10; $11 to $20; $21 to $30; and $31 to $40; in 1996, also $41 to $60; in 1999 to 2008 also $60 to $79 and $80

ii This conclusion was hotly disputed by many letter-writers commenting on the piece.

iii Australia also ranked fourth in 2002 and 2006.

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