13.4 The affordability of tobacco products

Last updated: August 2020

Suggested citation: Scollo, M and Bayly, M. 13.4 The affordability of tobacco products. In Greenhalgh, EM, Scollo, MM and Winstanley, MH [editors]. Tobacco in Australia: Facts and issues. Melbourne: Cancer Council Victoria; 2020. Available from https://www.tobaccoinaustralia.org.au/chapter-13-taxation/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).1

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 20 cigarettes from the most popular brand sold at recommended retail prices since 1994. Table 13.4.1 shows detailed calculations.

 
Figure 13.4.1

Time in minutes needed on average weekly earnings to earn enough to buy 20 cigarettes from the leading brand, 1994–2019  

Sources Australian Bureau of Statistics. 6302.0 Average Weekly Earnings, Australia. Table 13B. Average Weekly Earnings, Victoria (Dollars) - Original    . Canberra: ABS, 2020. Viewed 7 August 2020. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6302.0May%202020?OpenDocument.

Australian Bureau of Statistics. 6306.0 Employee Earnings and Hours, Australia, May. Table 1 full-time non-managerial employees paid at the adult rate, Average weekly ordinary time and total cash earnings, Average weekly ordinary time and total hours paid for, Average hourly ordinary time and total cash earnings–Sex, Occupation. Canberra, ABS: 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010, 2012, 2014, 2016, 2018. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=6306.0&viewtitle=Employee%20Earnings%20and%20Hours,%20Australia~May%202018~Latest~22/01/2019&&tabname=Past%20Future%20Issues&prodno=6306.0&issue=May%202018&num=&view=&

Australian Bureau of Statistics. 6306.0 Distribution and Composition of Employee Earnings and Hours, Australia, May. Canberra, ABS: 1994, 1995. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=6306.0&viewtitle=Employee%20Earnings%20and%20Hours,%20Australia~May%202018~Latest~22/01/2019&&tabname=Past%20Future%20Issues&prodno=6306.0&issue=May%202018&num=&view=&

NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1994–2013: 55 to 87 (February editions); 2014–2019: 90 to 108 (March and December editions). 

 

Table 13.4.1

Time needed on average weekly earnings to earn enough to buy 20 cigarettes* from the leading brand of cigarettes, Australia, 1994–2019: per cigarette, per 20 cigarettes, per week

 

Sources Australian Bureau of Statistics. 6302.0 Average Weekly Earnings, Australia. Table 13B. Average Weekly Earnings, Victoria (Dollars) - Original    . Canberra: ABS, 2020. Viewed 7 August 2020. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6302.0May%202020?OpenDocument.

Australian Bureau of Statistics. 6306.0 Employee Earnings and Hours, Australia, May. Table 1 full-time non-managerial employees paid at the adult rate, Average weekly ordinary time and total cash earnings, Average weekly ordinary time and total hours paid for, Average hourly ordinary time and total cash earnings–Sex, Occupation. Canberra, ABS: 1996, 1998, 2000, 2002, 2004, 2006, 2008, 2010, 2012, 2014, 2016, 2018. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=6306.0&viewtitle=Employee%20Earnings%20and%20Hours,%20Australia~May%202018~Latest~22/01/2019&&tabname=Past%20Future%20Issues&prodno=6306.0&issue=May%202018&num=&view=&

Australian Bureau of Statistics. 6306.0 Distribution and Composition of Employee Earnings and Hours, Australia, May. Canberra, ABS: 1994, 1995. Available from: https://www.abs.gov.au/AUSSTATS/abs@.nsf/second+level+view?ReadForm&prodno=6306.0&viewtitle=Employee%20Earnings%20and%20Hours,%20Australia~May%202018~Latest~22/01/2019&&tabname=Past%20Future%20Issues&prodno=6306.0&issue=May%202018&num=&view=&

NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1994–2013: 55 to 87 (February editions); 2014–2019: 90 to 108 (March and December editions).

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

In 1994, 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 and a half hours. By 2001 it took just over two hours to buy the same number of cigarettes, and by 2014, over three hours. In 2019 it took four hours and twelve 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 Abuse[3] 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 teenagers in selected years between 1996 and 2017. It also indicates the average amount of pocket money that Australian teenagers reported having to spend on themselves, among students who received any money, in each of the years of the Cancer Council’s triennial survey of smoking among secondary school students.i  Based on these data, Figure 13.4.2 plots the number of cigarettes that could have been purchased by students on average levels of pocket money as determined in the surveys, also from the most popular roll-your-own tobacco brand for 16-17-year-olds. For roll-your-own tobacco, an average tobacco weight of 0.5 grams per cigarette is used; this is the average weight used by Australian adult RYO smokers.4 Figure 13.4.3 plots the percentage of students that could afford one pack per week of the most popular cigarette brand over time, and Figure 13.4.4 shows the percentage of older students that could afford one pouch of the most popular RYO brand, and one pouch of the cheapest available RYO brand.

Table 13.4.2

Affordability of cigarettes for students aged 15 years in Australia*, 1996, 1999, 2002, 2005 2008, 2011, 2014 and 2017

 

Sources: CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD).
NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1996–2013: 56 to 87 (February editions); 2014–2017: 101 to 108 (March editions).

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

#The most popular brand was the same among 12-15 and 16-17 year-olds in all years other than 2017. The price per stick of the most popular brand for those aged 12-15 years in 2017 was $1.07.

Figure 13.4.2

Affordability of cigarettes for students aged 12-15 years and 16-17 years in Australia, 1996, 1999, 2002, 2005, 2008, 2011, 2014 and 2017: Number of cigarettes from the most popular brand among teenagers that could be purchased on average pocket money*

Sources: CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD).
NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1996–2013: 56 to 87 (February editions); 2014–2017: 101 to 108 (March editions).

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

Note: Data for most popular RYO brand not available for 1996.

Table 13.4.2 shows that while the amount of money available to students more than doubled from 1996 to 2017, the cost of the most popular cigarettes among teens increased 5-fold over the same period. Figure 13.4.2 shows a clear decrease in cigarette costliness 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, so that by 2011, an average 12-15-year-old could afford 22 fewer cigarettes than in 1999 and an average 16-17-year-old could afford 44.5 fewer cigarettes. The decline in affordability of factory-made and roll-your-own cigarettes further accelerated after 2011, where a 12-15-year-old could afford two-thirds (68%) as many FMC cigarettes in 2017 compared to 2011, and a 16-17-year-old could afford just over half as many FMC cigarettes (58%) or RYO cigarettes (56%) in 2017 compared to 2011. In the early 2010s, some commentators 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

 

 
Figure 13.4.3

Affordability of cigarette packs for students aged 12-15 years and 16-17 years in Australia, 1996, 1999, 2002, 2005, 2008, 2011, 2014 and 2017: Proportion of students that could afford one pack of the leading cigarette brand*

Sources: CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD).
NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1996–2013: 56 to 87 (February editions); 2014–2017: 101 to 108 (March editions).

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

Note: Data for most popular RYO brand not available for 1996.

While the number of cigarettes that students can afford has declined notably since 1999, Figure 13.4.3 shows that the affordability of the most popular cigarette packs among teens did not decline until after 2008. The most popular FMC pack size decreased from 30 cigarettes to 25 in 2005, resulting in a lower upfront purchase price and therefore maintaining cigarette pack affordability until the large 25% tobacco excise increase in 2010. The proportion of 12-15-year-olds who could afford a FMC pack dropped by 25 percentage points between 2008 and 2011, and by 12 percentage points for 16-17-year-olds. However, the proportion of students who could afford a FMC pack then plateaued, in part because the most popular brand among 12-15-year-olds was a budget brand in 2017.

Similarly, the affordability of roll-your-own tobacco pouches did not decrease until after 2008—see Figure 13.4.4. The affordability of the historically most popular brand, Champion Ruby, in the smallest available pouch size, declined steadily each year from 2011, so that almost one-third fewer students could afford this pouch in 2017 compared to 2008. However, when examining the cheapest available pouch size, the decline in affordability stalled in 2017 with the introduction of smaller RYO pouch sizes with a lower upfront purchase price—see also Section 13.3.1.4.

 

 
Figure 13.4.4

Affordability of tobacco pouches for students aged 16-17 years in Australia, 1999, 2002, 2005, 2008, 2011, 2014 and 2017: Proportion of students that could afford one roll-your-own pouch of the leading or cheapest available brand*

Sources: CBRC, unpublished data from the Australian Secondary School Survey of Smoking, Alcohol and Drug Use (ASSAD).
NSW Retail Traders’ Association. Price lists—Cigarettes. The Retail Tobacconist of NSW. 1996–2013: 56 to 87 (February editions); 2014–2017: 101 to 108 (March editions).

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

Note: Data for most popular RYO brand not available for 1996.

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.5 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,6 Kan showed in an analysis of 60 countries in 2006 that cigarettes remained highly affordable to people even in the lowest-paid jobs.7

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 colleagues[6] and Kan.7 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 tenth 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.1,8

In 2010, cigarettes in Australia became less affordable in relation to per capita GDP than in all high-income countries other than Norway.9

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.10 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,11 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.12,13

A comparison of the Big Mac Index of Cigarette Affordability for 1996 and 200214 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 2006.15, 16

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 13.4.5

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; 17 Eriksen et al 9 using data collected from Economic Intelligence Unit 201218

Figure 13.4.3 indicates that in 2011 Australia ranked fourth in the Big Mac Index of Cigarette Affordability iii 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.

 

Relevant news and research

For recent news items and research on this topic, click  here. ( Last updated July 2020)


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.

 

References

1. Blecher E and Van Walbeek C. Cigarette affordability trends: an update and some methodological comments. Tobacco Control 2009;18(3):167-75. Available from: http://tobaccocontrol.bmj.com/cgi/content/abstract/tc.2008.026682v1

2. World Health Organization. Guidelines for controlling and monitoring the tobacco epidemic. Geneva: WHO, 1998.

3. Chikritzhs, B., et al., The Impact of Tobacco Control Legislation on a cohort of Perth and Sydney Schoolchildren 1992-1994, 1997, National Centre for Research into the Prevention of Drug Abuse, Curtin University: Perth.

4. Branston, J.R., et al., Keeping smoking affordable in higher tax environments via smoking thinner roll-your-own cigarettes: Findings from the International Tobacco Control Four Country Survey 2006-15. Drug Alcohol Depend, 2018. 193: p. 110-116.

5. Blecher, E.H. and C.P. van Walbeek, An international analysis of cigarette affordability. Tobacco Control, 2004. 13(4): p. 339-46.

6. Guindon, G., S. Tobin, and D. Yach, Trends and affordability of cigarette prices: ample room for tax increases and related health gains. Tobacco Control, 2002. 11(1): p. 35–43.

7. Kan, M.-y., Investigating cigarette affordability in 60 cities using the cigarette price-daily income ratio. Tobacco Control, 2007. 16(6): p. 429–32.

8. Blecher, E., Targeting the affordability of cigarettes: a new benchmark for taxation policy in low-income and-middle-income countries. Tobacco Control, 2010. 19:(4): p. 325-30.

9. Eriksen, M., J. Mackay, and H. Ross, The tobacco atlas, 2012, World Lung Foundation and American Cancer Society: New York and Atlanta, Georgia.

10. Scollo, M., The Big Mac index of cigarette affordability. Tobacco Control, 1996. 5(1): p. 69.

11. The Economist. Big Mac index. 2006; Available from: http://www.economist.com/markets/Bigmac/Index.cfm.

12. The Economist Big MacCurrencies. 2002.

13. Ong, L., Burgernomics: the economics of the Big Mac standard. Journal of International Money and Finance, 1997. 16(6): p. 865–78.

14. Lal, A. and M. Scollo, Big Mac index of cigarette affordability. Tobacco Control, 2002. 11(3): p. 280-82.

15. Scollo, M., The Big Mac index of cigarette affordability: results from 2006, 2006.

16. Scollo, M., Chapter 13. The pricing and taxation of tobacco products in Australia, in Tobacco in Australia: Facts and Issues, M. Scollo, and Winstanley, M, Editor 2008, Cancer Council Victoria: Melbourne, Australia.

17. The Economist online. Big Mac index. Graphic detail, charts, maps and infographics 2012; Available from: http://www.economist.com/blogs/graphicdetail/2012/01/daily-chart-3.

18. Economic Intelligence Unit, Cigarette prices in selected cities, 2010, M, Editor 2011, The Economist: London.