Tobacco in Australia Facts & Issues A comprehensive online resource

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List of chapters available at tobaccoinaustralia.org.au

Introduction Chapter 1 Trends in the prevalence of smoking Chapter 2 Trends in tobacco consumption Chapter 3 The health effects of active smoking Chapter 4 The health effects of secondhand smoke Chapter 5 Factors influencing the uptake and prevention of smoking Chapter 6 Addiction Chapter 7 Smoking cessation Chapter 8 Tobacco use among Aboriginal peoples and Torres Strait Islanders Chapter 9 Smoking and social disadvantage Chapter 10 The tobacco industry in Australian society Chapter 11 Tobacco advertising and promotion Chapter 12 The construction and labelling of Australian cigarettes Chapter 13 The pricing and taxation of tobacco products in Australia Chapter 14 Social marketing and public education campaigns Chapter 15 Smokefree environments Chapter 16 Tobacco litigation in Australia Chapter 17 The economics of tobacco control Chapter 18 The WHO Framework Convention on Tobacco Control Appendix 1 Useful weblinks to tobacco resources

Tobacco in Australia: Facts and Issues. Third Edition A comprehensive review of the major issues in smoking and health in Australia, compiled by Cancer Council Victoria. First edition published by ASH (Australia) Limited, Surry Hills, NSW, 1989 Second edition published by the Victorian Smoking and Health Program, Carlton South, Victoria (Quit Victoria), 1995 Third edition published by Cancer Council Victoria 2008 in electronic format only. ISBN number: 978-0-947283-76-6 Suggested citation: Scollo, MM, Winstanley, MH [editors]. Tobacco in Australia: Facts and Issues. Third Edition. Melbourne: Cancer Council Victoria; 2008. Available from: www.TobaccoInAustralia.org.au Tobacco in Australia: Facts and Issues; 3rd Edition updates earlier editions of the book published in 1995 and 1989. This edition is greatly expanded, comprising chapters written and reviewed by authors with expertise in each subject area. Tobacco in Australia: Facts and Issues is available online, free of charge. A hard copy version of this publication has not been produced. This work has been produced with the objective of bringing about a reduction in death and disease caused by tobacco use. Much of it has been derived from other published sources and these should be quoted where appropriate. The text may be freely reproduced and figures and graphs (except where reproduced from other sources) may be used, giving appropriate acknowledgement to Cancer Council Victoria. Editors and authors of this work have tried to ensure that the text is free from errors or inconsistencies. However in a resource of this size it is probable that some irregularities remain. Please notify Cancer Council Victoria if you become aware of matters in the text that require correction. Editorial views expressed in Tobacco in Australia: Facts and Issues. Third Edition are those of the authors. The update of this publication was funded by the Australian Government Department of Health and Ageing. Cancer Council Victoria 1 Rathdowne Street Carlton VIC 3053 Project manager: Kylie Lindorff, Policy Manager, Quit Victoria and VicHealth Centre for Tobacco Control Website design: Creative Services, Cancer Council Victoria Design and production: Jean Anselmi Communications Tobacco in Australia Facts & Issues A comprehensive online resource tobaccoinaustralia.org.au

Chapter 10 The tobacco industry in Australian society

Chapter 10: The tobacco industry in Australian society 1 Chapter 10 The tobacco industry in Australian society

Margaret Winstanley Table of contents

10.1 The global tobacco manufacturing industry...... 7

10.2 The manufacturing industry in Australia...... 8

10.3 Retail value and volume of the market...... 9 10.3.1 Comparison of tobacco sales with sales of other product categories from Australian supermarkets, grocers and convenience outlets...... 10

10.4 The tobacco companies operating in Australia...... 11 10.4.1 British American Tobacco Australia Ltd...... 12 10.4.2 Philip Morris (Australia) Ltd...... 13 10.4.3 Imperial Tobacco Australia Ltd...... 14

10.5 Major importers operating in the Australian market...... 15 10.5.1 Stuart Alexander Pty Ltd...... 15 10.5.2 Swedish Match Australia Pty Ltd...... 15 10.5.3 Other importers of tobacco products into Australia...... 15

10.6 Market share and brand share...... 16 10.6.1 Market share by brand—cigarettes...... 16 10.6.1.1 Brand preference among Australian secondary school students...... 16 10.6.2 Market share by brand—roll-your-own tobacco...... 17 10.6.3 Market share by brand—cigars...... 17 10.6.4 Price bracket and pack size...... 18

10.7 Trends in products and packaging...... 18 10.7.1 Flavoured cigarettes...... 19 10.7.2 Shorter or wider cigarettes...... 19 10.7.3 Smokeless tobacco and ‘snus’...... 20 Tobacco in Australia: 2 Facts and Issues

10.7.4 Countering second-hand smoke...... 20 10.7.5 Potentially reduced exposure products...... 21 10.7.6 ‘Roll-your-own’ and ‘make-your-own’ cigarettes...... 22 10.7.7 Organic, ‘green,’ and additive free cigarettes...... 23 10.7.8 Packaging trends...... 23 10.7.9 Reduced fire risk cigarettes...... 24 10.7.10 Specialty products...... 25 10.7.11 Accessories...... 25

10.8 The tobacco growing industry...... 26 10.8.1 Global...... 26 10.8.2 Australia...... 26 10.8.2.1 Brief history...... 26 10.8.2.2 Government regulation...... 27 10.8.2.3 The decline of tobacco farming in Australia...... 27

10.9 The tobacco industry and the illegal tobacco market...... 28 10.9.1 Chop-chop...... 28 10.9.2 Imported counterfeit cigarettes and loose tobacco leaf...... 30 10.9.3 Is smuggling advantageous to the international tobacco industry?...... 30

10.10 The tobacco industry exposed: tobacco industry document repositories...... 31

10.11 Corporate responsibility and the birth of good corporate citizenship...... 32 10.11.1 Corporate makeover—Philip Morris and Altria—a case study in brief...... 34

10.12 The tobacco industry’s revised stance on health issues...... 35 10.12.1 Smoking, health and addiction...... 35 10.12.2 Second-hand smoke...... 36

10.13 Encouraging young people not to smoke...... 36 10.13.1 Youth access programs...... 37 10.13.2 ‘Life skills’ programs...... 38 10.13.3 Anti-smoking advertising...... 39

10.14 The environmental impact of tobacco production...... 39 10.14.1 Land clearing and deforestation...... 40 10.14.2 Pesticide use...... 41 10.14.3 Tobacco production and climate change...... 42 10.14.4 Genetically-modified tobacco leaf...... 42 Chapter 10: The tobacco industry in Australian society 3

10.15 Ethical farming issues...... 43 10.15.1 Tobacco farming and child labour...... 43 10.15.2 Tobacco farming and ‘fair trade’...... 44

10.16 The environmental impact of tobacco use...... 44

10.17 The tobacco industry’s response to tobacco litter...... 45

10.18 Corporate links with charities and social causes...... 47

10.19 Tobacco industry lobbying—overview...... 48

10.20 Tobacco industry lobbying—the tools...... 49 10.20.1 Tobacco industry sponsored consultants...... 49 10.20.2 Tobacco industry affiliated research foundations...... 50 10.20.3 Australian-based organisations...... 51 10.20.4 Tobacco industry funded research in institutions...... 52 10.20.5 Establishment of international manufacturers’ and growers’ organisations...... 54 10.20.6 Australian manufacturers’ organisations...... 55 10.20.6.1 The Tobacco Institute of Australia Ltd...... 55 10.20.6.2 The Tobacco Information Centre Inc...... 56 10.20.7 Smokers’ rights groups...... 56 10.20.8 Tobacco retailers as a lobby base...... 57 10.20.9 Marshalling opposition to smoking bans in entertainment and social venues...... 58

10.21 Tobacco industry lobbying—the targets...... 59 10.21.1 Major scientific reviews...... 59 10.21.2 Countering tobacco control legislation...... 59 10.21.2.1 Case study: pre-emptive self regulation...... 60 10.21.2.2 Case study: opposing the introduction of reduced fire risk cigarettes...... 61 10.21.2.3 Case study: undermining the Framework Convention on Tobacco Control...... 61 10.21.3 Subverting public health initiatives and tobacco control organisations...... 62

10.22 Donations to political parties...... 64

10.23 Public attitudes to the tobacco industry...... 65 10.23.1 ‘Denormalisation’ of tobacco use and the tobacco industry...... 66 Tobacco in Australia: 4 Facts and Issues

10.24 The future of the tobacco industry...... 67 10.24.1 In Australia and other mature markets...... 67 10.24.2 … and elsewhere...... 68 10.24.3 Alternative uses for tobacco crops?...... 68 Chapter 10: The tobacco industry in Australian society 5 Tables and figures

Table: 10.1 Estimated global market share of tobacco companies, 2007...... 7

Table 10.2 Value of retail sales of tobacco products, and percentage of total retail sales in each sector represented by tobacco, Australia 2004...... 10

Table 10.3 Ranking by sales value of leading product categories in Australian groceries and supermarkets, 2007...... 10

Table 10.4 Ranking by % of sales value of leading product categories in Australian convenience retail outlets, 2007...... 11

Table 10.5 Ranking of tobacco products and manufacturers in the top 100 grocery items by value of retail sales, 2007 (sales by grocery stores and supermarkets)...... 11

Table 10.6 Tobacco companies operating in Australia: summary table for 2006–07...... 11

Table 10.7 British American Tobacco (Australasia Holdings), 2002–06...... 12

Table 10.8 Products and brands manufactured or imported by British American Tobacco (Australia) Ltd, 2007...... 13

Table 10.9 Philip Morris (Australia), 2002–06...... 13

Table 10.10 Products and brands manufactured or imported by Philip Morris (Australia) Ltd, 2007...... 13

Table 10.11 Imperial Tobacco Australia Ltd, 2002–06...... 14

Table 10.12 Products and brands sold or imported by Imperial Tobacco (Australia) Ltd, 2007...... 14

Table 10.13 Products and brands imported by Stuart Alexander for sale in the Australian market, 2007...... 15

Table 10.14 Products and brands imported by Swedish Match for sale in the Australian market, 2007...... 15

Table 10.15 Market share by retail sector, Australian tobacco companies, 2007...... 16

Table 10.16 Top 10 cigarette brands (and their manufacturers) sold by convenience stores ranked by % value of market share, Australia, 2007...... 16

Table 10.17 Top 10 cigarette brands among Australian secondary school students aged 12–17 who had smoked in the past week, 2005...... 17 Tobacco in Australia: 6 Facts and Issues

Table 10.18 Leading roll-your-own tobacco brands (and their manufacturers or importers) sold by convenience stores ranked by % value of market share, Australia, 2007...... 17

Table 10.19 Leading cigar brands (and their importers) sold by convenience stores ranked by % value of market share, Australia, 2007...... 17

Table 10.20 Cigarette sales in the supermarket and grocery sector dissected by price band and pack size, 2007...... 18

Table 10.21 Industry tactics used to counter tobacco control measures...... 49

Table 10.22 Political donations declared by tobacco companies in Australia to registered political parties; financial years 1998/99–2006/07...... 65

 Chapter 10: The tobacco industry in Australian society 7 The tobacco industry in Australian society

10.1 The global tobacco manufacturing industry More than 5000 billion cigarettes are manufactured worldwide each year by an industry dominated by five main players: the state owned industry in China, which accounts for more than one third of global market share, and four transnational companies which vie for dominance in the remaining market (Table 10.1).1 According to industry reports, China National Tobacco Corporation (CNTC) has a more than 99% market share in China,2 making it the single largest tobacco manufacturer in the world.1 Philip Morris (International and US operations combined) runs second to Chinese National Tobacco, with 19% of global market share, followed by British American Tobacco, Japan Tobacco (recently merged with British-based Gallaher)1 and Imperial Tobacco (now merged with Spanish-based Altadis).3 The driving force behind consolidation of the tobacco companies is the desire to increase market share, particularly in emerging markets. For example Japan Tobacco’s takeover of Gallaher has given Japan Tobacco market dominance in Russia, the largest market in Europe.4* Philip Morris International (PMI) is the largest of the multinational tobacco companies. It owns seven of the top 15 global brands including Marlboro, which according to PMI has held the number one position in the world since 1972. Other leading international brands owned by PMI include Chesterfield, Diana, Parliament, L & M, Lark, Merit and Virginia Slims.5 Senior executives at PMI are optimistic about the future for their company5 and to a large extent, this is facilitated by the spin-off of PMI from the parent company Altria6(See also Section 10.11.1). Table 10.1 Additionally, the establishment of licensing agreements and joint Estimated global market share of ventures with local tobacco industries has extended PMI’s market tobacco companies, 2007 reach. One of the most important of these agreements is PMI’s partnership with the CTNC.6 The agreement establishes a joint- Estimated market venture company equally owned by both tobacco groups, to be Company share (% rounded) headquartered in Lausanne. It licenses the CTNC to produce and Chinese National Tobacco Corporation 35 distribute Marlboro in China, and in return, facilitates entry for the Philip Morris (International and US groups) 19 CNTC to the global tobacco market with a portfolio of ‘Chinese British American Tobacco 17 7 6 heritage brands’ carefully modified to appeal to foreign palates, Japan Tobacco 11 as well as providing the CNTC with other international business Imperial Tobacco 6 opportunities. Both companies benefit from shared sales, distribution Others 12 and other business infrastructure.7

1 * Japan Tobacco is not discussed further in this chapter because it has only minor engagement in the Australian market through a small Sources: BATA Annual Report 2007, Imperial Tobacco Group website3 number of imported brands.

Section: 10.1 Tobacco in Australia: 8 Facts and Issues

British American Tobacco ranks as second largest transnational tobacco company after PMI. According to BAT, one in six of the world’s smokers chooses a BAT brand. Although BAT has about 300 brands in its portfolio, it regards Dunhill, Kent, Lucky Strike and Pall Mall as its most important ‘Global Drive’ brands. Since 2005, BAT has also become active in the market for Swedish-style snus.8* The Imperial Tobacco Group (ITG) has substantially increased its global expansion since the mid-1990s, through brand acquisition (as has occurred in Australia) as well as increase in market share. Since its acquisition of Reemtsma Cigarettenfabriken GmbH in 2003, ITG has become the second largest tobacco company in Germany and the fourth largest international tobacco company in the world, manufacturing and distributing cigarettes, loose tobaccos, cigars and smoking-related paraphernalia such as cigarette papers, filters and tubes. The company cites Asia, Eastern Europe, Africa and the Middle East as its key growth regions, and its leading global brand as West, particularly in Germany, and central and Eastern Europe.3 The trend towards globalisation of the tobacco industry has lead to a globalised approach to marketing, research and lobbying,9 and factors such as trade liberalisation have opened new and lucrative markets to the transnational companies. Companies are increasingly focused on their ‘international’ brands, it being more cost effective to manage and market a smaller number of iconic brands than to develop smaller, market- specific brands.10 Although the companies engage in strong competition, as an industry they are generally united in their desire to promote their products and undermine tobacco control measures.** At an international level, the tobacco industry engages against instrumentalities including the World Health Organization, the World Bank and the United Nations. It fights bitterly to discourage countries from adopting the Framework Convention on Tobacco Control. The industry has marshalled and given voice to an international lobby for tobacco growers, especially powerful in countries where tobacco is a major agricultural commodity.*** Using arguments honed over decades of cooperation, the industry as a whole continues to peddle misinformation about the nature of its products, obfuscates about addiction, and persists in its denials that advertising recruits new smokers.10 Many of these issues are discussed in later sections of this chapter.

10.2 The manufacturing industry in Australia The Australian tobacco industry is a subset of the global industry. All three tobacco companies which operate in Australia (British American Tobacco Australia—BATA,­­ Philip Morris International (Australia)—PMA and Imperial Tobacco Australia—ITA) are wholly owned subsidiaries of their overseas parent. Although the Australian tobacco market is considered to be mature3 and per capita consumption is in decline, the tobacco companies remain highly profitable entities and business is strong: according to tobacco industry estimates, the equivalent of 1100 packs of 25 cigarettes are sold in Australia every minute.11 Overseas ownership of the Australian companies means that no tobacco company is currently listed on the Australian Stock Exchange and that the availability of

* For further information on snus, see Section 10.7.3, Chapter 3 Section 3.33 and Chapter 12 Attachment 12.3. ** An important exception is Philip Morris USA, which has broken ranks by publicly supporting proposed legislation which would grant the US Food and Drug Administration regulatory authority over tobacco products. See Section 10.24.1. *** The tobacco industry has been adept at styling itself as a vital contributor to the economies of some countries. For discussion, see Chapter 17, Section 17.3.4.

Section: 10.2 Chapter 10: The tobacco industry in Australian society 9 information specific to local company operations is limited. BAT offers a website* with some Australian emphasis, but PMI and the ITG provide little in the way of Australian data. It is probable that the tobacco companies prefer not to expose their activities to any more scrutiny than is strictly required by law. Most of the information used in the following sections discussing the Australian tobacco companies and their operating environment has been sourced from literature published by various trade and marketing associations, and cannot be independently verified.** Given the immense impact of the tobacco industry on the health of Australians, this lack of accountability and disclosure is completely inconsistent with government priorities to reduce tobacco use and could easily be remedied by legislation. Reflecting international trends, the companies operating in Australia have undergone consolidation. Only two of the three companies, PMA and BATA, own local manufacturing facilities. Brands sold by ITA, which entered the market following the merger of WD & HO Wills and Rothmans in 1999 are marketed under licence by BATA. In addition, a small number of companies import speciality products and brands. Sections 10.3–10.6 provide further detail on the size and composition of the Australian tobacco industry.

10.3 Retail value and volume of the market Note: a key reference for this section is a report prepared by PricewaterhouseCoopers (PwC) for British American Tobacco Australia, Sales of Cigarettes and Tobacco Products by Type of Retail Business. This report was subsequently tabled by BATA as an appendix to their Submission to the Joint Select Committee Inquiry into Tobacco Smoking in New South Wales, and is available online from the Parliamentary website.*** Data reported by PwC relates to 2004. Other data published by trade magazines Australian Convenience Store News and Retail World are more recent, but limited in scope. In 2004, sales of cigarettes and other tobacco products accounted for about 4.7% of all retail sales in Australia. The total retail value of the Australian tobacco market was estimated at about $9.3 billion, and tobacco products could be purchased from about 35,000 retail outlets.12 About half of all tobacco sales occurred through supermarkets and grocery stores (51%). A further fifth (19%) of sales were made by tobacconists, and 13% were from convenience stores.**** Remaining sales took place through mixed businesses (9%), hotels and clubs (3%), liquor stores and petrol stations.12 Despite falling tobacco consumption and lower sales volumes (see Chapter 3), the value of tobacco sales has increased over the years, due to price increases caused in part by taxation increases. The taxation component accounts for about 70% of the final recommended retail price of a packet of cigarettes.13 However profitability has increased as well, and sales of tobacco products represent a lucrative market for retailers, and (except in the case of tobacconists) offer a strong return on relatively little floor space. In the period between 1997‒98 and 2004 the value of retail sales

* See: http://www.bata.com.au/ ** Market and industry analysts IBISWorld (http://www.ibisworld.com.au/default.aspx) and Euromonitor (http://www.euromonitor.com/ Tobacco) produce reports on the tobacco companies in Australia which are available for purchase. The authors of this and other chapters in this book have not made use of these subscription-only resources due to copyright constraints. Some tertiary institution libraries may provide access to these publications. *** See http://www.parliament.nsw.gov.au/prod/parlment/committee.nsf/0/2b14b998dda58536ca2571620017ecd2/$FILE/Sub%2046%20 BATA%20-%20Attachment%202.pdf **** Convenience stores include businesses such as 7-Eleven and other stores open for extended hours which provide grocery and other products. These shops may be linked with petrol stations.

Section: 10.3 Tobacco in Australia: 10 Facts and Issues

increased by 32%, and at the same time, the average gross margin earned by tobacco retailers increased from 7% to about 13%.12 However different retail outlets generally set different profit margins on tobacco products. For example, convenience stores set Table 10.2 an estimated 30% gross margin* per pack. At the other end of the scale, supermarkets/ Value of retail sales of tobacco grocers and tobacconists, which rely more heavily on larger sales volumes and products, and percentage of total discounted sales by the carton, have an average margin of 8% and 6% respectively. retail sales in each sector represented Tobacconist stores are declining in numbers, especially in locations close to by tobacco, Australia 2004 supermarkets where they find it harder to compete.12 The number of outlets selling tobacco products declined by 13% between 1999 and 2004, mainly because of a decline Percentage of total Value of retail sales retail sales in this in numbers of smaller mixed grocers and tobacconists Type of retail outlet of tobacco products sector represented and a consumer trend towards convenience stores and (including GST) $m by tobacco products supermarkets.12 Convenience stores anticipate an added boost Supermarket/grocer 4880 7 to tobacco sales because sales from venues such as pubs and Tobacconist 1880 95 clubs are restricted.14 Convenience stores 1203 33 Mixed businesses 875 20 In 2004, tobacco sales accounted for about one third of all Hotels/clubs (including sales sales (by value) from convenience stores and petrol stations, 244 1 via vending machines) 20% of total sales by mixed businesses, and 7% of sales from Newsagents 171 4 supermarkets and grocers. Although supermarkets and Liquor stores 151 1 groceries reported a sales value of tobacco far in excess of all Petrol stations 92 30 other types of retail outlets, because these businesses sell so many different types of goods, the overall percentage of retail sales due to tobacco is comparatively small. Not surprisingly, Source: Compiled from data reported by PwC.12 tobacconists are most dependent on tobacco sales, which contribute 95% of total retails sales in this sector (Table 10.2). More recent data are available for the grocery and supermarket sector and convenience stores. Data for these retail categories are presented below.

Table 10.3 10.3.1 Ranking by sales value of leading product categories in Australian Comparison of tobacco sales with sales of groceries and supermarkets, 2007 other product categories from Australian

Sales value Rank Product category supermarkets, grocers and convenience ($ billion) 1 Dairy case 5 outlets 2 Cigarettes 4 3 Cold beverages 3 In 2007, consumers spent about $4 billion on cigarettes in the Australian 15 16 4 Health and beauty 2.2 grocery industry, up from $3.8 in the year before. Tobacco ranked second 5 Frozen foods 2 only to dairy produce in sales value, and the total sales value of tobacco 6 Confectionery 1.8 products was earned at least twice as much as from the frozen foods, bread 7 Bread, rolls and hotplate 1.6 and confectionery categories (Table 10.3). 8 Pet needs 1.4 Tobacco is even more important to route traders and convenience store 9 Household cleaning/pest control 1.2 traders.** Data from AC Neilsen Reports,17 annual industry reviews that 10 Snack foods 1.1 compile information on market size and brand share of products sold through convenience outlets, show that cigarettes are their leading source of

Source: Retail World.15 * Gross margin is defined as ‘the difference between the price for which a business purchases goods and the price for which these goods are sold.’ Pricewaterhouse Coopers, 2005.12 p 22 ** ‘Route’ traders are generally small businesses which are located outside shopping malls, in strip shopping centres or in isolation. ‘Convenience stores’ are defined by AC Neilsen as outlets such as Coles Express, 7Eleven, and Night Owl, and shops co-located with Caltex, BP, Mobil and Gull petrol stations.17

Section: 10.3.1 Chapter 10: The tobacco industry in Australian society 11 sales revenue, bringing in more than a third of total sales value in 2007, and more than Table 10.4 twice the amount spent on the next strongest category, carbonated soft drinks (Table Ranking by % of sales value of 10.4). Taking into account other tobacco products (such as roll-your-own tobacco and leading product categories in 17 cigars) which ranked ninth, tobacco brought in almost 40% of sales revenue. Australian convenience retail Breaking the market down still further, cigarette brands are among the outlets, 2007 top selling names of all grocery brands in Australia. In 2007, Winfield was the top-ranking of all brands available in the Australian grocery and 18 % share of supermarket sector, generating sales in excess of $750 million. Cigarette Rank Product category sales value brands accounted for six of the top 10 brands measured in terms of sales 1 Cigarettes 37.1 revenue, and of the top 100 brands, 13 were cigarette or roll-your-own 2 Carbonated beverages 17.3 tobacco products (Table 10.5). 3 Communications 13.6 4 Confectionery 8.7 10.4 5 Milks 7.2 6 Magazines/newspapers 5.3 7 Icecream 2.6 The tobacco companies operating 8 Snack foods 2.4 9 Other tobacco products 1.9 in Australia 10 Fruit juice drinks 1.3 The tobacco market in Australia is dominated by three major companies, of which the largest is BATA. In the financial year ending in June 2007, the Source: Convenience Store News.17 three tobacco companies had a combined turnover of almost $2.5 billion, made a combined net profit after taxes of $586 million and employed about 2000 people (Table 10.6). Table 10.6 Table 10.5 Tobacco companies operating Ranking of tobacco products and manufacturers in the top 100 grocery items by value in Australia: summary table for of retail sales, 2007 (sales by grocery stores and supermarkets)* 2006–07

Rank (out Retail sales BATA PMA ITA Brand (and product type) Manufacturer of top 100) bracket ($m) Total revenue ($m) 1476.7 623.3 386.5 British American Tobacco 1 Winfield (cigarettes) 750+ Net profit after tax ($m) 410.7 172.6 2.7 Australia (BATA) Shareholders’ funds ($m) 632.6 403.4 25.1 2 Coca-Cola (carbonated beverages) Coca-Cola Company 750+ Total assets ($m) 2962.1 627.5 176.7 3 Longbeach (cigarettes) Philip Morris Australia (PMA) 750+ Number of employees >110019 691 299* 4 Peter Jackson (cigarettes) PMA 500–750 Approximate market 4619 34** 1820 5 Horizon (cigarettes) Imperial Tobacco Australia (ITA) 500–750 share in Australia (%) 6 Benson & Hedges (cigarettes) BATA 250–500 7 Holiday (cigarettes) BATA 250–500 8 Tip Top (bread) George Weston Foods 250–500 * figure for 2006 9 Cadbury Chocolate (confectionery) Cadbury Schweppes 250–500 ** figure assumed on the basis of market 10 Huggies (disposable nappies) Kimberly-Clark 250–500 share reported by BATA and ITA, and 19 Dunhill (cigarettes) BATA 150–250 assuming that a small percentage of the Australian market is accounted for by 34 Alpine (cigarettes) PMA 100–150 imported brands. 44 Winfield (RYO tobacco) BATA 100–150 Sources: The BRW Top 1000,21BAT Website,1 70 Marlboro (cigarettes) PMA 75–100 BATA Website,19 Imperial Tobacco Group 75 Champion Ruby (RYO) ITA 75–100 Website.20 94 Drum (RYO) ITA 50–75 97 Peter Stuyvesant (cigarettes) ITA 50–75

* excludes route trade outlets (such as milk bars, newsagents and service stations), convenience stores, mass merchandisers (such as Kmart and Big W) food service outlets and vending machines. Source: AdNews.18

Section: 10.4 Tobacco in Australia: 12 Facts and Issues

10.4.1 British American Tobacco Australia Ltd British American Tobacco Australia (BATA) is a wholly-owned subsidiary of British American Tobacco (BAT).19 BAT is a publicly listed company on the London Stock Exchange. BATA was created in 1999 by the merger of WD and HO Wills Holdings Ltd (controlled by BAT) and Rothmans Holdings Ltd.22 The merger of the two Australian companies mirrored the international merger of BAT with Rothmans International, making the newly formed BATA the largest tobacco company operating in Australia. The then Chairman of Wills (and former Premier of New South Wales), Mr Nick Greiner, subsequently became Chairman of BATA.22 The new corporate entity soon realised higher profits due to sales growth, cost reductions and distribution advantages arising from rationalisation of resources.23 The head office and main manufacturing base for BATA are located in Eastgardens, in suburban Sydney.19 In addition to engagement in manufacturing, marketing and distribution of tobacco products, BATA owns its own packaging arm. Formerly a subsidiary of Rothmans, Anzpac is a specialist printing and packaging company which now provides for BATA’s tobacco packaging requirements, as well as servicing the fast food, breakfast cereal and confectionery industries.24 BATA employs about 1100 people in Australia, mostly in manufacturing. Taking into account the wider region, British American Tobacco Australasia employs a total workforce of about 2300, with additional manufacturing facilities in Papua New Guinea, New Zealand, Fiji, the Solomon Islands and Western Samoa. BATA also produces tobacco goods for export throughout other Pacific Island nations, through its own export division.1 BATA imports some tobacco products, and is under contract by Imperial Tobacco Australia to manufacture a range of products (see Section 10.4.3). Since BATA is wholly-owned by its UK parent BAT, financial data specific to BATA do not need to be made publicly available. In BAT’s annual company reports, Australia is included in the Asian-Pacific region, for which results from New Zealand and the South Pacific, and Asian countries including Indonesia, Malaysia, India, Pakistan, Bangladesh, South Korea and Vietnam are pooled.25 Limited financial information for BATA is compiled and published annually as part of Business Review Weekly’s (BRW) and Table 10.7 IBISWorld’s annual ‘1000 Index.’ Information from recent BRW reports is presented British American Tobacco (Australasia in Table 10.7. Because these data collapse the Asian-Pacific region, as do BAT’s annual Holdings)*, 2002–06 reports, it is not possible to isolate Australian performance. For the year 2006, the Business Review Weekly21 ranked BATA at 190 out of Australia’s top 1000 companies on the basis of total 2002 2003 2004 2005 2006 revenue, and 70th out of 1000 for net profit after tax. Within Year ending December the food, beverage and tobacco manufacturing sector, BATA Total revenue ($m)** 1232.5 1310.4 1325.7 1431.8 1476.7 was the third largest company in 2006, ranking behind the Profit after tax ($m)** 117.6 200.4 248.0 412.7 410.7 Foster’s Group and Cadbury Schweppes.21 Shareholders’ funds ($m)** 1681.9 1671.1 1294.5 1412.9 632.6 Total assets ($m)** 3034.3 2844.7 2852.5 3018.8 2962.1 BATA claims market leadership in Australia and the Pacific, Number of employees* 2364 2009 2025 N/A 2300 with about 46% of market share in Australia, 75% in New Zealand and 100% throughout the Pacific Islands. BATA’s major brands in Australia are Dunhill, Winfield and Benson & * Figures unadjusted for inflation Hedges.1 BAT’s annual reports since 200325, 30-32consistently ** Table includes data from all operations allude to increasing profits in Australia, attributing this throughout the Asian-Pacific region success to higher margins, reductions in overheads and Sources: Business Review Weekly21, 26-29 BATA1 improved supply chain efficiencies, and strong performances N/A: Information not available

Section: 10.4.1 Chapter 10: The tobacco industry in Australian society 13 by its key brands, Winfield, Dunhill, Benson & Hedges and Holiday. Table 10.8 Table 10.8 presents BATA’s Australian brand portfolio. Products and brands manufactured or imported by British American Tobacco (Australia) Ltd, 2007

Benson & Hedges, Cambridge, Craven A, Holiday, Kent, Kool, Pall Mall, Rothmans, Locally manufactured cigarettes Stradbroke, Wills, Winfield Dunhill (Dunhill, Domenican Republic) Importer of manufactured cigarettes (manufacturer and country of origin shown in brackets) Vogue (Martin Brinkman, Western Germany) Locally manufactured loose tobacco (RYO) Capstan, Port Royal, Winfield Imported loose tobacco (RYO) (manufacturer and country of origin shown in brackets) Samson (Royal Theodorus Niemeyer BV, The Netherlands). Captain Black (Lane Ltd, USA) Dunhill (DMD, Belgium) Importer of cigars (manufacturer and country of origin shown in brackets) Mercator (NV Tobacofina Vander Elst SA, Belgium) Schimmelpenninck (Schimmelpenninck Sigarenfabrieken, The Netherlands)

Source: The NSW Retail Tobacco Traders’ Association.33 10.4.2 Philip Morris (Australia) Ltd Philip Morris (Australia) Ltd is the Australian subsidiary of Table 10.9 Philip Morris International (PMI), based in Lausanne. Philip Philip Morris (Australia), 2002–06 Morris (Australia) Ltd (PMA) was established in 1954, the first overseas affiliate to be set up by PMI.5 PMA’s Australian head office and main manufacturing facility are located in 2002 2003 2004 2005 2006 Moorabbin, a suburb of Melbourne, Victoria. The Australian Year ending December headquarters provides support to Philip Morris interests in Total revenue ($m)* 615.8 633.1 655.0 635.4 623.3 other countries in the Asian region, including Hong Kong, Profit after tax ($m)* 121.2 155.2 187.1 193.4 172.6 Japan, Malaysia, the Philippines and India.5 PMA also Shareholders’ funds ($m)* 275.4 315.2 335.6 431.4 403.4 manages the ordering, sales and distribution of its products Total assets ($m)* 591.8 563.4 670.2 644.6 627.5 locally.5 Number of employees 753 732 735 745 691 On the basis of market share, PMA is the second largest 5 tobacco company in Australia. Since its delisting as a * Figures unadjusted for inflation public company during the 1990s, PMA has had no formal Sources: Business Review Weekly21, 26-29 requirements to publicly lodge annual reports or financial statements specifying results from its Australian operations. No Australia-specific information is reported in PMI’s annual reports. However, limited information is available through the annual listings compiled by the Australian Business Review Table 10.10 Weekly and IBISWorld. Data from these sources are presented Products and brands manufactured in Table 10.9. For 2006 PMA was rated 464th out of Australia’s or imported by Philip Morris top 1000 enterprises on the basis of total revenue, and 143rd (Australia) Ltd, 2007 out of 1000 for profit after tax.21 PMA’s brands are Locally manufactured cigarettes Alpine, Longbeach, Marlboro, Peter Jackson shown in Table Importer of manufactured cigarettes (manufacturer and country of origin shown in brackets) Marlboro (imported variant from Philip Morris Ltd, USA) 10.10. Imported loose tobacco (RYO) (manufacturer and country of origin shown in brackets) Marlboro (Philip Morris, Belgium)

Source: The NSW Retail Tobacco Traders’ Association 33

Section: 10.4.2 Tobacco in Australia: 14 Facts and Issues

10.4.3 Imperial Tobacco Australia Ltd Imperial Tobacco Australia (ITA) Ltd is the smallest and most recently formed of the tobacco companies operating within Australia. ITA was established to coincide with the merger of WD & HO Wills Holdings Ltd and Rothmans Holdings Ltd as British American Tobacco Australia. At the time of the proposed merger, concerns were raised about the likelihood of reduction in competition in the Australian marketplace, thereby potentially causing a breach of Section 50 of the Trade Practices Act. The Australian Competition and Consumer Commission agreed to permit the merger to proceed, on condition that another tobacco company enter the Australian market. The UK-based Imperial Tobacco Group was invited to enter the Australian market and in September 1999, ITA commenced operations.34, 35 As part of the agreement allowing the formation of BATA, ITA was sold a portfolio of cigarette, roll-your-own tobacco and cigarette paper trademarks previously owned by Rothmans or WD & HO Wills for the sum of Table 10.11 $325 million. The purchase gave ITA an opening market share of 17.1%.35 For the year Imperial Tobacco Australia Ltd, 2006, ITA was rated 695th out of Australia’s top 1000 enterprises on the basis of total 2002–06 revenue, and 693rd out of 1000 for profit after tax.21 Table 10.11 shows a range of ITA’s performance indicators between 2002–06. 2002 2003 2004 2005 2006 ($m)* Year ending September The head office for ITA is located in the suburb of Baulkham Hills, Total revenue ($m)* 271.4 306.7 342.7 367.9 386.5 north-west of Sydney. Regional offices operate in Melbourne, Profit after tax ($m)* 27.2 36.5 47.7 53.2 2.7 Adelaide, Perth and Brisbane. In 2006, ITA employed about 320 Shareholder’s funds ($m)* 62.4 97.5 67.7 73.2 25.1 personnel.34 ITA does not own manufacturing plant in Australia, Total assets ($m)* 128.5 161.8 146.2 158.8 176.7 but subcontracts BATA to produce its Australian-made range of Number of employees 261 274 278 299 317 cigarettes and tobaccos.35 Additionally, ITA imports a range of cigarettes and loose tobacco products from its international stable of brands. * Figures unadjusted for inflation Sources: Business Review Weekly,21, 26–29, 34, 36 According to ITA, it holds the ‘most fragmented brand and product portfolio of all the Australian tobacco manufacturers.’34 ITA’s overall market share in Australia in 2007 was 17.5%, slightly down from 17.8% in 2006.20 ITA’s brand portfolio is shown in Table 10.12. Table 10.12 Products and brands sold or imported by Imperial Tobacco (Australia) Ltd, 2007

ITA brands locally manufactured by BATA under licence Brandon, Escort, Horizon, John Player Premium, Peter Stuyvesant Superkings (Imperial Tobacco, UK) Importer of manufactured cigarettes (manufacturer and country of origin shown in brackets) Camel, More (Japan Tobacco International, USA) Bank, Drum, White Ox (Imperial Tobacco, The Netherlands) Imported loose tobacco (RYO) (manufacturer and country of origin shown in brackets) Champion, Dr Pat, Five Star, Flagship, Stockman’s (Imperial Tobacco, NZ) Log Cabin (Imperial Tobacco UK) Amphora (Imperial Tobacco, UK) Imported loose tobacco (pipe) (manufacturer and country of origin shown in brackets) Dr Pat (Imperial Tobacco, NZ) Log Cabin (Imperial Tobacco, UK) Importer of cigars (manufacturer and country of origin shown in brackets) Davidoff (Oettinger Davidoff Group, Germany)

Source: The NSW Retail Tobacco Traders’ Association.33

Section: 10.4.3 Chapter 10: The tobacco industry in Australian society 15

10.5 Major importers operating in the Australian market Apart from the three major companies listed in the preceding section, a small number of companies operate within Australia as distributors of imported cigarettes and other tobacco products, and smokers’ requisites such as cigarette papers and filters for roll- your-own users.

10.5.1 Stuart Alexander Pty Ltd Table 10.13 Products and brands imported by Stuart Alexander is an importer, marketer and distributor for tobacco products as well Stuart Alexander for sale in the as a range of packaged food products.37 Australian market, 2007

RYO tobacco Old Holborn Pipe tobacco Irish Cake, Mac Baren Cigars Backwoods, Bering, Hav-a-tampa, Henri Wintermans, Henry Clay, King Edward, Old Port, Phillies, Santa Damiana 10.5.2 Source: The NSW Retail Tobacco Traders’ Swedish Match Australia Pty Ltd Association.33 Swedish Match Australia is the Australian operating division of the Stockholm-based, publicly listed company, Swedish Match. Swedish Match is engaged in the manufacture and distribution of moist snuff (snus), cigars, pipe and chewing tobacco, matches and lighters. Swedish Match operates production facilities in 11 countries, and is active in Table 10.14 more than 100 countries. It is the largest producer of snus in Scandanavia, and is market Products and brands imported leader for chewing tobacco products in the USA.38 by Swedish Match for sale in the Swedish Match Australia concentrates its efforts in the cigar market (Table 10.14).33 Australian market, 2007

Cigarettes Davidoff, Djarum (Indonesian kreteks) Pipe tobacco Borkum Riff, Erinmore Alternativos, Arturo Fuente, Ashton, Aurora, Avo, Cuesta-Rey, Dannemann, Delicias, Diamond Crown, Don Sebastian, Dunhill, Excalibur, La Flor Dominicana, La Paz, La Regenta, Cigars La Unica, Leon Jimenes, Macanudo, Puros Indios, Real A L Pedro, Rigoletto, Ritmeester, Sosa, St Luis Rey, Tabacalera, Tatiana, Tiparillo, Tueros, Villiger, White Owl, Willem II, Zino

Source: The NSW Retail Tobacco Traders’ 10.5.3 Association.33 Other importers of tobacco products into Australia Several other businesses import cigarettes, cigars and other tobacco products into Australia. These include standard American and European cigarettes, as well as kreteks, flavoured cigarettes from Hong Kong and Chinese brands from the Shanghai Cigarette Factory.11, 33 Chinese brands in particular sell more cheaply in Australia than many other brands, so appeal to the value end of the market as well as to expatriate Chinese smokers.11

Section: 10.5.3 Tobacco in Australia: 16 Facts and Issues

At least two Australian distributors, Alexanders Cigar Merchants39 and Cigarworld Australia,40 operate their own specialist retail outlets which sell cigars as well as other tobacco related paraphernalia and giftware. Alexanders Cigar Merchants also distributes Cigar Aficionado publications.

10.6 Market share and brand share BATA was the clear market leader in 2007, with 42% of tobacco sales in the grocery market and 56% in the convenience sector. Philip Morris ranked second, followed by Imperial (Table 10.15).17, 41

Table 10.15 10.6.1 Market share by retail sector, Australian tobacco companies, 2007 Market share by brand—cigarettes Table 10.5 in Section 10.4 above ranks tobacco brands among Retail sector % market share other leading brands of all products sold through supermarket and Company Grocery/supermarket Convenience stores grocery outlets. BATA owns three brands in the top 10 (Winfield, BATA 42 56 Benson & Hedges and Holiday), PMA owns two (Longbeach and Peter Philip Morris 40 33 Jackson) and ITA only one (Horizon).18 Data on market share of Imperial 18 22 individual brands expressed as a percentage of the total tobacco market are not publicly available for supermarket and grocery outlets, which account for about half of all tobacco sales. Sources: Retail World,41Convenience Store News17 Table 10.16 shows the top 10 brands ranked by share of total tobacco sales value in Australian convenience stores in 2007. BATA clearly dominates the sector with the popularity of Winfield, Benson & Hedges and Dunhill, followed by PMA, with Peter Jackson and Longbeach. ITA is represented much lower in the rankings, with Horizon and Peter Stuyvesant.17 Marlboro, the world’s most popular Table 10.16 brand5, is not a market leader in Australia. In 2007, Marlboro had Top 10 cigarette brands (and their about 4% of market share in sales from convenience outlets.17 manufacturers) sold by convenience BATA dominated sales through convenience outlets, with a 56% stores ranked by % value of market share of the total value of cigarette sales. PMA held a third of the share, Australia, 2007 market (33%) and ITAss had only 11%.17 The data in Table 10.16 relate only to sales via convenience outlets, which account for only 13% of the market.12 Share of market value of Rank Brand Manufacturer total tobacco sales (%) 1 Winfield BATA 31.7 10.6.1.1 2 Peter Jackson PMA 15.6 3 Longbeach PMA 11.3 Brand preference among Australian secondary 4 Benson & Hedges BATA 11.2 5 Dunhill BATA 8.2 school students 6 Horizon ITA 4.9 National surveys of smoking prevalence and behaviours among 7 Peter Stuyvesant ITA 4.4 Australian secondary school pupils have included questions about 8 Marlboro PMA 3.9 brands smoked. Table 10.17 shows the cigarette brands most 9 Holiday BATA 3.0 42 10 Alpine PMA 2.2 commonly smoked by school students in 2005. Brand preference among school-aged smokers is broadly similar to that indicated by the total market share surveys shown in the preceding tables. Sources: Convenience Store News17; Australian In 2005, one in three young school-aged smokers smoked Winfield Retail Tobacconist33

Section: 10.6.1.1 Chapter 10: The tobacco industry in Australian society 17 cigarettes. Since it is illegal in Australia to sell cigarettes to children under the age of 18, Table 10.17 underage smokers are more likely to procure cigarettes from friends or the home, so Top 10 cigarette brands among brands usually smoked are likely to reflect the preferences of the older smokers around Australian secondary school students them. Other factors known to influence choice of brand among young people include aged 12–17 who had smoked in the price and marketing. The brands most likely to be smoked by children include products past week, 2005 available in packs of 20 or 25, which are cheaper in price than packs of 30 or more cigarettes.42 Males Females Total Cigarette brand %* 10.6.2 Winfield 33 30 32 Peter Jackson 15 20 17 Market share by brand—roll-your-own Longbeach 11 14 12 Benson & Hedges 10 8 9 tobacco Dunhill 7 4 6 ITA and BATA lead the RYO sector. According to data from convenience stores Marlboro 5 3 4 Horizon 3 5 4 sales, ITA is clear market leader, with its brand mix including Champion and Holiday 4 5 4 Drum (Table 10.18.) However, the data in Table 10.18 relate only to sales from Escort 2 4 3 convenience outlets, which account for 13% of the total tobacco market.17 Sales Alpine 2 1 2 data from the combined supermarket and grocery sectors which rank brand leaders from all product categories show that BATA’s Winfield is the leading Champion Drum RYO brand, but that ITA’s sales from and probably give it * Percentages exclude responses from 18 greater overall market share in this retail sector (see Table 10.5, Section 10.4). students who gave more than one brand, and percentages do not add to 100 as only the most frequent responses are listed. 10.6.3 Source: White and Hayman.42 Market share by brand—cigars All cigars sold in Australia are imported, and apart from BATA, the tobacco companies do not have substantial engagement in the cigar market (Table 10.19).17 Based on data on sales data from convenience stores, the importer Stuart Alexander has greatest market share, followed by Swedish Match. Although the cigar market remains small at about 2% of the total tobacco market, cigars have grown in popularity in recent years, with an annual growth in sales volume of about 5%.43 The two most popular cigar brands,Café Crème (a Henri Wintermans variant) and Willem II, together hold more than 50% of the total Australian cigar market.11 Cigars are discussed further in Section 10.7.10.

Table 10.18 Table 10.19 Leading roll-your-own tobacco brands (and their manufacturers or importers) Leading cigar brands (and their importers) sold by convenience stores ranked sold by convenience stores ranked by % value of market share, Australia, 2007 by % value of market share, Australia, 2007

Manufacturer Share of market value of Share of market value Rank Brands Rank Importer Major brands or importer total RYO tobacco sales (%) of total cigar sales (%) Champion, White Ox, 1 Stuart Alexander Henri Wintermans, Old Port 47.4 1 Imperial 59.7 Drum, Dr Pat, Bank 2 Swedish Match Willem II, Ritmeester 34.7 2 BATA Winfield, Port Royal 39.2 Captain Black, 3 BATA 17.8 3 Philip Morris Marlboro 1.0 Schimmelpenninck Stuart Old Holborn, Irish 4 0.1 Alexander Cake, Mac Baren Sources: Convenience Store News17; Australian Retail Tobacconist33 Sources: Convenience Store News17; Australian Retail Tobacconist33

Section: 10.6.3 Tobacco in Australia: 18 Facts and Issues

10.6.4 Table 10.20 Price bracket and pack size Cigarette sales in the supermarket and grocery sector dissected by price The Australian cigarette market has a number of differentiating features apart from band and pack size, 2007 brand, including variations on flavour or blend, pack size, and price. Although BATA is overall market leader in the grocery sector (Table 10.5 in Section 10.4) Volume Value Price band Leading brands (in order of importance) (% market (% market it does not lead in all segments of the market segment)* segment)* when examined by price positioning and pack Longbeach, Horizon, Holiday, Brandon, Choice, Stradbroke, size. In broad terms, the cigarette market is Value* * 46.3 43.5 Pall Mall broken into three main price brackets: ‘value’, Mainstream** Winfield, Peter Jackson, Escort, Superkings 35.7 36.8 for the price conscious smoker; ‘mainstream’ Premium** Benson & Hedges, Dunhill, Alpine, Marlboro, Peter Stuyvesant 18.1 19.7 for the middle price range, and ‘premium’ Volume Volume for the higher end of the market. Table 10.20 Pack size (% market (% market shows that in the supermarket and grocery segment) segment) sector, value brands are the most important 20s 9.4 9.8 segment in terms of percentage of cigarettes 25s 35.8 37.9 30s 24.0 23.4 sold by volume and value, occupying about 35s 1.4 1.4 45% of market share. Mainstream brands 40s 16.9 16.0 account for just over one third of the market, 50s 12.4 11.6 and the most expensive brands account for Total volume (billion sticks) 10.5 fewer than 20% of the market volume and Total value of cigarettes in grocery/supermarket sector ($ billion) $4 value. PMA is market leader in the value sector, through the strength of Longbeach. BATA is firmly in control of the mainstream * percentages may not total 100 exactly due segment due to the dominance of Winfield, to rounding. and also leads the premium market with Benson & Hedges and Dunhill. ITA’s strongest ** cigarette brands have been divided into showing is in the value sector, where Horizon ranks second to PMA’s Longbeach. In both these three price categories in the Retail 41 World report, without defining the price other sectors, ITA claims less than 10% of the market. The most popular pack size is brackets. Cross checking price listings for 25s, followed by 30s. In 1999, larger pack sizes lost their appeal due to changes in the these brands published in The Australian federal excise tax which eliminated the price advantage of purchasing greater quantities Retail Tobacconist provides the following approximate breakdown: Value $9.60- of cigarettes (see Chapter 13 for discussion). $10.10 per pack of 25s; Mainstream In the convenience sector, ‘mainstream’ brands (Winfield and Peter Jackson) account for $10.65 – 11.50 per pack of 25s; Premium $11.40-11.90 per pack of 25s. about 47% of all cigarette sales. Brands in the ‘premium’ bracket are next most popular Sources: Retail World,41 Australian Retail (such as Benson & Hedges, Dunhill, Peter Stuyvesant and Marlboro), with about 30% of sales Tobacconist.44 in total, and ‘value’ brands (Longbeach, Horizon and Holiday) account for about 20% of the market. The most popular pack sizes sold in the convenience sector in 2007 were 25s (about 40%), followed by 30s, 20s, and 40s.17 The recent emergence of a ‘sub-value’ category of cigarettes has been noted in the industry press.11 The sub-value segment includes cheaper brands and smaller pack sizes (the minimum legally permissible in Australia being packs of 20) to help meet tighter personal budgets. Imported brands from China and elsewhere are competing to supply this end of the market.11

10.7 Trends in products and packaging Whether retaining old customers or appealing to new ones, addressing public concerns about tobacco or manoeuvring to avoid or accommodate regulation, it is vital for the tobacco industry’s survival to take a flexible and innovative approach to developments

Section: 10.7 Chapter 10: The tobacco industry in Australian society 19 in product and packaging. This section takes a look at some recent developments observed in the Australian and international marketplace.

10.7.1 Flavoured cigarettes It has long been industry practice to add ingredients to alter the flavour of tobacco. For example menthol variants of many brands have been available for decades, menthol additives improving the palatability of inhaled smoke by providing sensations of coolness and smoothness.45 Flavourings have also been used to compensate for variations in quality of tobacco leaf,46 and for perceived loss of body and flavour in lower tar cigarettes.47 Flavourings mask unpleasant tastes and sensations associated with smoking cigarettes, making them of greater appeal to novice users.48 Flavours may be added to the tobacco itself or to the paper cigarette tube, and patents have been awarded that incorporate flavourings into the filter of the cigarette, as well as the packaging in order to impart a pleasant smell.49 A variety of smokeless tobacco products, cigars and cigarette rolling papers have been augmented with novelty flavourings.49 In the USA a staggering range of flavourings has been introduced, including fruit (for example orange, mandarin, lime, cherry, coconut, strawberry, apple), confectionery (toffee, truffle, vanilla, chocolate, honey, fudge, marshmallow), spices (cinnamon, mint, spearmint, wintergreen, coffee, herbs) and flavours reminiscent of cocktails or liquors (for example margarita, amaretto, rum, cognac, bourbon). The products are stylishly packaged49 and the cigarettes themselves may also be coloured, patterned and decoratively filter tipped.50, 51 Flavoured varieties have also been made available on a seasonal or themed basis.51 No Australian tobacco company has promoted products on the basis of novelty flavouring, but a small number of flavoured brands have been imported. DJ Mix Special Feel, available in flavours that include orange, strawberry and iced green apple flavour, andPeel , in menthol orange, and sweet melon flavour, are imported from Hong Kong. Chocolate-flavouredBlack Devil and vanilla Pink Elephants are imported from the Netherlands.52 Studies on the popularity of mainstream flavoured brands in the USA (such as those produced by the major tobacco companies RJ Reynolds and Brown & Williamson) have shown that they are used primarily by younger people.51 The recent proliferation of flavoured brands has been attributed to the tobacco industry’s need to attract new smokers in an increasingly challenging regulatory environment.49, 51 The sale of flavoured tobacco products is banned outright in South Australia, NSW and Tasmania and their display (but not sale) has been banned in Western Australia. On 23 May 2008, the Ministerial Council on Drug Strategy announced the intention for all states and territories to enact legislation prohibiting the sale of fruit and confectionery flavoured cigarettes within their jurisdictions by December 2009. The same announcement stated that the Australian Government had agreed to investigate the feasibility of a ban on importation of these products.53

10.7.2 Shorter or wider cigarettes Limited opportunities to smoke due to the introduction of smoking restrictions in many environments has prompted the development of a shorter cigarette that allows quicker smoking (seven puffs instead of the more usual 10) while still aiming to deliver

Section: 10.7.2 Tobacco in Australia: 20 Facts and Issues

a satisfying dose of nicotine. One company to cater for this market is Philip Morris, with Marlboro Intense, which has been launched in Turkey.6 Philip Morris has also developed Marlboro Wides, a thicker but shorter than usual cigarette that is packaged in a box with a flip top opening from side to side instead of front to back.6

10.7.3 Smokeless tobacco and ‘snus’ As its name states, smokeless tobacco does not generate smoke, which makes it attractive to tobacco users who wish to access nicotine without breaching smoking restrictions. It is also promoted to the youth market, and to women in societies where overt smoking is not socially acceptable.54 In Australia, sales and marketing of smokeless tobacco are banned,*55 but the international market for smokeless tobacco continues to expand.54 The health consequences of oral tobacco use are discussed inChapter 3, Section 3.33. A particular type of smokeless tobacco product known as ‘snus’ is widely used in Scandanavia. Although addictive, snus is less harmful than other forms of tobacco use, and it may also be useful as an aid in cessation.56 Philip Morris and RJ Reynolds are promoting snus-style smokeless tobacco products in test markets in the USA.57 BAT are promoting their own snus brands in South Africa, Japan and Canada.8 Whether snus may have a wider role in reducing harm caused by smoking is a matter of vigorous debate.58-62 For discussion, see Chapter 12. The health consequences of using snus are discussed in Chapter 3, Section 33. In the USA, a company called Star Scientific63 has developed another variation on traditional oral tobacco products.64 Ariva is presented in the form of a compressed capsule of tobacco designed to dissolve in the mouth, thereby eliminating the need for spitting or disposing of the spent product. Ariva is intended for ‘adult smokers who increasingly find themselves in situations where they can’t smoke—for example, mothers who choose not to expose their children to second-hand smoke, travellers who fly on long plane trips, or restaurant patrons…’.64

10.7.4 Countering second-hand smoke A range of products claiming to mask, reduce or eliminate second-hand smoke has been developed since the rise in concern about environmental tobacco smoke during the 1980s. (Some of these products have also claimed to offer health benefits to the user – see Section 10.7.5). Lemon and vanilla-scented cigarettes were test marketed in the USA and Germany in the late 1980s, the fragrant smoke intended ‘to overcome most of the objections non- smokers have about the smell of burning tobacco.’ 65 In 1992, Philip Morris investigated marketing a new ‘reduced odour’ cigarette, declaring that the long-term goal of its research and development activities was to develop a completely odourless cigarette.66 RJ Reynolds (RJR) experimented in the USA in the mid-1990s with Salem Preferred 67 that was claimed to mask and change the odour of cigarette smoke (while not actually reducing its quantity68). A variation on this, Salem Pianissimo, was launched by RJR in

* Although individuals may legally import small quantities for personal use. See Chapter 3, Section 33 for discussion.

Section: 10.7.4 Chapter 10: The tobacco industry in Australian society 21

Japan in 1995, claiming to be ‘the clean cigarette,’ offering ‘less lingering smell’ and ‘less sidestream smoke.’ Following the success of Salem Pianissimo, RJR launched four more brands in Japan that claimed similar attributes, announcing that ‘these cigarettes were designed to encourage peaceful coexistence among smokers and non-smokers…’. Since then, other manufacturers have also launched ‘cleaner’ cigarettes.68 Entirely new ways of consuming tobacco have also been devised with the intention of reducing sidestream smoke. RJR tested Premier in the USA briefly in 1989.69 Premier, which delivered nicotine to the user by heating rather than burning the tobacco, was withdrawn soon after not only because smokers disliked the flavour, but, ironically, because it had an unpleasant and pervasive aroma which tended to spread well beyond the smoker.65 RJR has since launched another non-combustion, low emission product, Eclipse (see Section 10.7.5 below). Philip Morris has developed a product called the Heatbar, a battery-powered plastic device which heats rather than burns tobacco. Inhaling the warmed tobacco delivers a flavoured aerosol to the user, while producing 90% less sidestream smoke than a normal cigarette. TheHeatbar has undergone limited market testing in Switzerland and Australia6 but does not appear to have impressed younger smokers.70 In the USA, Ruyan America has developed an alternative nicotine delivery electronic cigarette called the V-8 E-cigarette, which simulates smoking without creating sidestream smoke.71 How popular these latest innovations will be with consumers remains to be seen.

10.7.5 Potentially reduced exposure products Industry efforts to produce a ‘safer’ cigarette go back many decades. While publicly maintaining that their products did not cause disease or death among their users, the tobacco companies experimented with various forms of filters, ventilation systems, and modifications to the tobacco leaf itself in an effort to reduce harmful emissions from tobacco smoke.* Of these, products claiming to deliver lower levels of tar, nicotine and carbon monoxide were the major focus from the 1970s onwards, even though the tobacco companies were well aware that these product modifications delivered little or no real health benefits to smokers75-78 Cigarettes promoted as being ‘light’, ‘ultra light’ and ‘mild’ came to dominate the market during the 1980s and 1990s, descriptors now banned in Australia (see Chapter 12 for detailed discussion). It is now a matter of record that ‘smoking cigarettes with lower machine-measured yields of tar and nicotine provides no clear benefit to health.’79 p25 Other modifications to the standard cigarette designed to reduce the smokers’ exposure to the harmful contents of cigarette smoke have since been developed. These ‘potentially reduced exposure products’ (PREPs) are generally claimed to emit reduced levels of nicotine or carcinogens due to the use of additives, different techniques in leaf blending and processing, using genetically-modified leaf, or by the application of new filtration methods.80 In the USA, several products of this nature have been introduced with varying degrees of success. Some examples include Liggett-Vector’s Quest,81 Brown & Williamson’s Advance Lights,82 and Philip Morris’s Marlboro Filter Plus.6 Several PREPs have been discontinued, presumably due to low sales. These include Liggett-Vector’sOMNI ,83 Philip Morris’s Next and Brown & Williamson’s Advance.82

* From the 1970s onwards, tobacco companies patented many inventions to lower the quantities of toxic chemicals in cigarette smoke, but they were not adopted at the time. To incorporate them in to standard cigarette design and promote a ‘safer cigarette’ would be tantamount to admitting that tobacco use was dangerous, something which no tobacco company openly declared before 1999. There is no proof that any of these inventions would have produced a ‘safer’ cigarette. For further information about changes to cigarette design and technology, refer to The US Surgeon General’s Report for 1981, The Changing Cigarette,72 and more recent articles such as those by Baker73 and Boyd.74

Section: 10.7.5 Tobacco in Australia: 22 Facts and Issues

New concepts in PREPs have also been developed that deliver nicotine by heating of the tobacco instead of burning it. Examples of these are RJR’s Eclipse and Philip Morris’s Accord, which have the appearance of conventional cigarettes but which claim to deliver lower levels of toxins to the smoker, as well as reduced second-hand smoke.69, 77 A range of tobacco-free products which resemble cigarettes, cigars and pipes have also been introduced. These battery-powered electronic devices deliver doses of nicotine in an aerosol to the user in a range of flavours, including fruit, ginseng, coffee, mint and chocolate. Promotional material for these electronic devices claims that they are less hazardous to health.84-87 In Australia, at least one of these devices is being advertised and sold over the internet and through selected retail outlets. The product,Egar , positions itself as a cheaper and healthier alternative to smoking as well as an effective way of sidestepping bans on smoking in offices, restaurants and other public places.85 Consumer acceptance of PREPs appears not to have been widespread at this stage. A study on consumer responses to several of the products available in the USA during 2002 found that most smokers did not find them to be either a satisfying substitute for traditional cigarettes, or of assistance in quitting smoking.82 However investment in PREPS is substantial by some tobacco companies. According to industry analysts JP Morgan, US$3 billion was invested in research and development of PREPs between 1999–2004, and the PREP market in the USA could be worth an estimated US$20 billion by 2015.88 Of the major tobacco companies operating in Australia, BAT and PMI state that they are committed to research and development of safer cigarettes.5, 8 The implications of PREP use are of considerable concern to health interests. There is evidence that consumers may overestimate the possible risk reduction associated with using PREPs.77 This and other research raises concerns that PREPs might attract (and addict) new users, discourage quitting, result in rebound usage of standard cigarettes at a level even higher than before, or induce successful quitters to return to what they perceive to be a safe form of tobacco use.77, 82 By leading consumers to believe that they are safer, PREPs could also reassure young smokers that there is no need to quit, since there are apparently safer alternatives to switch to in the future.80 Whether PREPs actually deliver the health benefits claimed by their manufacturers is not known. The US Institute of Medicine of the National Academies of Sciences has examined the current scientific knowledge about PREPs, concluding that they ‘have not yet been evaluated comprehensively enough (including for a sufficient time) to provide a scientific basis for concluding that they are associated with a reduced risk of disease compared to conventional tobacco use.’89 p 232 The World Health Organization has concluded that ‘Demonstration of reductions in smoke emissions or reduced uptake of toxicants alone is not sufficient to support claims or implications of reduced toxicity or harm.’80 p 9 Comprehensive, rigorous independent testing of PREPs is clearly required.80, 89, 90 Even if PREPs are ultimately proven to be less toxic to users, their contribution to uptake and persistent use in place of quitting could result in increased harm due to tobacco use overall.77

10.7.6 ‘Roll-your-own’ and ‘make-your-own’ cigarettes The decision to use roll-your-own or make-your-own cigarettes is generally made by consumers seeking a more economical way of smoking. Roll-your-own (RYO) cigarettes comprise loose tobacco manually rolled up by the user into a cigarette paper and sealed shut with saliva, with or without the addition of a filter. Make-your-own (MYO) cigarette kits provide the user with loose tobacco, pre-fabricated paper cigarette

Section: 10.7.6 Chapter 10: The tobacco industry in Australian society 23 cylinders and filters that produce an end product much like manufactured cigarettes in appearance. In Australia the growing market for RYO has lead to several innovations. Slimmer filters allow a packet of tobacco to last longer, by making more, smaller cigarettes. Loose tobaccos closer in characteristics to the tobacco used in ready-made cigarettes have been produced to accommodate smokers switching from factory-made cigarettes to RYOs. Smaller pouch sizes accommodate price conscious smokers.43 Packaging has been redesigned and updated to attract attention, and popular cigarette brands such as Peter Jackson and Longbeach have been launched in an RYO variant. The availability of different styles and sizes of cigarette papers and filters has been increased to encourage RYO smokers to express their personal style.91 Overseas, innovations have included smaller, cheaper cigarette papers,57 and techniques to expand the tobacco have allowed the smoker to make more cigarettes with the same weight of tobacco.92 In Germany, Philip Morris has marketed its ‘tobacco block system’ (TBS), in which tobacco is sold in compressed blocks. A special machine is used that inserts tobacco from the block into a ready-made cigarette cylinder. The TBS has been introduced as a way of exploiting the tax differential between RYO tobacco and manufactured cigarettes.6

10.7.7 Organic, ‘green,’ and additive free cigarettes In recent years a variety of ‘green’ attributes have been claimed for particular tobacco products, responding to growing consumer awareness of environmental concerns. With no hint of irony, these include references to purity, naturalness and the lack of additives, as well as claims for the farming practices employed in the production of the leaf—such as allusions to organic growing conditions, reforestation programs, use of renewable energy sources such as wind power93 and ethical sourcing from farmers.94 This trend has been especially marked in the USA,93 where consumer concerns have lead to the marketing of organic, ‘100% additive free natural’ brands such as American Spirit95 and 1st-Nation.94 There is also evidence that these types of descriptors tend to offer the consumer reassurance, since ‘natural’ commonly connotes beneficial attributes.93 Although some manufacturers are careful not to claim health attributes for their products,95 it is significant that US tobacco companies have sought to retain the right to use the descriptor ‘natural’ on their cigarettes sold outside the USA.93 At the time of writing no brands of Australian manufacture claim to be organic or additive free, although at least two imported brands, American Spirit44 and Manatu11 are available, as well as a small range of herbal cigarettes.

10.7.8 Packaging trends Restrictions on tobacco advertising in Australia and other countries have made product packaging an increasingly important vehicle for brand identity and positioning.96-98 In Australia, Winfield cigarette packs directly allude to their former advertising campaigns by carrying inside the flip top ‘…anyhow have aWinfield ’, the slogan made famous by actor Paul Hogan in advertisements outlawed in the 1980s.99

Section: 10.7.8 Tobacco in Australia: 24 Facts and Issues

New trends in pack design include limited edition designer packages,* cigarette packs that emulate sleek mobile telephone design,6 and splittable packs that become two smaller packs, similar in dimensions to an ‘iPod.’100 For further information on packaging trends in Australia, see Chapter 11, Section 11.6.3.1.

10.7.9 Reduced fire risk cigarettes Lit cigarettes are a leading cause of fires and death and injury due to fires.101 In Australia, smoking is conservatively estimated to be the direct cause of at least 4574 fires annually;102 and almost one in every four deaths due to fire is attributable to fires caused by smoking103(see also Chaper 3, Section 3.19). The role of smoking-related materials in causing fires has lead to the introduction of ‘reduced fire risk’ (RFR) cigarettes, otherwise known as ‘reduced ignition propensity’ (RIP) cigarettes, in Canada and in most states of the USA.104 RFR cigarettes self extinguish when not being actively smoked.102, 105 Other methods of smoking (such as pipes, cigars and hand-rolled cigarettes) have always required active inhalation from the smoker to keep the tobacco burning.106 Ordinary cigarettes remain alight because of the addition of ‘burn accelerants.’ These additives keep the cigarette burning at a constant rate and help hold the burning tip and ash together.107 The tobacco manufacturers have long had the technology to produce cigarettes with reduced fire risk.108, 109 The most commonly used method involves making alterations to the paper in which the cigarette is wrapped.110 The addition of two or three thin bands of less porous paper works as ‘speed bumps’—when the tip of the cigarette burns down to one of the bands, the change in the paper restricts oxygen supply to the burning tobacco and makes the cigarette go out. Other ways of reducing ignition propensity include using expanded tobacco, adjusting the size of the cigarette, or making other changes to wrapping papers.106, 110 However RFR technology is not effective in all cases. Tests on cigarettes for sale in the state of New York, where RFR regulations came into force 2004, have shown that about one in 10 RFR cigarettes still burned for its full length.110 It is therefore important not to regard or promote RFR cigarettes as completely ‘fire-safe’—but they are less likely to cause a fire than other cigarettes. As noted above, RFR requirements have now been mandated or are filed for legislation in most states of the USA, and throughout Canada as well.104 In November 2007, member states of the European Union voted to begin the process of regulating for RFR cigarettes, and the government of the UK has made a separate announcement that it intends to introduce regulations independently and to a more rapid timetable.111 In March 2007, Standards Australia, recognised by Australian governments as Australia’s peak standards body,** finalised a standard for testing RFR cigarettes. The Determination of the extinction propensity of cigarettes (Standard AS4830-2007) was developed in collaboration with the Australasian Fire and Emergency Service, the CSIRO, the three tobacco companies operating in Australia, and other stakeholders. The standard tests the likelihood of combustion if a burning cigarette is placed in contact with material similar to that of household furniture. 112

* Such as the limited edition Dunhill My Mixture range launched in an ‘innovative 20s spring-box format’ during late 2007.33 p 6-7 ** http://www.standards.org.au/default.asp

Section: 10.7.9 Chapter 10: The tobacco industry in Australian society 25

In June 2008 the Product Safety Policy Section of the Australian Competition and Consumer Commission (ACCC) released a regulation impact statement considering workable options for introducing RFR regulation in Australia under the auspices of the Trade Practices Act 1974.107 In the interests of protection of consumers and simplifying compliance, the ACCC has recommended ‘establishing explicit government regulation by declaring a mandatory minimum standard for RFR cigarettes.’107 p 15 In March 2008, the Australian government announced its support for these recommendations, signalling that they could be implemented by early 2009.* The tobacco industry has a history of opposing the introduction of RFR cigarettes. See Section 10.21.2.2.

10.7.10 Specialty products In the USA, restricted opportunities to smoke have led to increased emphasis on specialty products designed to enhance the experience. While some people may be smoking less, they are tending to smoke more selectively.57, 113 This has boosted the premium end of the market. Top of the range cigarettes may be hand finished, using special papers and filters, and presented in luxury tins or boxes. Holographic cigarette papers that ‘provide a scintillating light show’ have been adopted by one manufacturer.113 The demographic groups likely to be attracted to these premium products are typified as the young, more affluent, adventurous, sophisticated, better informed and sociable smoker; or secondly as established smokers who are cutting back on tobacco use but treating themselves to quality products.113 As part of this trend, cigar use has also increased in popularity, and the market has expanded to accommodate a broader range of sizes, styles and flavourings.57 Smaller cigars are intended to appeal to ‘time-poor’ smokers. Sweeter and more aromatic tobaccos that enhance flavour and improve the smell of second-hand smoke are making cigars more appealing to female users.43 According to an industry report, cigars are popular across all social and cultural boundaries.11 Not to have cigars on display ‘is like taking Mars Bars off the confectionery shelf,’ according to a manager at Swedish Match, an importer of cigars into Australia.11 Other niche products include ‘green’, ‘organic’ and ‘fair-trade’ cigarettes—see Sections 10.7.7–10.15.2.

10.7.11 Accessories Accessories and gimmicks used in support of tobacco use are an important means by which tobacco companies can keep their products and brands interesting to the consumer. Items such as cigarette cases, cigar cutters, humidors (for cigar storage), crystals (intended to keep cigars fresh), glass pipes, hookahs, cigarette lighters and odour neutralisers in the form of candles and incense are all trends in the USA. According to a North American tobacco accessories distributor, ‘It’s like the fashion business. It’s very difficult to predict. That’s why you have to keep refreshing your assortment.’114

* See http://www.abc.net.au/news/stories/2008/03/26/2199878.htm

Section: 10.7.11 Tobacco in Australia: 26 Facts and Issues

In the USA, the BIC Corporation has produced collectable lighters that feature classic cars, tattoos, astrology and motor racing. Consumers are given the chance to participate in selection of new designs by accessing the BIC Lighter’s consumer website. In another innovation, one lighter brand has provided a code that becomes visible as the butane level in the lighter drops. Prizes may be won by entering this code into the company’s website.57

10.8 The tobacco growing industry

10.8.1 Global Tobacco is grown in more than 120 countries. In 2004, more than one third of the world’s tobacco was grown in China. Other major producers include Brazil, India, the USA and Turkey. Tobacco leaf is an important source of export revenue for Brazil, the USA, Turkey, Zimbabwe and Malawi. In recent decades tobacco growing has declined in more developed countries, moving to less developed regions where consumption trends remain buoyant and the industry has been welcomed by government. If this trend continues, it is estimated that by 2010, more than 85% of the global tobacco leaf requirement will be met by producers in developing countries.115

10.8.2 Australia

10.8.2.1 Brief history

Tobacco growing commenced during Australia’s early years of settlement. Governor Macquarie experimented with plantings at Emu Plains in New South Wales in 1818, and by the 1820s tobacco was cultivated by farmers in the Hunter Valley. During the 1850s growing extended to Victoria and Queensland. It is likely that some proportion of the early crop was intended to supply the colony with the makings of pesticide for use in ridding sheep of parasites.116 Growing reached its peak in the early 1970s, when nearly 16,000 tonnes of leaf were sold annually,117 but by 2006 the crop yielded under 4000 tonnes.118 Prior to deregulation of the market, most Australian leaf was purchased by local manufacturers.119 Major influences contributing to the downturn in local tobacco growing include declining tobacco consumption in the Australian population, and successive reductions in the protective tariff on Australian leaf during the 1990s, which permitted manufacturers to purchase leaf more cheaply on the international market (see below).119 This led to an increase in diversion of Australian leaf into the illegal tobacco trade119 (see also Section 10.9). Commercial tobacco farming no longer occurs in Australia. The industry began to wind down during the mid-1990s, with successive announcements at both state and federal

Section: 10.8.2.1 Chapter 10: The tobacco industry in Australian society 27 level for government-financed restructuring grants (exit grants) to tobacco farmers to assist them in leaving the industry (see below).

10.8.2.2 Government regulation

Federal government support for the Australian tobacco growing industry commenced in 1936, with the introduction of the Local Leaf Content Scheme (LLCS) which encouraged the manufacturers to use at least a minimum percentage of locally grown leaf. Doing so entitled the manufacturers to a tariff concession on the balance of imported leaf they used.120 Imbalances between supply and demand in the industry, as well as ongoing problems with grading and pricing of local leaf, lead to the passage of the Commonwealth Tobacco Marketing Act (1965). This legislation established the Australian Tobacco Board (ATB) as a statutory authority of the Australian Government. The ATB, which became known in 1990 as the Australian Tobacco Marketing Advisory Committee or ATMAC, advised federal and state ministers on interstate and overseas marketing of Australian tobacco leaf, as well as the various state tobacco leaf marketing boards (established under legislation in those states which grew tobacco) on the same matters. The ATB and later the ATMAC was also responsible for the administration of the main instrument of regulation, the Tobacco Industry Stabilisation Plans (TISP). In brief, TISPs and their key component, LLCSs, served to control supply and guarantee the sale of Australian leaf to local manufacturers at a pre-arranged price. The TISP introduced in 1965 raised the minimum local leaf content to 50% of Australian leaf in the manufacture of their products and in 1977 this requirement was increased to 57%.120 At a state level, each growing area had its own Tobacco Leaf Marketing Board, which was responsible for allocating supply quotas of tobacco to individual growers.120

10.8.2.3 The decline of tobacco farming in Australia

During the 1980s and early 1990s a series of reviews evaluated the structure of the tobacco growing industry in Australia.121-123 In 1990, it was the view of the Industry Commission that taking into consideration statutory marketing arrangements, tariff concessions and all other measures of government support, tobacco was by far the most subsidised agricultural activity in Australia, receiving assistance at about 6.5 times the rate of other horticultural activities, and more than 12 times the average rate for all agricultural activities.124 In 1994 the Industry Commission published a review of the tobacco growing industry in Australia, finding that the succession of TISPs and LLCSs had created an inefficient, non-competitive industry which was now on the brink of collapse. The commission recommended the phasing in of major deregulation of the leaf market to bring it into line with other Australian manufacturing and agricultural industries and to permit tobacco manufacturers to purchase leaf from overseas without penalty. Later that year, the Australian manufacturing industry and tobacco growers submitted a proposal for restructuring which was agreed to by the Commonwealth government in December 1994.125 The package allowed for the winding down of ATMAC and the abolition of the LLCS and TISPs. Tariffs were to be removed from imported tobacco leaf and tobacco products. Manufacturers were to purchase local leaf under arrangements which conformed to the requirements of the Trade Practices Act (1974). In addition, the tobacco

Section: 10.8.2.3 Tobacco in Australia: 28 Facts and Issues

manufacturers agreed to provide $10.8 million to aid restructuring, payment to be matched by contributions from the Queensland, Victorian and New South Wales state governments.125 In 1994, the year in which the final TISP ran its course, there were about 600 tobacco growers remaining in Australia. Most of the crop (58%) was produced in northern Queensland, about 38% was grown in Victoria around Myrtleford, and 4% was grown around Ashford and Bonshaw in New South Wales.125 During 1994 and 1995 the Victorian, New South Wales and Queensland state governments announced financial incentives and other support for growers wishing to exit the market.125 By the end of 1995, only 366 tobacco growers remained, 240 in Queensland and 126 in Victoria.125 As foreshadowed, the ATMAC was wound up in 1995,126 and ultimately abolished in April 1997, with the repeal of the Tobacco Marketing Act 1965,127and the organisation’s assets were transferred to the Tobacco Research and Development Corporation, a body intended to support the research needs of the industry.125 Over the following years the manufacturers increased volumes of cheaper imported tobacco leaf, and the Australian growing industry continued to fold, not without acrimony on the part of some of the remaining growers.128-130 The Tobacco Research and Development Corporation was abolished in 2003.131 The last sales contracts in Northern Queensland were filled in early 2004,130 and in Victoria and Southern Queensland, a majority of growers voted in support of a federal government and industry-funded buyout of the leaf growing industry announced in October 2006. All outstanding sales transactions are expected to be completed in 2009.132 Most leaf used in Australian-made cigarettes is now grown in the USA, Brazil, Zimbabwe and India.19

10.9 The tobacco industry and the illegal tobacco market

10.9.1 Chop-chop Chop-chop is finely cut, unbranded ‘black market’ tobacco that has been grown, distributed and sold outside the government regulated and taxed system.133 Due to its affordability, some smokers have adopted chop-chop as an alternative to, or in addition to smoking manufactured tobacco.134-136 Although used on a regular basis by a small minority of Australian smokers,137 the financial losses involved for the government, due to lost taxation, and the tobacco companies, due to lost retail sales, are considerable. According to tobacco industry-commissioned estimates, one in every 17 cigarettes smoked in Australia contains chop-chop.138 Although the closure of the legal tobacco growing industry in Australia can be expected to cause a downturn in the local chop-chop market, it does not preclude the possibility that illegal growing will continue, as it does, for example, with cannabis.139 Illegal importation of leaf and other tobacco products has also increased.140

Section: 10.9.1 Chapter 10: The tobacco industry in Australian society 29

Several factors combined to accelerate the growth of the black market in home-grown tobacco in the late 1990s.133 The dismantling of the Tobacco Industry Stabilisation Plans after 1995 allowed Australian tobacco manufacturers to source tobacco leaf from the international market, putting downward pressure on the price of Australian leaf and leading to problems with over-supply. The abolition of individual state business franchise fees (state-levied tobacco taxes) in 1997, the change from charging federal excise on a weight basis to a per cigarette basis in 1999, and the introduction of the federal Goods and Services Tax in 2000* led to a uniform tax regime on tobacco throughout Australia and a significant increase in excise collections from tobacco. Obtaining tobacco illicitly, avoiding the tax and providing the product to the end user at a discount was highly profitable activity.133 Chop-chop typically entered the market via individuals or groups who purchased leaf directly from a tobacco grower, processed it for sale, and provided it to a range of retailers (such as tobacconists, market stallholders, hairdressers, newsagents and milk bars) for on-selling. The product was usually sold in half or one kilogram lots, packed into clear plastic bags in loose leaf form, but has also been found converted into ready-made cigarettes and presented in counterfeit tobacco packaging.133 According to a news report just prior to the closure of the Victorian tobacco growing industry, tobacco farmers could earn up to $10,000 per bale of tobacco on the illicit market, compared to a top price of $800 the same bale would fetch on the legal market; and the same bale would yield $30,000 in excise for the federal government.141 Bypassing the government, tobacco companies and retailers also meant considerable savings for the end user, who could purchase 100g of illegal tobacco for about $13, compared to a recommended retail price for the equivalent legal product of about $36.142 The substantial financial consequences of the illicit tobacco trade have prompted investigation from both the government133, 142 and the tobacco industry.138, 143 In a report for the Australian Taxation Office in 2006,142 the Australian National Audit Office (ANAO)** stated that illegal tobacco operations were a key priority in the area of evasion and serious fraud. The ANAO estimated that in 2004‒05, almost 10% of legally grown tobacco was diverted into the black market, and of this, only about 6% was intercepted.142 In an earlier report, the ANAO estimated that ‘tobacco excise revenue leakage’ due to the illegal tobacco market in 2001 was likely to range from $99 million‒$220 million annually.133 Tobacco smuggling has also been associated with other serious criminal activity. On the basis of Australian Taxation Office research, the ANAO observed that the organisers were ‘actively involved in other forms of criminality such as drugs, money laundering, identity fraud and car rebirthing as well as tobacco smuggling.’142 p 15 Illegal trading resulted in the murder of a Victorian tobacco grower in 2002.144 In two reports commissioned by British American Tobacco Australia, the consulting firm PricewaterhouseCoopers (PwC) has also analysed chop-chop and other illegal tobacco trade in Australia.138, 143 According to the more recent PwC report, 6.4% of all tobacco consumed in Australia in 2007 was of illegal origin, representing an estimated loss of $450 million in taxes (excise and GST combined). The cessation of legal tobacco farming in Australia is discussed inSection 10.8.2.3. For further information on the prevalence of the use of chop-chop in Australia, refer to Chapter 1, Section 1.11.2. The health consequences of smoking chop-chop are discussed in Chapter 3, Section 3.27.2.

* For detailed discussion of these changes to tobacco taxation, refer to Chapter 13. ** The Australian National Audit Office provides financial auditing services to the Parliament and Commonwealth public sector agencies and statutory bodies. See http://www.anao.gov.au/index.cfm

Section: 10.9.1 Tobacco in Australia: 30 Facts and Issues

10.9.2 Imported counterfeit cigarettes and loose tobacco leaf Smuggled counterfeit cigarettes account for almost 11% of all tobacco sales globally.145 Tobacco products are smuggled on the international market along with other contraband such as class A drugs and alcohol by organised criminal syndicates.143 In Australia, Pricewaterhouse Coopers estimates that about 8% of the illegal tobacco market is in the form of imported loose tobacco and counterfeit cigarettes, and predicts that in line with international activity, illicit imports can be expected to increase.143 This appears to be borne out by information from the Australian Customs Service in December 2007, which reported a 14-fold increase in seizures of imported illegal tobacco compared with 2006.140 About 95 million cigarettes and 236 tonnes of tobacco were seized during 2007, representing more than $100 million in lost government revenue. Australian Customs attributed the additional haul to increased vigilance, as well as reduced opportunities for local leaf to enter the illegal market146 and a global surge in large scale, organised tobacco smuggling. Sydney and Melbourne ports were the major destinations for tobacco arriving by sea, the largest seizures of counterfeit cigarettes being from the United Arab Emirates and loose tobacco originating from Vietnam.140

10.9.3 Is smuggling advantageous to the international tobacco industry? The illicit tobacco trade markedly decreases the public health benefits of tobacco control action ‘by making cigarettes cheaper, more accessible and more difficult to regulate.’147 Most illicit trade in tobacco involves large-scale movement of products through channels which circumvent taxation. (Counterfeiting and bootlegging account for a much smaller proportion of the illegal market).148 The tobacco companies sell their products to distributors in the usual way, with the usual profits. Tobacco products then leak from distributors into the illegal market, where by evading tax, it is sold more cheaply than taxed goods. The only real losers, financially, are the governments which miss out on tax revenue.149 Publicly the tobacco companies have claimed to have no knowledge or involvement in smuggling activities, but internal industry documents reveal that they are complicit in these activities. Smuggling benefits the international tobacco industry in a number of ways; including by:148, 150, 151 <

Section: 10.9.3 Chapter 10: The tobacco industry in Australian society 31

10.10 The tobacco industry exposed: tobacco industry document repositories The preceding sections detail the size, scope, and other publicly available vital statistics for the tobacco industry in Australia. The following sections of Chapter 10 examine the way in which the tobacco industry operates in Australia and elsewhere, including its interaction with governments, non- government organisations, commercial enterprises, industry groups, the media and the public. During the 1990s millions of pages of internal tobacco industry documents were made public, mostly as an outcome of litigation against the industry. The first tranche of internal documents, originating from the US firm Brown & Williamson and its parent company, BAT, was delivered, unsolicited, to Stanton Glantz, a professor of public health at the University of California (San Francisco). Further documentation was obtained from Brown & Williamson by US Congress, and more came from the private papers of a deceased BAT employee.152 Further documents flooded into the public arena as a result of document discovery associated with tobacco litigation cases such as Cipillone v. Liggett Group.153 As part of the settlement in 1997 between the State of Minnesota and Blue Cross/Blue Shield against several tobacco companies (in which the states sued to recover the costs of treating tobacco-related disease), the companies were obliged to release several million pages of internal documents and make them available for public viewing. These documents are stored in the Minnesota Tobacco Document Depository, opened in 1998, and in the Guildford Document Depository in the UK. The Master Settlement Agreement of 1998 between 46 US states and Brown & Williamson, BAT, Lorillard, Philip Morris, RJ Reynolds, the Council for Tobacco Research and the Tobacco Institute led to the discovery of further industry documents.153 Subsequent US-based litigation has made yet more document collections available.154 Two major gateway sites to industry documents are the Legacy Tobacco Documents Library hosted by the University of California and the industry-run tobaccoarchives.com.* However repositories may be accessed through a number of different websites including those operated by individual tobacco companies.** These previously confidential industry documents have allowed scrutiny of the tobacco industry’s priorities, policies and activities. Marketing practices have been exposed, including information on targeting young smokers. Lobbying strategies to further the industry’s interests have been uncovered. The documents also prove that the industry has long known about the health effects of smoking, the dangers of second-hand smoke and the addictiveness of nicotine.153 A variety of tobacco industry activities in Australia have come to light through investigation of documents released as a result of the Master Settlement Agreement. These have been analysed by Simon Chapman and colleagues at the School of Public Health in the University of Sydney, with grants from the National Health and Medical Research Council and the US National Institutes of Health. Chapman et al have undertaken the research with the dual intentions of revealing industry strategies and behaviours which may assist tobacco control advocacy elsewhere, and collating material

* See: www.legacy.library.ucsf.edu and http://www.tobaccoarchives.com/default.html ** In Tobacco industry documents: treasure trove or quagmire? Malone and Balbach provide addresses for and evaluate a number of websites holding tobacco industry documents.154

Section: 10.10 Tobacco in Australia: 32 Facts and Issues

on the industry’s conduct in Australia, with a view to providing documentation in support of prospective litigants.*155 While offering a wellspring of potentially useful information, it has been observed that accessing the documents—whether in hard copy or online—may be far from straightforward.154 Further, since the companies pursued policies of document concealment or destruction in anticipation of legal discovery, the repositories do not contain complete industry records.155, 156 However the documents have provided rare and compelling insights into tobacco industry behaviour, and much of the published research cited in the following sections of this chapter draws on these sources.

10.11 Corporate responsibility and the birth of good corporate citizenship The document disclosure discussed in the preceding section brought the tobacco industry collectively to a point where it could no longer deny that its products were harmful. The seismic effects of the document revelations, along with continued pressure for product regulation, legislation and restrictions on smoking, required the companies to construct and promote a new image to ensure investor confidence. With masterly recalibration of their moral compasses, the companies began to acknowledge publicly that tobacco could be harmful, to reiterate that smoking was an ‘adult choice’ and that tobacco should be ‘sensibly’ regulated. The tobacco industry’s rebirth has coincided with a much broader move in the corporate world towards ‘corporate social responsibility’ (CSR), in which transnational corporations have begun to consider their impact on communities and the environment, and where necessary to change their ways and make restitution.157 Notions of what constitutes CSR vary widely, and the extent to which the adoption of CSR concepts by transnational corporations is more public relations than a true blossoming of corporate social conscience is a matter of ongoing debate.157 The websites of PMI, BATA and IMG devote countless pages to detailing company adherence to CSR policies. BATA and IMG provide annual reports benchmarking their progress, audited for accuracy by third party verification agencies. Philip Morris’s website explains that it reminds people that smoking is dangerous, that it does what it can to keep cigarettes away from children, and that it is working to develop less harmful products (Philip Morris USA even sponsors its own extensive quit smoking website**). On a wider scale, it pledges to care for its employees, the environment and farming practices.5 BATA provides an Australasia Area Corporate Social Responsibility (CSR) Statement, which embraces themes broadly similar to those of Philip Morris. Imperial Tobacco’s commitment to CSR has a slightly different emphasis, making it clear that when it comes to CSR, its number one stakeholders are its shareholders, but likewise outlines its commitment to its employees, the community, responsible sales and marketing and so on. Further discussion on the various components of the companies’ CSR programs is provided in Sections 10.12–10.18.

* A series of publications reporting on industry documents pertaining to Australia appears in Tobacco Control 2003:12 (Supplement 3). Industry documents identified by Chapmanet al which relate to Australia are available on the Tobacco Control Supersite at http://tobacco. health.usyd.edu.au/site/gateway/docs/index.htm ** See: http://www2.pmusa.com/en/quitassist/index.asp

Section: 10.11 Chapter 10: The tobacco industry in Australian society 33

For the tobacco industry, adherence to CSR depends on their being able to point to the legality of their products, and that smoking is an ‘adult lifestyle choice’ made by informed individuals. In their case study of CSR initiatives adopted by the tobacco industry,158 Palazzo and Richter note that ‘tobacco companies are not in the CSR business as it is becoming commonplace now across various industries and throughout academic research. As long as cigarettes kill active and passive users, all that a tobacco company can achieve is a reputation for transactional integrity.* When tobacco companies try to link their activities to the common good, they indeed provoke the legitimate question whether tobacco and CSR are inherently contradictory.’158 p 398 PM’s transition towards CSR from about the mid-1990s has been documented by Hirschhorn.157 PM management decided to frame the company as an honest and ethical business, predicated on the fact that they produce legal products for use by informed adults. As part of this strategy, the company undertook (and publicised) its social and environmental good works; pledged to operate more openly and voiced support for reasonable regulation, as well as adopting a consistent approach globally to matters such as marketing, trade, labour and the environment. The evolving language used to express PM’s views on tobacco, health, and addictiveness have been analysed.159 While PM’s website appears to endorse mainstream medical views on tobacco, its language is non-committal and visitors are referred to external public health websites (see also Section 10.12). Friedman observes that PM’s motivations are primarily in the interests of deflecting litigation and that the company is conceding nothing, while appearing to have changed its ways; a view backed up by internal PM documents.159 It has also been noted that the emphasis on the individual’s choice to smoke and offering links to further information is framed to absolve the industry and shift responsibility to the smoker.160 Can a tobacco company truly claim to operate within a framework of CSR? According to Hirschhorn, the indisputable facts that:157 <

* Transactional integrity refers to whether the company in question adheres to the legal and moral framework of the society within which it operates, such as by acting transparently, keeping its promises, and behaving fairly and with consistency. The authors of this paper observe that many would contend that the tobacco industry does not currently fulfil even this more limited (‘transactional’) definition of CSR.

Section: 10.11 Tobacco in Australia: 34 Facts and Issues

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10.11.1 Corporate makeover—Philip Morris and Altria —a case study in brief Of all the international tobacco companies seeking to redefine themselves, Philip Morris has gone to greatest lengths. In January 2003 Philip Morris Companies, then parent company to PMI, PM(USA) and Kraft Foods,* changed its name to ‘Altria.’ According to the company’s website,161 the word Altria is derived from the Latin word ‘altus,’ and conveys the notion of ‘reaching ever higher.’ It was also intended to clarify its identity as a parent company to both tobacco and food companies.161 Various commentators have interpreted the name-change as a public relations gesture, aimed at distancing the parent company and its non-tobacco subsidiaries from the stigma of association with tobacco manufacturing, and intended to reposition it in the minds of consumers, employees and investors.162, 163 This view has been confirmed by internal company documents dating back to the late 1980s that detail concern for the company’s failing corporate image, and the evolution of plans for its resuscitation, culminating in eventual name change.164 The corporate structure of Altria has continued to evolve. In March 2008, Altria spun off PMI to make it a stand-alone company based in Switzerland. While Altria justified the initiative as motivated by a desire to ‘improve focus on the different market dynamics, competitive frameworks, challenges and opportunities that Altria and PMI face,’165 other commentators observe that cordoning off PMI will make the new entity less vulnerable to US regulators, legislators and litigants, and will reduce public relations pressure on Altria, which will continue to manage Philip Morris’ US operations.6 US ownership of PMI restricted PMI’s opportunities for global growth. With the approach of the split between the companies, a host of innovative product developments that might have been expected to receive strong opposition in the USA, were announced for introduction to PMI’s overseas markets.6 Altria retains ownership of PM (USA), the cigar-manufacturing concern John Middleton Co, a finance and investment company and a 29% shareholding in SAB Miller, the second largest brewing company in the world.161

* Kraft Foods, like PMI, now operates separately from Altria and PM(USA).

Section: 10.11.1 Chapter 10: The tobacco industry in Australian society 35

10.12 The tobacco industry’s revised stance on health issues Corporate admission that smoking causes ill health and death is at the heart of the tobacco industry’s metamorphosis into socially responsible corporate citizens. Of course, it was not always so. From the earliest days the tobacco industry robustly countered any claims that smoking caused disease. Discovery of internal tobacco industry documents in the wake of several US court cases in the late 1990s (discussed in Section 10.10 above) proved what health advocates had long suspected—that the tobacco industry was indeed aware that their product was a major cause of death and disease, and that several decades had been spent deliberately colluding in covering up, denying, confusing and questioning the issues of smoking and health.166 Even well into the 1990s, spokespeople for the tobacco industry in Australia denied that tobacco use was a cause of disease, citing, for example, a perceived lack of causal proof, and the vagaries of genetics.* It is highly probable that this legacy of denial, maintained consistently and persuasively for more than half a century, still has residual effects on smokers today.167

10.12.1 Smoking, health and addiction A visit to the websites of PMI,5 BATA19 and ITG3 provides the reader with a number of carefully crafted statements about the effects of tobacco on health. Perhaps reflecting the litigation concerns of a company with strong US connections, PMI appears boldly to states its acceptance of the views of major health authorities with the statement ‘Smoking is dangerous and addictive.’5 BATA states that ‘We believe that with smoking comes real risks of serious diseases such as lung cancer, respiratory disease and heart disease, and for many people, smoking is difficult to quit.’ Reading a little further into their explanation, BATA is unable to resist observing that ‘science has not to date been able to identify biological mechanisms which can explain with certainty the statistical findings linking smoking and certain diseases, nor has science to date been able to clarify the role of particular smoke constituents in these disease processes,’ although the company explains that it is not mentioning these limitations on science in order to cast doubt that smoking causes disease.19 Far less forthcoming, ITG makes no overarching statement about smoking and health, although it does acknowledge that ‘smoking can be characterised as addictive as the term is commonly used today.’ The company observes that it operates in a controversial industry because of the health concerns associated with tobacco and smoking, and notes that public health authorities have concluded that smoking is a cause of lung cancer and other diseases in smokers (based on ‘statistics’ and ‘questionnaire-based observations’). Without commenting on the quality of the science, the company declares that it does not propose to challenge mainstream health messages to the public.3

* A collection of public statements made by tobacco industry executives and officers from the Tobacco Institute of Australia dismissing the impact of smoking on health is available at: http://tobacco.health.usyd.edu.au/site/supersite/resources/docs/gallery_leaders.htm and http:// tobacco.health.usyd.edu.au/site/supersite/resources/docs/diary_of_denial.htm

Section: 10.12.1 Tobacco in Australia: 36 Facts and Issues

It can safely be assumed that all of the above statements have been thoroughly vetted by industry lawyers to ensure that they will adequately serve the companies’ needs in the event of litigation. Meanwhile, it has been observed by some commentators that in reality, the tobacco companies have not made substantial strides towards a consensus with public health interests on smoking and health. In her analysis of evolving language on tobacco, health and addictiveness on PM’s website, Friedman comments that PM’s wording in fact concedes little and is deliberately constructed to leave open options for PM’s defence in the event of litigation.159 Henningfieldet al have studied courtroom testimony and other related statements made by tobacco companies regarding the addictiveness of tobacco.168 This report concludes that industry strategy has evolved to redefine and trivialise the term ‘addiction,’ likening nicotine to substances such as caffeine and chocolate but distinguishing it from hard drugs such as cocaine and heroin.

10.12.2 Second-hand smoke As with active smoking, each of the tobacco companies operating in Australia addresses second-hand smoke (SHS) on their websites in different, but equally meticulously constructed statements. Philip Morris International’s website offers a list of health consequences declared by ‘public health officials’ to be caused by SHS, and recommends that the public should be guided by these conclusions (PMI itself neither confirming nor denying any connection between SHS and disease). PMI also accepts that it is reasonable to restrict smoking in public places on health grounds.5 Less acquiescent, BATA cites conclusions by WHO and the NH&MRC on SHS, but goes on to cast doubt on the strength of the epidemiological research upon which these conclusions are based. BATA does not comment on smoking bans, but recommends that smokers exercise courtesy, and avoid exposing infants and children to their smoke.19 Imperial Tobacco takes a different tack, acknowledging that SHS can be an annoyance, but declaring that ‘it is our view that the scientific evidence, taken as a whole, is insufficient to establish that other people’s tobacco smoke is a cause of any disease,’ and asserting that ‘bans on smoking in public places are disproportionate and unnecessary.’ Imperial reiterates the industry’s standard arguments from earlier decades that issues regarding SHS can be resolved through common sense, courtesy, improved ventilation, and the introduction of smokefree areas in the workplace, restaurants and other public places.3 In Australia and internationally, the tobacco industry continues to lobby against measures to protect non-smokers from tobacco smoke, to dispute and undermine findings by medical and health bodies169-171 and to fund, directly and indirectly,172-174 research to serve its own ends. Some of these issues are discussed in greater detail in the following sections.

10.13 Encouraging young people not to smoke For decades, the tobacco manufacturing industry has publicly stated that it does not wish young people to start smoking. The health establishment has long regarded these claims with scepticism on the grounds that it is self evident that if a industry which kills half of its regular, persistent consumers wishes to stay in business, then it needs to find a steady stream of recruits. Despite industry protestations to the contrary, there

Section: 10.13 Chapter 10: The tobacco industry in Australian society 37 is ample evidence that its promotional activities in Australia175 and internationally176 have in the past, and continue to, target new users* (see also Chapter 11). Initiatives adopted by the tobacco industry with the stated intention of reducing the appeal of its products to young people have been designed to forestall government intervention and to give the impression that the industry is cooperative and responsible. In the words of a BAT official in 1973, describing a voluntary agreement for the industry in Hong Kong to withdraw tobacco advertising during children’s television viewing hours: ‘…this is one of the proposals that we shall initiate to show that we as an industry are doing something about discouraging young people to smoke. This of course is a phony way of showing sincerity as we all well know.’178** As part of the industry strategy to embrace corporate responsibility, youth smoking prevention programs have been developed worldwide. These have typically taken the form of programs aimed at retailers, advertising aimed at young people and their parents, and sponsorship of ‘life skills’ educational programs.179 These activities have been widely criticised by tobacco control experts for their demonstrated ineffectiveness, as well as the benefits they may bring the tobacco industry, including:175, 179, 180 <

10.13.1 Youth access programs Access programs address how young people obtain tobacco, and generally focus on the retail environment. In Australia it is illegal in every state and territory for anyone aged younger than 18 to purchase tobacco products. Laws regarding sales to minors have long been a component of a comprehensive tobacco control program and their role in Australian tobacco control policy remains important as a deterrent to underage sales.181 However there is debate over how effective access laws are in reducing prevalence in young people, since it is well known that younger smokers obtain their cigarettes from

* Experimentation with smoking overwhelmingly occurs during the teenage years. Data from the 2007 National Drug Strategy Household Survey shows that the mean age for initiation of smoking in Australia is 15.8 years.177 ** See Knight and Chapman178 for detailed discussion of tobacco industry activities in Hong Kong. This excerpt from minutes of a meeting between representatives of tobacco manufacturers in Hong Kong may be viewed at: http://legacy.library.ucsf.edu/tid/owq24e00/pdf;jsessioni d=07C0248832774571CB38B8ED892AB35A

Section: 10.13.1 Tobacco in Australia: 38 Facts and Issues

a variety of sources, particularly friends and family.42 This means that although strictly policed laws might indeed reduce sales to minors, they do not stop young people from getting cigarettes via their social networks, and do not in themselves appear to influence prevalence of smoking in young people.182 The industry itself knows this. Investigation of tobacco industry documents in Australia and overseas has shown that the industry has co-opted youth access issues as low-risk opportunity for gaining important public relations benefits.175, 179, 183 Since the early 1980s, the Australian tobacco industry has actively supported access programs by providing information and signage to tobacco retailers.175 The three Australian companies currently co-sponsor a program called ‘18+—it’s the law’, which provides in-store materials and advice to retailers.* For the launch of the 2002 version of the program, the tobacco industry advertised in both the trade and mainstream press. In an environment in which discourse between the tobacco industry and the public is greatly curtailed, this advertising provided a rare opportunity for the industry to spruik its credentials as a socially responsible corporate citizen.

10.13.2 ‘Life skills’ programs Another component to its activities in youth smoking prevention is sponsorship of life skills education programs. These programs typically touch on licit and illicit drug use, and include themes such as personal responsibility, self determination, self esteem, peer influences and media influences. There is strong evidence that in the USA, the tobacco industry has actively supported programs known to be ineffective and that in doing so it has managed to keep at bay the introduction of other, more hard-hitting life skills programs.**184 A analysis of these programs has found them to be fundamentally deficient from a public health perspective.185 These programs have also provided the tobacco industry with leverage against the introduction of stronger tobacco control measures intended to protect young people.184, 186 Efforts by the Australian tobacco industry to distribute material in schools failed during the 1980s.187, 188 In the late 1990s PMA funded the development of a program for Australian teachers to help schoolchildren ‘say no’ to smoking, illicit drugs, drinking and bullying. PMA wished to conceal its association with the program, ‘I’ve got the power,’ due to fears that if the connection were exposed, the program would meet with hostility.175 Their fears proved well founded and the program has not gained acceptance in Australia.189 However despite criticism, PMA has had involvement with funding educational materials about substance abuse intended for young Indigenous people, in collaboration with the NSW Aboriginal Education Consultative Group and the Victorian Aboriginal Education Association Incorporated.190 The World Health Organization has recommended against the use of tobacco industry- endorsed youth smoking prevention programs, in recognition that they are intended to serve industry purposes rather than reduce the uptake of smoking.186

* See: http://www.bata.com.au/OneWeb/sites/BAT_53RF5W.nsf/vwPagesWebLive/DO52ANZV?opendocument&SID=&DTC=&TMP=1 ** Such as programs which expose industry tactics, deal graphically with health effects and denormalise smoking. SeeChapter 5.

Section: 10.13.2 Chapter 10: The tobacco industry in Australian society 39

10.13.3 Anti-smoking advertising In the USA and other countries tobacco companies have launched extensive television and magazine advertising campaigns with the stated intention of discouraging smoking among young people.179 These programs have proliferated, PMI taking its offensive to more than 70 countries in 2001.179 In the USA, the volume of tobacco-sponsored anti- smoking advertising has equalled or exceeded that of health interests.191, 192 In 1998, Philip Morris commenced the ‘Think. Don’t Smoke’ campaign in the USA. This was soon followed by another campaign by US-based company, Lorillard, with the slogan ‘Tobacco is whacko if you’re a teen’.192 The common message of these advertisements is that smoking is an adult choice and that young people don’t need to smoke to fit in socially. The Philip Morris advertisements do not explain exactly why young people should not smoke, instead repeating the theme that you do not have smoke to ‘be cool.’192, 193 Philip Morris has also produced advertisements aimed at parents (‘Talk. They’ll Listen’). Several studies from the USA show that industry funded programs have not been effective192-196 and may even have fostered a more positive attitude towards the tobacco companies.192, 196 A large study conducted over a four-year period found that tobacco industry campaigns neither reduced smoking nor intention to smoke among the target audience, and that advertisements advising parents to talk to their children about smoking might have influenced teenagers in their senior high school years to smoke.194 None of these findings would surprise the tobacco companies, which do not intend their campaigns to thwart profitability or undermine industry operations.179, 184

10.14 The environmental impact of tobacco production As noted in Section 10.8.1, tobacco growing is shifting from developed countries and becoming concentrated in developing countries. Global tobacco production is forecast to continue increasing at least until the year 2010, and is expected to be matched by growing demand for tobacco products in the developing world as population and income increase.197 For the farmer, tobacco growing often presents an attractive alternative crop to food, for as well as bringing in a higher income, tobacco growers may also receive practical as well as financial assistance from the tobacco industry198 (although this is not necessarily the case199, 200) At the government level, tobacco growing may also be regarded in a favourable light due to the financial benefits it brings through trade and taxation, at least in the short term.201 From the point of view of the tobacco industry, production costs in the developing world are lower and the market is less regulated,197 making for a more conducive operating environment. Since the late 1970s, concerns have been registered by a number of environmental agencies regarding the impact of tobacco growing.201 The tobacco crop itself requires a high degree of maintenance, including pest and disease control, a regular water supply and fertilisers to optimise output. Although some tobacco leaf is air or sun-dried, the majority of varieties grown (particularly in the developing world) require curing with generated heat, usually fuelled by wood, coal or gas. Beyond the

Section: 10.14 Tobacco in Australia: 40 Facts and Issues

primary industry, cigarette companies run manufacturing operations to turn leaf into various tobacco products ready for distribution, marketing and sale to end users. The tobacco manufacturing industry generates a number of chemical by-products that are considered hazardous, including ammonia, nicotine and nicotine by-products, hydrochloric acid and toluene. In developed countries, appropriate disposal of these chemicals is strictly regulated; the same may not be true in developing countries where tobacco manufacturing is becoming more concentrated.202 The environmental impact of tobacco production has been taken up by the major tobacco companies as part of their portfolio for corporate social responsibility. The major tobacco companies display their environmental credentials by describing on their websites their adoption of sustainable and low-impact practices from farm to factory.3, 5, 19 But no matter how clean or green tobacco production can be, ameliorating environmental concerns ignores the most obvious environmental impact of tobacco production—the deaths of almost five million people worldwide each year.203

10.14.1 Land clearing and deforestation In some countries tobacco growing has lead to extensive land clearance and deforestation to make room for new crops, and to provide timber to fuel the heaters used to dry the tobacco leaf following harvest. Recent, independent information on the status of land maintenance in tobacco farming areas is lacking. The most authoritative review available examines data from 1990–95.201 This study found that in the early 1990s, 211,000 hectares of forests or woodlands were cleared each year for the purposes of tobacco farming, more than 90% of this occurring in the developing world.201 This was equivalent to 1.7% of global net losses of natural forest each year, or a mean average in tobacco-growing countries of 4.6% of total national deforestation in the five-year period from 1990-95.201 Overall, around half of the wood consumed for tobacco farming was gathered from common land and native forests, rather than from sustainable sources, and in some countries usage of wood from unmanaged sources was much higher.201 Case reports on farming activity in specific countries attested to the environmental damage caused by farming, and also to the ineffectiveness of measures for reforestation, citing instances of inappropriate plant stock and poorly supported programs.199, 204 Likewise, extravagant tobacco industry claims of extensive tree planting from the same time period did not stand up to scrutiny.205 Geist concluded that tobacco’s impact on forest resources had reached ‘high’ or ‘serious’ levels (higher than the national mean average of 4.6%) in almost one third of the 66 developing countries in which tobacco is grown, including South Korea, Uruguay, Bangladesh, Malawi, Jordan, Pakistan, Syria, China, Zimbabwe, Argentina, Tunisia and Burundi. In contrast, the impact of tobacco farming on woodland in developed regions such as Canada and North America, where there was a net increase in forest cover, was low.201 Reports commissioned by the tobacco industry in the 1980s and 1990s also signalled alarm at deforestation due to tobacco growing and curing.201, 205 The International Tobacco Growers’ Association (ITGA),* an affiliation of tobacco growers, claims that preservation of natural resources is a priority and that sustainability is encouraged in most countries where tobacco farmers use wood for fuel. The ITGA states that tobacco growers have contributed to the doubling of natural woodland in regions of southern Brazil.206

* See: http://www.tobaccoleaf.org/index.asp. ITGA is also discussed in Section 10.20.5.

Section: 10.14.1 Chapter 10: The tobacco industry in Australian society 41

On their websites, the major international tobacco companies claim adherence to principals of environment protection and sustainability while pointing out that in the main, the companies do not own tobacco farms and nor have direct control over farming practices.* For example, BAT encourages farmers to use non-wood fuels and sponsors forestry programs, as well as using packaging materials from suppliers who use sustainable sources.1 Philip Morris International states that it has developed ‘Good Agricultural Practices’ guidelines that include avoidance of deforestation and establishment of reforestation.5 Independent verification that reforestation programs such as those publicly supported by the tobacco industry are successful is not available.

10.14.2 Pesticide use Commercial tobacco growing involves the use of a range of herbicides, fungicides and insecticides to maximise crop production. In recognition of consumer concern about chemicals present in tobacco, as well as the environmental sequelae of inappropriate use of agrichemicals, all three tobacco companies operational in Australia include reassurances about leaf quality on their websites. Imperial Tobacco states that it performs tests ‘for the presence of residues of plant protection products’ on the leaf it uses.**3 Philip Morris and BAT both point to their companies’ leaf growing programs that aim to promote quality crops without compromising environmental or human safety5, 8 (at least prior to use). Until they were banned in the mid-1980s, Australian-grown tobacco was treated with organochlorines such as DDT and dieldrin,207 chemicals that have the ability to accumulate in the environment and the body. In 1981 the National Health and Medical Research Council expressed concern when the Australian Government Analytical Laboratories determined that Australian cigarettes contained 43 times more DDT and 30 times more dieldrin than samples of British or American cigarettes.208 Residues of DDT and dieldren were still evident in soil and river sediments from the tobacco producing Ovens and King region in Victoria in 1989,209 and may have been implicated in a higher rate of breast cancer detected between 1982 and 2002 in women living in the area.210 Research has shown that at least one Australian tobacco manufacturer—Philip Morris—was aware as recently as 1994 that the leaf it was using still contained organochlorines from pesticides banned in the preceding decade.207 Australian cigarette manufacturers are not required to divulge the levels of pesticide residues present in their tobacco products. Now that all tobacco leaf in Australian cigarettes is acquired on the international market and much of this leaf is sourced from developing countries, where use of agrichemicals may be less regulated, the question of pesticide residues levels in Australian cigarettes remains open, despite the assurances of the tobacco manufacturers.207 There is evidence from internal industry documents that the tobacco industry internationally has fought hard to retain the rights to use certain pesticides and has sought to influence regulatory processes in some countries.211

* Although this may be somewhat disingenuous. For example there is evidence that the tobacco companies may exert influence over farmers via the leaf dealers.227 ** Imperial Tobacco does not manufacture cigarettes in Australia, but does import here. BATA manufactures tobacco products for ITA under licence. However ITA does import a range of tobacco products. See Section 10.4.3.

Section: 10.14.2 Tobacco in Australia: 42 Facts and Issues

10.14.3 Tobacco production and climate change Climate change (or global warming) is caused by the increased concentration of certain gases trapped within the earth’s atmosphere. These gases, which include carbon dioxide, methane, nitrous oxide and manufactured substances such as chlorofluorocarbons, are heated by and retain warmth from the sun, leading to rises in average temperatures. These ‘greenhouse gases’ are present in greater quantities due to a range of human activities, including burning fossil fuels, clearing land, some aspects of farming (including using fertilisers), and some industrial processes.212 All phases of tobacco production have the potential to contribute to climate change, from farming to curing the leaf (which for some kinds of tobacco requires the use of heat generated by wood, oil, coal or gas), and the manufacturing process. The tobacco industry generally acknowledges issues concerning climate change, presenting policy statements and evidence of benchmarking towards reducing greenhouse gas emissions. BAT and ITG dedicate many pages on their international websites to their engagement with responsible environmental policies. In contrast, PMI makes only general comment about its aims of reducing factory emissions, and adhering to world ISO standards. ITG, BAT and Japan Tobacco are among the 3000-plus signatories to the Carbon Disclosure Project,* responding to regular questionnaires stating their performance in reduction of greenhouse emissions and progress towards targets. PMI is not a participant in this project. As an aside, the tobacco industry did not always embrace global environmental concerns. In the early 1990s, lobby groups closely connected with Philip Morris contributed to the public debate about climate change by denouncing the scientific evidence upon which arguments for global warming were based—along with other scientific ‘controversies’ such as the health impacts of second-hand smoke and radioactive waste from nuclear power reactors.213, 214

10.14.4 Genetically-modified tobacco leaf Public anxiety about genetically-modified crops has lead to ambivalent attitudes towards GM tobacco. According to ITG, ‘we do not wish to use genetically-modified (GM) tobacco, as we believe that our consumers do not wish to purchase products that may contain GM materials.’3 Other companies are investing substantially in GM research. Over the decades the tobacco industry has put considerable effort into altering the qualities of tobacco leaf through genetic manipulation. From an agricultural viewpoint, GM technology has offered prospects for maximising crop disease resistance and output. Tobacco companies have also experimented with genetic engineering as a way of manipulating nicotine concentrate—both reducing it,215 with the aim of providing a potentially less hazardous product, and increasing it, with the apparent intention of boosting addictiveness.216, 217 The most notorious example of tobacco industry efforts to achieve the latter is the case of BAT’s ‘super-tobacco’, a genetically-engineered

* The Carbon Disclosure Project is an independent, international non-profit institution which encourages publicly listed corporations to measure, manage and reduce emissions. The CDP website is the largest repository of corporate greenhouse gas emissions data in the world. See: http://www.cdproject.net/

Section: 10.14.4 Chapter 10: The tobacco industry in Australian society 43 plant variant which contained a much higher than usual amount of nicotine and was intended to make the company’s products more addictive.218 GM science is now being applied in the pursuit of less harmful forms of tobacco. Philip Morris (USA, Inc) has contributed $17.5 million to fund the mapping of the tobacco genome by the North Carolina State University,* and has also funded research into genetically-modified tobacco leaf that produces fewer carcinogens when smoked. RJ Reynolds, another US-based firm, has also successfully applied for field permits to test new tobacco strains.219 Vector Tobacco, a company ‘committed to developing products that significantly reduce the harmful elements found in cigarettes’81, has launched QUEST, a brand that uses leaf genetically engineered with reduced nicotine.81, 220

10.15 Ethical farming issues

10.15.1 Tobacco farming and child labour According to the International Labour Organization** (an agency of the United Nations), about 166 million children aged between 5 and 14 were involved in child labour in 2006. Nearly 70% of these children were active in the agricultural sector.221 Most child labour occurs in the Asia-Pacific region, sub-Saharan Africa, Latin America and the Caribbean.221 Child labour is common in many regions in which tobacco is grown, although the overall number of children involved is not known. Reports of the plight of child workers in tobacco plantations are available from commentators in Uganda, Zambia, Kenya and Malawi. These accounts describe the long hours and labour intensity of tobacco farming, and the economic necessity for children to work.199, 200, 222, 223 Apart from denying children access to education, work in the tobacco fields may also be hazardous, exposing children to pesticides and other chemicals, and to toxicity due to nicotine in the leaf (‘green tobacco sickness’—see also Chapter 3, Section 3.20). Poverty is a major impetus behind child labour, but not the only one: the ILO also identifies other important influences including social inequality, paucity of educational opportunities and options for decent adult employment, strongly agrarian economies, and traditional and cultural norms. Unscrupulous employers may play a part, and external events such as natural disasters, epidemics (such as HIV/AIDS) and armed conflict also push children into adopting the role of breadwinner.224 Not surprisingly the tobacco industry states its abhorrence of child labour, and each of the companies which operate in Australia provides its policies for perusal on its website.3, 5, 8 In 2002 the International Tobacco Growers’ Association (ITGA)*** established the Eliminating Child Labour in Tobacco (ELCT) Foundation with a membership comprising workers’ unions, tobacco manufacturers and the ITGA itself, with the aim of assessing the extent of child labour in tobacco growing, supporting projects to combat child labour, and sharing best practice.225 The ELCT Foundation’s 2005–06 Annual

* See: http://www.tobaccogenome.org/ ** See: http://www.ilo.org/global/lang--en/index.htm *** For further discussion about ITGA, refer to Section 10.20.5

Section: 10.15.1 Tobacco in Australia: 44 Facts and Issues

Report details activities in several countries in Africa, the Philippines, Indonesia, Argentina and Kyrgyzstan.226 The effectiveness of these policies and programs remains a matter for debate. Research by the Center for Tobacco Control Research and Education into the background and modus operandi of the ELCT Foundation has shown that the primary concern for the tobacco companies involved was to enhance their corporate image, without initiating any real change which might undermine the financial benefits presented by child labour.227 The authors of this study comment that the costs of banning child labour and introducing decent working conditions and remuneration for adult tobacco workers in Malawi would be about US$10 million a year, a sum easily affordable given the enormous revenues of the tobacco companies.227

10.15.2 Tobacco farming and ‘fair trade’ ‘Fair trade’ describes commercial transactions in which farmers and labourers who produce a commodity are paid a fair price, allowing for decent wages, living conditions and community sustainability.* Fair trade is most often associated with tea, coffee, cotton and cocoa grown in the developing world and sold to more wealthy countries. A noted in Section 10.8.1, most tobacco is sourced from the developing world where farming conditions are often harsh. Acknowledging this, the concept of fair trade in tobacco has been launched with 1st-Nation cigarettes, a brand produced by a small company led by and employing Mohawk Natives on the Akwesasne Reservation close to the border of New York and Ontario, using tobacco sourced from selected independent tobacco farmers in Malawi. At the time of writing, these cigarettes could only be purchased in the UK.94 While the good intentions of the individuals involved are not in doubt, the concept of a ‘fair trade’ cigarette has raised eyebrows. If the touchstone of fair trade products is ethical trading practices, what are the implications if the product itself is inherently dangerous when used as the manufacturer intended?228 Ironically, the very people which 1st-Nation wishes to support—poor tobacco farmers in the developing world and First Nation peoples of North America—are especially affected by the burden of tobacco-caused death and disease.** To date, 1st-Nation has not been accredited by any international fair trade organisation, since none of these organisations has endorsed standards which cover tobacco production.94

10.16 The environmental impact of tobacco use Cigarette butts are common litter items. An estimated 60% of Australian smokers do not dispose of their butts in a proper manner when smoking outside.229, 230 Tobacco packages consisting of cardboard, foil and plastic wrappers, and matches, match boxes and lighters also contribute to the volume of smoking related litter in Australia.

* See the international website for Fairtrade for further information: http://www.fairtrade.net/about_fairtrade.html ** Like some other Indigenous peoples, First Nation people have a higher prevalence of smoking than the rest of their country’s population and hence bear greater health consequences (see Chapter 8, Section 8.3.4). The burden of death and disease due to smoking is shifting to the developing world, where prevalence of smoking has not declined and in some regions continues to increase (see Chapter 3, Section 3.36).

Section: 10.16 Chapter 10: The tobacco industry in Australian society 45

According to Keep Australia Beautiful’s* National Litter Index for 2006-07, cigarette butts are the mostly frequently occurring form of litter, with an average of 35 butts per 1000m2 across national sites surveyed, and cigarette packets are found at an average rate of one per 1000m2.231 Clean Up Australia’s** annual Rubbish Report 2007232 similarly rates cigarette butts as by far the most common type of litter found in Australia, accounting by their reckoning for 12% of all items collected, compared to broken glass (7%) and chip and confectionery bags (6%). The Butt Littering Trust*** estimates that about seven billion cigarette butts are littered in Australia every year.229 Discarded cigarette butts have serious effects for the environment. Cigarette filters are made of plastic and are not readily biodegradable, taking from two months to 12 years to break down.229, 230 Chemicals in tobacco remnants in cigarette butts and toxic residue within the filters leach into soil and water, directly polluting these environments and having a measurable effect on wildlife.230, 233 In addition, discarded cigarettes and matches are an important cause of fires in Australia.102 The littering of cigarette butts is illegal in every state and territory.233 Various agencies around Australia have identified butt littering as an important environmental problem and are working to encourage other agencies and the public to address the issue. During 2007 the Federal Department of the Environment, Water, Heritage and the Arts announced a ‘National day of action on cigarette butt litter’ to be promoted through local councils.234 The Victorian Litter Action Alliance**** has compiled a Litter Prevention Kit and encourages local municipalities to take action on butt litter.230 In 2007, Sustainability Victoria***** launched a campaign to reduce butt litter timed to coincide with the banning of smoking in licensed premises.235 Through itsNational Litter Index, Keep Australia Beautiful gives prominence to the butt littering problem. 231 The Butt Littering Trust, an initiative of the tobacco industry also runs programs in partnership with local government and other agencies.229 This is discussed in the following section.

10.17 The tobacco industry’s response to tobacco litter The issue of tobacco-related litter has registered on the corporate responsibility agenda of the tobacco companies operating in Australia, but all distance themselves to some degree from the problem, making it clear that appropriate disposal of waste resulting from their products is not fundamentally their responsibility. Imperial Tobacco’s Corporate Responsibility Review 2007,236 declares that ‘Consumers have a responsibility to properly dispose of their litter, whether this is cigarette butts, chewing gum, drinks’ cans, fast food containers or any other items. We believe the best approach to tackling cigarette litter is for key stakeholders, such as the tobacco industry, government, environmental bodies, business and local communities, to work together to educate and to encourage this.’ On its international website, British American Tobacco likewise observes that ‘people cause litter,’ but adds that it continues to research improved

* See http://www.kab.org.au/ ** See http://cleanup.org.au/au/ *** A tobacco industry funded organisation; see http://www.buttlitteringtrust.org/. The BLT is described in the following section. **** An alliance comprising state and local government, industry and the community – see http://www.litter.vic.gov.au/www/html/20-home- page.asp ***** An organisation within the Government of Victoria. See http://www.sustainability.vic.gov.au/www/html/1722-who-we-are.asp

Section: 10.17 Tobacco in Australia: 46 Facts and Issues

biodegradability of its products.8 Philip Morris engages less directly still, but does note on its international corporate website that out of concern for ‘the reduction of waste and of the environmental impact of our packaging,’ it has reduced the weight of its cigarette packaging in Australia.5 In Australia, each of the tobacco companies has directly participated in anti-litter campaigns. In 2003, British American Tobacco Australia developed the Butt Littering Trust (BLT), and BATA remains its sole source of funding. The stated intention of the BLT is ‘to be Australia’s recognised leading organisation on butt littering reduction and provider of Butt-Free Solutions to reduce cigarette butt littering.’ Over the 60-plus programs it has funded, chiefly in partnership with local government authorities and the ‘Keep Australia Beautiful’ organisation, the BLT claims to have reduced butt litter by about 26%.229 Imperial Tobacco Australia236, 237 and Philip Morris Australia238 have also jointly sponsored other butt littering reduction programs with ‘Keep Australia Beautiful’ in some states. Typically, support is in the form of providing funding and publicity materials including butt bins, posters, stickers and personal ashtrays. The activities of the Butt Littering Trust have come under some scrutiny. Observers have pondered how an organisation which is entirely funded by a tobacco company can claim to be independent.239, 240 Other factors leading to cynicism about the activities of the BLT and BATA’s motivation for funding it concern the Trust’s concentration of effort on community education about butt disposal, rather than taking a broader view about reducing tobacco use itself. Added to this, there is evidence that the Trust has acted to further tobacco industry interests by lobbying against the ban of smoking in outdoor eating areas attached to cafés in at least one local government area.239 Funding anti-litter campaigns such as the BLT gives the tobacco industry the opportunity to gain some positive publicity, while keeping strict control of the messages smokers receive, and making useful local government connections along the way. The BLT’s programs do not appear to have been effective. The New South Wales Department of Environment and Conservation commented in 2006 that ‘Cigarette manufacturers have largely limited their product stewardship activities to funding community education. They appear to consider that such funding fulfils their product stewardship obligations. However, the activities and projects funded have not translated into widespread reduction of cigarette butt litter. The impact of current activities funded by cigarette manufacturers has not delivered a reduction in butt littering.’238 p 21 While urging smokers to ‘do the right thing’ with their cigarette butts and packets is laudable, it is only a partial solution to the litter problem.239 Actions such as reducing smoking rates, thereby improving public health and eliminating the product ‘at source’ is an obvious solution but not one likely to be embraced by the tobacco industry. Other initiatives for reducing tobacco-related littering that could be expected to have greater effectiveness include increasing penalties for and enforcement of butt littering regulations, placing a financial levy on tobacco products that is then directed towards litter education and clean up, requiring the tobacco manufacturers to improve biodegradability and reduce packaging of their products, ensuring the installation of proper butt disposal bins at litter ‘black spots’ such as building entrances,202 and placing obligations on the tobacco companies to meet independently audited litter reduction targets.241

Section: 10.17 Chapter 10: The tobacco industry in Australian society 47

10.18 Corporate links with charities and social causes Corporate sponsorship of sporting and cultural events was an important and highly effective source of tobacco advertising in Australia before it was banned by a number of states during the late 1980s and finally by federal legislation in 1992.* As well as enhancing their corporate image, sponsorship provided endless hours of visual and verbal brand exposure, linked cigarette brands with positive imagery and iconic events, bought considerable support for the industry when it needed friends, and effectively gagged potential anti-smoking advocates (such as sportsmen and women whose sport benefited from tobacco funds). Termination of these sponsorships has caused Australian tobacco companies to look elsewhere for ways in which to promote themselves. The advent of an agenda in corporate responsibility has lead to a focus on charities and groups with impeccable credentials, including aid for sick children, combating domestic violence and environmental stewardship. During 1999, PMA claimed credit in publicity material for supporting a number of charities in Australia, including Jeans for Genes Day, Red Nose Day,** the Lions Club and Ronald McDonald children’s charities. None of these charities had knowingly accepted funding from Philip Morris, since the money had either been received via a corporate entity related to PMA (Kraft—which ownsVegemite and other iconic food brands) or because donations had been made through employees of PMA apparently acting on their own behalf, rather than at the behest of the company. The revelation that donations could be attributable to a tobacco company caused consternation among the beneficiaries.242 In February of 2003, PMA co-sponsored a high-profile conference on domestic violence. The conference, ‘Breaking Point: A Corporate Conference on Work and Family Conflict,’ was organised by the Federal Government’s Office for the Status of Women.243, 244 Along with Senator Amanda Vanstone, then Minister for Family and Community Services, Philip Morris representatives from Australia and the USA spoke at the event.245 The Office for the Status of Women was strongly criticised by representatives from the Australian Medical Association243, 244 the Federal Opposition244 and the public health sector245 on the grounds that tobacco is a major killer of women, and that acceptance of tobacco sponsorship detracted from the importance of the issue of domestic violence, while enhancing the corporate image of PMA. More recent industry efforts by PMA to take the stage in Australia have failed. At a conference in 2004 a company representative was scheduled to deliver an address on public relations and corporate communications. After being made aware of PMA involvement, other speakers threatened to withdraw, and the conference organisers removed PMA from the program.246 The following year, an attempt by BATA to be associated with a conference on corporate social responsibility precipitated the exodus of other companies, including McDonald’s, Pfizer and the mental health group Beyond Blue.247 In the international arena, at least one similar ‘ethical’ event has been shunned by non-tobacco companies once tobacco industry involvement has been exposed.246

* Exceptions were made for some events. See Chapter 11 for further information. ** Ironically, funds raised by Red Nose Day support counselling services, research and education into Sudden Infant Death Syndrome. See: http://www.rednoseday.com.au/. Exposure to cigarette smoke, before and after birth, is a cause of SIDS. See Chapter 3, Section 3.8.2.

Section: 10.18 Tobacco in Australia: 48 Facts and Issues

Nevertheless BATA appears to have had some success in forging connections with several ‘charity partners.’ The logos and web links for these organisations* appear on the BATA website.1 Employees may choose to make donations to BATA’s charity scheme, and BATA pledges to match donations dollar-for-dollar. One of the charities to receive BATA support is Guide Dogs Australia, which provides services to the blind. Noting the well-established connection between smoking and blindness, ** one commentator has described this as an especially cynically calculated partnership.248 As part of its corporate responsibility strategy for the environment, BATA also supports the Butt Littering Trust (see Section 10.17). On its international website, Philip Morris pledges its support for ‘five defined areas: hunger and extreme poverty; education; environmental sustainability and living conditions in rural communities; disaster relief and domestic violence.’ In 2006, Conservation Volunteers Australia received $75,000*** from PMA.5 PMA has also supported Keep Australia Beautiful,238 along with ITA236, 237 (see Section 10.17). Imperial Tobacco makes no other specific mention of its activities in Australia, but states a preference for supporting charities or not-for-profit organisations in which its employees are actively involved and matching funds raised by employee activities.3 Corporate philanthropy is unapologetically connected with corporate advertising in the USA. There, Philip Morris has run television advertising campaigns informing the public of its good works, such as funding shelters for the homeless, food donations for the needy and programs against domestic violence.249 In fact Philip Morris spends millions more dollars on publicising its charitable works in the USA (US$150 million) than it actually donates ($US115 million).245 This advertising has also allowed Philip Morris to generate its own positive publicity in mainstream media although direct tobacco advertising is banned on television in the USA.249

10.19 Tobacco industry lobbying—overview While in the market place the tobacco companies are fiercely competitive, when it comes to protecting their collective patch—preserving corporate viability—they have demonstrated strategic and financial collaboration at the highest level. In Australia and internationally, the tobacco industry has developed a comprehensive, multifaceted, multi-level approach to defending its interests. These have included creating ways to undermine the credibility of the medico-scientific community and public health interests, the development of networks of influence throughout the business community and the political world, permeating community interest groups and charities, and the mobilisation of smokers, retailers, hoteliers, trade organisations and other potential supporters of tobacco industry objectives. The capacity of the tobacco industry to wreak havoc with tobacco control legislation has been identified as a major barrier to the introduction of health measures. In the Framework Convention on Tobacco Control, Article 5.3 (which outlines the general obligations of members) states that ‘In setting and implementing their public health policies with respect to tobacco control, Parties shall act to protect these policies from

* The following organisations are listed: Mission Australia, Conservation Volunteers Australia, Guide Dogs Australia, The Benevolent Society, Lifeline, Barnados, The Northcott Society, Life Saver Rescue Helicopter and The Abused Child Trust. ** Smoking is a cause of cataract and is a major risk factor for developing age-related macular degeneration, both of which may result in blindness. See Chapter 3, Section 3.10. *** It is not clear from the PMI website whether this amount is in US or Australian dollars.

Section: 10.19 Chapter 10: The tobacco industry in Australian society 49 commercial and other vested interests of the tobacco industry in accordance with Table 10.21 250* national law.’ Industry tactics used to counter Analyses of tobacco industry tobacco control measures tactics based on many years of observation been Including by: influencing content, pre-empting by devising voluntary codes of conduct, political published, such as those Lobbying and legislative 1 donations, activation of wider lobby of supporters, promoting legislation likely to be ineffective, 251 strategy by Sweda and Daynard, using delaying tactics 252 Saloojee and Dagli and Including by: funding, or threatening to withdraw funding, from supporting organisations, Legal and economic most recently, Trochim et 2 engaging in expensive legal proceedings, infiltrating official regulatory organisations, adopting intimidation al.253 Trochim et al categorise an overt legal stance to intimidate, cutting the price of tobacco to undermine taxation policy industry strategies into eight Including by: creating their own programs (such as youth prevention campaigns) to avoid broad bands of activity.** 3 Usurping the agenda stricter regulation, limiting tobacco control issues to youth smoking, shifting blame from the These are presented in Table industry to third parties (such as retailers, young people) Creating the illusion of Including by: using the law to counter regulatory initiatives, using independent ‘experts’ to 10.21. 4 support argue against measures, creating pro-tobacco lobby groups in the community Including by: intimidation through the courts, silencing industry whistleblowers, overwhelming The following sections 5 Harassment discuss some of the ways opposition with financial resources, infiltration of tobacco control groups in which the industry has Including by: supporting research and paying scientists to counter mainstream medical views, worked towards its goals. 6 Undermining science fostering confusion, creating scientific forums as a vehicle for disseminating industry views, infiltration of scientific literature The subject has been Including by: influencing content, taking advantage of ‘equal time’ to promote its own science, extensively explored in the 7 Media manipulation ghost-writing material for the media, misrepresenting facts when there is no time to verify, medical and public health acknowledging that tobacco causes harm but minimising the magnitude literature and references Including by: charitable works, embracing concepts of corporate responsibility, arguing that the cited in the following pages 8 Public relations industry is economically vital, casting tobacco control measures as victimisation of smokers, provide the interested reader overcomplicating issues with a wealth of further information. Source: Summarised from Table 1 in Trochim et al.253 p 142–3 10.20 Tobacco industry lobbying—the tools

10.20.1 Tobacco industry sponsored consultants The tobacco industry has long seen the advantage in financing and helping promote publicity for outspoken, media-savvy scientists who are prepared to challenge accepted views on smoking and health or various aspects of tobacco control, while appearing to be independent. Cooperation between the tobacco companies on a global scale has ensured that competent tobacco industry spokespeople have been shared.254-256 In Australia, it has been documented that at least nine visiting industry-sponsored scientists gained substantial publicity between 1969–1979, promoting a range of industry-friendly views debunking the health evidence about smoking. Over the years the views of these individuals were widely reported, often uncritically, by the news media. It is probable, given the timing and content of some of these publicity initiatives,

* Of course, the FCTC has itself been the object of intense tobacco industry lobbying. See Section 10.21.2.3 below. ** The study by Trochim et al conceptualises a model for tobacco industry strategies to undermine tobacco control programs, based on the experiences of a number of US-based tobacco control efforts and ranked in importance. Generally, the industry seems to engage in public relations and usurping the agenda on an ongoing basis, moving towards the more covert realms of harassment and legal and economic intimidation as required. Readers are referred to Trochim et al253 for further information.

Section: 10.20.1 Tobacco in Australia: 50 Facts and Issues

that tobacco industry consultants adversely influenced the course of tobacco control initiatives in those early days.254 In the late 1970s and into the 1980s, the Australian tobacco industry cultivated a home- grown dissenter, Sydney general practitioner Dr William Whitby, who self-published two books (Smoking is good for you and The smoking scare de-bunked). Although there is evidence that the industry recognised that Dr Whitby’s particular brand of pro-smoking fanaticism might pose a liability, it nonethless provided the means for his views to be widely disseminated and Whitby’s works were retained in the armoury of international tobacco circles well into the 1990s.255 The tobacco industry adopted similar techniques in efforts to subvert the accumulating medical evidence on second-hand smoke, as well as deflecting attempts to introduce bans on tobacco advertising and other forms of regulation of tobacco products in Australia and internationally. For example Philip Morris and other international companies collaborated to promote the views of scientists holding views on SHS counter to those of mainstream health authorities throughout Asia, Europe and the USA during the 1980s and 1990s.172, 173, 256–258 During the 1980s BAT ‘ghost-wrote’ reports for JJ Boddewyn published by the International Advertising Association and designed to counter bans on tobacco advertising.259 The Boddewyn reports on advertising were widely circulated internationally (including in Australia260) and formed the basis of industry campaigns to oppose advertising bans.

10.20.2 Tobacco industry affiliated research foundations The industry has established pseudo-scientific research foundations designed to give credibility to the notion that there remains controversy about the medical evidence on smoking on health. Funding research organisations has also allowed the tobacco industry to:173, 261-263 <

Section: 10.20.2 Chapter 10: The tobacco industry in Australian society 51 second-hand smoke, the industry established the Center for Indoor Air Research to fund projects which would support industry resistance to smokefree regulations.173 The Master Settlement Agreement-mandated closure of multi-company cooperative research and lobbying organisations has lead to the sprouting of a new crop of organisations post-Settlement, including the Institute for Science and Health (funded by BAT and Brown & Williamson), the Philip Morris-connected Life Sciences Research Office,264 and the Philip Morris External Research Program (PMERP). A critical analysis of the first round of projects funded by the PMERP shows that foci of the Program’s interest were projects which would deliver findings likely to support Philip Morris’ corporate aims. An added bonus was using the program as a vehicle for identifying cooperative scientists, as well as gaining credibility and goodwill.262 Other groups have been established to divert attention and trivialise smoking in ways appealing to the popular media. In the early 1990s the Advancement of Sound Science Coalition (TASSC), funded by Philip Morris, purported to be a grassroots coalition of people fed up with health scares and ‘junk science.’214 Associates for Research into the Science of Enjoyment (ARISE) claimed to be an affiliation of independent scientists but was actually substantially funded by several tobacco companies. ARISE’s brief was to show how ‘everyday pleasures, such as eating chocolate, smoking, drinking tea, coffee and alcohol, contribute to the quality of life.’265

10.20.3 Australian-based organisations The Australian Tobacco Research Foundation (ATRF) opened for business in 1970, the joint creation of the three major tobacco companies operating at the time (WD & HO Wills, Rothmans and Philip Morris), which shared its funding and oversaw its governance. Although criticised from the start for its overt mission of forestalling tobacco regulation and widespread cynicism that it would contribute to robust, impartial research, the ATRF fulfilled a useful PR function for the following two decades, chiefly by providing evidence that the Australian tobacco companies supported independent medical research.261 The ATRF entered terminal decline in 1988, when, in response to building criticism from health interests about the shared interests of and blurred organisational boundaries between the ATRF and the tobacco companies, the entire scientific advisory committee of the ATRF wrote to theMedical Journal of Australia declaring its unanimous agreement that smoking caused disease.266 Negative publicity, compounded by increasing rejection of tobacco research money by the medico-scientific community, lead to the scaling down and eventual closure of the ATRF in 1994.261 Meanwhile the industry was engaged against second-hand smoke (SHS) through the offices of another organisation. In 1987 the Tobacco Institute of Australia (TIA) facilitated the establishment of a local offshoot of the US-based Air Conditioning and Ventilation Associates (ACVA) Atlantic, which came to be known as Healthy Buildings International (HBI).267 HBI’s brief was to promote the tobacco industry view that the evidence about SHS was inconclusive; that SHS is a minor issue in the context of overall indoor air quality, and concerns about smoking indoors could be adequately met with appropriate ventilation and by providing smoking areas.* HBI gained a high public profile, achieving extensive media coverage and a wide professional audience for its views, while always asserting its status as an independent organisation.267 During the 1990s HBI gained membership on an advisory committee charged with revising

* The tobacco industry’s response to SHS is discussed further in Chapter 3, Section 3.25.

Section: 10.20.3 Tobacco in Australia: 52 Facts and Issues

Australian Standards for indoor air, a position which allowed it to influence the committee’s recommendations, as well as keep Philip Morris abreast of developments, until HBI was exposed and its position on the committee terminated in 2002.267*

10.20.4 Tobacco industry funded research in institutions As discussed in Section 10.20.2 above, the industry has used its own funding bodies, their connection with the industry often obscured, as a conduit for distributing money into mainstream universities and other research institutes. Over the years, acceptance of tobacco industry funding has been widespread in Australia268 and globally,263 generating rafts of studies with findings beneficial to the tobacco industry. In turn, this research has permeated the peer-reviewed medical press. For example Philip Morris provided the funding for an Israeli study into the determinants of uptake of smoking in young women,269 which examined the influences of genetics, environment and psychological characteristics. Critics have pointed out that the study neglected to include the possible impact of tobacco advertising.270 The successful infiltration by the tobacco industry of reporting of published research in Germany has been credited with serving the industry’s interests of increasing the social acceptability of smoking and undermining tobacco control initiatives in that country.271 Prominent researchers at New York’s Weill Cornell Medical College caused controversy in 2008 when it became public that they had earlier accepted grants channelled through a tobacco-funded organisation called the Foundation for Lung Cancer: Early Detection, Prevention and Treatment, and that findings from this research272 had been published in mainstream medical press without disclosure of tobacco funding.273 As well as providing funding to individual scientists or departments, in some cases tobacco companies have established entire programs within universities. For example, Philip Morris has funded the Center for Nicotine and Smoking Cessation Research, within Duke University’s Nicotine Research Project (in Richmond, Virginia).274 In 2002, in an audacious move which might be funny were it not so cynical, the University of Nottingham accepted funding from BAT to establish the International Centre for Corporate Social Responsibility,** invoking, according to one observer, ‘the ethics of the cash register’275(see Section 10.11 for more discussion on the tobacco industry and corporate social responsibility). To accept or refuse tobacco funding clearly raises important ethical questions. Arguments against accepting tobacco grants include that:174, 263, 276 <

* However HBI remains a commercial entity and on its website it continues to downplay the contribution of SHS to indoor pollution. See: http://www.hbi.com.au/smokepol.html ** See: http://www.nottingham.ac.uk/business/ICCSR/about/FoundationofTheICCSR.html

Section: 10.20.4 Chapter 10: The tobacco industry in Australian society 53

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* This article by Chapman includes further information regarding the policies of Australian universities in this article supplement weblink: http://jech.bmj.com/cgi/data/58/5/361/DC1/3

Section: 10.20.4 Tobacco in Australia: 54 Facts and Issues

10.20.5 Establishment of international manufacturers’ and growers’ organisations For many years the tobacco industry has recognised that it needs to present a unified front against the enemy posed by health organisations. In the late 1970s, at the instigation of Imperial Tobacco in the UK and Philip Morris International, a coalition of tobacco company executives from major companies operating in the UK, the USA and Europe was formed with the shared purpose of defending the tobacco industry against attack and to champion the ‘social acceptability’ of smoking. To this end, the manufacturers agreed to cooperate in perpetuating the ‘controversy’ over smoking and health and to maintain that there was no proven causal link between smoking and lung cancer.166 This industry group, which operated under conditions of utmost secrecy, was to become known as the International Committee on Smoking Issues (ICOSI) and in 1981, INFOTAB. Its brief soon extended beyond orchestrating the international smoking and health controversy. INFOTAB acted as a ‘hub’ for the industry’s national manufacturing organisations, tobacco companies and leaf dealers, facilitating the exchange of information and expertise. Up until it ceased operation in 1990‒91, INFOTAB provided its membership (including the Australian national manufacturing organisation—the Tobacco Institute of Australia)—with: 282 <

* McDaniel et al provide a detailed account of the activities of ICOSI, INFOTAB, ATS and Hallmark Services.283 ** See: www.tobaccoleaf.org

Section: 10.20.5 Chapter 10: The tobacco industry in Australian society 55

ITGA’s website stoutly defends tobacco farmers against environmentalists’ claims that tobacco farming has caused deforestation (see Section 10.14.1). ITGA also discusses its connection with the Eliminating Child Labour in Tobacco (ECLT) Foundation and its commitment to combating child labour. (see Section 10.15.1).

10.20.6 Australian manufacturers’ organisations

10.20.6.1 The Tobacco Institute of Australia Ltd

The now inactive Tobacco Institute of Australia Ltd (TIA) was the main locus for tobacco industry lobbying in Australia from its inception in 1978 until the late 1990s.282* Established as a national manufacturers’ association in response to growing negative publicity about smoking, the TIA was jointly funded by the tobacco companies operating in Australia at the time with a charter to ‘promote understanding of the tobacco industry in Australia’.284 This the TIA did chiefly by representing its member companies to the public, the government and other authorities and through negotiating policy issues on behalf of its constituency. In effect, the TIA’s major roles were to lobby against tobacco control measures, to present a united public face of the Australian tobacco industry wherever needed, and to sow seeds of doubt and denial about the health effects of smoking and other matters of ‘controversy’.** Through its alliance with INFOTAB and other national manufacturers’ organisations (particularly the US Tobacco Institute),282 the TIA and its membership were also kept abreast of tobacco issues worldwide. In her analysis of the workings of the TIA, Carter has divided the TIA’s 20 years of activity into four distinct chapters.282 In its first six years, the TIA’s work was primarily involved with networking and promoting tobacco industry views on smoking and health, advertising and children, second-hand smoke, and the tobacco industry’s financial importance. Its second phase, from 1983 until 1989, was marked by aggressive advocacy mostly under the stewardship of chief executive officer John Dollisson. The TIA’s court case (and eventual bruising loss) against the Australian Federation of Consumer Organisations brought this chapter to a close, after which the TIA entered five difficult years of transient leadership, fractured support and apparent demoralisation. In the TIA’s final phase, from 1994 to 1997, it was staffed by lawyers and its approach to public affairs became more disciplined and proactive. In its heyday, the TIA ran high-profile media campaigns to promote its views, the main focus being second-hand smoke. In 1985 the TIA lodged a four page ‘advertorial’ spread in the Australian Women’s Weekly. The advertisement purported to represent the facts about SHS and in layout it appeared to be a feature article typical of the Weekly. The TIA’s association with the advertorial appeared in small print at the end of the piece, ‘inserted in the interests of fair and open discussion by the Tobacco Institute of Australia Ltd.’ The information on SHS provided in the advertisement was at odds with mainstream medical and scientific findings reported at the time. In response to complaints, the

* For a detailed account of the activities of the TIA over its 20 year lifespan, refer to Carter.282 ** To read, view and hear a collation of public statements made by tobacco industry executives and officers from the TIA dismissing the impact of smoking on health, visit http://tobacco.health.usyd.edu.au/site/supersite/resources/docs/gallery_leaders.htm and http://tobacco.health. usyd.edu.au/site/supersite/resources/docs/diary_of_denial.htm

Section: 10.20.6.1 Tobacco in Australia: 56 Facts and Issues

TIA’s advertisement was deemed by the Advertising Standards Council (ASC) to be misleading in presentation (in that it was inadequately identified as paid advertising material) but no ruling was made on its content, this being outside the ASC’s remit. Two half-page newspaper advertisements were devised and lodged by the TIA in July of the following year, again defending the industry against claims regarding SHS. The advertisements appeared in 14 newspapers across Australia. The advertisements selectively quoted a number of sources, including the World Health Organization and the American Cancer Society, giving the impression that these bodies did not support the view that SHS is harmful to health. Among other things, one of the advertisements declared that ‘there is little evidence and nothing which proves scientifically that cigarette smoke causes disease in non-smokers.’285 Again, in response to complaints made to the ASC and the Trade Practices Commission, the TIA was reprimanded. The issue was subsequently taken up by the Australian Federation of Consumer Organisations (AFCO), which brought a case against the TIA in the Federal Court, on the grounds that the newspaper advertising was misleading or deceptive and therefore in contravention of Section 52 of the Trade Practices Act (1974). In a groundbreaking decision handed down by Justice Morling, the AFCO won the case, and the TIA lost an appeal it subsequently brought against the decision. AFCO v TIA resulted in a landmark decision of international significance, in which a link between SHS and disease among non-smokers was accepted by a court of law.* And in an outcome which could hardly have been worse for the TIA, the Morling decision gave legal impetus to the surge towards smokefree workplaces.

10.20.6.2 The Tobacco Information Centre Inc

The Sydney-based Tobacco Information Centre was established in December 1996 by Rothmans of Pall Mall (Australia) Ltd, WD & HO Wills (Australia) Ltd and Philip Morris (Australia) Ltd, ‘as a library of tobacco and smoking-related information.’ 286 According to its publicly stated brief, the TIC’s function was to ‘provide current, timely and high-quality tobacco-related information to Australia’s three tobacco companies,’ as well as to government bodies, politicians, industry and trade organisations, special interest groups and members of the public. The TIC categorically denied that it had any role in undertaking political lobbying, public affairs work or media liaison on behalf of its funding members.286 The TIC published a tobacco industry fact newsletter, another newsletter Peace( Pipe) that reported on ‘current smoking issues’, and a number of fact sheets.286 The TIC no longer appears to be active.

10.20.7 Smokers’ rights groups Smokers’ rights groups provide a further conduit for tobacco industry lobbying by claiming to represent the views of the smoker. They are intended to mobilise smokers, offering them reassurance, and providing a vehicle by which they may voice opposition to tobacco control measures.287 Primarily arising in response to moves to restrict smoking in public places, smokers’ rights groups also address issues such as tobacco taxes. Smokers’ rights groups typically portray their membership as the beset-upon

* For a full account of this court case a well as transcripts of the judgement, see Everingham and Woodward.285

Section: 10.20.7 Chapter 10: The tobacco industry in Australian society 57 smoker, indulging in a legal behaviour, being unreasonably harassed by over-zealous ‘ant i’s .’ Early Australian examples of smokers’ rights groups include the Smokers’ Rights League in the late 1970s,287 and FOREST (Freedom Organisation for the Right to Enjoy Smoking Tobacco), which was established in Victoria during the mid-1980s in response to concerns about SHS. Smokers were told that ‘by supporting FOREST you can support the interests of all smokers in Australia. You can have your say with State and Federal Governments, transport operators, advertisers, newspapers, radio and television and, through FOREST, you can let them all know you are tired of being pushed around…’288 Fair Go began in NSW in the late 1980s with the brief of countering bans on smoking in NSW trains, before moving on to a broader canvas of smokers’ concerns.289 The Tobacco Smokers Freedom Movement Inc emerged in Western Australia in 1993, offering cigarettes at discount prices and stating its intention to lobby on behalf of smokers’ rights.290 The extent of the relationship between the tobacco industry and these Australian groups was never clarified, but overseas experience demonstrates that the tobacco industry was directly involved in the establishment of and ongoing practical support for smokers’ rights organisations.287 Internationally, smokers’ rights groups are deemed to have offered little in the way of lasting assistance to the tobacco industry, never capturing the membership or even the interest of smokers on a significant scale. Only a small number of groups appear to remain active, none of these in Australia.287

10.20.8 Tobacco retailers as a lobby base Tobacco retailers constitute an obvious and ready-made lobbying base for the industry to use to promote the industry view. Firstly, they have a clear interest in protecting their income stream against potential threat. Secondly, in their front-line position selling tobacco, they are able to provide information and promote industry views within the community. Thirdly, their business profile gives the tobacco industry access to all levels of government. From the earliest days of the smoking and health ‘controversy,’ tobacco traders have been armed with the means to pacify nervous smokers. An investigation of trade journals (The Australian Retail Tobacconist and its state-specific predecessors) dating back to 1950 shows that these magazines included articles providing industry guidance on how retailers could reassure their customers. Retailers were also advised how to keep their products attractive to the ‘youthful novice’ smoker and young women smokers.291 The authors of this research contend that today’s tobacco trade journals may continue to perform the role of promoting industry views and providing counter arguments to tobacco control measures.291 Prior to bans on advertising at point of sale, it was usual for tobacco companies to provide retailers with display cabinets, advertising material, support merchandise, and functional fittings such as outdoor awnings, hours of opening signs and so forth. With increased restrictions on advertising in the media, the function of ‘point of sale’ advertising at retail outlets became ever more critical. The tobacco companies compete for dominance on the shop floor and in display units by offering financial and other incentives to retailers to give prominence to their brands.292 The central importance of the retail outlet as a conduit for communication with customers in the wake of advertising bans is discussed in Chapter 11, Section 11.6.2.

Section: 10.20.8 Tobacco in Australia: 58 Facts and Issues

Tobacco retailers have been rallied to support the industry against the encroachment of tobacco control regulation in regard to tobacco advertising, smoking restrictions and tax increases on tobacco products.291 In 2008, Philip Morris canvassed retailers in NSW to solicit their support in opposing bans on tobacco displays at point of sale. As well as providing information (in several languages) about why retailers should feel concerned about further restrictions, Philip Morris urged retailers to express their views to relevant state politicians and offered further information and assistance if needed.293

10.20.9 Marshalling opposition to smoking bans in entertainment and social venues The tobacco industry has vigorously opposed restrictions on smoking because it limits opportunities to smoke, so reducing consumption, and further denormalises smoking behaviour, so discouraging uptake and influencing smokers to quit.294-297 The introduction of smoking restrictions in most Australian workplaces during the 1980s and 1990s was a major blow for the tobacco industry. In recent years, attention has moved to thwarting smoking restrictions in entertainment venues such as bars, restaurants, nightclubs and other licensed venues, and gambling environments. The tobacco industry has made strong allies of the hospitality industry in Australia169, 298 and internationally299, 300 chiefly through fostering fear that smoking bans will adversely affect their profitability if not their survival (an industry argument which is not supported by the evidence300). During the 1990s a former chief executive officer of the Tobacco Institute of Australia (TIA) became the national executive director of the Australian Hotels Association (AHA), and since that time the AHA has actively supported the tobacco industry in opposing smoking restrictions and bans and challenging the scientific evidence on second-hand smoke.169 The Australian Hotels Association website* provides a range of resources for its members, including materials designed for distribution to government. Key points made by the AHA include arguments claiming that smoking bans: <

* See http://www.aha.org.au/resources.html

Section: 10.20.9 Chapter 10: The tobacco industry in Australian society 59

10.21 Tobacco industry lobbying—the targets

10.21.1 Major scientific reviews The findings published in authoritative scientific reviews about smoking and health, the publicity they generate and the impetus they give to governments to introduce tobacco control policies inflict huge damage to the tobacco industry. Consequently the industry engages vigorously with scientific process using many of the tools described in the preceding sections, such as countering mainstream science with its own research and employing apparently independent third parties to argue on their behalf. The industry has also directly engaged in attempting to disrupt the review process. For example, in Australia, the industry mounted a concerted effort to undermine and derail the National Health and Medical Research Council’s scientific review on passive smoking, finally published in 1997.169 The Tobacco Institute of Australia (TIA) launched legal challenges regarding the procedure of the review, attempted to discredit individuals on the Council’s Working Party, and commissioned several consultants to make submissions to the Working Party expressing pro-industry views. The industry also primed allies to speak to the media in its support. The TIA had a fair measure of success, in that publication of the recommendations of the final report was prevented on procedural grounds (but not because the actual science of the report, or the content of the recommendations, was in question). Nonetheless this provided enough ammunition for the industry to dismiss the report and its findings widely in the media.169 In the USA, the tobacco industry launched a similar offensive170 against California’s Environment Protection Authority which issued a report on Environmental Tobacco smoke in 1997.302 The industry exerted pressure on the EPA and related instrumentalities, attacked procedural issues, and directly lobbied politicians. The industry also courted the news media in an effort to promote its views; Philip Morris went so far as to provide financial support for the National Journalism Centre (a school of journalism).303 As in Australia, the tobacco industry was successful in delaying the process and eventual release of the report, and took every opportunity along the way to gain positive publicity by discrediting the report and the procedures followed in its development.170 The International Agency for Research on Cancer was also targeted by Philip Morris with strategies intended to undermine its work on SHS by disputing the research, influencing media coverage and countering government attempts to introduce smoking restrictions.171

10.21.2 Countering tobacco control legislation Influencing the direction of government decision making in Australia and elsewhere is an abiding concern for the tobacco industry and in the light of the health evidence against its products, necessary for its survival. Once legislation is in place, it is difficult to overturn. If shown to be effective in one part of the world, tobacco control legislation is often replicated in other jurisdictions.

Section: 10.21.2 Tobacco in Australia: 60 Facts and Issues

It is a general rule of thumb in tobacco control advocacy that the more effective a particular initiative is going to be, the more aggressively the industry will oppose it. Regulation which gains industry support is not likely to be any serious threat to the industry. The extent of industry influence is not to be underestimated, especially in regions where tobacco is grown and government and industry share economic concerns. Speaking of its lobbying activities in Kenya, for example, BAT has boasted that ‘the law was actually drafted by us but the Government is to be congratulated on its wise actions.’304 The history of industry opposition and lobbying in regard to legislation initiatives in Australia has been well-documented. The earliest battlefields related to the introduction of restrictions on advertising305-307 and later, health warnings on tobacco packages.308 Regulatory initiatives to introduce of restrictions on smoking298 and increase tobacco taxation309 have also provoked vigorous response. Since the 1990s and the industry’s new regard for corporate social responsibility, the tobacco companies, to varying degrees, espouse ‘appropriate’ regulation of their products. For example, the PMI website5 assures its visitors that ‘We’re working with governments and the public health community to help create strong and effective tobacco regulation,’ an assertion which doubtless astonishes the public health community worldwide in the light of Philip Morris’s activities to ensure that precisely the opposite occurs. Table 10.21 in Section 10.19 lists the industry tactics used most often to counter tobacco control regulation.253*

10.21.2.1 Case study: pre-emptive self regulation

Arguing for self regulation is a tried and true industry tactic. It provides the industry with a means of avoiding strong and effective governmental regulation by taking the initiative to introduce its own voluntary code of conduct. The industry reaps the dual benefits of appearing responsive to government and public concerns, while simultaneously ensuring that any such voluntary code is harmless to industry interests. In contrast, legislation carries penalties for non-compliance, is difficult to rescind, and closes the door on further negotiation. Philip Morris has introduced its own system of placing ineffective health warnings on its packaging for use in countries (particularly the developing world) where regulation was weak or not in place. Internal documents show that Philip Morris deliberately gave the appearance of responding to public health concerns (while doing so very much on its own terms) and simultaneously earned positive publicity for its responsible stance.310 Until superseded by state and federal legislation, tobacco advertising in Australia was in large part subject to a series of voluntary agreements struck between the tobacco companies and the federal government. The elasticity of the voluntary agreements and the many and varied ways in which they were flouted by the tobacco companies have been well documented175, 311 (see Chapter 11 for further discussion).

* Subsections 10.21.2.1–10.21.2.3 briefly describe some of the ways in which the industry has put its strategies into action.

Section: 10.21.2.1 Chapter 10: The tobacco industry in Australian society 61

10.21.2.2 Case study: opposing the introduction of reduced fire risk cigarettes

During the 1980s and 1990s the US tobacco industry countered demands for the introduction of RFR technology (despite having the ability to do so) by arguing that it was technically impractical, that no testing system could be failsafe, and that people, not cigarettes, caused fires. The industry also complained that the enforcement of RFR regulations would result in higher cigarette prices, increase cigarette toxicity, meet consumer resistance, and lead to reduced sales and fewer brands on the market.106, 109, 110* However it is probable that the real reason that the tobacco industry did not wish to adopt RFR technology was out of fear of product liability:108, 109 that victims (or insurance companies) would be able to make claims for damages from fires started by cigarettes. Added to this, the industry would incur expenses in adapting its processing,109 and the corporate philosophy within the tobacco industry is described as being resistant to change if it can be avoided.108 In lobbying against RFR the industry courted the support of firefighting organisations; groups which one might assume on first principles likely to be in favour of RFR cigarettes. The industry achieved this by funding education campaigns and encouraging volunteerism, supporting the introduction and maintenance of smoke alarms, by supporting improved firefighting recruitment and training, and lobbying for the introduction of regulations for fire retardant furniture. During the 1980s the tobacco industry successfully withstood the pressure for RFT cigarettes, with the assistance of its new found allies.109, 313 Continued dedication to seeing the introduction of legislation by a single congressman (John Joseph Moakley) and later his supporters ultimately gained the support of firefighters, probably crucial to the final success313 of the legislation now in place in many states of the USA and nationally in Canada.104

10.21.2.3 Case study: undermining the Framework Convention on Tobacco Control

The Framework Convention on Tobacco Control (FCTC) initiated in 1999 by the World Health Organization and signed by 168 countries (as of September 2008), represents an orchestrated threat to the industry on a global scale. It is therefore not surprising that the industry has attempted to thwart the development and subsequent ratification of the FCTC.314 Between 1999 and 2001, British American Tobacco, Philip Morris and Japan Tobacco International worked together on ‘Project Cerberus’, an initiative intended to devise an alternative voluntary code for advertising and other industry conduct, which it hoped governments could be persuaded to accept instead of signing up to the FCTC.315 Companies have also conducted their own offensives against the FCTC. For example Philip Morris employed a public policy and issues management firm (Mongoven, Biscoe and Duchin) in 1997 to advise on the processes for formulating and ratifying the FCTC and how these might be subverted. Carter’s analysis of industry documents shows that MBD gained high level access to the process within WHO. Among its recommendations, MBD advised PM to delay the process; to attempt to steer the convention towards a focus on children (thereby leaving the rest of the market open

* Research undertaken in New York State since the introduction of RFR regulations has shown that none of negative outcomes predicted by the tobacco industry subsequently occurred.110, 312

Section: 10.21.2.3 Tobacco in Australia: 62 Facts and Issues

for ‘adult choice’) and to seek allies among non-government organisations. It was deemed especially important to influence content of the convention, and to engage with individual member states with a view to nurturing wider regional support.314 Carter observes that there is no reason to believe that MBD is not still working on PM’s behalf against the FCTC.314 There is strong evidence that the industry has engaged in lobbying on a regional basis, attempting to influence governments to comply with the least stringent options stipulated in the FCTC.316-319 The FCTC is discussed in detail inChapter 17.

10.21.3 Subverting public health initiatives and tobacco control organisations It is not surprising that the tobacco industry should keep a watching brief on the activities of public health organisations which promote views inimical to their own. Cooperative efforts within the industry to keep abreast of developments in tobacco control go back at least as far as the World Conference on Smoking and Health in the late 1970s.166 Probably the most detailed account of how the tobacco industry has responded to tobacco control initiatives is contained in the 260 page report published by the World Health Organization (WHO) in 2000.320 This report examined the internal tobacco industry documents which were made public as a result of the Master Settlement Agreement of 1998 with a view to determining how the industry had sought to counter the objectives of WHO. The documents revealed that multiple strategies had been used, including: <

Section: 10.21.3 Chapter 10: The tobacco industry in Australian society 63

just as importantly, about overcoming a determined and powerful i n du s t r y.’ 320 p 244 In the USA during the 1990s, the tobacco industry countered major National Cancer Institute initiatives promoting community-based tobacco cessation projects. The program, American Stop Smoking Intervention Study (ASSIST) was the largest and most comprehensive tobacco control program launched in the USA, and was strongly oriented to interventions and activities at a local level.321 The tobacco industry response was thorough. The industry monitored the projects, attempted to infiltrate them, obstructed them in some communities, and seeded negative media stories. A network of allies to assist in lobbying was organised. The industry attempted to have pre-emptive legislation introduced to protect tobacco advertising. The industry also attacked the basis of the project as a misuse of taxpayers’ money to unfairly target the tobacco industry and launched a number of lawsuits which disrupted and delayed program implementation.321, 322 Litigation has also been used by the industry as a weapon against other tobacco control campaigns in the media, such as those run by the American Legacy Foundation and the California Tobacco Education Media Campaign.323 As well as targeting interventions, the industry pays attention to the organisations which work against its interests. Evidence from internal tobacco industry documents in the USA shows that tobacco companies attempted to infiltrate at least two organisations. STAT (Stop Teenage Addiction to Tobacco) and INFACT (formerly the Infant Formula Action Coalition) were active and effective during the 1990s and pursued agendas antithetical to industry interests.324 In their efforts to gain intelligence on the activities of these groups, the tobacco industry used intermediaries to access materials on their behalf and to attend conferences, planted public relations consultants as spies to attend and report on meetings, and illegally tape recorded meetings.324 The industry has also made it its business to publicly discredit key individuals working in tobacco control.156, 314 The evidence for tobacco industry infiltration of health interests in Australia is sparse but it is probable that it has been attempted. According to a former CEO of the Tobacco Institute of Australia, at one stage the TIA engaged a private investigations agency to arrange for rubbish bins belonging to certain health organisations, such as the NSW Cancer Council and the National Heart Foundation, to be searched in an effort to discover the health lobby’s forward planning and funding details.325 Philip Morris USA took a different tack in 1995, undermining public health initiatives by appearing to offer them its support.156 As part of ‘Project Sunrise,’ Philip Morris identified and then actively sought dialogue with public health advocates which it deemed to be ‘moderate’ in view and likely to be persuaded to see advantages in forming cooperative policies on tobacco control (such as concentrating on harm reduction strategies rather than on policies which would impact more negatively on industry profitability and survival). The benefits of any alliances would be multiple: they would buy PM social credibility; they could act as a conduit for PM’s views in arena in which PM would normally be excluded; and they might help ensure that any programs supported or regulations developed were acceptable to PM. But above all, PM could argue that people who did not wish to associate with them were ‘prohibitionists’ or ‘extremists,’ establishing useful schisms between tobacco control advocates and diluting their effectiveness.156

Section: 10.21.3 Tobacco in Australia: 64 Facts and Issues

10.22 Donations to political parties In Australia it is a legal requirement that donations made by individuals or entities to registered political parties to the value of or greater than $10,000* are declared to the Australian Electoral Commission (AEC). The AEC posts on its website** donor annual returns dating back to the financial year 1998‒99. Table 10.22 shows the total amounts of tobacco money received by the three major political parties in Australia since then. In February 2004, the then leader of the Australian Labor Party (ALP) opposition, Mr Mark Latham, announced that the ALP would no longer accept donations from tobacco companies.326 The Liberal Party of Australia (LPA)327 and the Australian National Party (ANP)328 have continued to receive donations from PMA and BATA on an ongoing basis, and have publicly stated that they see no reason to stop doing so. Neither the Australian Democrats329 nor the Australian Greens330 take tobacco company donations as a matter of policy. Soon after Mr Latham’s announcement in 2004, a Private Members’ Bill was proposed by ALP MP Mr Duncan Kerr and seconded by LPA MP Dr Mal Washer. If passed, the Commonwealth Electoral Amendment (Preventing Smoking Related Deaths) Bill (2004-05)*** would have prevented political parties and individual candidates from accepting donations from tobacco companies. The Bill was first read in the House of Representatives on 16 February 2004331 but was to founder quietly the following year in the absence of support from the then Liberal-National Coalition government. Prior to the ALP’s refusal of donations from tobacco companies, all three major political parties received significant contributions from PMA and BATA. ITA does not appear to have made political donations. In general, substantially larger amounts of funding have been directed by both tobacco companies towards the conservative parties (LPA and ANP) even prior to the ALP ban, which is likely to reflect preference by the tobacco companies for conservative politics, as well as the fact that the Liberal/National Coalition was in power for the entire period shown in Table 10.22. Australian political parties have received in total about $1.46 million in donations from BATA, and $1.16 million from PMA since 1989–99. Since the ALP’s rejection of tobacco donations in 2004, the Liberals and the Nationals have jointly received between $200,000–$300,000 annually. In December 2005, under the Coalition federal government led by Mr John Howard, rules concerning the minimum value of donations requiring disclosure were changed and the reportable limit increased from $1500 to $10,000. According to The Age newspaper, this has simultaneously led to an increase in political donations from all sources as well as opacity in tracing their origins.326 For example, investigations by the The Age showed that although the donor annual return filed by the LPA for the financial year 2005–06 detailed income directly received by the party from tobacco companies; it could not be ascertained from the return that some of the LPA’s closely-allied fund- raising organisations such as The 500 Club and the Bayside Forum were also in receipt of tobacco money.326 Although these donations were declared by the tobacco companies in their own annual returns to the AEC, the current system of reporting does not guarantee clear, one-stop disclosure of funding sources.

* Previously the limit was $1,500 – see discussion later in this section. ** http://fadar.aec.gov.au/ *** http://parlinfoweb.aph.gov.au/piweb/Repository/Legis/Bills/Linked/30050501.pdf

Section: 10.22 Chapter 10: The tobacco industry in Australian society 65

In February 2008, ALP Prime Minister Mr Kevin Rudd announced his intention to reform political donation laws.332 Inquiries are currently underway federally* and at the state level in Victoria** and New South Table 10.22 *** Wales. Political donations declared by tobacco companies in Australia to registered political parties; financial 10.23 years 1998/99–2006/07 Public attitudes to the tobacco Labor Liberals Nationals (ALP) (LPA) (ANP) industry Financial Year $ (unadjusted) 1998–99* (Oct) There is no doubt that the tobacco companies in Australia and in many Philip Morris 41,610 62,800 25,000 other parts of the world have suffered devastating blows to their public BATA 61,000 45,000 10,000 image in recent decades. In the wake of litigation cases during the 1990s 1999–00 that revealed duplicitous industry conspiracies to mislead and reassure Philip Morris 50,000 124,960 30,000 166 smokers about the effects of tobacco use, to encourage children to start BATA 19,815 33,123 – 175 253, 320 smoking and to undermine public health policy, the companies 2000–01 have embarked upon a multifaceted public relations offensive designed to Philip Morris 64,520 63,000 32,500 persuade the general public that they have turned over a new corporate BATA 122,025 131,655 – leaf. 2001–02* (Nov) Philip Morris 74,800 84,815 37,500 Several studies have examined Australian attitudes to tobacco companies. BATA 60,450 146,423 27,500 One of the earliest was undertaken in Western Australia in 1988, at a time 2002–03 when the tobacco companies were still publicly denying that smoking Philip Morris 9000 41,620 10,000 caused disease, were challenging the mounting evidence on second-hand BATA 26,150 114,200 15,000 smoke, and contending with an increased demand for tobacco control 2003–04 measures from a growing number of Australian health concerns. This Philip Morris 5950 10,100 2200 research found that on the basis of public credibility, 75% of respondents BATA 31,040 148,739 15,400 felt that tobacco industry representatives were ‘not at all believable,’ rating 2004–05* (Oct) 334 them lower than used car salesmen (69%). Philip Morris – 103,700 35,500 Industry attempts to resuscitate their image appear not to have been BATA – 159,267 – of much influence. South Australian research in the late 1990s found 2005–06 that 80% of respondents (and 74% of smokers) thought that tobacco Philip Morris – 94,940 34,275 BATA – 114,311 16,600 companies mostly did not, or never, told the truth about smoking and 2006–07 health;335 and Victorian research undertaken in 2004 reported similar Philip Morris – 92,050 30,100 findings.336 International research studying opinions in Canada, the USA, BATA – 161,409 3300 the UK and Australia shows that overall, 80% of smokers do not believe that tobacco companies can be trusted to tell the truth.337 Distrusting the tobacco industry is associated with an increased likelihood of cessation * Denotes a financial year in which a federal election was held; month of the election is in brackets. * The Commonwealth Electoral Amendment (Political Donations and other Measures) Bill 2008 has been referred by the Note: Total funds donated by Philip Morris Ltd Senate to the Joint Standing Committee on Electoral Matters for inquiry and report (as part of its inquiry into the to the Liberal Party also include gifts ** 2007 Federal Election). The Bill reduces the donations disclosure threshold to $1000 and strengthens the disclosure to The 500 Club and Bayside Forum, organisations which support the Liberal obligations of candidates and political parties. See http://www.aph.gov.au/house/committee/em/elect07/index.htm. Party of Australia.326 Donations to the ** In Victoria, the Electoral Matters Committee is conducting an inquiry into whether the Electoral Act 2002 should be Labor Party include those to Progressive amended to create a system of political donations disclosure and/or restrictions on political donations. For more Business, a satellite group of the Victorian *** information, see http://www.parliament.vic.gov.au/emc/Inquiry%20into%20Political%20Donations%20and%20 ALP. Disclosure/default.htm Source: Australian Electoral Commission.333 *** Following a similar inquiry in NSW, the Election Funding Agreement (Political Donations and Expenditure) Bill 2008 was tabled in the Legislative Council in June 2008. The purpose of the Bill is to strengthen disclosure obligations and reduce the disclosure threshold to $1000 (consistent with the Commonwealth proposal). See: http://www.parliament. ** http://www.500club.com.au/home/index.php nsw.gov.au/prod/PARLMENT/nswbills.nsf/131a07fa4b8a041cca256e610012de17/7205a32a93be2d78ca25745f0028 *** http://www.alpvictoria.com.au/Events/Corporate- 0b78!OpenDocument Events/About-Progressive-Business.html

Section: 10.23 Tobacco in Australia: 66 Facts and Issues

behaviours among smokers,337 and negative attitudes to the industry have been harnessed by tobacco control advocates as a way of encouraging quitting. Other research has investigated just how far people believe that the tobacco industry may reasonably be regulated. A survey of Australian smokers in 2004 showed that 69% of respondents felt that tobacco products should be more tightly regulated, and 49% agreed that tobacco companies should take responsibility for the harms caused by tobacco.338 Interestingly, 77% of smokers surveyed also believed the government does not really care about reducing the prevalence of smoking because of the revenue it receives from tobacco taxes. The authors of this study conclude that ‘stronger government action to control tobacco products and the tobacco industry is likely to be supported by the majority of Australian smokers and that failure of governments to act is associated with cynicism about in whose interests governments operate.’338 p 169

10.23.1 ‘Denormalisation’ of tobacco use and the tobacco industry The changing public attitudes to the tobacco industry are a marker of the growing ‘denormalisation’ of tobacco use. Denormalisation refers to the transition in status of smoking from a widely practiced and socially acceptable behaviour to one which is increasingly typified as destructive, dirty and anti-social. Denormalisation does not only apply to smoking. It has increasingly applied to the tobacco industry, which (as shown in the preceding section) has not enjoyed a particularly positive public profile in recent years. Public recognition that the industry has for many decades lied to smokers and the wider community about the health effects of tobacco use has been heightened by high-profile legal cases and the public release of previously confidential industry documents. The industry has been cast as the villain in popular culture (such as John Grisham’s novel The Runaway Jury and movies The Insider339 and Thank you for Smoking). The industry’s adoption of corporate social responsibility programs has been a major public relations campaign to regain corporate credibility (see Section 10.11 above). Chapman and Freeman detail many markers of denormalisation of smoking in Australia that demonstrate just how marginalised smoking—and its champion, the tobacco industry—has become.339 These include prevailing attitudes in the community, as evidenced through an array of media reports, environmental and health campaigns and advertising for items such as insurance, accommodation and cessation aids. Increasing limits on where smoking may occur means that smokers are for the most part defined as a group whose unwelcome behaviour entails segregation. Provision of smoking accessories such as cigarette lighters and ashtrays is no longer standard in cars of Australian manufacture and some imported European vehicles; once elegant tobacco packets are now disfigured by graphic health warnings.339 In that denormalisation of smoking contributes to continued downward pressure on smoking rates by encouraging quitting and discouraging uptake of smoking, it can be seen as a marker of progress. However it is important to consider whether the denormalisation of smoking might lead to the marginalisation of those people who continue to smoke. There is a risk that as smoking becomes more concentrated among populations which are already disadvantaged (such as lower SES groups and the mentally ill), these individuals may have less motivation to quit or access to programs which might assist them.340 Stigmatisation of smokers could also lead to discrimination (for example in the workplace) and ‘victim blaming’ if smokers are regarded as responsible for their own illness.339

Section: 10.23.1 Chapter 10: The tobacco industry in Australian society 67

10.24 The future of the tobacco industry

10.24.1 In Australia and other mature markets Australia is regarded in tobacco industry parlance as a ‘mature’ market, meaning that consumption is in decline, and that the best the tobacco companies can hope for is to gain a larger slice of a shrinking market, and for reductions in volume of cigarettes smoked and the numbers of people smoking them to be gradual. Euromonitor, an international organisation which compiles business intelligence and industry data,341 anticipates that the total value of tobacco retail sales in Australia will be in decline by the end of the decade. Nonetheless this does not mean that the industry, perhaps in a more consolidated form, will not continue to be profitable in Australia, and the industry can be expected to continue defending its interests with the usual vigour. In the substantially mature markets of Western Europe, an analysis from 2005 examining prospects for investment in tobacco in the region enthused that ‘almost everything about this industry is the opposite to what you might expect,’ and that ‘underlying economics are unique and attractive.’ It helps, of course, that tobacco is addictive. The report points out that where countries tax tobacco on anad valorem basis*, tax increases deliver higher profits to the companies as well and price rises have, historically, more than offset declines in sales volume and lower profitability due to smokers choosing cheaper brands. According to this analysis, these factors make the tobacco sector in Western Europe extremely resilient.342 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 USA, 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.343 All the companies acknowledge the reality that their markets are likely to become yet more tightly controlled. Regulatory constraints which have been debated in the tobacco control arena include prescriptive controls on emissions and ingredients,344 deletion of brand names and imagery and the introduction of generic packaging,345 and, most extreme, government controlled non-profit tobacco distribution and sale.346 But Philip Morris Inc, for one, is sanguine about the regulatory environment it confronts. PMI notes that ‘These matters constitute largely unchartered territory for regulators,’ therefore raising the prospect that the company can influence the process (or, as they put 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.’)92 In the USA, Philip Morris has stated that it supports legislation which would grant the Food and Drug Administration (FDA) regulatory authority over tobacco products.347 Presumably Philip Morris feels well positioned to compete in the potentially reduced exposure products (PREP) market (see Section 10.7.5), but more importantly, it has been observed that submitting to FDA authority is likely to be a

* Or have an ad valorem component to the tax regime. Australia no longer taxes in this way but many countries do. See Chapter 13 for discussion.

Section: 10.24.1 Tobacco in Australia: 68 Facts and Issues

shrewdly calculated manoeuvre to ensure long term viability and protection for the company.348 Litigation remains a real concern for the tobacco industry, in the USA 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.3, 5, 8 Litigation against the tobacco industry is discussed in detail in Chapter 16.

10.24.2 … and elsewhere The global outlook for the tobacco industry is far from pessimistic. As noted, the developing world is home to 80% of the world’s smokers349 and still offering major prospects for growth.2 The websites of the major tobacco companies are universally bullish about their prospects. Each catalogues its expansion into new markets through takeovers or partnerships (the most effective way of increasing market share, particularly if sales of the more profitable ‘international’ brands increase4) and points to the high return offered to shareholders. 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.10 Investment by the international tobacco companies in foreign markets is typically associated with increased per capita consumption, particularly in low and middle income countries.350-352 Coupled with this is the doubtless heartening news for the industry that in many countries smoking prevalence among young teenage girls is catching up with that of boys, that use of cigarettes and other tobacco products is widespread among children, and that many children are contemplating taking up smoking.353 In countries where few women smoke, the female market is being aggressively targeted and the prevalence of female smoking is rising.354 And as BATA itself 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.’19 It is likely that the industry already has strategies in place to protect their interests in developing markets, having learned from experience in mature markets. According to an RJR executive, ‘we feel very strongly that there are opportunities around the world for the industry to head off issues that were not handled in the US as effectively as they might have been.’355

10.24.3 Alternative uses for tobacco crops? The question of whether tobacco has potential commercial uses beyond addicting and satisfying the addiction of tobacco users remains open. Over the years there has been speculation that nicotine may have some pharmaceutical benefits. For example a small number of disease processes are known to be slowed down or averted in smokers, possibly due to the protective effects of nicotine (seeChapter 3, Section 3.28). In the USA a pharmaceutical company called Targacept, formerly a subsidiary of the tobacco company RJ Reynolds, is continuing research into a class of drugs described as neuronal nicotinic receptor therapeutics.356 Other researchers are

Section: 10.24.3 Chapter 10: The tobacco industry in Australian society 69 investigating the potential for tobacco to be used as a host plant for genetic and other biomedical purposes, including the production of vaccines and other chemicals to treat and prevent disease.357-360 Even if tobacco plants are found to be a suitable source for production of biomedical products, the amount of land needed for tobacco production for these purposes would be very small compared to that required to supply the traditional tobacco market.361 Acknowledgements We are grateful to Ms Becky Freeman, of the School of Public Health, University of Sydney, for her thoughtful review of this Chapter. Ms Nicole Antonopoulos, Legal Policy Adviser in the VicHealth Centre for Tobacco Control, also provided helpful comment.

Section: 10.24.3 Tobacco in Australia: 70 Facts and Issues References to Chapter 10 1. British American Tobacco plc. British American Tobacco Australia Company website. About us. London: British American Tobacco plc, 2008, [viewed 20 January 2008]. Available from: http://www.bata.com.au/OneWeb/sites/BAT_53RF5W.nsf/vwPagesWebLive/80256AED003D81 CC80256ABE00352B4F?opendocument&SID=&DTC= 2. Shafey O, Dolwick S, Guindon G, editors. Tobacco control country profiles. Atlanta, GA: American Cancer Society, World Health Organization, International Union Against Cancer; 2003. Available from: http://www.cancer.org/docroot/PRO/content/PRO_1_1_Tobacco_Control_ Country_Profiles.asp 3. Imperial Tobacco Group PLC. Corporate website. Bristol: Imperial Tobacco Group PLC, 2008, [viewed 5 February 2008]. Available from: http:// www.imperial-tobacco.com/index.asp 4. Hedley D. Consolidation endgame in sight – but is there one more big throw of the dice? Euromonitor Archive. 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