TJI: What would the UK government’s latest proposal to introduce plain packaging for cigarettes mean for the country’s tobacco industry with regard to profitability, branding and market shares?
Adam Spielman: If the proposal is carried out, it would reduce the brand equity of cigarettes massively. In my opinion, more than half the brand impact is in the design of the cigarette packet, as opposed to the name of the particular brand. As the industry’s profits depend on some consumers paying a premium of as much as GBP 1.50 (EUR 1.90) for certain brands, anything that weakens this will dramatically reduce profitability. In terms of market shares, you would expect an even more rapid trend of downtrading. Over time, I think the proposal would result in a very severe reduction in the industry’s profit.
What would this proposal mean in terms of intellectual property?
The proposal would prevent the companies using their designs in any practical way. In my view this amounts, in effect, to a complete confiscation of intellectual property. Lawyers for the government may argue differently.
How do you think consumers might react to plain packaging?
Clearly, smokers won’t like it. However, I suspect the majority of the population that does not smoke will be in favour of the proposal. Anything that boosts public health is good.
How would plain packaging affect the illicit trade of cigarettes?
I am convinced it will encourage it. As packaged products will be much more attractive and, in some ways, the “real thing”, I think the incentives to consume non-duty paid volumes will be much greater. From a public health perspective, this is a perverse effect because the most effective way to prevent under-age smoking is for the retailers to refuse to sell to them.
How could generic packaging affect the future introduction of harm-reduced tobacco products?
I doubt it will have much impact. To be clear, until the European Union legalises snus, I doubt that reduced harm products will get any traction.
Can you please explain the consultation procedure which is currently ongoing? All parties involved have until 8 September to provide comments, but will tobacco companies really be heard? I recall the time when the Framework Convention on Tobacco Control was under consultation and only allowed tobacco companies five minutes each to provide their view and then opinions were not considered at all.
In theory, all parties, including the industry, have an equal opportunity to state their case. The department of health, which is conducting the consultation, says that, in principle, it is just as open to evidence from the industry as from any other source. The consultation period is for three months, so that is a reasonable time for the industry to consider its response and to gather evidence.
However, officials at the department say that in previous consultations, for example on banning smoking in pubs, the evidence from the industry was extremely weak in comparison to that provided by the anti-smoking lobby. This is not how the industry sees it. I have just read the submission by the British Medical Association to this consultation, and I have to say I don’t find it at all impressive.
Who has the final say whether plain packaging becomes obligatory?
Ultimately, this is for parliament and the European Court of Justice. The health minister would need to bring a law before parliament. I have no doubt that MPs from all parties would vote by a large majority for such a law, if one is proposed. At that point the industry will sue, taking the issue to the European Court of Justice in Luxembourg. From the court’s point of view, a ruling would be tricky. Under Article 17 of the Charter of Human Rights, it would appear that the most likely outcome is that the government would be allowed to do this – provided it could produce evidence of a public health benefit – but it would have to compensate the industry for the loss of brand equity. Clearly, it would be politically unacceptable for a government to pay potentially billions of pounds to the tobacco industry, so the proposal simply could not be implemented if this is a necessary precondition before it goes ahead.
On the other hand, I think it would be extremely problematic for the court to thwart the democratic decision of a national parliament.
How likely do you think it is that plain packaging will become a reality?
In my view, it is unlikely in the next year or two. On a five- or ten-year view, then I think it is certainly possible.
Why do you believe it is unlikely in the near future? We have seen other restrictions for tobacco products spread relatively rapidly from one country over the rest of world, such as the introduction of low-ignition propensity cigarette paper, graphic health warnings or smoking bans.
In the short term, the government will need to gather as much evidence as it can to show that there will be a public health benefit, in order to gain confidence for the inevitable case at the European Court of Justice. At the moment, this evidence is sketchy and weak. In a couple of years it may be much stronger.
My strong advice to the industry is to gather as much evidence as possible to show that the impact will be actually to harm public health. This could be done by getting opinion pollsters to show smokers generic packages, and ask them about their likely purchasing in response, focusing on cross-border. Simply denying that this proposal is possible is not a sensible strategy.
I remember the industry saying it would be impossible to ban smoking in Irish pubs. And then they said it wouldn’t work in practice, and then they said the proposal wouldn’t spread to continental Europe. It is important to remember that every anti-tobacco proposal that has been consulted on by the UK government in the last ten years has been implemented. In addition, the industry has little hope in appealing to natural justice – no politician has any incentive to support it.
Let’s assume legislation on plain packaging does goes through in the UK. How likely do you think it would spread to other geographic markets and to other fast-moving consumer goods, such as alcohol, for example?
I have no doubt that if it goes ahead in the UK, it will sweep across many countries around the world in a few years. If it is legal here, then it will be legal in most other markets. I doubt it would spread to other categories. It is important to remember that in the UK, the tobacco industry has no political influence. From a politician’s point of view, there is no political upside in defending the tobacco industry’s rights.
What about other segments of the tobacco market, such as cigars or smokeless tobacco? Would they be affected?
I do not see why they would not be. As far as the tobacco control lobby is concerned, all tobacco is deadly. It is possible that snus may be exempted.
Do you think that plain packaging would be effective in combating teenage smoking or in cutting down on the number of smokers in general?
I think it will do little to help on teenage smoking, as it will encourage cross border. I think the government would have a better case if the proposal was targeted at the adult population, and implemented across the EU simultaneously.
Interview: Stefanie Rossel
Adam Spielman is tobacco analyst at Citigroup.