from   crikey.com 

by Simon Chapman,  Professor of Public Health at the University of Sydney

Australia’s tobacco industry is having a major attack of the vapours following recommendations made by the government’s Preventive Health Task Force last year. Its chief concerns are with a proposal to push the price of a pack of cigarettes to $20 in two tax increases, bringing us into line with UK and Irish prices, but still around $3 behind Norway. The other would see local industry internationally humiliated as being the first anywhere in the world to have to sell cigarettes in plain boxes with only the brand name to differentiate the products. Just like prescribed drugs have always been packaged. Local management don’t want that blight on their CVs.

The bogeyman of a booming black market in tobacco is the frontline of its attack on the tax rise. British American Tobacco has got out of the blocks in 2010 last Friday releasing a commissioned Price Waterhouse Coopers report on the use of illegal, tax-avoiding tobacco. I will be setting the report this year as an exercise in critical appraisal for my public health students. It is quite something.

BAT thinks tobacco products are already outrageously expensive because smokers are already turning into criminals and buying hot goods from ... well, just about everywhere tobacco is sold.  So much in fact, that $624 million in tobacco tax is being avoided, they say.

We learn that half of smokers are aware of illegal tobacco and according to a Roy Morgan study commissioned by BAT, half of these (ie: 25% of all smokers) have purchased it. So if you believe the report, 12.3% of all tobacco now consumed in Australia is illegally purchased: about 1 in 8 cigarettes and roll-your-owns.  Let’s pause and get this in perspective. Globally, an upper limit of 8.5% of tobacco sold is estimated to be black market, but most of this occurs in nations with high corruption indexes like most of Africa and the former Soviet states. BAT is saying that Australia is in that league.

Contrast this with findings of the 2007 National Drug Strategy Household Survey, (amazingly, not compared or even referenced by PWC) which found that, while 8.7% of adult Australians had ever smoked unbranded, only 0.2% of the population (around 33,000 people) used it more than half the time.  

A core claim of the PWC report is that loose “chop-chop” tobacco constitutes 83% of the total volume of illegal tobacco sold (the rest being counterfeit or smuggled), and yet only 2% of smokers in this survey regularly bought chop-chop (see p1). The report fails to specify the average amounts purchased by smokers who purchased at varying levels of regularity, but at an estimated total of 2,119,000 kgs per year, this would have to require astronomical levels of consumption of illicit tobacco by these 70,000 or so smokers. 

The report is strewn with semi-literate writing (“Figure 7: Unbranded tobacco is predominately purchase loose in bags”) and the authors misspell the name of one of the largest tobacco manufacturers in the world, Philip Morris. The lack of transparency is staggering. The key table, table 7, states that the estimated number of unbranded tobacco users, point 4, is 13% based on “extrapolating 5 to 6”. No note 6 appears in the table, and Note 5 is calculated using the estimated quantity of tobacco multiplied by the estimated number of unbranded tobacco users (which was what was listed as point 4!).  No estimates are provided anywhere of the total number of smokers in the population, or the source for such an estimate.  If the estimated number of purchasers is calculated from the percentage of smokers who have reported purchasing the product, (presumably, purchasing it on any occasion in the last year, (13%)), then PWC must be assuming a total 3.9m smokers. But current estimates of the number of Australians (14 or 15 years and over) who smoke at least weekly range from 3.1m (NDSHS 2007) to 3.3m (ABS Nat Health Survey 2007). 

Something is fundamentally wrong with the estimates of the amounts and frequency of purchases. The 403 gms of unbranded tobacco purchased 11 times in a year represents around 6820 RYO cigarettes (based on an average of 0.6 gms of tobacco per cigarette), or an average of 19 cigarettes per day (403*11/.65=6820 divided by 365 days). While it is possible to believe that someone who exclusively or almost exclusively smoked unbranded tobacco smoked 19 illicit cigarettes every day last year, this is simply not plausible as an average for all the people who have ever purchased any quantity in the last year, i.e. including those who have purchased them on just a few occasions. According to the NDSHS (refer Figure 4.1), around 150,000 Australians exclusively use roll-your-own tobacco: the rest of the estimated 780,000 smokers who ever use RYO also smoke tailor-made cigarettes. And yet, the PWC report estimates that 507,000 Australian are purchasing well over the average number of cigarettes smoked daily as unbranded tobacco – more than five times the number of estimated regular, exclusive RYO users.

Now, with $624m going missing each year, we might assume that this news would have caused considerable interest in Canberra since a similar tale was told in a 2007 report, oddly cloaked  in the same nationalistic pleas to hold taxes down for the benefit of  Treasury (and no mention of what BAT might project in increased sales from lower tax) . So the obvious question to ask is this. If every fourth smoker has bought hot tobacco  -- mostly from suburban tobacconists and markets, with – get this -- nearly 10% buying from supermarkets --  then why aren’t these places swarming with plain clothes federal police, daily busting what must be hundreds if not thousands of these tax-evading, bold-as-brass illegal suppliers?  Don’t think the customers are street savvy young people experienced in looking over their shoulders as their buy dope and speed. The report assures us they are mostly low income, older males, notoriously difficult for federal police to simulate in their investigations.

So why is finding and busting these places beyond the wit of the federal police? For the simple reason that it’s nearly all total nonsense. The clues to this are not hard to find.  Significantly, nowhere in the report is there any data on how many people were interviewed for this “survey”, how they were recruited, what the refusal rate was, what questions were asked or what the characteristics of the sample were. Most crucially the report fails to state how it defines “users of unbranded tobacco” – anyone who has ever used unbranded tobacco, anyone who has used it in the past 12 months, or perhaps anyone who has used it in the past 12 months more than 50% of the time?  A Friday email to BAT’s head of spin asking some these basic questions remains unanswered.

Imagine a stranger phoning or coming to your door and asking whether you regularly purchased illegal tobacco.  “Sure, what would you like to know? I’m not in the least bit worried about what might follow from such disclosures.” But the reliability of the answers would be dodgy for a far more fundamental reason. Counterfeit or illegal brands are often  indistinguishable from the real thing. And it’s not that they might taste differently: it’s been known for decades that many smokers can’t even tell their own brands when the pack is blinded.

Asking smokers to tell you if the pack they have is legal or illegal is simply useless. The gold standard used in studies estimating use of illegal tobacco involves highly detailed checking of the pack by skilled counterfeiting specialists and analysis of the tobacco to compare it to local blends to look for often large differences. The study seems blissfully unaware of these basic problems.

Like the owners of the White Star Line expressing concern that the Titanic passengers might get splinters from the handrails, the report is full of feigned horror at the extra health risks like inhaling mould that illegal tobacco might contain: “These cigarettes labelled with fake branding pose health risks to consumers as production facilities are unregulated and do not have to adhere to the strict production standards which licensed manufacturers follow.” Remember, these are the same strict production standards that allow cigarettes to walk out the factory door oozing with over 60 known carcinogens and which will kill half of long term users when used according to the manufacturers’ instructions.

Another hint of the quality of the information is found in when, without blinking, the report notes that 13% of illegal purchasers said they would increase their illegal purchases if laws went ahead (as they have) to require retailers to cover pack displays. Try and figure that one.

The amateurishness of this report is jaw-dropping. If a student was to hand in an  assignment of this standard, I would fail it badly. That BAT was prepared to actually release this nonsense speaks volumes about its public affairs quality control. As far back as 1994, an executive search firm told the Financial Review “"I don't think there's any doubt that it's harder to get enthusiasm for tobacco companies. There is a trend. If you have ten qualified candidates and you tell them it's a tobacco company, five might say they don't want the job."  Sixteen years later it looks as if the odds may have lengthened considerably.

Page last updated 17/4/10