KPMG study casts doubt on ‘success’ of plain packaging of tobacco products

Despite claims from Scottish Government Ministers that the evidence from Australia is overwhelming in support of their plans to introduce plain packaging of tobacco products, the most recent report paints a very different picture.

Australia’s illegal tobacco market has risen to around 13% since the introduction of plain packaging just under a year ago, costing the Australian Government up to AUD1bn in lost excise revenue according to a new KPMG report released today.

The KPMG study, Illicit Tobacco in Australia, also found consumption of tobacco has not decreased since plain packaging took effect in December 2012. This was the first time since 2009 that consumption did not decline year over year with more and more turning to the illicit trade and to branded illegal products.

Branded illegal cigarettes, which often have no health warnings, are being sold in Australia for as low as AUD6(£3.50) per pack, less than one third of the price of some legal brands. One illegal brand, “Manchester,” has registered such explosive growth that in just one year its market share has grown from 0.3% to 1.3% of total manufactured cigarette consumption, higher than that of legal brands such as Camel or Kent.

Will O’Reilly, former Scotland Yard Detective Inspector said of the figures:

”Since 2009 the levels of illegal tobacco products have slowly been rising in Australia. Since the introduction of standardised packaging for cigarettes in December 2012, however, the illicit trade has risen significantly. We have to acknowledge that there are two distinct markets for tobacco, the legal and the illegal. Bad regulation of the legal market benefits the illegal market and the figures shown in this KPMG report are alarming.  

Other key findings of the report, which was developed by KPMG and commissioned by the three major manufacturers operating in Australia, including Philip Morris International’s Australian affiliate, include:

  • The level of illegal consumption of tobacco reached record levels, growing from 11.8% to 13.3% from June 2012 to June 2013.
  • The key driver of this growth has been a large increase in the consumption of illegal, branded cigarettes, primarily in the form of contraband. Consumption of counterfeit cigarettes has also increased.
  • The 154% increase in black market branded cigarettes has come at the same time volumes of illicit unbranded tobacco, known as “chop chop” in Australia have declined by 40%.
  • If these black market purchases had been made in the legal market, the government would have collected AUD1.0 billion in additional excise tax revenue.

This report comes as the latest official figures in the UK from HMRC show the illicit tobacco market grew last year, with 500 million more cigarettes being smuggled into the UK in 2012-13 than 2011-12 and 300 more tonnes of hand rolling tobacco, costing the UK Government almost £3bn, £500million more than the year before.

Eoin Dardis, Director of Corporate Affairs at PML said:

“For the first time since the implementation of Australia’s plain packaging experiment we now have data to replace the anecdotes and predictions about its true impact, and the data shows that since the introduction of this measure the black market has grown while consumption of tobacco overall has not declined. This report shows that smugglers and counterfeiters have been the big winners in Australia since the implementation of plain packaging at a great loss to the treasury.”