South Africa’s cigarette ban could backfire spectacularly: research
The University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) has published a new report on smoking behaviour during South Africa’s coronavirus lockdown.
The sale and purchase of cigarettes and other tobacco products has been prohibited in South Africa since the start of the country’s lockdown at the end of March.
The ban has been in place to protect the health of South Africans, according to submissions from government, and cigarette producers have failed to convince the country’s courts that the sale of tobacco products is a necessity.
However, according to the REEP, current regulations have opened up loopholes for illicit products to be distributed in South Africa, and have created an environment that will likely encourage smoking once the ban has been lifted.
Being able to produce cigarettes legally for the export market, but not able to sell cigarettes in South Africa, has created a loophole and an incentive to sell illegally in the very lucrative local market, the REEP said.
“Manufacturers will find it difficult to resist this temptation, especially because so many companies are selling cigarettes, despite the sales ban. Given the tobacco industry’s long record of involvement in illicit trade, it is likely that they will divert cigarettes, ostensibly destined for the export market, to the local market,” it said.
It added that multinationals have been the biggest losers during the lockdown period, and as a result, may enter into a price war to make quick gains after the ban is lifted.
“Their markets have been captured by local companies and, to a lesser extent, by imported cigarettes, significantly reducing their market share. We predict that, once the sales ban is lifted, there will be a price war, in which the multinationals will aim to get some of their market share back and the non-multinational companies will aim to hold on to their markets.”
Ironically, this will lead to lower prices, making it a lot cheaper to smoke, pushing sales. Government’s stated goal of keeping South Africans healthy – and encouraging them to quit smoking – could be undone.
“The resulting price decrease will be detrimental to public health,” the researchers said.
The price of illicit cigarettes
The REEP investigated the current prices of cigarettes being sold illicitly in South Africa, based on an online survey conducted between 29 April and 11 May 2020, with 23,631 usable responses considered.
It found that the average price of cigarettes, as reported by respondents to the second survey, is nearly 250% higher than pre-lockdown prices, averaging R5.69 per stick. This equates to around R114 for a pack of 20 cigarettes.
However, the group also noted that there are substantial inter-provincial differences in the price increase.
The Western Cape (379%), Northern Cape (367%) and Eastern Cape (281%) have experienced the largest increases, while Limpopo (123%), Mpumalanga (141%) and Gauteng (152%) have experienced the smallest price increases.
“Pre-lockdown, 77% of cigarettes purchased by survey respondents were manufactured by multinational tobacco companies (MNCs), including British American Tobacco, Philip Morris International, Japan Tobacco International and Imperial Tobacco.
“By early May this percentage had decreased to 38% and by early June 2020 to 18%.”
Based on the survey, the companies with the largest market share in June 2020 were Gold Leaf Tobacco Corporation (26%), followed by Carnilinx (14%), Best Tobacco Company (11%), Amalgamated Tobacco Company (10%) and British American Tobacco (9%).
Notably, none of the top ten cigarette brands that were most purchased by the survey respondents, pre-lockdown, are in the top ten list of cigarette brands purchased during the lockdown.
The group added that cigarettes produced by MNCs sell at a premium – R6.30 per stick or R126 per pack of 20 cigarettes.
By comparison, non-MNC cigarettes sell at an average of R5.57 per stick of around R111 per pack.
The University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) has published a new report on smoking behaviour during South Africa’s coronavirus lockdown.
The sale and purchase of cigarettes and other tobacco products has been prohibited in South Africa since the start of the country’s lockdown at the end of March.
The ban has been in place to protect the health of South Africans, according to submissions from government, and cigarette producers have failed to convince the country’s courts that the sale of tobacco products is a necessity.
However, according to the REEP, current regulations have opened up loopholes for illicit products to be distributed in South Africa, and have created an environment that will likely encourage smoking once the ban has been lifted.
Being able to produce cigarettes legally for the export market, but not able to sell cigarettes in South Africa, has created a loophole and an incentive to sell illegally in the very lucrative local market, the REEP said.
“Manufacturers will find it difficult to resist this temptation, especially because so many companies are selling cigarettes, despite the sales ban. Given the tobacco industry’s long record of involvement in illicit trade, it is likely that they will divert cigarettes, ostensibly destined for the export market, to the local market,” it said.
It added that multinationals have been the biggest losers during the lockdown period, and as a result, may enter into a price war to make quick gains after the ban is lifted.
“Their markets have been captured by local companies and, to a lesser extent, by imported cigarettes, significantly reducing their market share. We predict that, once the sales ban is lifted, there will be a price war, in which the multinationals will aim to get some of their market share back and the non-multinational companies will aim to hold on to their markets.”
Ironically, this will lead to lower prices, making it a lot cheaper to smoke, pushing sales. Government’s stated goal of keeping South Africans healthy – and encouraging them to quit smoking – could be undone.
“The resulting price decrease will be detrimental to public health,” the researchers said.
The price of illicit cigarettes
The REEP investigated the current prices of cigarettes being sold illicitly in South Africa, based on an online survey conducted between 29 April and 11 May 2020, with 23,631 usable responses considered.
It found that the average price of cigarettes, as reported by respondents to the second survey, is nearly 250% higher than pre-lockdown prices, averaging R5.69 per stick. This equates to around R114 for a pack of 20 cigarettes.
However, the group also noted that there are substantial inter-provincial differences in the price increase.
The Western Cape (379%), Northern Cape (367%) and Eastern Cape (281%) have experienced the largest increases, while Limpopo (123%), Mpumalanga (141%) and Gauteng (152%) have experienced the smallest price increases.
“Pre-lockdown, 77% of cigarettes purchased by survey respondents were manufactured by multinational tobacco companies (MNCs), including British American Tobacco, Philip Morris International, Japan Tobacco International and Imperial Tobacco.
“By early May this percentage had decreased to 38% and by early June 2020 to 18%.”
Based on the survey, the companies with the largest market share in June 2020 were Gold Leaf Tobacco Corporation (26%), followed by Carnilinx (14%), Best Tobacco Company (11%), Amalgamated Tobacco Company (10%) and British American Tobacco (9%).
Notably, none of the top ten cigarette brands that were most purchased by the survey respondents, pre-lockdown, are in the top ten list of cigarette brands purchased during the lockdown.
The group added that cigarettes produced by MNCs sell at a premium – R6.30 per stick or R126 per pack of 20 cigarettes.
By comparison, non-MNC cigarettes sell at an average of R5.57 per stick of around R111 per pack.
