After fending off government plans to introduce plain packaging, the tobacco industry last week faced up to the controversial new EU Tobacco Products Directive (TPD2) that will ban around 43% of cigarette packs and 64% of RYO pouches sold in UK shops. We talked to Japan Tobacco International UK MD Jorge da Motta about TPD2, plain packs, the illicit trade and e-cigs.
What did you make of the EU parliament vote on the Tobacco Products Directive last week?
I get the feeling the UK has been sleepwalking into TPD2. The debate around plain packaging has occupied everybody’s time, while at the back of the whole thing was TPD2 and I don’t think many people in the government, the general public and even the trade had an awareness of the raft of legislation and the impact it may have.
What are you most concerned about?
A lot of it is very Eurocentric, for example, the ban on certain pack sizes. Ten-packs are very big in the UK, bigger than anywhere else in Europe 38%-40% of all cigarette packs sold in this country are in 10s and the reason for that is easy to understand. With the very high prices, consumers will look at spending less where possible, and many adult smokers use 10s to control their consumption. Now someone is coming along and saying ‘we’ll supersize you - you can’t buy a pack of 10, you’ll have to buy 20’. I fail to understand how this achieves any health objectives.
Also, a value pack of UK duty-paid cigarettes costs around £3.70, while on the street you can buy a 20-pack of non-UK duty-paid cigarettes for around £4. I do believe 10-packs areplaying a role in retaining many smokers in duty-paid. Now there is a real risk that the incentive to buy illegally is even bigger. Roll-your-own is exactly the same argument. Around 60% is sold in packs smaller than 20g. For around the same price as a duty-paid 12.5g pouch I can get a 50g non-duty paid pouch. This decision means the UK Exchequer will lose revenue and retailers here will lose out to the illegal street sellers.
Are you planning to keep fighting the introduction of TPD2?
The arguments we are making are simple but TPD has been played under the radar. There was a question last week during Prime Minister’s Questions when David Cameron was asked about forcing cigarettes into 20s, and he didn’t seem aware of it. He said: “It does not, on the face of it sound a very sensible approach.”
There is still another vote to come on this (by health ministers of the member states) and we will continue to look to convince the UK government to push back on the pack size issue in particular. We will continue to engage until the eleventh hour. I believe it’s never over until it’s over.
Included in the legislation is a ban on flavours, which will impact a lot of the fastest-growing lines on the market - including those featuring flavour-changing capsule technology. Will you stop focusing on these now?
We will have to assess that detail once we know what the final word will be. There will be an implementation date, which is still not clear, and of course there is the five-year extension for menthol products - so we’ll have to see and assess that. At this time it would be premature to start working on these different scenarios.
Of course it could impact new product development. For anything with a particularly long lead time, we will have to bear this in mind.
And of course the pictorial health warnings are to be extended to cover 65% of the front and back of cigarette packs. What is behind this move?
I think it could be plain packaging by the back door. There is no evidence at all to suggest that when you already have a sizeable health warning, that making it bigger changes any perceptions.
You were part of the campaign to persuade the government here not to bring in plain packaging. How did you achieve this?
It was a joint effort. At the end of the day it goes back to the lack of credible evidence around this whole issue. The impact that this has in terms of the illicit trade is also something they have realised is too big to simply push through.
Let’s understand - this is robbery of intellectual property. A lot has been invested over many years involving these brands. The DNA and identification of these brands is the packaging and this is what we use to compete with other manufacturers. It’s a very serious issue with unintended consequences so I think the UK government’s position was a sensible one: let’s wait and see what comes out of Australia.
How long will the government wait?
It takes a while - this has only been implemented in Australia since the end of last year and markets do not react that quickly. We must also be careful as Australia may not be the best example to judge the impact of plain packs. It remains a massive island surrounded by thousands of miles of water, with not many close neighbours, unlike the UK.
You say there is no evidence that packs attract young smokers. The health lobby would argue differently?
There is the whole issue of what is attractive and this is where we challenge some of the so-called research. The fact that something is attractive doesn’t necessarily bring on the next phase, which is ‘I’m going to use it’. I find Guinness packaging attractive - its iconic black and gold - but I don’t like Guinness. I like the packaging but I’m not going to drink it. You can go on and on through many examples of something being attractive that doesn’t lead to the next step. We still have to see any research in this area that appears credible.
Tobacco manufacturers constantly cite the danger of the illicit trade, but last week they were accused by the Public Accounts Committee of fuelling the illicit market though oversupply of European markets - how do you respond?
We have zero tolerance for the illicit trade and this is embedded in many ways throughout our business, starting with the code of conduct that everyone signs up to. Customers are vetted to make sure they are able to live to our standards. We invest significantly in a very big anti-illicit trade group sitting in Geneva and we also have people in the market in the UK. We invest heavily in research to understand the true size of the illicit market. We work closely with HMRC and share all our knowledge with them. So accusations of involvement makes no sense for us - illicit trade undermines our brands and the people we trade with. We will do everything we can to sell UK-duty paid product. We can’t do it on our own and need strong enforcement.
What do you mean by strong enforcement?
HMRC must be given the resources to do what they need to do. Our efforts can be seen in the facts. In RYO, nearly one in two cigarettes is non-UK duty paid. Amber Leaf is the number one RYO brand with over 40% market share and yet, taking all that into account, our share of fine-cut tobacco seizures was 1%.
The other big subject on people’s lips is electronic cigarettes - do you see these as a threat to tobacco companies?
No. I think it is an opportunity. Emerging products are here to stay. It is a focus for non-tobacco and tobacco companies, and certainly one that we have. We have an emerging products group in Geneva and we have a number of initiatives we are working on, and it is much bigger than just e-cigarettes. These are the first manifestation on a commercial level, but there is potentially a lot more coming out. We recently launched Ploom in Austria, which is a different approach. All I can say as far as JTI is concerned is that we are working on emerging products. I cannot tell you when or what at this stage, but watch this space.