The failure of plain packaging. Sinclair Davidson

Transcription

1 The failure of plain packaging Sinclair Davidson

2 How to find me My Plain Packaging Resources page: Google: Sinclair Davidson plain packaging resources Blog: Research Gate: SSRN: Institute of Public Affairs: Australian Broadcasting Corporation: The Conversation: /articles RMIT University 2017 Economics, Finance and Marketing 2

3 Plain Packaging RMIT University 2017 Economics, Finance and Marketing 3

4 The Tobacco Control Industry Tobacco control is an industry. Has same incentives as any non-profit / bureaucracy. Budget. Employment make work (be seen to be busy). Control. Tobacco Control industry is not about stopping smoking. Maintain their position. Destroy the Tobacco Industry. Tobacco Control industry is subject to disruption from new technology. RMIT University 2017 Economics, Finance and Marketing 4

5 The Theory of Tobacco Control Medical Perspective: Smoking is single largest cause of premature death. Smoking should be treated as a disease and eradicated. Optimal level of smoking is zero. Economic Perspective: Smoking has an asymmetric information problem. Public education. Smoking has an externality problem. Pigouvian taxation. Optimal level of smoking is not zero. RMIT University 2017 Economics, Finance and Marketing 5

6 The Theory of Tobacco Control RMIT University 2017 Economics, Finance and Marketing 6

7 The Theory of Tobacco Control The Nirvana Fallacy: People will be different. The grass is greener on the other side. There can be a free lunch. First proposed by Harold Demsetz (1969). RMIT University 2017 Economics, Finance and Marketing 7

8 People will be different Business satisfies demand it does not create demand. It is not the fault of the entrepreneurs that the consumers the people, the common man prefer liquor to Bibles and detective stories to serious books, and that governments prefer guns to butter. The entrepreneur does not make greater profits in selling bad things than in selling good things. His profits are the greater the better he succeeds in providing the consumers with those things they ask for most intensely. People do not drink intoxicating beverages in order to make the alcohol capital happy, and they do not go to war in order to increase the profits of the merchants of death. Ludwig von Mises RMIT University 2017 Economics, Finance and Marketing 8

9 When at first you don t succeed Change the rules of the game. Cheat. The Tobacco Control Industry did both. RMIT University 2017 Economics, Finance and Marketing 9

10 Smoking prevalence has been in long-term decline in Australia Depending on which measure you look at since the 1960s or 1970s. Primary driver of this decline is increased appreciation of the health risks associated with smoking. Secondary driver is high levels of tobacco excise. In Australia excise is indexed to Average weekly earnings and adjusted twice annually. Previously indexed to CPI. In addition there have been several ad hoc excise increases in recent years. RMIT University 2017 Economics, Finance and Marketing 10

11 Adapted from Australian Government: Department of Health, Tobacco key facts and figures RMIT University 2017 Economics, Finance and Marketing 11

12 Plain packaging objectives To improve public health by: discouraging people from taking up smoking, or using tobacco products. encouraging people to give up smoking, and to stop using tobacco products. discouraging people who have given up smoking, or who have stopped using tobacco products, from relapsing. reducing people s exposure to smoke from tobacco products. Mechanisms to achieve those objectives: reduce the appeal of tobacco products to consumers. increase the effectiveness of health warnings on the retail packaging of tobacco products. reduce the ability of the retail packaging of tobacco products to mislead consumers about the harmful effects of smoking or using tobacco products. RMIT University 2017 Economics, Finance and Marketing 12

13 In evaluating the evidence for and against the plain packaging policy I want to focus of three things: The 3.4% lie. The Cancer Council Victoria surveys. The post-implementation review study. RMIT University 2017 Economics, Finance and Marketing 13

14 The 3.4% lie began in 2014 with a story in the Sydney morning Herald: The federal Treasury has entered the debate over cigarette sales, publishing previously secret information [tobacco tax data] that shows sales falling since the introduction of graphic health warnings and plain packaging. the Treasury data shows 3.4 per cent fewer cigarettes were sold last year than But when you read the story: No Treasury official named. No Treasury official quoted. No Treasury document cited. Questions were asked in the Parliament by Senator David Leyonhjelm and the evasions began. Not the mention the freedom of information requests. RMIT University 2017 Economics, Finance and Marketing 14

15 Treasury was required to release the previously secret information. An analysis of that information showed: When you adjust the timing of the analysis from a calendar year to when the policy was actually implemented, the 3.4% decline becomes a 0.8% decline. When you adjust for tax refunds that were paid for non-compliant tobacco products, the 3.4% decline becomes a 0.5% increase. The current state of play: Treasury have abandoned the 3.4% claim but are sticking with 0.8%. The Health Department told the Parliament: We have no intention of suggesting that clearance rates are a direct measure of tobacco plain packaging effects. RMIT University 2017 Economics, Finance and Marketing 15

16 Compare the Australian 3.4% lie to the French experience: Since France introduced a ban on branded cigarettes in January 2017, more packets of cigarettes have been sold compared to last year when branding was allowed, according to the country's Customs Office (L'administration des Douanes). Blyth Brentnall, Smoking on the rise in France despite rollout of plain packaging It is early days but the French experience seems similar to the Australian experience. RMIT University 2017 Economics, Finance and Marketing 16

17 The Cancer Council Victoria survey was commissioned by the Australian government to investigate the impact of the introduction of plain packaging. The research contract states: The Final Reports must also include: d) a discussion of the overall impact of packaging changes on key proximal outcome measures and more distal outcome measures including quit intentions, quit attempts and consumption; and e) a discussion of the independent and combined influences of plain packaging, health warnings, mass media campaign exposure, and any tobacco pricing and product changes. RMIT University 2017 Economics, Finance and Marketing 17

18 Results published in 2015 Tobacco Control. Other government funded survey studies published in same issue. Conclusions: Plain packaging in Australia has been a casebook example of effective tobacco control a policy measure driven by evidence, carefully designed and implemented, and now rigorously assessed. Hastings and Moodie (2015: ii2) These results should give confidence to countries considering plain packaging that plain packs not only reduce appeal of tobacco products and increase the effectiveness of health warnings but also diminish the tobacco industry s ability to use packs to mislead consumers about the harms of smoking. Melanie Wakefield RMIT University 2017 Economics, Finance and Marketing 18

19 Three important studies: 1. Responses to health warnings (Wakefield et al.). 2. Quitting behaviours (Durkin et al.). 3. Linking responses to behaviours (Brennan et al.). Problems (Davidson and de Silva 2016): 1. Data mining. 2. Different data across studies. 3. Different time periods. 4. Different variables. 5. Does not test actual quitting behaviour before and after the policy introduction. 6. All the (inconsistent) methodological choices made in the studies work to demonstrate that plain packaging was successful. 7. When you untangle those choices, the results are not robust. RMIT University 2017 Economics, Finance and Marketing 19

20 Cancer Council Victoria response (emphasis original): The NTPPS was quite explicitly not designed to assess quitting success or change in smoking prevalence but rather focussed on the immediate impact of the legislation on perceptions of the pack, effects of health warnings and understanding of product harmfulness. That seems inconsistent with their contractual obligations. of the independent and combined influences of plain packaging, health warnings. Davidson and de Silva (2017) examine those independent and combined influences of plain packaging and health warnings. RMIT University 2017 Economics, Finance and Marketing 20

21 Brennan et al. (2015) report: RMIT University 2017 Economics, Finance and Marketing 21

22 Case proven? We can all go home? Not so fast Brennan et al. (2015) limit their analysis to the period after the introduction of plain packaging Davidson and de Silva (2017) replicate the Brennan et al. (2015) study looking at what happened both before and after the introduction of the plain packaging study. RMIT University 2017 Economics, Finance and Marketing 22

23 Source: Davidson and de Silva (2017) RMIT University 2017 Economics, Finance and Marketing 23

24 Source: Davidson and de Silva (2017) RMIT University 2017 Economics, Finance and Marketing 24

25 Graphic health warnings did not become more effective after the introduction of plain packaging. Graphic health warnings were first introduced in The joint effect of plain packaging and health warnings did not contribute to actual quit attempts. Smokers did dislike packs No impact on quit attempts. Short lived. RMIT University 2017 Economics, Finance and Marketing 25

26 The government must have known their survey evidence was weak, because the commission more original research for the post-implementation review. According to Mike Daube: it is especially rewarding that this meticulous independent analysis attributes part of that decline to plain packaging alone According to the actual post-implementation review: it is not possible to identify separately the effects of tobacco plain packaging and enlarged and updated graphic health warnings on smoking prevalence. RMIT University 2017 Economics, Finance and Marketing 26

27 RMIT University 2017 Economics, Finance and Marketing 27

28 After a freedom of information request the summary data was made available. RMIT University 2017 Economics, Finance and Marketing 28

29 The post-implementation review also contained another modelling exercise. Model has 800,000 observations and 52 explanatory variables but not price. Lindley s paradox (large N makes it easier to find statistically significant variables at conventional levels). Unusual model base: an unmarried, Australian born, year old, male, with a tertiary qualification, employed full time, but with an income less than $6000, and living in Victoria. 0.55% decline in tobacco consumption can be attributed to plain packaging. Sample error is 0.6%. Pseudo-R2 are all very small. Data not publicly available for replication. RMIT University 2017 Economics, Finance and Marketing 29

30 There can be a free lunch Non-price competition was replaced by price competition only. RMIT University 2017 Economics, Finance and Marketing 30

31 There can be a free lunch Increased criminality RMIT University 2017 Economics, Finance and Marketing 31

32 There can be a free lunch Criminality is a gateway drug to further criminality Criminals do not pay taxes. Criminals do not pay dividends. Criminals engage in violence (kidnapping attempt). Criminals increase insurance costs. Criminals subvert societal institutions. Criminals compete unfairly with legal business. As a positive criminals have been substituting from harder drug smuggling to cigarette smuggling due to increased profitability and lower sentencing. RMIT University 2017 Economics, Finance and Marketing 32

33 There can be a free lunch Alliance of Australian Retailers: Small business retailers like those we represent are already under additional pressure due to excessive tobacco regulation. In addition to ensuring all tobacco products comply with far-reaching retail regulations, our members are exasperated by the consequences of plain packaged products and extreme tax rises that has led to illicit tobacco being so easily sold. Threatening not only the safety of our local communities, the barefaced sale of illicit tobacco encourages customers away from legitimate retailers on the basis of price and within the environment of the now undistinguishable differentiation of tobacco products. Australian Retailers Association: There is no evidence that recent plain packaging moves have worked and consumers have sought illegal product instead with the loss of brand loyalty the illegal market has grown to the magnitude of 14.3% of consumption. RMIT University 2017 Economics, Finance and Marketing 33

34 There can be a free lunch This is an assault on all intellectual property and investment: Sugar. Alcohol. Toys. Computer games. Fast food. Government has taken control over the entire marketing mix of an entire industry. RMIT University 2017 Economics, Finance and Marketing 34

35 Conclusion Plain packaging like most government policy Over-promised Under delivered. Classic nirvana fallacy: People are not different The grass is not greener There is no free lunch Does not appear to have met stated objectives. Government funded research has been misleading. Real danger of being applied to other products. RMIT University 2017 Economics, Finance and Marketing 35