Australia will become the first nation to ban branding on cigarette packages and will raise tobacco taxes by 25 percent, taking on British American Tobacco Plc and Philip Morris International Inc. in a renewed effort to combat smoking.

The cost of a packet of 30 cigarettes will rise to about A$16.70 ($15.40) at midnight from about A$14.50, and laws to mandate plain packaging will be introduced within 18 months, Prime Minister Kevin Rudd said in Sydney today.

Rudd, 52, is intensifying a four-decade long campaign to convince Australians of the risks associated with smoking, the biggest preventable cause of disease and premature death. About 15,000 people die each year from tobacco-related diseases in Australia, where sales of tobacco products totaled A$10.9 billion in 2009, according government statistics.

“The big tobacco companies are going to go out there and whinge, whine, complain, consider every kind of legal action known to man — that’s par for the course,” Rudd told reporters in comments broadcast on Sky News. “We, the government, will not be intimidated by any big tobacco company.”

London-based British American Tobacco, or BAT, had 46 percent of the retail market for cigarettes in 2006, according to a 2008 report on Tobacco in Australia by Cancer Council Victoria. Philip Morris, based in New York, had a 34 percent share and Imperial Tobacco Group Plc, of Bristol, England, had 18 percent.

Imperial Tobacco Australia is preparing a legal challenge, Cathie Keogh, a company spokeswoman told Australian Broadcasting Corp. radio today.

Brand Identification

“Introducing plain packaging just takes away the ability of a consumer to identify our brand from another brand,” she said. “It really affects the value of our business as a commercial enterprise and we will fight to support protecting our international property rights.”

BAT “opposes plain packaging of tobacco products and believes any such proposals would not hold up to close scrutiny,” its local unit said in a statement today.

Packets will display only health warnings and basic product information. Rudd said the excise increase would provide A$5 billion over four years and the government plans to spend A$85 million on anti-smoking advertising in the next four years.

Smoking-related illnesses cost the nation’s economy as much as A$5.7 billion a year in lost productivity, the Australian Medical Association in Sydney said in a statement.

“The plain packaging will probably be a more effective deterrent for new and prospective smokers than established smokers,” said Andrew Pesce, the association’s president. “It should help prevent children and young people from taking up smoking in the first place by decreasing the attractiveness of the packaging.”

Lung Tumors

Australia began limiting cigarette ads on radio and television in 1972 and banned them four years later, curbing lung tumors, the country’s biggest cancer-killer.

The number of Australians who smoke has more than halved in the past 20 years, the Organization for Economic Cooperation and Development said in a report in December. Australia has the third-lowest rate of smokers in the developed world, behind Sweden and the U.S., according to the report.

New cases of lung cancer fell to 60.6 per 100,000 men in 2006 from 80.6 per 100,000 two decades earlier, according to the Australian Institute of Health and Welfare in Canberra. The incidence in women jumped 46 percent to 30.3 per 100,000 over the same period.

Economic Benefits

“Cutting smoking will save lives, take pressure off hospitals and deliver significant economic benefits,” Rudd said in a statement.

The government excise is currently set at 26.22 Australian cents per cigarette and rises twice per year based on inflation rate increases. Australia’s taxes on tobacco are 62 percent of the total cost, compared with 80 percent in France, Rudd said.

Cigarette labels represented six of the top seven grocery brands in Australia in 2007, according to data from market researcher AC Nielsen and industry publication AdNews. Winfield, a BAT product, is top-selling brand with sales of more than A$750 million, outranking Coca-Cola, according to Nielsen.

New Zealand yesterday introduced laws to increase tobacco taxes by 33 percent by January 2012.

Tobacco companies were banned in the U.S. from marketing to people younger than 18 years in the Food and Drug Administration’s first moves in a decade to regulate the $80 billion industry. The restrictions, announced last month, prohibit cigarette makers from distributing branded merchandise such as T-shirts.

The FDA has said it will appeal a U.S. court ruling that overturned part of the law. In January, a federal judge in Kentucky ruled that some provisions violated advertisers’ free- speech rights by barring tobacco companies from using color and graphics to market their products.

By Gemma Daley and Marion Rae, Businessweek

As part of its ongoing enforcement of the Master Settlement Agreement between the states and the tobacco industry, Indiana has received its 11th annual settlement payment, more than $134 million, Attorney General Greg Zoeller announced today.

Last week, Indiana was wired $134,718,806.64 as the latest installment of payments of varying amounts that have flowed into the state treasury annually for 11 years since the tobacco settlement was reached. Cumulatively, the state has received nearly $1.53 billion in revenue over that time.

“Verifying that the tobacco industry complies with every detail of the Master Settlement Agreement and with our state laws requires constant vigilance by my office,” Zoeller said. “More than a decade after the settlement was reached, we enforce it to ensure tobacco companies don’t engage in marketing tactics that could make young smokers out of teens.”

As part of its enforcement, the Indiana Attorney General’s Office can take legal action against any tobacco company that violates the terms of the Master Settlement Agreement and de-list those companies that don’t comply with state laws – meaning their cigarette brands could not be sold legally in Indiana.

In the mid-1990s, attorneys general of various states filed lawsuits against the tobacco industry to recover the Medicaid costs of smoking-related illnesses and ultimately reduce youth smoking. The consolidated litigation culminated in November 1998, when 46 states reached the Master Settlement Agreement (MSA) with the four largest tobacco companies.

Since then, more than 40 other tobacco companies have signed on to the agreement. States agreed to drop their legal claims against the companies. In exchange for not being sued, tobacco companies agreed to substantial changes in their cigarette advertising and marketing – including a ban on targeting children through ads.

Under the Master Settlement Agreement, participating tobacco manufacturers (PMs) make annual payments to the states to offset health costs caused by their products. Annual settlement payments to states each April are based on the numbers of cigarettes sold — a total projected to reach $206 billion nationwide over 25 years, making the MSA the largest settlement in U.S. legal history.

The first tobacco settlement payments flowed to Indiana in April 1999 and have continued thereafter, with the agreement enforced by the Attorney General’s Office under Zoeller and his three predecessors. Payments to states help fund tobacco prevention-and-cessation programs.

Pro-rated payments from tobacco companies are wired to each state according to their individual share. This month’s Indiana payments are a total $134,718,806.64.

Previous annual payments to Indiana under the MSA are as follows:

2000
$166,937,748.59

2001
$127,758,967.54

2002
$149,249,534.20

2003
$147,987,933.08

2004
$128,086,210.91

2005
$125,486,772.28

2006
$117,880,683.16

2007
$122,854,298.01

2008
$147,442,295.22

2009
$160,954,284.96

2010
$134,718,806.64

TOTAL
$1,529,357,534.59

The Tobacco Enforcement Section of the Indiana Attorney General’s Office monitors the tobacco industry’s compliance with the MSA’s payment provisions. It works with other states to enforce the restrictions on marketing, advertising, promotions and sponsorship; and it defends the MSA and other tobacco legislation against court challenges. It also diligently enforces statutes involving non-participating tobacco manufacturers (NPMs) who also make payments but pay into an escrow account.

Zoeller thanked the Indiana General Assembly for recently passing a new law, Senate Enrolled Act 176, which gives the Attorney General’s Office another legal tool to enforce the laws on non-participating manufacturers. Among other things, newly-qualified non-participating manufacturers must post an annual surety bond of at least $50,000 with the state. Also, cigarette distributors who import the cigarettes of NPMs also will face liability, along with the manufacturer, for any escrow payments that are owed but go unpaid. Zoeller thanked the bill’s author, State Senator Patricia Miller, R-Indianapolis, and sponsor, State Representative Joe Pearson, D-Hartford City.

“The overriding goal in enforcing the Master Settlement Agreement is to curtail the types of advertising that otherwise might lure impressionable young people into starting the smoking habit. Those who avoid getting addicted to tobacco in their teen years will benefit later in life by not subjecting themselves to serious health risks,” Zoeller added.

The U.S. Centers for Disease Control and Prevention estimated that the number of high-school-aged students who smoked cigarettes nationwide declined from 5.7 million in 1998, before the Master Settlement Agreement, to 3.5 million in 2008.

According to the 2008 Indiana Youth Tobacco Survey (YTS), smoking among high school students dropped from 23.2 percent in 2006 to 18.3 percent in 2008. Among middle school students, the rate declined from 7.7 percent in 2006 to 4.1 percent in 2008, the YTS found.

Source: Office of the Indiana Attorney General

Japan Tobacco Inc. reported Wednesday that it swung into a net profit for the January-March quarter, thanks to increased sales of tobacco products in overseas markets, offsetting a sales drop at home.

The world’s third-largest tobacco company by sales volume after Philip Morris International Inc. and British American Tobacco PLC generated a group net profit of Y31.5 billion in the fiscal fourth quarter, compared with a year-earlier loss of Y8.0 billion.

The company, commonly known as JT, posted revenue of Y1.483 trillion, slightly down compared with Y1.486 trillion in the previous year. Group operating profit rose 29% to Y43.9 billion from Y34.1 billion.

In addition, JT booked a special profit of Y16.7 billion, reflecting smaller penalties that its U.K. tobacco units Gallaher Group Ltd. and Gallaher Ltd. will pay the U.K. Office of Fair Trading. The special profit mirrors the discrepancy between the provision already set aside for the penalties, and the actual payments.

Separately, the company said it will book Y13.8 billion special loss for the July-September quarter to reflect a payment made by Canadian unit JTI-Macdonald Corp. to settle a longstanding dispute over alleged cigarette smuggling.

JT has been in a legal dispute with the authorities in Canada, which in 2004 claimed JTI-Macdonald had profited from contraband trade in cigarettes, and that it didn’t pay tax on those profits from 1990 and 1998.

JT obtained the unit via the 1999 purchase of the international operations of RJR Nabisco.

For the full year ended March, JT posted a net profit of Y138.45 billion, up 12% from Y123.40 billion. Its full year revenue came to Y6.135 trillion, down 10% from Y6.832 trillion.

For this fiscal year ending March 31, 2010, the company expects a net profit of Y133 billion, down 3.9%. Revenue is pegged at Y5.980 trillion, down 2.5%.

Japan Tobacco compiles its earnings based on Japanese accounting standards.

The Japanese government will raise the tax on tobacco by Y3.5 per cigarette effective Oct. 1, or Y70 per pack–the first tax hike since July 2006, and a much steeper rise compared with past increases.

To absorb the looming tax hike, JT plans to raise the price of its popular Mild Seven brand by Y110 per pack of 20 cigarettes, bringing the price of tobacco to around Y410 per pack.

With the three-tiered increases on tobacco tax signalled today, The Quit Group is preparing to see the number of people contacting Quitline for help to quit smoking to double or even triple.

“The last time we saw a significant taxation increase for tobacco was back in May 2000. Overnight we saw our call volumes almost triple from 6000 to 16,000 calls per month,” Paula Snowden, Chief Executive of The Quit Group explains.

“The tax equity between tailor made cigarettes and roll-your-own loose tobacco is the right thing to do. Smoking kills however it is inhaled and all the current price difference does is make smoking more accessible, especially for younger people and those on lower incomes,” adds Paula.

Paula makes it clear that The Quit Group commends anything that encourages people to think about quitting, but recognises that any significant change always presents both challenges and opportunities.

“Around seven out of ten smokers want to quit and many will tell you quitting is easy – staying quit is hard.

Paula points out that it takes on average 6 serious attempts to break the habit for good. “For those who have tried before there is always a good day and a good reason to try again and the price rise may be just that reason,” she adds.

“It is important to remember that smoking is an addiction. The Quit Group will help people with the challenge of staying quit by providing patches, gum or lozenges to help with the cravings. We’ll also support people to manage the other elements of their addiction – those habitual and emotional triggers.”

Paula adds, “We fully expect to see an increase in quit attempts, which is great, and our advisors are there to help people using the tax increases as a prompt for thinking about those other, more sustainable reasons for overcoming their addiction.

“The tax changes will certainly provide a strong incentive to discourage new smokers, particularly our youth, from taking up the habit. And, while the increases are likely to place a short-term stress on those currently addicted to nicotine, that’s what The Quit Group is here for – help when it’s needed.

“The good news is that those who contact Quitline are five times more likely to succeed – and that makes all the difference.”

With the state facing a budget deficit of up to $1 billion, and with tobacco companies developing new products designed to appeal to young people, two Democratic legislators say it’s time to enact a stiff new tax on cigars and smokeless tobacco.

Reps. Dan Frankel of Squirrel Hill and Gene DePasquale of York, joined by the American Cancer Society, urged legislators Tuesday to end Pennsylvania’s dubious distinction of being the only state that doesn’t tax smokeless tobacco products and one of only two states that doesn’t tax cigar sales.

They’re pushing House Bill 57 and HB 2405, which would slap a 60 percent tax on the value of cigars and smokeless tobacco. The latter includes traditional chewable tobacco sold in pouches or cans, where a user spits out tobacco juice, and newer products that look like breath mints or long, thin candy sticks, which “melt on the tongue” and are described as “spit-free oral tobacco.”

Mr. Frankel got a tax on smokeless tobacco included in a House-passed version of the 2009-10 state budget, but he said the Republican-controlled Senate opposed the tax increase, and it was dropped before the budget was finally approved in early October.

Some opponents of the tax contend it would lower tobacco sales and hurt workers in the state’s tobacco-growing industry. But Mr. Frankel said even major tobacco-producing states like Virginia and North Carolina tax smokeless tobacco products, but it doesn’t have much of a negative effect on employment.

Mr. DePasquale said he was especially concerned about products like Snus, produced by Camel cigarettes, which come in small, colorful metal containers that look like candy, gum or mints, but which contain nicotine and can get young people addicted.

He estimated that his proposed tax could raise $60 million to $80 million a year. Some of that money would restore state programs that are designed to get people to stop smoking, programs that had to be eliminated last year because of the state’s $3.2 billion budget deficit.

So far this fiscal year, revenues are more than $700 million below estimates; the red ink could hit $1 billion by the end of the fiscal year June 30. So the state needs new sources of revenue, the legislators said.

Taxing tobacco products other than cigarettes “wouldn’t simply raise revenue,” Mr. Frankel said. “It would also discourage young people from using smokeless tobacco products as a cheaper alternative to cigarettes.”

But Senate Republican spokesman Erik Arneson said the focus should be on cutting costs, not enacting new taxes. He said $80 million in new revenue wouldn’t do much to offset a $1 billion deficit.

“The House did pass a massive tax-increase bill last October, but in the end, the current budget was adopted without any broad-based tax increases,” he said. Talks on the 2010-11 budget, which begins July 1, “must focus on spending reductions.”

By Tom Barnes, Post-Gazette Harrisburg Bureau

In April 1994, tobacco industry executives testified under oath on Capitol Hill that nicotine wasn’t addictive – and that cigarettes didn’t kill.
(Tobacco executives, top left, in 1994. Bottom, Goldman Sachs employees, today.)

That hearing was memorable, and a turning point for tobacco companies. It opened the spigot of litigation and legislation. Since then, the tobacco industry has paid out hundreds of billions of dollars in lawsuits and settlements. Now the federal government is regulating cigarettes under a law passed last year.

The Goldman Sachs executives testifying today before the Senate Subcommittee on Investigations could take a lesson from the tobacco industry’s experience. “Goldman Sachs is to Wall Street as Philip Morris is to tobacco,” said one former tobacco industry executive who was at the Congressional hearing sixteen years ago. At that time, Phillip Morris held an estimated 45 percent share of the U.S. cigarette market.

His advice to Goldman Sachs executives: “If these guys come across as arrogant or confrontational, it won’t be good for them.”

Fabrice Tourre said in his testimony today that “to the average person the utility of these products may not be obvious.” But viewers of his testimony may hear a different message – that the average person isn’t smart enough to understand what Wall Street does.

To the former tobacco executive, it doesn’t sound much different than the message some in the tobacco industry sent back in the 1990s. “What people heard from big tobacco was ‘if you’re stupid enough to believe us when we say cigarettes don’t kill, that’s your own problem.’”

Of course, cigarettes aren’t Collateralized Debt Obligations. Lung cancer is easier to understand than a CDO or derivative. It’s too early to know if public outrage, Congressional investigations, lawsuits and regulatory reform will change change the culture and incentives of Wall Street, but the road ahead for investment bankers could be bumpy.

Cbsnews

Lorillard Inc.’s first-quarter profit jumped 26% as its cigarette shipments increased and the company’s Newport menthol cigarettes grew their market share.

Lorillard, the third-largest cigarette manufacturer by sales, dominates the market for menthol cigarettes, which have done better than regular cigarettes in the U.S. in recent years.

The company’s earnings and revenue beat expectations. Still, Lorillard cautioned that fluctuations in retail inventories early last year complicated comparisons with the recent quarter and that the big comparative shipment increases may not continue into the second quarter.

Retailer inventory levels on cigarettes fluctuated sharply early last year in the midst of tax changes on cigarettes, making comparisons with this year’s shipments difficult. Wholesalers and retailers brought down their cigarette stocks and purchases to unusually low levels in the first quarter of last year, ahead of an expected increase in federal excise taxes on cigarettes that took place in April 2009.

The retailer stocks later picked up again, and some retailers even appear to have built up more than needed inventory in this year’s first quarter, the company said.

Lorillard’s first-quarter profit was $232 million, or $1.50 a share, up from $184 million, or $1.09 a share, a year earlier. Shares outstanding fell 8% as the company repurchased 2.6 million shares during the quarter.

Sales soared 48% to $1.36 billion and climbed 20% excluding excise taxes. Sales excluding excise taxes were $923 million, compared with $767 million a year earlier. Analysts polled by Thomson Reuters predicted earnings of $1.22 a share on $803 million on sales.

Lorillard’s dependence on menthol cigarettes for revenue has put the company in greater focus recently. Some public health advocates argue that menthol, which is generally derived from mint plants, masks the harmful flavors of cigarettes and encourages people to smoke. A special panel of health and other experts has in recent weeks begun to work with the Food and Drug Administration to help the agency decide whether it should restrict sales or marketing of menthol products.

On a conference call, Lorillard Chief Executive Martin Orlowsky said the thrust of the panel has largely been as expected so far. The company still believes that scientific research supports its view that the effects of menthol cigarettes aren’t different from regular cigarettes, he said.

In the latest quarter, the company’s U.S. wholesale shipments climbed 12.7%. The company’s domestic retail market share increased by 1.17 share points over the year-ago period to 12.61%. Newport domestic retail market share increased by 0.75 share points from a year earlier to reach share of 10.9%.

Newport is Lorillard’s main brand, although the company sells other cigarette brands like Maverick and Kent.

—Matt Jarzemsky contributed to this article. Online.wsj

It comes as no surprise that states across the country are raiding funds created by the 1998 settlement with tobacco companies to balance their budgets. Hawaii is no exception, but legislators should be poised to restore the funds as the economy improves.

Big Tobacco provides $52 million a year to Hawaii under the settlement, and Hawaii was ranked seventh last year in fund expenditures on quit-smoking programs in comparison with the percentage recommended by the U.S. Centers of Disease Control and Prevention. That amounts to $8.8 million, compared with the CDC’s recommendation of $15.2 million.

Senate Health Chairman David Ige says he is telling colleagues that further drainage of the tobacco trust fund for expenditures elsewhere is “a bad idea, but we’re in a crunch time. I’m not sure how it’s going to play out.”

Dr. Elizabeth Tam, professor and chairwoman of the University of Hawaii’s John A. Burns School of Medicine, points out that medical costs for smoking-related diseases in Hawaii total about $643 million a year.

Largely because of anti-smoking programs and measures in past years, Hawaii can claim success. The 9.3 percentage of adults who smoke is fifth-lowest in the country, which averages 26.5 percent, and the 6.8 percent of youths ages 12-17 who have embarked on the dangerous habit ranks Hawaii second lowest; the national average of youths who smoke is nearly 16 percent.

Part of the good marks result from a concerted effort over the past three decades to ban smoking in various public places, most recently bars and restaurants. The rules have made cigarettes unwelcome not only by law but by consideration of nonsmokers.

A major factor also has been the cost of cigarettes, which has risen sharply with increases in Hawaii and federal taxes on tobacco. An increase of 20 cents a pack in state tax to take effect on July 1 will be doubled by a bill passed by the current Legislature, bringing Hawaii’s tax to $3 a pack, exceeded only by Rhode Island’s $3.46. The federal tax on cigarettes rose a year ago from 39 cents to $1.01.

Those price increases play an important role in discouraging teenagers from beginning the addictive habit. Overall, a 10 percent increase in cigarette prices reduces consumption by 3 percent to 5 percent.

However, the tobacco fund plays a key role in discouraging people from either starting the addiction or breaking away from it. Any diversion of money away from it should be restored at the earliest time possible.

WHILE LEGISLATORS in South Carolina were engaged in petty bickering that could have doomed (and still could doom) the chance of raising our lowest-in-the-nation cigarette tax for the first time in more than three decades, the national average increased again. It’s now $1.40 a pack.

That’s $1.33 more than we charge in South Carolina. It’s $1.03 more than what House leaders were maneuvering to keep our tax down to if it had to be raised. It’s 83 cents more than the best offer on the table.

Let’s be clear about this: What we ought to be talking about is matching the national average. Or even rounding it off to a nice even $1 a pack. That’s a tax that the Campaign for Tobacco-Free Kids says would prevent 43,400 kids alive today from becoming nicotine addicts, by pricing them out of the market. A tax that would cause 24,000 adult smokers to quit. A tax that would save nearly $1 billion in long-term medical costs, which we all will pay for through higher taxes or higher insurance premiums.

A 50-cent increase is the bare minimum that anyone should even be considering, and we ought to be embarrassed if that’s the best we can do. The idea that it’s too much, or that we would let quibbling differences over how to spend the money stop us from getting to that point, is unacceptable.

It’s convenient to blame the politicians, but ultimately it’s our fault we’re having to settle. We the people of South Carolina support raising the cigarette tax … significantly. Public health advocates have been finding overwhelming support for years in polls asking people about a dollar-a-pack tax.

We understand that smoking kills, and the best chance to kill smoking is before it starts, before that invincible, wanna-be-cool kid takes the first drag of one of the most addictive substances on earth (and no, we don’t understand how anyone could consider something that makes you stink and cough and turns your teeth yellow and makes you impotent “cool”). We understand that the best way to make that happen is to make cigarettes expensive enough that by the time kids can afford them, they’ve got sense enough to not smoke.

We tell pollsters we’d be more likely to elect candidates if they supported raising the cigarette tax. But we keep on electing people who sign blood-oaths saying they’ll give up their first-born before they’ll vote to raise a tax — even this one. We keep on electing people who, even if they have no problem with taxes in general, aren’t willing to wander too far outside the comfort zone for the cigarette companies, which are lobbying hard and heavy to keep the tax from going up enough to cut significantly into their sales.

Then we wonder why our legislators can’t come up with the two-thirds vote necessary to override the governor’s veto of a cigarette tax.

Maybe we ought to wonder as well why we elected a governor who keeps vetoing the cigarette tax — the tax that even he says ought to be higher … but only if another tax is lower. Maybe we ought to decide not to make that mistake again.

There’s nothing wrong with a politician who doesn’t like to raise taxes; in fact, that’s a good instinct. What’s wrong is one who considers not raising taxes a religion. Who’ll stand in the way of a tax increase that we know for a fact will save thousands of children from a life of addiction.

We need to stop letting the governor dictate the terms of this debate. The way we do that is by making it clear to our legislators that we expect them to raise the cigarette tax. This year. By 50 cents. At the very least.

Thestate