Wednesday, June 01, 2011

Please, put a floor under cigarette and alcohol prices

Wednesday column

So Cate Blanchett is a bad look for an advertising campaign. I can think of a worse one: Piles and piles of $100 bills parading themselves as reasons why we should feel warm towards tobacco companies.

As an exercise in winning us over the mobile billboards picturing the stacks of money British American Tobacco says it will use to take on the government when it legislates for plain packaging are sad rather than persuasive.

That an industry once so tuned in to the psyche of Australians (and schoolboys - I remember) should be reduced to threats against a government with far more lawyers, far more billions, much more power, the support of the Opposition and much more legitimacy than it will ever have speaks volumes about how the world around it has changed.

If piles of money had been the chief tactic adopted by the mining industry it would be facing the originally-designed super profits tax forevermore.

But amid the pathos of a once-mighty industry boxing from memory lies an impressive idea.

The head of British American Tobacco in Australia David Crow set the ball rolling. He said with nothing but price left to compete on manufacturers would cut cigarette prices until they were perhaps only half what they are today.

Cheap prices "basically means more people will smoke - more kids will smoke,” he said, in an implicit acknowledgement that would be a bad thing, and also an implicit acknowledgment that he and his mates have been overcharging by a wide margin.

Anti-smoking campaigners responded by saying the government could react by increasing the tobacco excise. But that wouldn’t directly address the problem Crow identifies. The increases would come into force after the event and would do nothing to stop shops selling cigarettes as loss-leaders below cost as Coles and Woolworths tried to do earlier this year with beer.

The cigarette manufacturers might even help them if they saw it as a way to stay in business.

And it is low prices, not low excise that does the damage...

US economist Gary Becker won the 1992 Nobel Prize in part for his revolutionary development of the theory of rational addiction. It had previously been thought that addicts were not much influenced by price because they were hooked. Becker suggested instead that addicts rationally decided to be become hooked, often on the basis of price, and could rationally decide to to give up, also on the basis of price so long as they thought a new price would last.

Measurements to support the theory suggest that a 10 per cent increase in the price of cigarettes cuts sales by about 4 per cent, a 10 per cent increase in the price of alcohol cuts sales by around 5 per cent.

Because a lot of the heavy drinking is done at low price points and lot of the take up of smoking is done by at low price points, an increase in the minimum prices is likely to have a much more powerful effect than an increase in the average price.

Even better the payoff from increasing the minimum price is extraordinarily steep.

The University of Sheffield has told the Scottish government a minimum retail price of 25 pence per unit of alcohol would cut consumption 0.2 per cent; a minimum price of 35 pence would cut consumption 1.3 per cent, and a minimum price of 55 pence an extraordinary 10 per cent.

In September Scotland began legislating for a minimum price of 45 pence per unit of alcohol, in whatever form it was sold. Completely separate from and unrelated to alcohol taxation the law will make it illegal to sell alcohol cheaply. It will make no difference to the price of most drinks, and according to the UK Institute for Fiscal Studies supermarket chains stand to net the supermarket chains an enormous windfall as they are forced to pocket the benefit of low prices they would otherwise have passed on.

University of Aberdeen researchers reckon alcohol manufacturers will make more money too, while selling less product.

In Australia alcohol is sold for about half that. For as little as $10 a poor or desperate addict can obliterate themselves with a cask containing 30 standard drinks.

The steamlined system of alcohol taxation recommended by the Henry Review would help, but in the meantime and as a backup the obvious solution is to quickly impose a minimum price of at least double the effective minimum now and to impose a minimum price per stick of tobacco as well.

In Canada the University of Victoria has proposed a minimum price of $1.50 per standard drink sold in shops and $3.00 per standard drink sold in restaurants and bars, reviewed annually and indexed to the rate of inflation.

When a different method of restricting alcohol consumption was trialled in Tennant Creek in 1995 a university study found it cut sales 19 per cent, cut hospital admissions for alcohol-related conditions 29 per cent, cut admissions to the women’s shelter, and turned pay-day Thursday from one of the busiest days in the police lockup to the second quietest.

A legislated minimum price would be an act of humanity.

Christopher Pyne seemed to suspect to so. Quietly in 2006 the then assistant minister for Health and Aging in the Howard government commissioned the Flinders University National Centre for Education and Training on Addiction to conduct a feasibility study.

Letters went out addressed to “Dear Hotel, Bar Club and Liquor Industry Staff” in 2008 after the government had changed.

When I and another journalist got wind of the proposal the newly elected Labor health minister Nicola Roxon disowned it saying Labor had no plans to introduce a floor price.

She has since returned to the idea and this time the Australian National Preventive Health Agency will size it up.

It’s about time.

Published in today's SMH and Age

Feasibility Study on Setting a Floor Price on Alcohol Products

“Dear Hotel, Bar, Club and Liquor Industry Staff,

The National Centre for Education and Training on Addiction (NCETA) has been
contracted by the Australian Government Department of Health and Ageing to
conduct a feasibility study on setting a floor price for alcohol products.

This study is being conducted nationally to determine if state and territory
governments, working in conjunction with liquor licensing bodies, can
introduce a floor price to control high-risk alcohol consumption.

For the purposes of this study, an alcohol floor price is defined “as a
minimum fixed price per standard drink applied to all alcohol products in

Please note that an alcohol floor price is not a synonym for an increased
levy or tax on alcohol. It is a distinct and unique strategy.

A key strategy that is being used to inform the feasibility study is
obtaining input from relevant stakeholders in the community.

I would like to invite you and/or your organisation, as an important
stakeholder, to make a written submission on the feasibility of setting a
floor price for alcohol products.

An electronic version of the submission package can be downloaded from the
NCETA website at

Enquiries about the submission process can be made directly to Allan
Trifonoff, Deputy Director (Programs) on 08 8201 7511.

The deadline for submissions is: 5.00 pm EST, 22 September 2008. Electronic
submissions are preferred and should be forwarded to

We look forward to receiving your input on this important matter. Thank you
in advance for your time and consideration.”

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