Plain packaging law a threat to local tobacco industry

PETALING JAYA: HLIB Research said Phillip Morris Asia Ltd's failure to get the Plain Packaging Law overturned at the permanent court of arbitration, is a negative to the local tobacco industry.
While the research house expects the pie of smokers within the legal tobacco segment to continuously shrink in the long run due to such measures, it said in the short run, the plague of illicits would negate any meaningful intended public health effect as illicits are out of the scope of the law.
HLIB Research said the domestic tobacco sector is already battling a multitude of headwinds arising from affordability issues amidst a low consumer sentiment environment, record incidence of illicits (57.1% as at December 2016) and the vaping industry.
The permanent court of arbitration has ruled against the appeal of Phillip Morris Asia Ltd, the third rebuke to global tobacco's defiance on plain packaging laws after its failure to get Plain Packaging Law overturned at the High court of Australia and the World Trade Organisation (WTO).
This ruling is a global benchmark that also has significant implications to the Malaysian tobacco industry, said HLIB Research. Recall that Deputy Health Minister Dato Seri Dr. Hilmi Yahya had in March highlighted that the government plans to table the "Tobacco Products and Cigarettes Bill" in FY18, which amongst other things will also include the introduction of plain packaging in Malaysia.
Australia's plain packaging laws were introduced in 2011 as part of a slew of tobacco control policies and measures aimed at decreasing the incidence of tobacco related deaths in the country.
The laws essentially ban tobacco companies from branding in totality, with no display of their distinctive colours, designs and logos on cigarette packs. Tobacco products are subsequently packed in standardised pantone 448 C opaque couché packets, which is the world's ugliest color according to market research.
According to Article 9 & 11 of the World Health Organisation (WHO) framework convention on tobacco control, parties to the treaty are required to have large health warnings (at least 30% of the packet cover, 50% or more recommended).
In Malaysia, under the Control of Tobacco Product Regulations 2004, picture and text health warnings are required to occupy 50% of the front and 60% of the back of the package which is well above the WHO recommendations.
HLIB Research said figures from the Australian Bureau of Statistics suggest a general decrease in the smoking rate following the introduction of the plain packaging.
"The percentage of daily smokers aged 14 and above reduced to 12.8% in 2013 versus 15.1% in 2010. It was also found that the average age that adolescents had smoked their first cigarette had risen from to 15.9 in 2013 versus 15.4 in 2010."
With persistent weaker volumes amidst pressures to cost of living and share of market for illicits at an all-time high of 57.1%, HLIB Research is maintaining a "sell" call on British American Tobacco (Malaysia) Bhd pending the 1H17 results and briefing later this week.