SUBMISSION IN RESPECT OF TOBACCO PRODUCTS CONTROL AMENDMENT BILL (BILL 117-98)
British American Tobacco (South Africa) Limited manufactures and markets a wide range of cigarette and tobacco products in South Africa. Formerly known as United Tobacco Company, we have been carrying on business in South Africa since 1905. The company has over 800 employees countrywide.
British American Tobacco is a member of the Tobacco Institute of South Africa and fully supports the submission made by the Tobacco Institute in respect of the Tobacco Products Control Amendment Bill. However, there are further issues and effects of this Bill that we wish to bring to the Committees' attention.
British American Tobacco is a small player in the South African tobacco market with a cigarette market share of approximately 10%. Rothmans SA is the dominant player with approximately 85%. The remaining 5% is made up by two smaller companies and some imported products.
We have a very serious concern over the effect that a total ban on advertising and promotions will have on the competitiveness of the cigarette market in South Africa.
Advertising does not play a major role in the initiation of tobacco consumption, nor have advertising bans world-wide been shown to work in reducing consumption, particularly amongst the youth. I am not going to elaborate on these statements, as I know that other speakers have or will address you on this issue. For the purpose of this presentation, I ask you to accept the hypothesis that an advertising ban will have little, if any, effect on consumption and allow me to expand on what I believe will be a serious consequence of an advertising ban. In well-established product markets, advertising influences the brand a consumer buys rather than the product itself. Sales of individual brands move up and down and sales of brands combined into product categories tend to be relatively stable over time. This is true of virtually call product categories - cigarettes are no different.
As a result of this, the Tobacco Products Control Amendment Bill will have consequences, which would appear to be contrary to public health objectives and economic, competition policy.
The most significant effect of a total ban on advertising and promotions is the dramatic impact that it will have on competition between tobacco companies in South Africa. The ban will obviously restrict the ability of tobacco companies to promote one brand against another or to introduce new brands. In such a situation the market stagnates big brands remain big, small brands do no grow. In the market where small brands cannot compete for market share, there is a strong likelihood that they will dwindle and die.
In South Africa where the dominant player has 85% of the market there is not much margin for survival of small brands. If these small brands cannot compete, profit margins will get smaller and smaller and the real possibility exists that British American Tobacco may be forced to cease operating in South Africa.
There is a real possibility that we may be looking at a cigarette monopoly in South Africa within the next few years.
The new 1998 competitions Act has been introduced to level the economic playing fields and to prevent and break down the heavy concentration of economic power that prevails in South Africa.
Pertinently, sections of the preamble to this Bill read, inter alia,
"The people of South Africa recognise:
· That apartheid and other discriminatory laws and practices of the past resulted in excessive concentrations of ownership and control within the national economy and unjust restrictions on full and free participation in the economy.
· That the economy must be open to greater ownership by a greater number of South Africans
· That an efficient, competitive environment will benefit all South Africans".
Therefore -
· to provide all South Africans equal opportunity to participate fairly in the national economy; to provide for markets in which consumers have access to, and can freely select the quality and variety of goods they desire to restrain particular trade practices which undermine a competitive economy;
· to regulate the transfer of economic ownership in keeping with the public interest.
Facilitating the development of a monopoly in cigarette industry lies in the face of what the government is trying to achieve.
My statement that a ban on advertising and all forms of promotions will have consequences, which would appear to be contrary to public health objectives, must also be examined.
Realistically, in such a market, often the only option left open is to compete on price -in other words, a price war. Cigarette prices drops and cigarettes become more accessible. This could conceivably result in an increase in consumption, including under age smokers.
Another consequence is that, as has already been mentioned, it is extremely difficult to launch new brands or variants into such a market. For example, the Minister of Health has gone on record as saying that she intends to legislate maximum tar and nicotine levels.
However, consumer preferences dictate that a range of products are available and it is likely that products with even lower tar and nicotine levels than those legislated may be or become available. How is the manufacturer to bring this to the attention of the consumer?
The consumer will remain ignorant of the fact that these lighter products are available. In other countries where advertising bans have been introduced, manufacturers are nevertheless allowed to communicate with retailers; in South Africa manufacturers will be prohibited from even communicating with retailers and advising them what products are available. Accordingly the retailers will also be ignorant of the lighter products and therefore unlikely to stock them.
A healthy economy requires competition.
An advertising ban will not achieve the Minister of Health's stated objective, namely to reduce or prevent under age smoking. However it is likely to result in a monopolistic situation bringing with the potentially unhealthy and undesirably side effects of a monopoly which include job losses, a ban to entry to new participants in the market and the country's economy and the introduction of cheaper and inferior quality products. An advertising ban will do more harm than good.
In the preamble to the Tobacco Products Control Amendment Bill it is stated that tobacco use is a widely accepted practice among adults, which makes it inappropriate to ban completely". Accordingly we uphold our constitutional right to communicate with those adult smokers.
We are on record with the Department of Health as wishing to work together with the Minister and the Department in developing reasonable and sustainable tobacco controls. We are disappointed at the treatment and lack of consultation with ourselves, the industry and other stakeholders to date. It is late, but not too late for this flowed Bill to be withdrawn and a proper process of consultation embarked upon. We call upon this Committee, the Department of Health and the Minister to do that.