Cigarette price war likely when sales ban is lifted – study
Government efforts to curb smoking by banning cigarette sales could backfire with a high likelihood of a price war between producers once the lockdown is lifted, a new study suggests.
A new report by the University of Cape Town’s Research Unit on the Economics of Excisable Products (REEP) predicts a price war when the sales prohibition is lifted and ‘multinationals … aim to get some of their market share back and the non-multinational companies … aim to hold on to their markets’.
The report is based on a study of smoking behaviour during the lockdown. Cigarette and tobacco sales have been prohibited since the end of March – but the illegal trade has flourished.
The REEP study says the ban has created an incentive for producers to sell products illegally.
The report says: ‘Manufacturers will find it difficult to resist this temptation, especially because so many companies are selling cigarettes, despite the sales ban. Given the tobacco industry’s long record of involvement in illicit trade, it is likely that they will divert cigarettes, ostensibly destined for the export market, to the local market.’
Multinationals had been hardest-hit and, once the ban was lifted, a price war could ensue.
‘Their markets have been captured by local companies and, to a lesser extent, by imported cigarettes, significantly reducing their market share. We predict that, once the sales ban is lifted, there will be a price war, in which the multinationals will aim to get some of their market share back and the non-multinational companies will aim to hold on to their markets.’
Lower prices would make smoking cheaper. Under lockdown, prices had soared by an average of nearly 250%, with wide regional variations, ranging from 379% in the Western Cape and 367% in the Northern Cape to 152% in Gauteng and 123% in Limpopo.
Before the lockdown, 77% of cigarettes purchased by survey respondents were manufactured by multinational tobacco companies, including British American Tobacco, Philip Morris International, Japan Tobacco International and Imperial Tobacco, but, by June, this had dropped to 18%.
Originally published in the Daily FRIEND