In anticipation of new federal regulations that will increase the space reserved for health warnings on cigarette packages from 50 to 75 percent, the Montreal Economic Institute (MEI) has unveiled a second Economic Note on the growing tendency of governments to regulate advertising. In practice, increasing the space reserved for warnings may be seen as a form of plain packaging, and this is all the more true when a sticker is added (on the section left for the brand) to show that duty has been paid.
In Canada, health warnings on packages of cigarettes went from taking up 20 percent of the front and back of each package in 1989 to 50 percent in 2001. Over the same period, warnings in the U.S, took up only around 5 percent of each package, leaving ample room for advertising the product brand. However, there has been no observable difference in the reductions in smoking rates in the two countries, including for young smokers, despite the fact that packaging and marketing restrictions are harsher in Canada.
It should be noted that this MEI publication does take into account research that supports plain packaging. However, it also points out that according to several studies, that research has important methodological shortcomings and does not follow recognized statistical analysis techniques.
In addition to not providing the hoped-for beneficial results, plain packaging, which consists in removing all distinctive signs (logo, color, etc.) associated with the product, could even ultimately lead to an increase in the number of smokers. This counter-intuitive result is explained by the fact that consumers are prepared to pay more for a product with a well-known name that is a synonym for quality. As a result, if plain packaging makes it harder to distinguish one cigarette package brand from another, a price war would inevitably follow, since this would be the only means of differentiation left to cigarette manufacturers. Therefore, backed up by studies, the MEI publication shows that this price drop would likely entail an increase in tobacco consumption.
For the purposes of this publication, the MEI estimated the increase in the number of smokers to be expected for the Canadian market using the most conservative hypotheses from the studies consulted. The result is an anticipated rise of nearly 3 percent in the number of smokers, the equivalent of 135,000 new smokers in Canada.
"If all cigarettes are sold in indistinguishable packages, why pay more for a particular brand? And in a price war, it's usually contraband products that end up having the last word," explains MEI president Michel Kelly-Gagnon.
"For reasons explained in detail in our publication, the measures the federal government is preparing to adopt will be very effective if the goal is to do as much harm as possible to legally established cigarette manufacturers, but it will prove to be much less so if we suppose that the goal is rather to reduce the number of smokers. At the very least, the government should make a commitment right now to carry out an objective assessment of these new regulations three years after they come into force in order to see if they were effective and if unintended consequences have materialized," adds Mr. Kelly-Gagnon.
The Economic Note entitled Plain Packaging and its Unintended Consequences, prepared by Michel Kelly-Gagnon, president of the MEI, in collaboration with Youri Chassin, economist at the MEI, can be consulted free of charge at www.iedm.org.
The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms. It does not accept any government funding.