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The low-income group suffer the most from the decline of low-priced cigarettes.
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The low-income group suffer the most from the decline of low-priced cigarettes.
Over the past two years Chinese tobacco consumers found that it is increasingly difficult to buy cigarettes priced below RMB10/pack (US$1.50/pack). Some tobacco retailers also reveal that cigarettes priced over RMB18/pack are almost never out of stock, those below RMB10 or even about RMB15 are always in short supply, and in some economically backward rural areas, cigarettes priced RMB5-6/pack are almost gone. The official explanation is due to tobacco control efforts. By raising the price of cigarettes, China hopes to force some people to quit smoking and reduce the smoking rate – a measure many think has no obvious positive effect on tobacco control.
Why is low-priced cigarette volume decreasing?
The following three reasons show why there are fewer and fewer low-priced cigarettes.
First, it is for tobacco control work. China’s 14th five-year plan proposes to comprehensively promote the construction of Healthy China (Healthy China is the development strategy put forward by president Xi Jinping in 2017 giving priority to the protection of people’s health. At present, China has about 316 million smokers and an adult smoking rate of 26.6%, and the goal is to reduce the rate below 24.5% by 2022 and below 20% by 2030 among adults over 15 years old. This will not be easy to achieve this goal.
China strictly controls cigarette consumption to protect the health of the people all over the country. It strengthened disciplinary measures against smokers, forbidding them from smoking in high-speed trains, medical institutions, schools, supermarkets, and other public places. The nation also regularly raises the tobacco tax rate and cigarette prices. As a result, smokers reduced the frequency of smoking, successfully achieving tobacco control.
Due to tobacco tax increases since May 10, 2015, the ad valorem tax rate of China’s cigarette wholesale chain increased from 5% to 11%, resulting in each cigarette being levied RMB0.005 in ad valorem tax. The average retail price of cigarettes increased by 11% from 2014-2016. and the price of the cheapest cigarette category increased by 20%. This is the fourth tobacco tax price adjustment in China, highlighting China’s determination to control tobacco by taxation.
Second, due to the need for tobacco control, the supply of low-priced cigarettes is strictly limited. Since China implements a tobacco monopoly system, it has relatively strict regulations on the production and sales of cigarettes. There is a quota supply according to the scale and level of cigarette retail stores and the actual situation.
The second half of 2020 particularly witnessed the number of low-priced cigarettes being more strictly limited. For instance, if a certain store previously received 10 cartons of low-priced cigarettes in a month, they now only got 5, which could be sold out in just two or three days. Then, smokers had to buy high-priced cigarettes instead. It happens every day, so it is easy to make consumers feel that there are fewer and fewer low-priced cigarettes.
Third, it is for the development of China’s tobacco industry. With the rapid growth of China’s economy, China National Tobacco Corporation (CNTC) focuses on improving the industry structure, and most of the new products launched are medium and high-end products. Even the brands with affordable prices also launch new products with higher prices.
Low-priced cigarettes have little impact on tobacco control
The decrease of low-priced cigarettes has little effect on high-income groups, but much on the low-income population and rural consumers.
The main consumer groups of low-priced cigarettes, farmers smoke to alleviate fatigue or ease the pressures of life since they mainly do physical work. If they smoke one pack of cigarettes (RMB20/pack) a day, it will cost them RMB600 a month. If it’s two packs a day, it would be RMB1200 a month, which is very high for farmers. Therefore, with the rise of cigarette prices, there are only two choices for low-income consumers: one is to quit smoking, and the other is to reduce the amount of smoking. These two options are undoubtedly in line with the purpose of tobacco control.
The Global Tobacco Alliance conducted a survey among 500 million smokers around the world. The survey concluded that if the price of cigarettes was raised by 50%, many smokers would smoke less or even quit smoking. Some experts have come to a similar conclusion through research. They think that according to the relevant concepts of economics, raising prices will inhibit demand. Therefore, theoretically speaking, increasing the price of low-priced cigarettes can indeed reduce the smoking rate of low-income people. However, this theory ignores the complexity of China’s rural reality.
For low-income groups, smoking often helps relieve fatigue, regardless of the taste and fragrance of cigarettes. On the surface, the restriction on low-priced cigarettes seems to make people smoke less, but in fact, the low-income groups already try to smoke less. When the price goes up, they will try to find other ways to smoke.
For example, some roll cigarettes themselves. Others would plant the crop. If illegal operators sell low-grade cut tobacco to rural smokers, will it breed new regulatory issues?
Additionally, some young consumers who do not have a stable source of income are affected too. According to the data, tens of millions of young people over the age of 15 in China vape. They have a strong curiosity about tobacco products. When the price of cigarettes exceeds their fragile economic capacity, they will choose more fashionable and “cool” e-cigarettes.
In 2013, China’s e-cigarette market scale was only RMB500 million, and by 2020, the market scale reached RMB8.3 billion, with more than 100,000 enterprises producing e-cigarettes alone. Although the World Health Organization mentioned in the report that e-cigarettes may be less exposed to harmful chemicals than traditional cigarettes, there is no evidence that smoking e-cigarettes will reduce tobacco related diseases, and once economic conditions permit, these people are likely to become consumers of traditional tobacco. So, it is not realistic to force these people to quit smoking by limiting the price of cigarettes.
For China’s tobacco industry, the decrease of low-priced cigarettes also led to the disappearance of some excellent traditional brands. For example, Hongmei and Daji, which only cost RMB2-3/pack and enjoyed a long history, was withdrawn from the market, which is also a loss for China’s tobacco industry.
From the overall sales situation of Chinese cigarettes in the first three months of 2021, Category I cigarettes continued to maintain a rapid growth momentum, Category III cigarettes continued to decrease year-on-year, while the low-priced cigarettes went through a significant reduction, and the issue that there were not sufficient low-cost cigarettes was still prominent.
Although the measures of limiting low-priced cigarettes do not play an obvious role in tobacco control at present, and the tobacco industry also has experienced some losses, tobacco control is still the general trend. Relying on the national compulsory means and increasing tobacco tax and cigarette prices is still the most effective way for the government to reduce tobacco consumption in the short term. Referring to and learning from some other countries’ tobacco control efforts, China will make low-priced cigarettes “disappear” gradually and slowly, rather than directly and quickly.