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Australian tobacco sales edge up despite plain packs: industry

By Martinne Geller

LONDON (Reuters) - Deliveries of tobacco to retailers in Australia rose slightly last year for the first time in at least five years, even after the introduction of plain packaging aimed at deterring smokers, according to industry sales figures released on Monday.

Australia, which in December 2012 became the first country to ban branded cigarette packs, is being closely watched for signs of success as other nations including Ireland, New Zealand and the United Kingdom explore similar measures.

Britain last year appointed a respected pediatrician to examine whether plain packaging would reduce the health costs of smoking. The doctor's report is expected this week.

In 2013, the first full year of plain packaging, tobacco companies sold the equivalent of 21.074 billion cigarettes in Australia, according to industry data provided by Marlboro maker Philip Morris International.

That marks a 0.3 percent increase from 2012, and reverses four straight years of declines.

Shipments of loose tobacco climbed while those of factory-made cigarettes fell slightly and some tobacco companies argue that this suggests smokers may be trading down to cheaper products and can therefore afford to buy more of them.

"When you commoditize a product, people go after the price," said Eoin Dardis, director of corporate affairs for Philip Morris in Britain.

"If people are buying cheaper stuff, maybe they're smoking more of it, I don't know ... It's definitely a point of interest and that's something that absolutely needs to be explored because that's the counter of what this policy was seeking to achieve."

Australia's law requires standardized packaging on all tobacco products, forcing companies to replace their logos and branding with graphic images of smoking-related diseases on a drab background. The aim is to reduce any lure to smoking provided by attractive, brightly colored packs.

Proponents of tobacco control said the industry data did not tell the whole story.

"Plain packaging is not just a measure to reduce smoking among adults, it's a measure to stop kids from starting to smoke," said Jorge Alday, director of policy and communications for the World Lung Foundation in New York.

Meanwhile, a study funded by Philip Morris on the possible impact of plain packaging on the prevalence of smoking in minors in Australia found no evidence for an effect. The study will be published this week in the Working Paper Series of the University of Zurich's Department of Economics.

Reducing the level of youth smoking is a longer-term effect, and could take several years to be seen in data, said Societe Generale analyst Chas Manso.

PSYCHOLOGICAL EFFECT

There has been evidence suggesting that the plain packaging is having some effect on smokers, including a study published in the British Medical Journal in July.

The study, commissioned by the Cancer Society of Victoria, found that among 500 Australian smokers, most believed their cigarettes were less satisfying and of lower quality than a year ago, with most also thinking more about quitting.

The industry figures showed that for the whole year, Australian sales of factory-made cigarettes declined just 0.1 percent to 18.75 billion cigarettes. Loose tobacco volume rose 3.4 percent to the equivalent of 2.32 billion cigarettes.

The figures represent the amount of tobacco shipped to retailers in Australia by companies including Philip Morris, British American Tobacco and Imperial Tobacco Group. They do not reflect retail sales to consumers or actual consumption.

Societe Generale's Manso saw no clear reason for the rise.

"Given price increases and a soft Australian economy, there's no obvious explanation why tobacco shipments have picked up in 2013," he said.

Tobacco firms argue that plain packaging laws violate their trademark rights and may restrict free trade. Australia is facing challenges at the World Trade Organization over complaints the laws create illegal obstacles to commerce.

They also say the standardized packaging has led to a jump in sales of illicit tobacco, partly since the packs are easier to counterfeit.

In the year to June 2013, accounting firm KPMG estimates that illicit tobacco, whether smuggled, counterfeit or illegal, jumped from 11.8 percent of the Australian tobacco market to 13.3 percent.

(Editing by Anthony Barker)

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