The relationship between tobacco use and price
The empirical data, historical analysis, government documentation and investigative news reports examined in the previous section revealed that the price of legal tobacco influences the availability of contraband tobacco. Not surprisingly, the price of legal tobacco also influences patterns of tobacco use and consumption.
In Canada and other countries, increased taxes on tobacco have been found to decrease cigarette consumption rates, encourage smokers to quit or cut down and make cigarettes less accessible to young age groups (Ontario Tobacco Research Unit, 2008).
Tobacco price and use: adults. Numerous studies have examined the relationship between price of cigarettes and tobacco purchasing patterns of adults. For example Gruber, Sen and Stabile (2003) used Statistics Canada data (for average prices of cigarettes), the National Clearinghouse Tobacco and Health Program data (for statistics on legal sales of cigarettes) and The Canadian Survey of Family Expenditure data to calculate price coefficients, price elasticity rates and tobacco consumption in all ten provinces. Using this data Gruber et al. (2003) found an estimated price elasticity1 for cigarettes in the range of-0.45 to -0.47.
Stephens, Pederson, Koval and Macnab (2001) also determined that when the price of cigarettes increases, the odds of Canadians being non-smokers increases. Using Canada's National Population Health Survey data and statistics on tobacco prices, the authors determined price elasticity to be -0.5 for men and -0.3 for women. Data from the year 1994, when there was a significant decrease in taxes in some provinces (including Ontario), revealed that men and women living in provinces that had decreased tobacco taxes smoked more than their counterparts living in provinces that did not experience this tax decrease (Stephens et. al., 2001).
Tobacco price and use: adolescents. In a review of research examining the impact of price on adolescents' tobacco consumption, Leverett, Ashe, Gerard, Jensen and Woolery (2002) concluded that youth are more Likely to initiate smoking when tobacco is available at a low cost. Leverett et al. (2002) further noted that teens are less likely to quit when low-cost tobacco is available.
Using Youth Risk Behaviour Survey data collected from 1991 to 2005 in the
United States, Carpenter and Cook (2008) attempted to determine tobacco price
' Price elasticity is a measure of how much the demand for a product changes when the price of the product is changed. It is "calculated by dividing the proportionate change in quantity demanded by the proportionate change in price. Proportionate (or percentage) changes are used so that the elasticity is a unit-less value and does not depend on the types of measures used (e.g. kilograms, pounds, etc)" (NetMBA, 2007). A price elasticity of 0 would mean that the product is perfectly inelastic, responsiveness of high school aged youth. This analysis, which included both national and state data, concluded that an increase in cigarette taxes reduced the probability of high school aged youth reporting past 30 day smoking and frequent smoking. They also estimated that a one dollar increase in cost of tobacco would reduce smoking among United States youth by 23.6% (based on national data). These statistics point to the continued use of taxes as an effective policy strategy to increase the price of cigarettes and thus reduce smoking rates and frequency in youth.
Studies of adolescents' price sensitivity are not without limitations. For example surveys are usually administered in school settings. Youth who do not attend school on the day the survey is conducted, and youth of high school age who have dropped out of school are not represented. While this may lead to an underrepresentation of the smoking rates for this group, the strength and consistency of findings showing youth's sensitivity to tobacco price suggests the relationship is valid.
Tobacco price and use: young adults. Price sensitivity of the young adult population has been investigated, usually in the form of studies examining samples of college and university students. Two such studies found that an increase in cigarette prices decreased not only consumption levels (i.e. the number of cigarettes smoked per day), but also the prevalence of U.S. college students who smoked (Czart, Pacula, Chaloupka & Wechsler 2001; Chaloupka & Wechsler, 1997). Using the 1997 Harvard College Alcohol Study which surveyed 15,699 students from 130 colleges across the United States, Czart et al. (2001) estimated that a 10% increase in cigarette prices would reduce smoking participation by 2.6% and reduce consumption among those who still smoked by 6.2%.
Consequences of Price Sensitivity
Research with youth, adults and young adults indicates that all age groups are sensitive to tobacco prices: increasing the price of tobacco is associated with reductions in smoking prevalence and consumption. Thus, imposing higher taxes on tobacco products has the positive consequences of reducing tobacco use (and its related health and economic burdens), and increasing tax revenues for government (Cunningham, 1996). Unfortunately, higher taxes on tobacco often triggers a shadow market of much lower-priced contraband tobacco products.
The availability of inexpensive (including contraband) cigarettes has detrimental effects on public health efforts to reduce smoking prevalence and rates. For example, research suggests that people who purchase contraband tobacco tend to smoke more and have lower intentions to quit. When looking at the demographic characteristics of smokers who did and did not purchase reserve cigarettes, Luk, Cohen, Ferrence, McDonald, Schwartz and Bondy (2009) reported that "current smokers who smoked more cigarettes per day, did not plan to quit smoking, had not completed high school, and resided in Northern Ontario were significantly more likely to report usual purchasing of cigarettes on reserves." Furthermore, a 2006 Canadian study done by Imperial Tobacco found that of those individuals possessing illicit cigarettes in their home, 61.7% smoked more than 20 cigarettes a day on average (GfK Dynamics, 2006).
Studies in the United States have found similar patterns. In a study reviewing the purchasing patterns of U.S. smokers, Hyland et al. (2005) found that higher daily cigarette consumption was a predictor of purchasing less expensive cigarettes (e.g. low/untaxed, discount/generic brands or cigarettes purchased with the use of discount coupons). A study comparing quit rates of individuals who smoked discount/generic cigarettes and those who smoked premium cigarettes found that discount/generic brand smokers were less likely to quit compared to smokers of the premium brand (Cummings, Hyland, Lewit and Shopland, 1997). Hyland, Hastings, Ross, Chaloupka, Fong & Cummings (2006) also found that the likelihood of making a quit attempt is decreased in those smokers who report purchasing cigarettes that are either untaxed or have a low tax. Patterns of Contraband Tobacco Use
Estimating the market share of contraband tobacco is difficult due to the lack of sales data and the probable reluctance of some smokers to admit their participation in illegal purchases. Prevalence of contraband use in Canada has been examined through a variety of methods.
Contraband Tobacco Market Share
In 2007, a report titled "Estimating the volume of Contraband Sales of Tobacco in Canada" was released by the group "Physicians for a Smoke Free Canada". Using the Canadian Tobacco Use Monitoring Survey data and federal/provincial data for legal tobacco sales they estimated the size of the contraband market. The group determined that 27% of total cigarette sales in Canada (40% in Ontario and 39% in Quebec) were contraband (Physicians for a Smoke Free Canada, 2008).
Figures released by the RCMP similarly suggest that contraband tobacco is prevalent in the market. In 2006, RCMP seizures of contraband tobacco reached an all time high in Canada and were said to have increased by 1700%» since 2001 (McLaughlin, 2007; RCMP, 2008).
