Assessing market competition in the Philippine cigarette industry

Background The recent passage of the Philippine Competition Act has caused many to rethink the market structure of Philippine industries. Foremost is the cigarette industry, whose structure bear important implications on the health of Filipinos. A competitive cigarette industry may mean price wars and intensified advertising, disproportionately harming the young and the poor. On the other hand, a concentrated industry may mean a dominant player with ability to engage in predatory pricing. The latter will also likely possess power to lobby against tobacco control policies. In this study, we assess the market competition in the Philippine cigarette industry, and its correlation with cigarette affordability in recent years. Methods Using retail volume data from Euromonitor International and financial reports from the Securities and Exchange Commission, we calculate for various measures of market concentration such as the Top 4 Concentration Ratio (C4), the Herfindahl-Hirschmann Index (HHI), and the Dominance Index (DI) over the period 2007 to 2016. We then compare these measures against cigarette affordability trends. Results Across all measures, we find a highly concentrated cigarette industry. C4 ratios ranged from 97%-99%, HHI from 4754-8848, and DI from 7479-9973. In 2010 when Philip Morris acquired Fortune Tobacco, industry concentration peaked (HHI rose by 72% and DI by 33%). In 2012 when the Sin Tax Law was passed, competition slightly intensified with Mighty Corporation taking advantage of the transitionary dual tax structure. Most significantly, fluctuations in market concentration did not affect cigarette affordability. A pack of cigarettes costed 7.4%-8.4% of the daily minimum wage between 2006-2012. Conclusions Assessing the market structure of the cigarette industry better informs the formulation of effective tobacco control regulations. For a concentrated cigarette industry such as in the Philippines, an effective tax policy must temper the power of companies to absorb taxes so that these are passed onto consumers to discourage smoking

Policy recommendations on tacing and reducing program mismatch and perverse incentives present in earmarking sin tax to tobacco growing areas

Background Recognizing that the Philippine 1991 tobacco tax sharing law favoured the development of tobacco, the Sin Tax Law, a separate law on restructuring cigarette tax, expanded the use of such to also cover shifting farmers to viable alternative livelihood. Aside from health-driven supply reduction objectives, this is crucial as evidence shows that tobacco production is continuously declining starting decades ago, requiring to actively shift farmers. Methods Data on tobacco excise tax earmarking and utilization, farmers´ production and shifting behaviours, labor improvement and poverty alleviation indicators, and LGU capacity were analysed to determine potential program mismatches and perverse incentives. Supporting qualitative data were used to identify policy and structural gaps to address these. Results Financing livelihood projects becomes the least priority (only 6% average share i funds), as a result of LGU´s final allocation being determined by their share in total tobacco leaf production, which actually put pressure on their farmers to increase production volume. Meanwhile, infrastructure continue to get bulk of sin tax earmarking and are linked to its political benefits. Last, the provision of cooperative and agro-industrial projects in selected areas were shifting behaviour is heavy can still be improved. Conclusions As the two tobacco tax sharing laws fund both programs to develop tobacco and to shift tobacco farmers to other livelihood, a schizophrenic management exists. Key structural and policy ingredients have to be present to reverse this. First is the need to establish institutional support to manage alternative livelihood funds, in order to balance the powers of National Tobacco Administration over tobacco growing areas. Allocation should not be based on production volume but rather on a systemic or comprehensive welfare assessment of shifted farmers. As livelihood programs are most commonly coursed through civil society organizations and cooperatives, trainings on local budget engagement, tobacco interference, and enterpreneurial skills, have to be offered