How will Jamaicans react to public smoking ban?

SSL In The Money

with Deon McLennon

Wednesday, September 01, 2010

Be fearful when others are greedy and greedy when others are fearful. This piece of wisdom was laid down by Warren Buffett, who holds one of the best long-term investment records ever, compounding money at more than 20 per cent for 40 years and counting. How does one follow this advice? By exploiting market opportunities where there is a high degree of fear or pessimism. At times the stock market is somewhat irrational. Pessimism has in the past and will in the future cause the stock market to over-react, make mountains out of mole-hills and have knee-jerk reactions. Smart investors take advantage of these irrational moments. They get in, when most are getting out, simply because they take the extra time to analyze new market developments affecting a stock, to see the opportunity and capitalize on the illogical behavior of others.

An opportunity such as this may be looming in the local market. According to Carreras Ltd (CAR) in its 2010 Annual Report, the Government has already signed and ratified the Framework Convention on Tobacco Control (FCTC), and has been under increasing pressure, particularly in recent times, to enact some form of tobacco control legislation in keeping with its FCTC obligations.

What is the Framework Convention on Tobacco Control (FCTC)?

The World Health Organisation Framework Convention on Tobacco Control (FCTC) entered into force on February 27, 2005. The FCTC requires countries that have ratified it to implement measures to reduce tobacco use. According to www.who.int "The FCTC provides a framework for tobacco control measures to be implemented by the countries at the national, regional, and international levels. Among its obligations, the treaty commits countries to: ban or restrict tobacco advertising, promotion and sponsorship; place large, graphic health warnings on cigarette packs and prohibit the use of false and misleading terms such as "light" and "low tar"; implement measures to protect non-smokers from secondhand smoke such as banning smoking in any enclosed pubic area; increase the price of tobacco products, particularly through taxation, to discourage tobacco use; eliminate the illicit trade of tobacco products; regulate the content of tobacco products and require public disclosure of ingredients; provide cessation assistance and treatment for tobacco dependence; and prevent sales of tobacco products to minors."

The immediate question that investors will have is what impact, if any, the implementation of the FCTC will have on Carreras' sales and bottom line. The answer will depend on the reaction of smokers and the enforcement of the new measures.

A smoking ban was introduced in England on July 1, 2007, in bars, restaurants and other workplaces. The ban on smoking in public was not as effective as hoped. The Health Survey for England, carried out by the National Health Services (NHS), disclosed that smokers were simply lighting up at home rather than in pubs and restaurants. According to the report, the average number of cigarettes smoked each day did not fall significantly.

The survey showed that the number of cigarettes smoked by men aged 16 to 34 has increased by one and a half cigarettes a day, from an average of 10.9 to 12.5 a day. Since the ban in July 2007, the percentage of females who smoke remained constant at 21 per cent, while male smokers rose from 23 per cent to 24 per cent. One in three smokers said the ban had encouraged them to stay at home, where they could still smoke. The numbers saying the ban would encourage them to quit dramatically fell after it came into force.

In addition to this, enforcing the ban on smoking in enclosed public areas has proved quite difficult all over the world and the levels of success differ with cultural practices.

Only time will tell how Jamaica will react to any new measures brought on by the implementation of the FCTC. Despite the intuitive appeal, it will be difficult to anticipate its adoption, as when introducing any framework to a country there is a chance that it may be too inflexible and it does not allow for the differences in culture, legislative framework, and the particular development stage of the country. The generally accepted rules and principles in the industrialized world have evolved over time. Introducing rules that are imported from other parts of the world may not therefore have the desired outcomes. In fact, in England, subsequent to the more stringent antismoking regulations implemented in bars, restaurants and other workplaces, cigarette sales actually held their own. There may be a similar outcome in Jamaica where certain regulations have proved difficult to implement in the past.

Deon McLennon is an Investment Analyst at Stocks & Securities Ltd. You can contact him at dmclennon@sslinvest.com.

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How will Jamaicans react to public smoking ban?