I have spoken to the ABS on the issue of the consumption of tobacco and all of my work on this issue is correct, accurate and spot on. Whilst this was never in doubt, I feel the need to take issue with the erroneous material that continues to appear in The Australian.
To his credit, The Australian’s Adam Creighton has tried to get to the bottom on the consumption of tobacco issue that has dominated his paper in recent weeks. Apparently he spoke to the Australian Bureau of Statistics and was able to include several quotes from them when crafting his recent column. In using what was enlightening information from the ABS, Creighton however made a fundamental error when he tried to interpret that news.
This, of course, lead him to the wrong conclusions.
In particular Creighton claims, rather ludicrously, that “The methodology underpinning the ABS’s “chain volume measures” means consumption expenditure can fall at the same time as physical consumption rises if consumers switch quickly to cheaper products.”
Um, no, it definitively cannot. The ABS methodology does not allow this to ever occur for tobacco or any other component which goes into the national accounts. As Creighton quotes the ABS saying, “This results in a chain volume measure where the price impacts have been removed to obtain the underlying consumption expenditure of Australian households.”
Get it? “Price impacts removed” means that switching to cheaper tobacco is captured in the chain volume measure. You would think the word “volume” would be a dead give-away.
The ABS have confirmed that the chain volume measure DOES, I repeat DOES, I repeat DOES, include any shift in consumption patterns to cheaper product.
A stylised example which the ABS confirmed is accurate is reproduced below if or when there is a shift to cheaper items within a consumption category:
Period 1:
Consumption tobacco is 50 units of $10 a packet and 50 units of $20 a packet.
TOTAL CONSUMPTION 100 units.
Period 2:
Consumption of tobacco is 75 units of $10 a packet and 20 units of $20 a packet.
TOTAL CONSUMPTION: 95 Units.
Change in the volume of tobacco consumed: -5.0%
Now, let’s look at the recent ABS data on the chain volume of cigarettes and tobacco consumed:
December quarter 2012: 3,483 units
March quarter 2014: 3,298 units
Change -5.3%
Note that the plain packaging laws took effect in December 2012 and there was an excise increase in December 2013. Over that period, the Department of Health estimate that perhaps 20,000 people died due to tobacco related illness, so there is a drop in demand for tobacco from this source too.
The other issue is that the misinformation and errors in the Creighton article are the basis for other articles written in The Australian on the topic. The writers in The Australian quote each other as the source for the next story. What a scam.
Cut & Paste today refers to the erroneous Creighton article as a source for its support as did the editorial yesterday.
How cute is that?
The end point is that the consumption of tobacco is falling, regardless of whether there has been any switch to lower price cigarettes, pipe tobacco, rollies or cigars.
