Smoke screen - Third Quarter 2009
Will FDA regulation really harm Big Tobacco?
TFQ Editorial Staff
Big Tobacco will soon be dead and smoking will be completely eliminated by the year 2047, according to two experts from the University of Wisconsin’s Center for Tobacco Research and Intervention (UW-CTRI). President Obama’s recent signing of the Family Smoking Prevention and Tobacco Control Act, which gave regulatory control of the tobacco industry to the Food and Drug Administration, was a “step in the march” to make that happen, they say in July’s American Journal of Public Health article titled “Stealing a March in the 21st Century: Accelerating Progress in the 100-Year War Against Tobacco Addiction in the United States.”
Others, however, aren’t as convinced.
In an article for Market Watch, William Spain said by enacting the law, the government was likely “cementing the current market positions of the industry’s big players for years to come.”
In speaking about the first tobacco-control legislation to be passed since 1971, Spain said, “It has pleased anti-smoking and other health groups who have long sought to get Uncle Sam more deeply involved in aspects of the business other than tax collection. But it has also brought a smile to Altria’s Philip Morris USA. The company lobbied heavily for many aspects of the law and stands to set in stone its place as the market leader with new rules potentially stifling competition and making the barriers to entry well-nigh impassable.
“It will be some time before the FDA can put in place a regulatory and enforcement apparatus even after the bill is signed, and what the ultimate regime will look like is anyone’s guess.”
The new law has been lauded by anti-tobacco activists from coast to coast—supported by nearly 1,000 advocacy groups in fact, including the Campaign for Tobacco-Free Kids, the American Heart Association and the American Cancer Society. Drs. Michael Fiore and Timothy Baker, the director and associate director respectively of the UW-CTRI, and authors of the journal article that predicts Big Tobacco’s demise, say the law will be a huge step toward ultimately eliminating tobacco use.
“Numerous observers have claimed over time that tobacco use has plateaued and progress against its use has stalled,” the two authors wrote. “However, the remarkable decline in rates of tobacco use since the 1960s belies this claim and underscores the remarkable success of tobacco control efforts to date.” Data from their research shows adult smoking has dropped an average of half a percent per year between 1965 and 2007, going from an overall smoking rate of 42 percent in 1965 to its present 20 percent.
Based on those numbers, however, the Congressional Budget Office’s estimate that over the next 10 years the new law will reduce adult smoking by 2 percent and youth smoking by 11 percent pretty well takes the luster off the government’s “industry-shattering” victory, something that was beginning to become more and more apparent even as the bill moved through Congress.
“At face value, this bill sounded like a good idea and it gained overwhelming support in both the House and Senate,” Sen. Bob Bennett wrote, explaining his opposition to the bill in the Salt Lake Tribune. “However, its biggest support came from Big Tobacco, the very companies whose product the Food and Drug Administration will be asked to regulate. That fact gave me pause. When I looked at the fine print, I discovered that this bill increases one company’s domination in the market, has little effect on reducing deaths and disease associated with tobacco and places the authority of regulation of tobacco in the wrong hands.
“When I became the chairman of the Senate Appropriations Subcommittee on Agriculture, I learned about the difficulties that the FDA faces. Giving that agency the assignment to regulate tobacco products is poor management on the part of the federal government. Implementing stricter regulations on tobacco products is the right action, but FDA is the wrong agency for the job.”
At its root, the Family Smoking Prevention and Tobacco Control Act is said to be targeting the estimated 1,000 teenagers who begin smoking each day (the number according to the Campaign for Tobacco-Free Kids). The FDA plans to eliminate using “candy-like” flavors in cigarettes (except menthol, which at 28 percent of the market, Altria would not concede), eliminate advertising that it feels targets youths, add more warning labels, reduce the nicotine in cigarettes, curb the carcinogens and, most importantly to industry observers, regulate new products. All this, in theory, will prevent new smokers from starting the habit and make it easier for current users to quit it, thus helping to drastically reduce the number of people who actively smoke until none are left—mathematically speaking in 2047.
The question is, if this law is truly the devastating blow to Big Tobacco the lawmakers and others would have you believe, why was it supported by Altria?
“The bill was negotiated between Philip Morris and Tobacco-Free Kids,” Dr. Joel Nitzkin, head of the tobacco control task force of the American Association of Public Health Physicians, said in an interview with Democracy Now. “And it appears from the actual text of the bill that the Philip Morris people did their homework very well and knew exactly what they wanted, while those appointed from Tobacco-Free Kids to negotiate on behalf of the public health community really had no understanding of tobacco-related science, of how and why kids initiate tobacco use or the steps that could be taken to stop them.
“So it resulted in a bill that gives the appearance of effective regulation but not the substance.”
Others took their opposition to FDA regulation even further, including outspoken anti-tobacco crusader Dr. Michael Siegel, professor of social and behavioral sciences at Boston University, who wrote in his blog, “This legislation is a huge hoax. It is a piece of legislation that is designed to make it look like Philip Morris, politicians and the health groups are doing something about the smoking problem, when in reality the bill does nothing to challenge the status quo and contains provisions that are essentially window dressing: marginal changes that produce no meaningful or effective reductions in smoking or improvements in the safety of cigarettes and the protection of the public’s health.”
What most everyone agrees on is that the FDA will make it extremely difficult to introduce new products into the industry. With that, speculation is that Philip Morris, owners of 51 percent of the U.S. market, will be all but untouchable to even the next largest companies—R.J. Reynolds (30 percent of the market) and Lorillard (10 percent) —never mind the small ones. In addition, as Philip Morris has spent years supporting FDA regulation, it has built a strong foundation in its smokeless tobacco division and poured hundreds of millions of dollars into researching new “lower risk” products it is betting it can get past any federally imposed restrictions—a wager few companies can afford to make.
“In the short term, there will not be much impact,” Philip Gorham, an analyst with Morningstar, told Spain in his Market Watch article. “It will take a few years for the FDA to establish a tobacco unit, staff it and begin to write regulations.”
Further out, however, “the bill seems to be focused on marketing restrictions, and the more they take away companies’ ability to compete,” he continued, “the harder it becomes for competitors to take share from each other. That is great for Altria.”
Even though critics of the legislation pointed to Altria’s support as a sure sign of trouble, the Washington powerbrokers still managed to move it through Congress with ease.
“Philip Morris [supported the law] for their own reasons,” said Rep. Henry Waxman, one of the orchestrators of the bill’s passage. “This is a good bill and a strong bill. I don’t think we’ve made any concessions that we’d want to change.”
Onlookers again disagreed.
“The way you beat the tobacco companies is the old-fashioned way: you beat them,” Stanton A. Glantz, director of the Center for Tobacco Control Research and Education at the University of California, San Francisco, said in a New York Times article. “Going into partnership with them or cutting deals with them, there’s not single case anytime anywhere in the world where that’s worked.”
And while all affected parties continue to posture—the politicians claiming victory, the anti-tobacco people hoping it works but now wondering if they’ve been had and the industry giants positioning themselves to protect and expand market share—the best way to predict whether Big Tobacco will be killed or fortified by FDA regulation is to follow the money on Wall Street. Fortune magazine answered that question in December naming Altria one of the 10-best stocks to buy, saying “the proposed legislation might as well be dubbed the Altria Earnings Protection Act. For starters, the bill prevents the FDA from ever banning cigarettes, but no less importantly, it makes competing with Altria much harder. The wording makes it extremely unlikely that the FDA will ever approve a new cigarette product, because the new entrant would have to be deemed ‘appropriate for the protection of the public health.’
“Yet another part of the measure would require the FDA to crack down on sales of counterfeit cigarettes, which have been a drain on Altria earnings for some time.”
So it certainly appears for the foreseeable future that people will continue to use tobacco products, the federal government will continue to feed off tobacco’s huge tax earnings and Big Tobacco will continue to thrive. Even past 2047.