Demerits of the New Tobacco Legislation and Effect on the Supply Chain for Cigarettes

Demerits of the New Tobacco Legislation and Effect on the Supply Chain for Cigarettes Essay Sample

Small tobacco farmers stand the chance of being impacted severely, as they may lose revenue in the long run due to the gradual decrease in the proportion of smokers. This will eventually lead to unemployment and a major dent on national economies for countries like Cuba, were tobacco is a major source of national income (CIA World Factbook, 2012). Warehouses that are designed specifically for the storage of tobacco will have to downsize or possibly shut down due to the decrease in supply, caused by the decrease in demand for cigarettes. Tobacco companies will be affected in many major ways, apart from the negative association that consumers will develop between the graphic images, and the particular brands of cigarettes.

As profits will inevitably decline in the long run, many jobs in production will be lost. Marketing departments will become expendable due to poor product differentiation, imposed upon the entire industry by the law. Private investors will also pull out due to poor returns. Independent suppliers, who may provide packaging among other things, will become a competitive industry due to all packaging looking exactly the same apart from the small branding in text, resulting in a few well established competitors thriving while many others shut down. Wholesalers will lose out in the long run as sales decline due to the decrease in the proportion of smokers. Retail stores may have a major problem apart from the decrease in sales. The graphic images on the packaging will definitely be an unsavoury sight to customers browsing through the aisles of the stores, and may cause them to steer clear of that particular area or even of the store itself, resulting in further decrease in revenue.

The fact of the matter is that the entire supply chain will be affected by the new packaging legislation, which will in turn lead to mass unemployment, profit losses, and possible recessions for national economies that depend on tobacco as a major source of revenue.

Effect on the black market

The new legislation has been passed in Australia since December of 2012 and as much as the tobacco industry fought their case, they eventually gave in. There is speculation though that the new law may have a downside, which may be a result of fake products entering the market (BBC Australia, 2012) It will not be a difficult task for counterfeiters to replicate the packaging and insert fake cigarettes into them, due to the fact that every cigarette package will look almost identical. Only compulsive smokers who have been loyal to their brand for many years may be able to taste the difference. Another issue could be the smuggling of illegal tobacco or even drugs, which can be sold in small stores or even on the streets, as it will be easier to conceal due to the uniform packaging. The tobacco industry claims that it is a bad law, which works to the advantage of organised crime (Getty, 2011). Effect on the tax payers of the country

Cigarette manufacturers are debating that the legislation is unconstitutional, and that by restricting the branding of their products, it imposes on their intellectual property rights. With this new legislation in place cigarette companies will be forced to take defensive action, as unique branding and marketing are some of the major techniques used to promote their products and maintain brand loyalty. The law suite of the state by the cigarette industry will be a long and tedious process that will most probably end with the state winning the case, but the underlying issue is the proportion of legal fees that will be paid with tax payer’s money. Millions in tax payer’s money will be wasted, deviating funds from other national developments and projects that may have greater priorities, while also leaving the public upset and disgruntled (Getty, 2011).

The decrease in government tax revenue

The aim of the new cigarette packaging is to discourage as many tobacco consumers as possible, so that they are protected in the long run from many health defects and even death. While the government has put this legislation in place, they have also put themselves at a disadvantage. Cigarette taxes contribute a substantial amount to government revenue and in locations like New York City, cigarettes are taxed up to 2.75 Dollars per pack (Josh Ritchie, 2010). The gradual decline, in tobacco consumption and the sales of cigarettes, will result in an inevitable decline in annual government income. A loss or reduction in revenue, could ultimately affect the national budget spending and future concerns.

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