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Select Committee on Tobacco Harm Reduction
19/11/2020
Tobacco harm reduction

SWEANOR, Professor David, Chair, Advisory Board for the Centre for Health Law, Policy and Ethics, University of Ottawa

Evidence was taken via teleconference—

[10:43]

CHAIR: Welcome. Thank you for appearing before the committee today. Information on procedural rules governing public hearings and claims of public interest immunity have been provided to witnesses and are available from the secretariat. I'd like to invite you to make a brief three-minute opening statement, should you wish to do so.

Prof. Sweanor : Thank you very much. I was actually the first lawyer in the world to work full time in public policy advocacy to reduce the carnage from cigarette smoking. I have worked globally, including in Australia, starting as early as early 1985. I have been involved, playing a key role, in many of the global precedents in tobacco control and also in litigation against the cigarette companies, and a huge focus of my work throughout my career has been studying the tobacco industry itself. Where we find risks, we should try to reduce them, and to do that we need to understand the vectors. The tobacco industry is one of the major vectors that we face when we're trying to deal with all the diseases caused by cigarettes.

I was asked to talk about the tobacco industry's involvement in the selling and marketing of e-cigarettes. I am happy to talk about many other topics, but on this one let me be clear that vaping is absolutely not a strategy hatched by big tobacco. It's disruptive technology. It was developed independently of big tobacco. It's spurred on by consumers and entrepreneurs, and it is an existential threat to the longstanding business model of the big tobacco companies. Their moves into vaping technology have been defensive, tentative and often disastrous. Big tobacco has lost huge sums of money from failed R&D on vaping technology and failed investment in technology developed by others. They're running scared.

The business model of the tobacco companies has long been to be a cartel selling a widely used, dependence-producing product. It's been an incredibly profitable business model, and the value of these companies soared even while they were under universal attack for killing so many of their customers. What they accomplished was much like what OPEC once tried to do with oil prices. Their profit margins dwarf anything found in other consumer product companies, and one can put a value on each of their customers based on how much they smoke, how long they're likely to smoke until they quit or die, and how much they can keep increasing their prices and profit margins during that time.

But, much as taxi licences or cable TV subscribers used to have a big value, disruptive technology can destroy that, and that's what we're seeing happen. As per my submission, the five-year stock charts of transnational tobacco companies show that they have been devastated since the advent of viable safer alternatives to cigarettes. It destroys their business model. Overall, these companies have lost over US$300 billion of collective market value. That, to put it in perspective, is greater than the total combined market value of the three largest listed Australian public companies. The things that used to be protective of the cigarette companies and their profitability become a disadvantage if risk-proportionate regulation is adopted. The tort law risks become huge once a product is shown to be unreasonably hazardous based on what else is in the market. The financial markets are looking to the future, and investors do not think the long-term viability of these companies is secure. This is not a time to protect the cigarette business; it's time to protect public health.

CHAIR: Thank you. I will now pass to the committee for questions, but I will just kick off. You just mentioned this in your introduction, but I think it's incredibly important that we make this point very clear, particularly in light of the regular claims that those in support of vaping are somehow shills or puppets of big tobacco. Can you please just reiterate for the committee: what would be the benefit to the big tobacco companies if more people were to move to vaping and if more people were able to more readily access those vaping devices, vaping liquids et cetera?

Prof. Sweanor : Sure. It completely destroys their business model. It's like saying that iPhones were a plot by Blackberry or that Blackberry was a plot by Nokia or that Amazon was a plot by bricks-and-mortar retailers. This is disruptive technology that destroys their business model, and that is what the financial markets are telling us. If the cigarette companies were benefiting from this, they would not have lost over $300 billion of collective market capital. They wouldn't be seeing their share prices look as if the force of gravity has grabbed them. It's an extraordinary loss, and it makes terrific sense when you look at how they made their money. They made their money by being a cartel selling a widely used, addictive product. What happens when you've got a less hazardous product that consumers are willing to use? Consumers start moving to it, and the value of the cigarette to a customer plunges. The ability of these companies to be able to come up with a product that consumers want is very poor. Look at the history of disruptive technology: how many companies that were dominant in a field, ended up doing well when disruptive technology hit that field? They usually get blown away.

CHAIR: What about pharmaceutical companies if we were to move down the path of the prescription-only model? I assume it would involve not only doctors, but additional budgetary burdens with regards to doctor visits and our Medicare payment system. You would also have the introduction of the pharmaceutical companies. We don't hear terribly much about their vested interest in keeping vaping as limited as possible. Do you have any thoughts or considerations with regards to what benefit there might be for the pharmaceutical industry from restricting access?

Prof. Sweanor : The pharmaceutical industry is a very small player in this business when you consider that cigarette sales globally are well over a trillion Australian or Canadian dollars per year. The pharmaceutical industry's nicotine products are a tiny fraction of that because they haven't been acceptable to consumers either as products themselves, or for their availability. I don't think pharmaceutical companies are likely to do very much if you went to pharmaceutical regulation of vaping, because it puts vaping at such a disadvantage, just like if you decided that chips and beer were going to be widely available in all the milk bars, but if anybody wanted a pair of running shoes, they had to get a prescription from the doctor and go to a pharmacy to get them. Would running shoe companies be in a hurry to get into the Australian market? It's putting the safer alternative at a huge disadvantage.

CHAIR: Thank you, Professor Sweanor.

Senator SHELDON: I appreciate you gave me a letter regarding article 5.3 of the World Health Organization Framework Convention on Tobacco Control. Would you be able to briefly outline your response for the committee's purpose?

Prof. Sweanor : Sure. I do not take money from anybody involved in any aspect of the development of the nicotine business, nor do I accept funding from anybody who has an abstinence only, moralistic or otherwise anti-public-health attitude toward nicotine and tobacco.

Senator SHELDON: I appreciate your view that vaping may be a form of disruption to the tobacco industry, but with public statements made by the tobacco companies like Philip Morris pushing vaping products onto the Australian market, is there a risk that a commercialisation of vaping or heated tobacco would be a new lifeline of revenue for these companies?

Prof. Sweanor : I don't think it's a new lifeline, because it destroys their old lifeline, and Philip Morris is already doing very well off the cigarette business. I think regulation has the potential to give an advantage to the cigarette companies if the regulation is written in a way that allows that to happen, and we've seen that in some countries such as the United States, where there's a huge regulatory burden on getting any alternative to cigarettes onto the market, to the extent that small, innovative companies are basically screwed, and cigarette companies—or other very large entities—are the only ones that have any chance. I think to write laws in a way that gives a huge advantage to the very companies you should be trying to keep out of the market, screwing the companies that could really disrupt the market, and then saying: 'Look, this doesn't work,' that's an issue of legal drafting rather than something inherent in the market.

Senator SHELDON: On the question of youth take-up rates on vaping as a gateway, what's your view on that? In your view and from the medical research, do you think the percentages given of the take up of vaping as a gateway to potentially smoking are accurate?

Prof. Sweanor : The key thing is whether it can be a gateway into smoking. I think we can prevent that from happening, just as modern cars with the safety features they have are not somehow a gateway into the sorts of cars that existed when I was a kid. You can't buy cars with that sort of technology anymore. I think we can move the market away from combustion based delivery very quickly, to the extent that we don't have to worry about people switching to cigarettes, because they're far less likely to be around, and, if they are around, we can make sure that they cost far more and they're harder to access rather than easier to access, which the proposed legislation in Australia would do. We can put the products at a disadvantage, just like a policy moved people from leaded to unleaded motor fuels. We can design legislation in order to move a market in a certain direction.

Will there be unintended consequences? I think almost certainly. FDA-regulated pharmaceuticals in the United States are estimated to kill 100,000 people a year; it's just way less than what would happen without them. Any legislation has potential downsides. That's why we want to be able to have regulations that you could revise. In terms of overall risk, we really don't see much by way of gateway to smoking. We see a gateway away from smoking. In the countries where there has been more vaping by young people, there are more rapid declines in cigarette smoking. We don't want the vaping, but we don't want to replace it by having them smoking instead.

Senator HENDERSON: Professor, are you aware of the business plans of big tobacco? Have you been briefed, including in relation to their confidential business plans?

Prof. Sweanor : As I say, I've spent my career trying to understand the industry—

Senator HENDERSON: If I could just confine you to answering my question, I'd be grateful.

Prof. Sweanor : Have I seen confidential business plans?

Senator HENDERSON: Are you aware of the business plans of the big tobacco companies, including in relation to any confidential business plans?

Prof. Sweanor : I think I'd probably have a better grasp on it than most people, because I also talk to anybody who has ever been fired by the industry and anybody who has left on a matter of conscience and look at any leaked documents I can get from contacts within the industry.

Senator HENDERSON: Sorry; I just—

Prof. Sweanor : I wouldn't say that I know absolutely everything going on in the industry. I think I have a pretty good understanding of it.

Senator HENDERSON: Sorry; I just—

Senator CANAVAN: Chair, can I take a point of order?

CHAIR: Yes, Senator Canavan.

Senator CANAVAN: I've been tempted a couple of times, but Senator Henderson has asked a number of questions today that are effectively asking people what they think are the motives of other people, what's the state of mind of—

Senator HENDERSON: No, I—

Senator CANAVAN: Hang on.

Senator HENDERSON: That's not a valid point of order.

Senator CANAVAN: Senator, you've interrupted witnesses, and now you're trying to interrupt me. I've got a point of order here. There are a number of questions here that are effectively asking for the state of mind of other witnesses. That is effectively asking for an opinion on someone else's opinion. I don't know if it's a formal breach of standing orders, but I think it's very, very—

Senator HENDERSON: Could I respond to the point of order?

CHAIR: Guys, we're very limited by time. If we can just stick to asking questions in people's area of expertise, it would be appreciated.

Senator HENDERSON: Chair, could I please respond to the point of order?

CHAIR: Well, we're going to run out of time, so you're going to have to decide whether you want to ask questions or respond to a point of order.

Senator HENDERSON: I would like to respond to the point of order and say I was not asking about the state of mind. I was asking, and I ask again to the professor: are you aware of the business plans of big tobacco companies, including any confidential plans they may have in relation to their business planning?

CHAIR: Well, you've just repeated the question, so perhaps we can let Professor Sweanor answer.

Prof. Sweanor : As I think I've indicated, I think I have a very good idea of what the business plans are. Do I know absolutely everything? I'm sure I don't—

Senator HENDERSON: Thank you very much, Professor.

Prof. Sweanor : but I think I know more than certainly any other academic who's worked with this.

Senator HENDERSON: Are you in a position to state that big tobacco is not planning to enter the vaping market?

Prof. Sweanor : No, absolutely not. Big tobacco, as I said in my testimony, is—

Senator HENDERSON: Thank you. So how—

CHAIR: Senator Henderson, if you could let Professor Sweanor answer. My apologies, Professor Sweanor.

Senator HENDERSON: If you're not in a position to understand whether big tobacco companies are planning to enter the vaping market, how can you—

Prof. Sweanor : I just answered that question.

CHAIR: He did answer the question, Senator Henderson, if you'd like to move on.

Prof. Sweanor : If I answer the question, you should listen to my answer too.

Senator HENDERSON: How, therefore, can you assert that vaping is an existential threat to big tobacco?

Prof. Sweanor : I think I explained that in the submission that I gave. If you have any additional questions, I'm happy to answer them, but the fact that the companies have lost over US$300 billion in market value is a very good indication that there's a problem they're facing, and the problem they're facing, as I explained in my submission, is disruptive technology that destroys the business model they have from running a cartel selling a widely used dependence-producing product.

Senator HENDERSON: Tobacco companies do sell other products. For instance, Philip Morris owns Kraft. Given—

Prof. Sweanor : They don't.

Senator HENDERSON: Given that you are not in a position to know whether big tobacco companies are planning to enter the vaping market, isn't it the case that you are not in a position to make the statement that vaping is an existential threat to big tobacco?

Prof. Sweanor : First of all, Philip Morris does not own Kraft. Secondly, I have not said they are not trying to enter the vaping market. They are trying to enter the vaping market from a defensive standpoint and they do face an existential threat from the disruptive technology that is destroying the business model for selling cigarettes and increases tremendously the tort litigation risk that they face from selling a lethal product.

Senator HENDERSON: Thank you very much. Philip Morris did own Kraft at a point in time.

Prof. Sweanor : They used to; they don't now.

Senator HENDERSON: I would just make the point that big tobacco does not just sell tobacco products; they sell other products—

CHAIR: Senator Henderson, are you saying Philip Morris own Kraft?

Senator HENDERSON: That's right.

CHAIR: And that has been disputed by Professor Sweanor. Perhaps we will look into that.

Senator HENDERSON: I'm just making the point that Philip Morris did own Kraft—

CHAIR: They did or they do? It's a different assertion.

Prof. Sweanor : They do not now.

Senator HENDERSON: I'm just making a factual point—

CHAIR: That's the point—it's not factual.

Senator HENDERSON: that big tobacco companies don't just sell cigarettes.

CHAIR: Can we move on now. If you have any other questions, Senator Henderson, perhaps you can put them on notice. Senator Siewert.

Senator SIEWERT: Professor Sweanor, I want to pursue that issue in terms of the defensive strategy that you were talking about. I think you said they have lost $300 billion—

Prof. Sweanor : That's the decline in the value of the companies since they hit their peak, about two to three years ago depending on the company, and when disruptive technology really hit their market. Japan Tobacco's decline started earlier. Some of the companies have had it worse than others. Imperial has lost way over half of its market value. Philip Morris International has not lost as much but it has still been hammered. The overall value of the companies had been doing really well for a very long time because they had an incredible ability to simply keep increasing their profits because of their pricing power. They have lost that as the market has said it does not see the long-term viability of this. That's why a company like Imperial Tobacco is now trading at a price earnings multiple of 5.5, with a dividend of over 10 per cent. That's the way the market says, 'There's a problem here.' It is something that will look like an absolute bargain. There is a reason why that company is valued so low: they are selling cigarettes.

Senator SIEWERT: You said big tobacco was going into vaping as a defensive mechanism. Do you mean they are going into it to make money out of vaping? If so, are they likely to replace that $300 billion?

Prof. Sweanor : If they are facing a truly competitive environment that is not rigged in their favour they have no chance of recouping the sort of profitability they have from cigarettes—because they wouldn't be able to have a cartel anymore, they wouldn't be able to raise their prices in unison. So it is a huge threat to them. It is defensive because they feel that if the market is moving it's better that you come out with a part of it rather than nothing. To put it in perspective, it was like BlackBerry deciding that they had to make their phones more like an iPhone in order to try to survive. We see how that turned out. It's like bricks-and-mortar retailers who decide that they need to get an internet presence, that they need to compete with Amazon. We see how that works out. They are doing what they can to try to survive, but we need to understand what their motivations are and the threat that they are facing.

Senator SIEWERT: Are you disputing that vaping should be seen as a gateway to smoking and that there's evidence to suggest that people have dual use—are vaping and smoking?

Prof. Sweanor : Generally, what we see is over the course of history people move to safer, cheaper, better products. New laptops are not a gateway to old typewriters. We have the ability through policy—

Senator SIEWERT: I'm sorry. I've got a problem with comparing health and this sort of activity with technology. There is a—

Prof. Sweanor : I can use health examples if you want. If you're sick, you're probably going to get a licensed pharmaceutical product rather than Dr. Williams' Pink Pills for Pale People or Lydia Pinkham's Vegetable Compound. Those products were not banned by pharmaceutical legislation, but people moved away from them once they knew that they could get something that was safe and effective. They were trying to reduce their risks. We had legislation that made that possible and actually gave a relative advantage in the marketplace to the less harmful products. So we saw that transformation. In 1938, the US food and drug law was passed, and within 12 years 90 per cent of all the pharmaceutical products sold in the United States were products that did not exist before that law. The law encouraged the development of products that replaced the snake-oil products. It didn't benefit Lydia Pinkham's Vegetable Compound; it removed it from the market.

Senator SIEWERT: But they weren't necessarily addictive products like tobacco, were they?

Prof. Sweanor : Many of them were. When you look at some of the things that were added in the snake-oil products, including morphine and a tremendous amount of alcohol, yes, indeed many of them were addictive.

Senator SIEWERT: In terms of the issues around gateway and replacement drugs, and whether people do successfully transition permanently either to a vaping product or nothing, have you had a look at the longitudinal studies rather than the randomised shorter term trials?

Prof. Sweanor : Sure, and we have really good examples in countries where alternative products have been available. Even without using the suite of regulatory measures and education measures we have to move populations, they do. That's why we see in Sweden the lowest rates of smoking. It's substitution; they're using snus. They have the lowest rates of tobacco related disease in the European Union by far. In Norway when snus—an oral tobacco product—became available, we saw cigarette sales fall by half in just 10 years. In Japan we saw cigarette sales fall by 34 per cent in just four years because of a non-combustion product that hit the market. So we see this globally. Smokers are dissonant; they're looking for alternatives, and if viable alternatives are made available they move—even when the alternatives don't have big advantages in terms of price, access, health information, advertising et cetera. This raises the question of how rapidly we would be able to get rid of cigarette smoking if we did the sorts of things we've done with other products and services to say, 'Let's give an advantage to the less hazardous products; let's try to put cigarettes into history's ashtray; let's see how rapidly we can get rid of cigarettes.' Can we do it as rapidly as we got rid of unsanitary food with the pure food laws of 100 years ago.

Senator CANAVAN: Thank you very much for your evidence today. I want to ask a question about some evidence previously given, which was actually given in what we call Senate estimates—so a different committee. It was given by an official at our Department of Health, someone called Dr Skerritt. He told the Senate:

… I believe that others, especially when I talk to public health and regulatory colleagues in places like Canada and the US, are somewhat envious about our approach, given the significant increases in youth vaping. The main concern is the increase to vaping in youths in Australia and similar and similar countries, such as the US and Canada.

Given your position in Canada, have you seen any evidence that Canada is regretting their approach to the regulation of vaping and wants to adopt more of the Australian approach?

Prof. Sweanor : Not that I'm aware of. I wouldn't be surprised if somebody wishes that we had a more-than-abstinence-only approach, and there are people that have that same attitude on a whole range of other goods and services and behaviours. I'm very pleased to see that as vaping became more common in Canada cigarette sales fell more rapidly. Cigarette smoking among young people has plummeted here, as it has in the United States. US sales of cigarettes went from a later decline of about two per cent per annum to an annualised rate of eight per cent as vaping became more popular and then, as they attacked vaping, that reversed, so we're now back to a very low rate of decline in cigarette sales.

But we can see the substitution effect. It's very clear. And we have to keep reminding ourselves of the status quo; cigarettes are killing an extraordinary number of people and they're doing it because they're such a lethal delivery system. We know that we can come up with a delivery system that is massively less hazardous. Is it everything that we want? Absolutely not. But do we have the way forward that we can reduce the carnage of cigarettes? We can do it quickly and we can make it a change in global health on par with the eradication of smallpox with what we know now about nicotine delivery. Why wouldn't we do that? And why wouldn't we then look at what more we can do to try to improve ever more on what we've got. But to say, 'We will give cigarettes a relative advantage in the marketplace. We will ensure the nicotine dependent will have less ability to move to a non-lethal product' I just don’t think makes any sense.

Senator CANAVAN: Moving on, I was interested in your analysis of monopoly conduct or [inaudible] conduct of tobacco companies in the past few decades. I don't know if you can answer this but: what gave rise to their ability to do that? It would seem to me it wouldn't be that difficult for someone to start up a new cigarette company. They're pretty easy to make. What allowed—in your view; if you can answer this at all—those tobacco companies to entrench such a strong market position that they could price in monopoly fashion for so long.

Prof. Sweanor : It was a combination of things. One is that they consolidated. If you remember, we used to have far more companies, and if you have many companies in a market you're more likely to get price competition. They found ways to make cigarettes ever more efficiently. In the US for instance Altria makes a pack of cigarettes for 20-some cents and they sell them for well over $2 a pack before you add in all the taxes and wholesale retail mark-up et cetera. But they also benefited because of turning things that were used against them to their advantage. So high specific taxes allows them to disguise their own price increases. Advertising, marketing bans and plain packaging make it very hard for a new entrant to be able to get into the market. Any of the regulatory measures that we have that put constraints on cigarettes create bureaucratic burdens and makes it much harder for a small player. If you're a very large company, you can deal with things like excise taxes far more readily than if you are a new player—any reporting requirements et cetera. So it has become very difficult for any new player to enter the market. And the players that are in the market match price. You will see that, when one company increases prices, the others do the same almost immediately in any market. So it functions very well to their advantage. They can disguise it well because of the sort of regulatory and tax structures we have, and they get away with it in a way that we wouldn't allow other cartels to do. We wouldn't allow pipeline companies, power producers et cetera to have that sort of pricing power.

Senator CANAVAN: I thought that might be the case. Often you see regulations actually helping entrench incumbent producers in a market. Are there any parallels for this debate here about the importance not to repeat those mistakes? Obviously, there needs to be regulation of liquid nicotine, but, given this is a disruptor technology, as you've said, there perhaps is a need to make sure that disruption can occur without too much [inaudible] regulation that would suffocate it. Is that sort of where you're going?

Prof. Sweanor : Yes. The key thing is we want risk-proportionate regulation so the most hazardous products are the ones with the greater regulatory burdens. We do not want to make the safer products the ones that are harder to get and the deadly products the ones that are easier to get, any more than we want to make it easy for people to do any other dangerous activity as opposed to doing something that is safe. We usually try to structure our societies in a way to make the safer option the easier option rather than the reverse.

Senator CANAVAN: A number of people today have tried to say that because tobacco companies are advocating for the legalisation of vaping that means that must be good for them. But just drawing your parallel with other market disruptions before, it is true though, isn't it, that Kodak has tried to make digital cameras; blackberries did try to compete with iPhones. Is it not the case here that perhaps tobacco companies have just put out the white flag here and are trying to catch up, obviously trying to enter this market. That is not necessarily per se evidence that this is the best outcome for them, is it?

Prof. Sweanor : No. Obviously what would they would like is to be able to stay with the status quo. The cigarette companies want to see a move to alternative to cigarettes the way the House of Saud wants to see a move to non-combustion forms of motor fuel. They might very well be investing in solar power. They are saying that they believe the markets going to change and they need to be ready for a world without oil. But do you really think the House of Saud wants to speed that up? Do you think Saudi Arabia wants to see a rapid transition away from petroleum products? I think it would be naïve to believe that they would want to do that. That is where they make their money. That is where they have their relative advantage. A move away from oil is a huge threat to them. You just need to understand what the vested interests are to understand what they would be saying. If the House of Saud said something positive about solar energy, I think the craziest thing environmentalists could do would be to oppose solar energy because they don't like the House of Saud because they sell oil.

Senator CANAVAN: That's a good point.

CHAIR: Thank you for appearing as a witness today. Answers to questions on notice should be provided by 25 November 2020.

Proceedings suspended from 11:17to 11:30