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September, 2007

OTP: the future for the West?

As government intervention pushes tobacco out of the West, the industry may soon find itself reunited with familiar adversities in their new Southern and Eastern locales. Following the lead of North America and the European Union, smoking regulations and taxes are finding their way into sections of Asia, the Middle East, and even Africa. A somewhat dour outlook for the future of tobacco? Perhaps. But not one devoid of opportunity.

In the US, many manufacturers are following the lead of certain Scandinavian markets, and starting to invest in snus and other non-combustible tobacco products, which may be safer alternatives to traditional cigarette smoking (though currently illegal to promote in such a way). However, a recent study funded by the National Institutes on Drug Abuse, the National Cancer Institute, and the American Cancer Society reports that while smokeless tobacco does decrease many dangers of tobacco, it may increase the levels of certain carcinogens, even over traditional cigarette smoking. With the looming threat of government regulation of tobacco (via the FDA—Food and Drug Administration), which could regulate both physical make-up of tobacco products, as well as the marketing of such, snus may find it difficult, no matter where the science falls, to grab a foothold as a “safer” tobacco alternative.

As well (and once again following the lead of central and northern Europe), some in the US are embracing RYO and MYO cigarettes, which have proven recently to be the fastest-growing segment in the entire tobacco industry. RYO/MYO enjoyed a 14% increase in 2006 in the US, as compared to 9.1% for cigars and 6.9% for smokeless. Several market analysts aren’t seeing a peak in site. Some insiders have attributed the growth to retailers giving more space and effort to RYO/MYO, and to manufacturers communicating directly with consumers on the ease of use of their product. Another, more immediate reason may be the simple issue of price—while US consumers are taxed out their eyeballs on cigarettes (and perhaps soon, cigars), they may be searching for a traditionally cheaper alternative. The RYO/MYO market has proven itself a strong trans-demographic item in European markets, and may be starting to diversify its North American consumer base (traditionally relegated to rural markets and “hippie youth”). Perhaps this is one segment that the industry can start to explore in the Western world. Of course, as history has also sadly proven: if it’s tobacco, and it’s gaining in popularity, the tax man can’t be too far behind.

- Evan D. Dashevsky

Tobacco International - September, 2007

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