New CTC CEO on graphic health warning issues, future trends and risk reduction

Thursday, 15 August 2013 00:00 -     - {{hitsCtrl.values.hits}}

By Cheranka Mendis Ceylon Tobacco Company’s new Managing Director and CEO Felicio Ferraz told the Daily FT that whilst regulation is important, the move to bring in graphic health warnings will open the doors for inferior illicit products to cloud the market. In 2012, authorities detected 56 million illicit sticks attempted to be smuggled into Sri Lanka valued at over Rs 1.35 billion and within the first five months of 2013, authorities have already confiscated over 40 million illicit sticks, pointing to a dangerous trend and an alarming increase in the number. Contribution to economy and intellectual property rights Every year CTC contributes significantly to government revenue, an amount which rose to Rs. 71.2 billion in 2012 from Rs. 66 billion in 2011, under the trade of nine brands of cigarettes – Dunhill and Benson & Hedges for the high-end market, John Player Gold Leaf and Pall Mall for the mid segment, and Bristol, Four Aces, Three Roses and Capstan for the lower-end. Given this context, the company views itself as a significant development partner of the government and therefore, believes that it is imperative that the company is consulted on deliberations and decisions that will impact the industry. “Balanced regulation is important to ensure that markets remain competitive and within the legal ambit, which in turn will benefit all our stakeholders,” he stated. Ferraz brings with him 19 years of expertise working at British American Tobacco (BAT) Group of which CTC operates as a subsidiary. Hailing from Brazil, he has previously worked in Costa Rica, Guatemala and the Dominican Republic as Country Manager, and in Cuba as its Marketing Director. He has also worked in Trinidad managing the Caribbean market which consists of 22 islands. “I am a true believer that smoking is an adult choice to make,” Ferraz said. Stating that his company is strictly against minors smoking, he pointed to the Youth Smoking Prevention campaign adopted by the Group, which can also be carried forward in collaboration with the Government. “There are risks involved in smoking as there are with several other products we all consume. Whilst the company would not suggest that people start smoking or promote underage smoking, the company believes that an adult is able to make a conscious decision based on his/her wants. In life there are risks involved in anything you do.” The tobacco industry is demonised and attacked from several fronts, but those who criticise fail to see that there are several other products which possibly do more harm than cigarettes, Ferraz added. Smoking tobacco imposes a risk to your own life, but other habits can destroy entire families and more he remarked. He also pointed out that in China, whilst the majority of smokers are men, those mainly affected by lung cancer are women, due largely to their method of cooking. “To smoke or not is a personal decision, and if you balance it well with other healthy things, I doubt it will be the sole reason for someone’s death.” Harm reduction Quoting the World Health Organization (WHO), Ferraz expressed that in 50 years’ time, the volumes of sticks in the global tobacco market are expected to remain the same. Research shows that the amount of adult smokers and daily average consumption will both decline in the coming years; however, due to the increase in population, overall volume will remain the same. Therefore, the question to governments is whether they would prefer to have formal and legal products (which pay taxes and guarantee quality to consumers) or make room for illegal and smuggled products which are unregulated. BAT Group is investing heavily in research and development in order to bring a lower risk product which caters to the demand of the market. In 2012, BAT acquired CN Creative; a UK-based company exploring the development of innovative electronic cigarette technology, which they feel is a way forward. Additionally, BAT’s subsidiary, Nicoventures, is also looking at launching alternate nicotine-based products that pose a lower risk to a person. Whilst the Company believes that the industry will rely on the combustible cigarettes used today, the non-combustible product will play an increasingly important role in the future, Ferraz said. “Cigarettes are legal products. What some governments and agencies propose to do is to get rid of this product category entirely. But that does not mean it will not be available in the market in other ways.” Ferraz remarked that the price of cigarettes in Sri Lanka is amongst the highest in the Asia Pacific region. With the increasing price, the market becomes more attractive for illicit products, which have no regard for quality standards, nor do they want to put health warnings, and if accessibility to legal products becomes difficult, the Sri Lankan market will be flooded with smuggled products. “We need to balance the market well. Surely it is better to have a legitimate, regulated industry than an untaxed, unregulated and unrestrained black market,” Ferraz stated. Sustainability and responsibility Having taken up office at CTC just five months ago, Ferraz hopes to build relationships with all stakeholders to achieve a better balance. “We are a responsible global company. We want to commercialise and market our products in a responsible manner. We have always respected the law. What we want is to have a seat at the table; to have an open dialogue with the respective officials in the Ministry of Health and even at NATA,” he stressed. “If we can discuss and find a balance in the regulations, thus creating a win-win situation for all parties, this would ensure the sustainability of an industry which fuels the livelihood of many thousands of people.” He averred that there are instances of unfair enforcement in the market and that some even act as if it is against the law to smoke. In a declining volume scenario, he says that CTC can remain sustainable by focusing on pricing. “Smoke less, but offer premium cigarettes; this concept would address that dilemma.” He asserted that the business results have been successful thus far, adding that CTC is the biggest tax payer in the country, contributing immensely to national development, whilst also being the second largest company in terms of market capitalisation on the Colombo Stock Exchange. “There is a lot of work done by CTC which many people are not aware of. Our flagship CSR program, the Sustainable Agricultural Development Program (SADP), imparts our century-plus expertise in agriculture to under-privileged families all around the island. We don’t do handouts; we teach them how to effectively use their resources and become self-sufficient and grow commercial crop. We have already reached over 16,000 farmers; that’s over 57,000 people we have empowered through our efforts. Such is the reach and the efforts of our company, and we are immensely proud of our achievements as an organisation, a team and our contribution to society.” An independent audit of the program carried by an independent reputed audit firm has revealed that the SADP program has improved nutrition amongst participating farmers above the World Health Organization prescribed levels, and their incomes by a further 40%, he added. In addition, the company has contributed towards the development of infrastructure, tertiary education and afforestation. Its activities are focused on creating a sustainable value chain for all, and these activities go well beyond the ambit of growing and manufacturing tobacco products. Responding further to a query on CTC’s contribution to society and the nation, “it is manifold” asserted Ferraz. The company provides livelihoods to over 39,000 persons in the sectors of agriculture, manufacturing and distribution all over the island. “Our contribution and presence in the hearts and lives of Sri Lankans runs deep and spans a century of excellence.” “As I said before, we are a legal entity providing a legal product to adult consumers who are making an informed choice to consume our products. CTC is a responsible and ethical company and we are mindful of the reach and impact of every aspect and avenue of our business. We constitute a team of exceptional individuals with diverse talents, and we will continue to exceed every expectation of our many stakeholders. I stand proud of what will be the future of this great company. We will go from strength to strength,” Ferraz concluded.