Tobacco Documents Online

BRITISH AMERICAN TOBACCO Copy Request Form Request Number: Organization: Physicians for a smoke free Canada 7 Request Details Request Date: ~,, ........ emi.ueotlo*eo. • • Ioeeeoeoe• *•• • ••••oao..ut. File Number: ~ f' / [ ~ ~ ..Box Number: C /7 /.q- ~.~. ioeoeeoltleaoJOOlo•• Q...e..D.,. o..a ,el Page Range: First Page Last Page 5oOz ?/O 6 #O ?# g Requested By: (Print Name)... Details below will be filled in by Depository Staff Only II Copy Details Co piedBy: ..... ~~....~ ...................... .. . . . . Date: ...... ~//~.~../~.. .......... Time:~.'~~ .......... ....... Copy Checked By: ............................................. .. ......... . . Date: ............................... .... . Time: ....................... ........ III Delivery Details Checked By: ..................... .. ............. Date: .................... Sent By: ........................................ . . Date: ................. . . .. BATCo document for PFSFC 1 March 1999

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L~ O G BATCo document for PFSFC 1 March 1999

CUT TOBACCO KEY INTERNATIONAL MARKETS THE 1994 SURVEY ERC STATISTICS CANADA G G O', ,.D BATCo document for PFSFC 1 March 1999

Canada Index Page: Introduction 1-2 Market Size Tobacco Products Market, 1988 & 1993 Consu.mption of Smoking & Smokeless Tobacco, 1988-1993 3-4 3 4 Market Structure Consttmpr.ion of Smoking & Smokeless Tobacco by Type, 1988-1993 Smoking Tobacco Consu.mp~on of Smoking Tobacco, 1988-1993 Consumption of Smoking Tobacco by Type, 1988-1993 Consumption of C£garette Tobacco, 1988-1993 Consumption of Pipe Tobacco, 1988-1993 Smokeless Tobacco Consumption of Smokeless Tobacco, 1988-1993 5-10 5 5-8 6 6 7 8 8-10 9 Manufacturers & Brands Cigarette Tobacco: Impo.~s v Domestic Producr~, 1992 & 1993 Manufacturer Shares in Cigarette Tobacco, 1989-1993 Pipe Tobacco: Imporzs v Domestic Producr~, 1992 & 1993 11-14 ii 12 12 New Products 15-16 Smoking Restrictions 17-20 The Smoking Population Breakdown of Smoking Popular-iona~, 1981-1991 Smoking Population by Sex, 1986-1991 Smoking Incidence by Age & Sex, 1991 Smoking Incidence by Re,on, 1991 21-24 21 22 22 23 C~ O 1994 ERC Starm~m In~rua~o,,',al pie Cut Totmoeo/~ r~ (T, ,.o BATCo document for PFSFC 1 March 1999

Canada Index Page: Taxation & Retail Prices Smoking & Smokeless Tobacco: Federal Tax Races, 1994 Summary of Provincial Sales & Tobacco Taxes on Smoking Tobacco Summary of Provincial Sales & Tobacco Taxes on S~icks:~ 25.28 25 26 27 Company Profiles Imasco L~d/Imperial Tobacco Lid Imperial Tobacco, Financial High~h~s, 1987-1992 R J R Macdonald Inc Rotkmans, Benson & Hedges Inc Rothmans Inc, Financial Highlights, 1987-1993 29-32 29-30 29 30 30 31 Production & Trade Production of Smoking Tobacco, 1988-1993 Produ~ion of Smoking Tobacco by Type, 1988-1993 Imports Imports of Smoking Tobacco, 1988-1993 Smoking Tobacco: Imports as % of Consumption, 1988-1993 Imports of Smoking Tobacco by Country of Origin (Volume), 1988-1993 Imports of Smoking Tobacco by Co ,u~cry.- of Origin (Value), 1988-1993 Exports Exports of Smoking Tobacco, 1988-1992 Smoking Tobacco: Exports As % of Production, 1988-1992 Exports of Smoking Tobacco by Counery of Destination, 1991 & 1992 33-38 33 33 34-36 34 34 35 36 37-38 37 37 38 The Future Market Forecasts, 1993-1998 39 39 Lrl 19@4 ERC S~Ls'~cs Int~rnaClonz/plc Cut~ Tel~cco/g4 0 BATCo document for PFSFC 1 March 1999

Canada Introduction All se~-~ors of the tobacco products market have experienced severe falls in sales in recent years m an environment which is becoming increasingly ha_~her in terms of high prices and :ighter restri=ions on both marketing and consumption of r~bacco products. The maxke~s for domesr.icaily produced products have also suffered from a high incidence of tobacco smuggling, although this problem has been reduced most recently through resr,-i~.ions in tax at federal level. Nevertheless, volumes in smoking and smokeless tobacco are well below historic levels with little sign of recovery in the market. Three concerns have a near monopoly on cigarette tobacco sales: Imperial, RJR Macdonald and Rothmans, Benson & Hedges. Imported products dominate the pipe and smokeless tobacco markets. Prospects appear Limited for all tobacco products in view of the Canadian government's crusade against the tobacco industry. Sales of both smoking and smokeless tobacco are set ~o fall further into the 1990s. O CD r,o C 19°~4 ERC ~-~cm Inr~roacional plc - I " Cut Tobacco,~4 BATCo document for PFSFC 1 March 1999

¢ O O 1994 ERC ~.a~s~ lnr~ruat/ona~ pl¢ - ~ - Cm¢ Tol~c~.o~4 BATCo document for PFSFC 1 March 1999

Canada ~axket Size .~_Ii sectors of the Canadian tobacco products market have conrxacr~d over ~e 1988-1893 pe.dod, with sha,--pest falls e~dent in the sectors of cigars & cigarillos, smokeless tobacco and smoking tobacco. Much of the fall in consumption has been caused by the tough anti- tobacco stance of the Canadian government, combiaing fiscal measuxes wi~ restrictions on smoking and tobacco products marketing. A side effect of massive tax hikes has been the development of a massive smuggled tobacco products sector which has cut government tax revenues and forced many retailers into selling illegal tobacco pmduc~ as a matter of course. Tax cuts at federal level in some states in 1993 and 1994 have led to a redu~ion in smuggling, al~ough the problem still exists and is most prominent in the cigarette and cigarette tobacco sectors. Cigarettes are the only sector to have increased market share by volume since 1988, with cigarette tobaccos's share falling back from 19.2% of sales in 1988 to 18.8% in 1993, and pipe tobacco's share remaining constant at 0.8%. Smokeless tobacco and dgars remain marginal market segments, commanding respectively 1.1% and 0.7% of volume in 1993. Tobacco Products Market, 1988 & 1993 Tonnes % Change 1988 % 1993 % 1988-1993 C~gare=~esm 32.515 77.9 21,080 78.7 - 35.2 Cigarette Tobacco 8,027 19.2 5,026 18.8 - 37.4 Smokeless Tobacco 505 1.2 285 1.1 - 43.6 Pipe Tobacco 345 0.8 216 0.8 - 37.4 Cigars & C~gat'fllos 352 0.8 191 0.7 - 45.7 TOTAL 41,744 100.0 26,798 100.0 - 35.8 So urce: Note: NB: ERC estimates based on CTMC, Statistics Canada. ~*~ 50.9 billion pieces 1988, 33 billion pieces 1993 (estimate). =) 271 million pieces 1988, 147 million pieces 1993. Excludes smuggled product sales. Tor~ consumpr2on of smoking and smokeless tobacco stood at 5,527 tonnes in 1993, some 37.7% below 1988 levels and equivalent to 242 grammes per adult. All sectors of the market have declined at broadly similar rates, with smokeless tobacco conr.rac-.ing faster. However, actual consumption of cigarette tobacco is higher than officially listed, with conu-aband cutting demand for domestic products. 0 0 1994 ERC Sta,d-tics Interua~oaaJ pie " 3 - Cut Tobaecot94 "-4 BATCo document for PFSFC 1 March 1999

Canada Market Size Consumption of Smoking & Smokeless Tobacco, 1988-1993 Index Per Capita Tonnes 1988 • 100.0 Grammes I988 8,87"7 100.0 444. 1989 8,479 95.5 418 1990 7,278 82.0 350 1991 6.910 77.8 321 1992 7,112 80.1 320 1993 5.527 62.3 242 ERC based on CTMC, S~atisdcs Canada, u'ade sources. m Adult population. C:) ¢ 1994 ERC Sta~tlcs l,',cemabon~ plc - 4 - Cut Tolmcco/94 r~ m Co BATCo document for PFSFC 1 March 1999

Canada Market Structure Cigarette tobacco comprises by far the largest segment, with 90.9% of vohume in 1993, up from 90.4% in 1988. The sector's share was as high as 95.5% of volume in 1990, although lower demand caused by smuggling and development of expanded products in recent years has seen its share fall back since 1990. Pipe tobacco accoun~ for just 3.9% of the market in 1993, little changed since 1988. Smokeless tobacco has tended to lose out to smoking tobacco since 1988, although sales axe estimated to have remained relatively flat since 1991 while smoking tobacco sales have fallen. Consumption of Smoking & Smokeless Tobacco by Type, 1988-1993 Tonnes 1988 1989 1990 1991 1992 1993 Ctgarecr, e Tobacco 8,027 7,749 6,658 6,360 6,593 5,026 Pipe Tobacco 345 320 290 270 244 216 Toutl Smoking Tobacco 8,372 8,069 6,948 6,630 6,837 5,242 Smoketess Tobacco 506 410 330 280 275 285 TOTAL 8,8"/"7 8,479 7,278 6.910 7,112 5,527 % Breakdown C~aretm Tobacco 90.4 91.4 95.5 92.0 92.7 90.9 Pipe Tobacco 3.9 3.8 4.0 3.9 3,4 3.9 ToCa] Smoking Tobacco 94.3 95,2 95.5 95.9 96.1 94.8 ......................... .. ............................................................. Smokeless Tobacco 5.2 4.8 4.5 4.1 3.9 5.2 TOTAL 100.0 100.0 i00.0 100.0 100.0 100.0 Source: CTMC, Statistics Canada, ERC. Smoking Tobacco Consumption of smoking tobacco fell by 37.4% between 1988 and 1993 to reach 5,242 tonnes, equivalent to 230 grammes per adult. Much of the decrease is attributable to long term decline in the pipe-tobacco market caused by a falling consumer base, with cigarette sales holding up relatively wetl in spite of the development of contraband sales. More recentJy, falls in volume in cigarette tobacco consumption reflect the development of lower priced expanded tobacco products which offer the consumer a lower weight product (for tax purposes) which makes the same amount of dgarettes as a higher weight regular fine- cut tobacco. cZ) CD r,o ¢ 1994 ERC Stall-tics luterDatiou~ plc - 5 - Cue Tobacco/94 O" ,.0 ,.D BATCo document for PFSFC 1 March 1999

Canada Market Structure Consumption of Smoking Tobacco, 1988-1993 Index Per Capita Tonnes 1988 • 100.0 Grammesu~ 1988 8,372 100.0 419 1989 8,069 96.4 397 1990 6,948 83.0 334 1991 6,630 79.2 308 1992 6,837 81.7 308 1993 5,2A2 62.6 230 SotLt'ce: Note: CMTC, Sr~=istics Canada. ~t, Adult popular.ion. Cigarette tobacco rerneins the dominant product in the market wit]: 95.9% of sales in 1993, unchanged on 1988. However, ac:ual consumption of cigarette tobacco is fax higher given the existence of a large smuggled ~obacco sec',or and the burgeoning presence of expanded Rne-cut tobacco with products sold weighing only 55% of the regular fine-cue tobacco although sufficient to make the same number of cigaxettes. As such, pipe tobacco's actual share is lower than the 4.1% listed in official 1993 data in terms of acZtml product consumption. 4 Consumption of Smoking Tobacco by Type, 1988-1993 Tonnes 1988 1989 1990 1991 1992 1993 Cigaxetr~ Tobacco 8.027 7,749 6,658 6,360 6,593 5,026 Pipe Tobacco 345 320 290 2;'0 244 216 TOTAL 8,372 8,069 6,948 6,630 6,837 5,242 % Breakdown Cigaxe~te Tobacco 95.9 96.0 95.8 95.9 96.4 95.9 Pipe Tobacco 4.1 4.0 4.2 4.1 3.6 4.1 TOTAL 100.O i00.0 I00,0 100.O I00.0 100,0 Source: ERC based on CTMC, Statistics Canada. O G r~ @ 1994 ERC Stat~t~¢= Internat~onaJ pie - 6 - Cut Toba~ CT~ ".0 r'~ C BATCo document for PFSFC 1 March 1999

Canada Market Structure Actual consumption of cigaretue tobacco remains extremely hard to quantify in ~ew of the existence of a large smuggled ~obacco sector. Official figures put consumption of cigarette tobacco at 5,026 tonnes in 1993, some 37.4% below 1988 levels and equivalent to 220 grammes per adult. However, trade figures show that the USA, not renowned for its fondness of Canadian smoking tobacco, imported some 564 tonnes of smoking ~obacco from Canada in 1990, increasing to 2,386 tonnes in 1991 and 2,449 tonnes in 1992. It is likely that over 80% of r2tis trade comes back across the border illegally for consumption by Canadians; cigarette tobacco comprises a marginal segment of the total US tobacco market, and is currently exempt from du~ at national level with some relauvely low taxes leaded at federal level. It is unlikely that this tobacco is consumed by US citizens (USDA adjusts its consumpuon ~n£res for smoking tobacco down to reflect; smuggled re-exporus to Canada), and the produCe presents the smuggler with an opporZun/ty to make subsrmntial rettu-ns, even higher than those for cigarettes. Consequently, il" it is assumed that a further 2,000 tonnes plus of cigarette tobacco (illicit trade in pipe tobacco is marginal) is sold illegally in Canada, actual consumption could be as high as 8,500 tonnes in 1992, ahead on 1988 levels, and equivalent to over 380g per capka. Consumption of Cigarette Tobacco, 1988-1993 Index Per Capita Tonnes 1988 ,, 100.0 GrammescD 1988 8,027 100.0 401 1989 7,749 96.5 382 1990 6,658 82.9 320 1991 6,360 79.2 296 1992 6,593 82.1 297 1993 5,026 62.6 220 Source: CTMC, ERC. Note: (x) Adult population. Moreover, within ",.he official cigarette tobacco market, expanded produC:s - tobacco produced by an extension process which increases volume of the product without effecting its weight - are gaining ground, with sources indicating these products accounted for around 50% of total sales by mid-1993. Pioneered by RJR Macdonald, expanded fine-cut tobacco is usually sold in kit form with a typical kit of 110g - taxed by weight - sufficient to produce 200 cigarettes, as opposed to 200g of fine-cut. These pmducUs have cut inr~ both sales of regular fine-cut and tobacco sticks - make-your-own cigarette tobacco kits. With expanded producus accounting for around 50% of sales, kits with sticks (usually taxed at a higher level) have seen sales suagnau~ at around 20% of volume, with fine-cut regular products holding the remaining 30% of sales. O ¢ 1994 ERC Staclabcs laternaHoa,n.l pic - 7 - Cut To baccx#94 0 ~0 BATCo document for PFSFC 1 March 1999

Canada Market Structure A fu.~her phenomenon of no~e is l~gh usage of raw or u.uprocessed tobacco leaf sold in hand format, main]y in Quebec Tax on the product was low as it was considered to be unmanafa~ured, and 2O-5g bags retailed at a fraction of~e cost of fine-cut RYO ~obacco. Consumers would then put the tobacco in a food processor or blender, and use the tobacco in RYO cigarettes. In Quebec, the product accounted for up ~o 20% of r.he fine-cut market, however, since early 1993, the raw tobacco has been taxed as fine-cut and has all but disappeared from the market. The pipe tobacco segment remains small, with per capita adult consumption low at 9 grammes in 1993, and continues to decline in line with fELling numbers of pipe smokers. Consumption reached 216 tonnes in 1993, some 37.4% lower than in 1988, and is set to fall further, Consumption of Pipe Tobacco, 1988-1993 Index Per Capita Tonnes 1988 = 100.0 Grammes(u 1988 345 100.0 17 1989 320 92.8 16 1990 290 84.1 14 1991 270 78.3 13 1992 244 70.7 11 1993 216 62.6 9 Source: CTMC, ERC estimates. Note: o) Adult population. ( Smokeless Tobacco Official and industry figures for smokeless r~bacco consumption remain unavailable. This is essentially a result of a low level of consumption - an es-dmated 13 grammes per adult in 1993 and the high incidence of imported products on the market. Imports account for over 99.5% of consumption. Total consumption of smokeless tobacco is estimated at 285 toanes in 1993, 43.6% below 1988 levels. The market has held up well since 1991 following years of decline. CD 1994 ERC Sta~tics l,~,ternaCiou,s/ plc - 8 - Cut Teh-c~o~4 CD ?O ,.O BATCo document for PFSFC 1 March 1999

Canada Market Structure il) Consumption of Smokeless Tobacco, 1988-1993 Index Per Capita Tonnes 1988 - 100,0 Grammesa~ 1988 505 100.0 25 1989 410 81.2 20 1990 330 65.3 16 1991 0,,80 55.4 13 1992 275 54.5 12 1993 285 56.4 13 ERC estimates based on trade d~r.a, ~ade sources. ~ Adult population. An esd.,nated 90-95% of the market is taken up by chewing tobaccos and oral snu_~fs, mostly imported from the US. The remainder is accounted for by nasal snu/Ts. Q;I 0 0 ¢ 199,4 ERC b-"tatl~d" l~ter'~stJooal pie - 9 - Cut Tobacco~4 ,,,D Po BATCo document for PFSFC 1 March 1999

i ~n o G r~ 19o~4 ~ SIC41~tlc8 In~eruatiom~l plc - 10 - Cut Tobscco/94 BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands Three Canadian co=~rns dominate the large cigarette tobacco market; Imperial, RJR Macdonald and Ror~.-nans, Benson & Hedges. These companies hold a monopoly on sales of domestic produc:s, although more recently imported cigarette tobaccos have gained ground, increasing share from 2% of the market in 1990 to just under 24% in 1993. However, much of :he increase in imported product market share is due to Canadian concerns sourcing br~.nds from subsidiaries outside Canada. Cigarette Tobacco: Imports v Domestic Products, 1992 & 1993 % Volume 1992 1993 Domest/c Brands 77.1 76.2 Imported Brands 22.9 23.8 TOTAL 100.0 100.0 Source: ERC based on trade sources. Within the domes~£c product sector, Imperial led the market by Some distance in "~he 1980s, losing share to ius ma/n competitor R./R Macdonald in 19@1 through RJR's success in the make-your-own cigarette market (tobacco sticks), a sector which was 1:hen expanding rapidly. Imperial has since regained the initiar.ive in the market through dominating the expa=ded tobacco sector with its market share conriuuing to rise through 1992 and 1993 ~o sm.ud at 43.8% in the year m May 1993. RJR Macdonald's share fell back to 34.4% from as high as 37.3% in 1991, while Rnr.hxnans, Benson & Hedges also suffered from the rapid development of Imperial's expanded tobacco, and took she remaining 21.8% of sales in 1993 (.year to May). RJR Macdonald pioneered the expanded r~bacco marke~. in 1991 wir.h Exporl Special Blend, with Imperial quickly developing me- too products sold u.uder its flagship Peter Jackson and Player's Light brands, quickly corrdng to domin~ :he sector. = is~4 v_Rc sm~,.~c, latem=~on-' pie - 11 - Cut Tobacco/94 0 0 I"0 0", ,43 U-I BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands Manufacturer Shares in Cigarette Tobacco, 1989-1993 Tonnel 1989~ 1990~ 1991 1992~ 1993~4: Imperial 47.0 46.5 39.2 41.5 43.8 RJR Macdonald 30.0 26.8 37.3 36.0 34.4 Ror.hmans, Benson & Hedges 23.0 26.6 23.5 22.5 21.8 Other Brands 0.I - TOTAL I00.0 100.0 100.0 I00.0 100.0 Sottrce: No~e: NB: ERC based on trade sources. a: Year to July 1989. ~-) Year to March 1990. ~: Year to September 1992. ~'~ Year to May 1993. Excludes imported brands. ( The pipe tobacco sector continues to be dominated by imported product.s, holding just under 97% of sales in 1993. Main imported brands include Niemeyer's Clan, Amphora from Douwe Egberts Van Nelle, Mae Baren from Halberg of Denmark and Borkum Rift from Svenska Tobaks. Pipe Tobacco: Imports v Domestic Products, 1992 & 1993 % Volume 1992 1993 Imported Brands 97.1 96.8 Domestic Brands 2.9 3.2 TOTAL 100.0 100.0 Source: ERC based on trade sources. Imperiai's main smoking tobacco brands include Alouette, Cameo Menthol, Comfort, Embassy, Old Chum. Old PorL Old Virginia, Peter Jackson, Picobac, Player's, Sir Walter Raleigh, Sweet Caporol, Turret and Vogue. RJR Macdonald markets British Consuls, Daily Mail, Export, Macdonald's, Sail and Zig Zag smoldng tobaccos, while Ro~mans, Benson & Hedges markets Belvedere, Craven A and Mark Ten tobaccos. O c:) $1994 ERC Sta~is~ca Interua~ional plc - 12 - Cut Tobacco~4 CF', ',,D BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands The smokeless ~obacco sec-~or is dominated by imported produc~s, mainly chewing tobaccos and oral snuffs manufactured i~ r.he US by Pi~ker~on, Conwood and US Tobacco. Imperial also manufacruyes small quantir.ies of smokeless tobacco, although holds only around 0.5% of the maxket. ¢ I~ ERC ~s~cs ]a~r~adoaa~ plc - 1~ * Cut Tobacco/~ 0 0 BATCo document for PFSFC 1 March 1999

O O r~ 1994 ERC ~,aClstics Int, erna~.on,a,/plc - 14 - Cur, Tol~,~mqN. BATCo document for PFSFC 1 March 1999

Canada New Products September 1990 October 1990 November 1990 1991 January 1992 June 1992 Imperial launches Peter Jackson Insta-I~it, a ~obacco stick produc', whereby rolls ofr~bacco axe inserted into ready-made cigaxe~e tubes. A !00g" pack is su~cient to make 200 cigaxe~es. RJR Macdonald introduces Export Express tobacco sticks in 100g packs, sufficient to make 200 cigaxet~ces. Initially available on test in ORr~rio. Rothmans, Benson & Hedges launches Craven A Superoll r~bacco stic~ for use with ready-made cigarette tubes. 135g packs make 200 c/garettes. The product compLL'nents RBH's Belvedere No. 7 Custom Cut sr3cks: the fzrs; ,~bacco stick product on r~e maxker. R,.TR Macdonald pioneers the expanded fine-cut tobacco segment wir.h Export Special Blend, a ll0g pack of~ne cut ~obacco designed to allow the smoker Co produce 200 c~ga.rer.~s. Imperial launches Peter Jackson Extra Blend, an expanded low weight free-cut tobacco product. The cigarette tobacco is available in kit form containing 110g of tobacco and 200 cubes for make-your-own cigaxettes, with a 25g pouch of RYO tobacco also available. Imperial launches Player's Light Extra Blend expanded tobacco in 110 ki~ sufficient for 200 cigarettes. C~ C~ C 19~4 ERC ~,a~-U..-- International pie - ~.5 - Cut Tol~ 0~ BATCo document for PFSFC 1 March 1999

( C~ 0 0 c7~ 1994 E~ St.abs~ Internat~ooa/plc - 16 - Cut Tol~tcco/94 BATCo document for PFSFC 1 March 1999

Canada Smo "kin~ Restrictions T~e minimum age at wRic~, tobacco produc~s may be legally purchased is 18 L= four s~ates: Ontario, Manitoba, New Brunswick and Prince Edward Island, and 16 years in all other jurisdictions. The mi ~RLmum nations2 age of 16 years was set by the Tobacco Restraint Act of 1088. During !go3 the Canadian Federal government introduced legislation to raise the legal age at which tobacco products can be purchased to 18 years nationally. The bill also proposed heavy fines on retailers who flout the law restricts vending machine placement to areas where access is restric'~ed to those aged ].8 years and over. A bill has been Lu~roduced in the New Bruns~-ick legislative to raise the minimum age to Ig years. The events in Canada are seen by many in both the anti-smokLng lobby and the tobacco industry to determine the limits to which smoking can be restricted by legislation in a democratic en~-irom-nent without Lr_fringing personal and civil liberties. Recent legislative issues have centred on two main areas, advertising restrictions and labelling of packaging. Fixstly the government has tried to axe all forms of advertising for tobacco produc-~. This legislar2on is enshrined in the Tobacco Produc~ Control Ac~ which came into effect in January 1089. Prior to ~s law, a voluntary agreement was in place which included a volunr.ary ban on the use of eleczronic advertising (in force since 1972), ~he inclusion of health warnings, a limited budget and keeping outdoor advertising away from schools. Under the TPCA all adverr2sing was banned except for Limited point-of-sale displays in shops, and even this was due to be phased out by 1st January 1003. Foreign media, however, remained outside the law. The ~obacco industry rallied agains~ the federal government and in July 1991 the Quebec Superior Court decided in favour of Imperial Tobacco and RJR Macdonald and struck down the law. In the words of Mr Justice Jean-Jude Chabot the advertising ban constituted a form of 'social engineering' and 'state moralism' in violation of the constitutional right to freedom of expression and in addition he rejected the Government's premise that advertising affects consumption of tobacco products. Tobacco consumption fell sharply duxing the period of the ban but a~ the same time ~ax~tion soared promor2ng the untracked duty-fee trade. Clmbot concluded that advertising should be subject to regulation at provincial rather than federal level. The government has since appealed against the Quebec ruling and in January the Quebec Courz of Appeal upheld ~he validity of the Tobacco Products Control Act, overZttming the previous verdict. The Federal Government thus ac~ed quickly to bring in r.he second phase of the ac~, which contained new health warnings for packs and ca.,'tons. Dra.~t regulations issued on March Ist 1993, called for seven warnings to be printed on packages of cigarettes and cigare:~e tobacco in French and English and in black on white and white on black surrounded by a border and more significantly be individual and occupy the upper 25% of she space on the front of the pack. This request is being challenged by the industry and ~he matter had yet to be resolved at the time of writing. ¢ 1994 ERC Stat.~t~¢= lnte='n&t~oo~ plc - 17 - Cut Tobaecev1~4 0 0 O~ BATCo document for PFSFC 1 March 1999

Canada Smoking Restrictions T'ne new wa."-.~gs axe: Cigaret:es axe add/ctive. Tobacco smoke can harm your children. Cigarettes cause fatal lung disease. Cigarettes cause cancer. Cigarettes cause strokes and heart disease. Smoking during pregnancy, can harm your baby. S~oking can kill you. Cigarette cartons and other tobacco packages also have to carry the warning 'Smoking causes lung cancer, emphysema and heart disease'. The date for compliance was set at 1st September but the industry were seeking injunc-.ions and pro~es~ing about this phase of the act being implemented before its appeal against the TPCA is heard in the Supreme Court of Canada. Export packs axe exempt from this legal requirement and the move is seen by some as a potentially useful means of identifying smuggled tobacco products. V,-nen first introduced in 1989 the TPCA not only hit at manufacturers through advertising but also stipulated that c/garette and ~_garette tobacco packaging mus~ adhere ~o the following norms. As of 01/11/89 pack designs had to display health warnings on the front and back of the packet which exe to cover 20% of the surface area. The wording of the warnings also changed to lines such as 'smoking is a major cause of lung cancer', 'smoking reduces life expectancy', 'smoking is a n~or cause of heart d/sease', and 'smoking d'~ring pregnancy can harm your baby'. The TPCA also forced manufacturers to disclose all the ingredients used in production. In ~e longer ~erm the government aimed to tighten these regulatioms further, increasing warning space u~ 25% of the surface area, a listing of toxic ingredients on the packaging and a warning sheet inserz 95% of the pack size. Originally the proposed date for these additions was June 1991. The industry is naturally loathe to comply with these additional res:ric~ions which will no doubt enter the statute books if the TPCA is finally upheld; the indust .ry's transition to the initial requirements cost an estimated C $15 million: these warnings would incur further costs and the introduction of an insert would seriously slow produ~ion. Pipe ~bacco packs alone carry one of the following warnings in English and French: 'This produc~ is not a safe alternative to cigarettes', or "This product can cause cancer'. Gover~rnen~ restrictions are also being tightened upon the ind/vidual smoker and pro~ec~ion of .-he non-smoker. These became incorporated in the Non-Smokers Health Act, which came into effect in January 1990. This federal law requires employers to restrict smoiong in the workplace, administered or regulated by federal government. This could range from a total ban to the prevision of specially designated or ventilated areas. Airline I994 ERC S~atis~m lauernstionid pie - 18 - Cut Tobacco/94 O O r,o Ox ,,.O BATCo document for PFSFC 1 March 1999

Canada Smoking Restrictions flights of less -L:an six hours are designated smoke-free; this is to be extended to longer Frights. Smo 'kir.~ is likewise banned on intercity buses; on trains, not more than one-r/tird of the seating ~ be given over to smokers. A plethora ofsrnoking bans are administered at provincial level across the country. The effects on "-he part of the government at federal and provincial level has made Canada adopt the man~e of the leading anti-tobacco government worldwide. The legislation combines with strong ant.i-tobacco publicity undertaken by the government, which aims to produce a generation of non-smokers by the year 2000: this targer.s in par~/cular ~een~gem. Together, anti-tobacco lobby information and harsh legal restrictions make a very. hostile climate for rnanufac~urers. The result of this 'experiment' will doubtlessly have far reaching effecr~ for the tobacco indusu'y worldwide, whether it is successP~ or not. Equally it bears ill omens for the future of the Canadian industry. By 1994, the Canadian government had spent some C $7.8 million on anti-smoldng adverts, r~rge~d mainly at young consumers and women. Plans for a ~-'r.her C $23 million of anti-smoking advertising are currently in the pipeline. The fate of the TPCA being uncertain, it is worth setting out the body of the law. Sponsorship remained open to tobacco manufacturers, although subject to consrxaiuts. Sponsorship ~ only reflect the name of the sponsoring company rather than any brand name. Sponsomhip expenditure was frozen to 1987 levels which is estimated to be around C $50 million. Tobacco man~acturers have, however, found a means of circumventing the restriction upon sponsorship; Imperial Tobacco, not wishing to forego the link that it has established with sponsorship of certain events, set up brand name companies to deal with the sponsorship. Thus sports sponsorship continued with the newly created Player's Lid, wh/is~ more cuhural events are ca~ered for by Du Maurier Lid and Du Maurier Arts Ltd. Following Irnpe.~al's lead, both P~/R Macdonald have set up a similar sponsorship handling company Expor~ 'A' Ltd. Rothmans, Benson & Hedges does not require such a s-~ep since bra~d names already appear in the company name. The ban upon a:I advertising which temporarily came into effect in 1991 was accompanied by other resm~ive measures. All adver*Asing in the meantime had to include a health warning that covers 20% of its surface in black on white le~r~ring, yet despite this large disincentive, manafac=urers persisted with biliboard and press advertising in the run up to the ban. In 1988 cigarette advertising spend doubled. Subject to the inclusion of the 20% health wa.~-~ing, manafac~urers began to shy away from external advertising. All forms of audio visual tobacco advertising have been voluntarily banned since 1984, which has also included the transmission of tobacco sponsored events. C::) r~ t~ ERC s~m=c, IntemaUomU plc - 19 - Cut Tobacc¢,~4 BATCo document for PFSFC 1 March 1999

0 0 OX xO C t994 ERC Stacilcics In~rmsttoux/plc - 20 - Cut Tol~cco~4 BATCo document for PFSFC 1 March 1999

Canada The Smoking Population The incidence of smoking has be_en decY~uing m Canada, this being the combined result of escalating taxes and prices, co'..u£nuing concern over heakh issues and changes in public attkudes towards smoking, res'.d=ing from a very strong anti-smoking lobby. According to market leader Imperial Tobacco, based on independent research, the incidence of smoking has declined on average by 0.7% per year over the past five years up to an including 1992. The declines in 1991 and 1992 were 0.5% and 0.4% respectively, indicating that the rate of decline is slowing. This slowdown in the rate is expected by Imperial to continue. The Canadian Health and Welfare Minisury's last published survey on smoking in Canada covers the year 1989. The study found :hat 32.0% of the adult population were smokem and that of these only 31.0% declared themselves regular smokers. Smoking is on the decline amongst bo:h sexes and across all age groups, and as is the case in most Western countries, the incidence of smoidr~ is falhng faster among men than women. Smokers numbers remain concentrated in the 20-44 age groupings, although the sharpest fall amongst the number of r%nflar smokers has been in the vital 20-24 age grouping for both sexes. These figures do not yet reflect the new harsher climate that now exists in Canada, and the growing social pressure upon smokers. As a result, numbers of smokers am believed to have declined fi.u-ther still. A more recent survey, the General Social Survey, provides data for 1991 and this shows a continuation of previous trends. Of note in ~ survey is the substantial fall in the proportion of regadar smokers although there has been a corresponding rise in the number of occasional smokers, which leaves We overall proportion of smokers in 1991 at 31% of adults, compared with 32% in 1989 and 36.2% in 1981. The 1992 level is estimated to be 30.6%. Breakdown of Smoking Population% 1981-1991 % Adults 1981 1983 1989 1991~ Regular Cigareue Smokers Occasional Cigare:te Smokers Pure Pipe & Cigar Smokers Former Smokers Never Smoked 32.7 31 .I 31.0 26.0 3.5 3.3 1.0 5.0 2.0 1.6 n.a n.a 15.2 18.6 26.0 "~3.0 46.6 45.4 42.0 45.0 Source: Note: Health & Welfare Canada. ERC. a'Adult popular.ion over 15 only. c~ General Social Survey, 1991. (21 CD CD rX~ 1994 ERC Starer=c= lntenmt~oaaJ pic - 21 - Cut T01~¢¢o/94 CT" '-D BATCo document for PFSFC 1 March 1999

Canada The Smoking Population Smoking Population by Sex, 1986-1991 000's 1986 1989 1991 Total Smokers Total Smokers Total Smokers Adul~ Male 9,624 2,964 9,920 3,368 10,266 3,282 Adu[~ Female 10,070 2,594 10,365 3,102 10,715 3,187 Adult Popula~ioa 19,694 5,562 20,2~5 6,470 20,981 6,469 Source: Health & Welfare Canada, ERC. The incidence of smoking peaks in the 20-24 years age range, wir~ a pa~cularly high level among males aged 20-24 of 44%. Smoking among young females (aged 15-19 years) is substantially higher than among young males. ( Smoking Incidence by Age & Sex, 1991 % of Age Group Smoking Regularly or Occasionally Male Female Total 15-19 19 25 22 20-24 44 35 40 25-44 38 34 35 45454 30 31 30 65+ 18 15 16 So,free: General Social Survey. There is some marked regional variar.ion in smoking levels. The highes~ smoking incidence occurs in the East of the country on the Atlantic Coast, with Newfoundland and the Atlantic Provinces having levels of 31%. The lowest level occurs on the West Coast, in British Columbia, with a 21% smoking incidence. 1994 ERC Sta~c~8 ]nterua~onLI pie " 22 " Cut Toba~o~4. 0 0 Ox ,~o BATCo document for PFSFC 1 March 1999

Canada The Smoking Population Smoking Incidence by Re,on, 1991 % of Adult Population Smoking Regularly Ne~-foundland Prince Edward Island New Brunswick Nova Scoria A~lan:ic Provinces Quebec Ontario Manitoba Saskatchewan .~berm Prairie Provinces British Colombia 31 26 25 31 29 25 23 24 27 26 21 Source: Note: General Social Survey. Population aged 15 years & over. S~atis~ics relating solely to the incidence of cigaxerte tobacco usage is regrettably unavailable, but some 6.3% of adults used cigarette tobacco in 1983, equivalen~ to around 1.25 million smokers, with 61% of these smokers males and the remainder females. Official consumption may have fallen back, although actual consumption has not declined substantially since 1983; as such numbers of cigarette tobacco smokers axe cu_,-rently estimated at 1.1 million, some 4.8% of the adult population. By region, the Atlantic and Quebec have ,higher than average levels of consttmprAon of cigarette tobacco. Usage is lowest in Ontario, British Columbia and Prairie. Cigarette tobacco consumption is highest amongst the lowest educated groups. Pure pipe and cigar smokers last featured in the smoking survey as a disr2nct group in 1983 with 1.6% of adults smoking pipes and/or cigars, equivalent to 320,000 adults. Numbers have since fa21en back substantially in line with the rapid contraction of these market sectors, and are cuxrently estimated at around 130,000, equivalent to 0.6% of adults. Usage of pipe tobacco and cigars is limited ~-irtually exclusively to men. No data regarding smokeless tobacco consumers is available. Numbers of smokeless tobacco users axe estimated at 170,000 in 1993, equivalent to 0.7% of adults. O O r~ 1994 F-,RC St~UJb~ lntentadomLJ pie - °-,,3 - Cut To~er..~d~ BATCo document for PFSFC 1 March 1999

t O G 1994 ERC ~.l,t~m lnt~r'uaCiou,~l p]c - 24 ° Cut Tobaoc~J4 BATCo document for PFSFC 1 March 1999

Canada Taxation & Retail Prices Prior ~o 1994, the buxden of taxation upon the Canadia~ smoker increased progressively as Federal and Provincial taxes rose at far higher rates th~n inflation. However, following the widespread development of the smuggling of ~garettes and other tobacco products far-.'iltated by a massive disparity, in prices between the USA and Canada, the Canadian government eased tax rates in 1994 and was followed by many provincial governments. Tax is levied at two levels, provincial and federal, with levels of provincial taxation vaz).-ing widely according to local government attitudes to smoking and pragmatic considerations such as proximity to the US border. The federal rate of tax consists of three elements: e flat rate of duty, excise tax and a GST (Goods and Services Tax), this latter tax levied at 7% of retail price. Excise duty has remained unchanged on smoking and smokeless tobacco and on tobacco sticks at C $18.333 per million sticks. However, Februn~ 1994 saw the government reduce excise tax on these products from C $35.648 per kilo/million pieces to C $10.848 per kilo for smoking and smokeless tobacco and C $10.65 per m~ion sticks. Smoking & Smokeless Tobacco: Federal Tax Rates, 1994 Rate F.~ective Smoking & Smokeless Tobacco: Excise Duty $18.333 per kilo October 1989 Excise Ta~ $10.848 per kilo Februm7 1994 Goods & Services Tax 7% January 1991 Tobacco Sticks: Excise Duty $18.333 per million February 1991 Excise Tax $10.65 per million February 1994 Goods & Services Tax 7% January. 1991 Source: CTMC. A~ provincial level, taxes vary. considerably. Many provincial governments, notably New Brunswick, Nova Scotia, Ontario and Prince Edward Island have actually cut back tax rates in 1994 levied on smoking and smokeless tobaccos and tobacco sticks. Current rates of pro,'incial tax are as follows: C) O J: 1994 F..,RC Stal~sCics lnt, es-mtbonel pic - 2~ - Cut To baeco/94 r~ O~ ~D ~0 BATCo document for PFSFC 1 March 1999

Canada Taxation & Reeai/Prices Summary of Provincial Sales & Tobacco Taxes on Smoking Tobacco Tobacco Tax Sales Tax .~lber~ 0.04 per gr'an'm'~e as of April n.a 1991 Brir.ish Columbia(~) 0.084 per gramme as of 7%('` March 1993 n.a on tobacco products Manitoba 0.053 per gramme as of June 7%(~ a.s of May 1987. 1991 New Brunswick 0.248 per gram.me as of 11°/J= as of April 1988 February. 1994 Newfoundland & Labrador 0.0685 per gramme as of 12°/o(~ December 1992 North Wes~ Territoriesm 0.084 per gramme as of n.a on t~bacco products bIazch 1993 Nova Scoriat~ 0.248 per gramme as of April 11%(z as of May 1989 1994 Onr.,~io 0.017 per gramme as of 8%'~ as of May 1983 February 1994 Prince Edward Island 0.0301 per gramme as of 10%(~ Ma.~h 1994 n.a on tobacco products Quebec 0.058 per gramme as of 8%<~ as of January 1991 Februa~- 1994 Saskatchewan 0.053 per gramme as of May 8%(= as of April 1991. 1992 removed October 1991, effective May 1992. Yukon Territory.- 0.73 on every.- 25g as of July n.a 1993 CTMC. Tax is based on rer, ail price of tobacco products, performed on a semi- annual review and/or budget. Excludes federal goods and sales tax in pro,'indal tax base. Includes federal goods and sales r,a.x in provincial tax base. Tax is based on retail price of cigarettes and tobacco, performed o~ a quarterly survey and/or budget. (~ Tobaccos other than cigaxett, e r, obacco taxed at 50% of MMRP as of March 1984. i O G O'- ¢, 1994 EJRC Scat~,~c= lozer~at~ooad pie - 26 - Cut Toba~ ,,D C BATCo document for PFSFC 1 March 1999

Canada Taxation & Retail Prices Summary. of Provincial Sales & Tobacco Taxes on Sticksm Tobacco Tax Sales Tax Alberta 0.07 per stick as of April n.a 1991 British Columbia'= 0.084 per gramme as of 7%~ March 1993 n~ on tobacco products Manitoba 0.08 per sr~ck as of June 7%(= as of May 1987. 1991 New Branswick 0.0°.81 per srick as of 11%m as of April 1988 February. !994 Newfoundlz.nd & Labrador 0.10°,8 per stick as of 12%(4~as of June 1975 December 1992 North West Terri~ries(= Pending ruling n.a on tobacco products Nova Scoria 0.0432 per gramme as of ll°/J4: as of May 1989 April 1994 Onr~.rio 0.017 per sr.ick as of 8%[= as of May 1983 February 1994 Prince Edward Istand 0.04065 per stick as of March 10%(~ 1994 n~ on tobacco products Quebec 0.0147 per gramme as of 8%~4~ as of Januar)- 1991 February. 1994 Saskarnhewan 0.08 per suck as of May 1992 8%(= as of April 1991. removed October 1991, effective May 1992. Yukon Terrico~- 0.73 on eve:3" 25 gra.n'~nes as n~ of July 1993 ~ottrce: Note: CTMC. Cigarette tobacco for c/gare~te machine usage. Tax is based on retail price of tobacco products, performed on a semi- annual review and/or budge~. Excludes federal goods and sales tax in provincial tax base. Includes federal goods and sales tax in provincial tax base. Tax is based on retail price of cigarettes and tobacco, performed on a quarterly survey anc~,'or budget. 0 0 ~: 1994 [,RC ~.acrm~cs |nter~atioaal plc - 27 - Cut Tobacco~4 m BATCo document for PFSFC 1 March 1999

( C) C~ r~ G 1994 IElq.C Sr.,mci,s, cics lateru&~onal plc -28- Cut, Tobacco/94 ,,,,D BATCo document for PFSFC 1 March 1999

Canada Company Profiles Imasco Ltd]Imperial Tobacco Ltd Imasco is the p~rent company of Imperial Tobacco Led and is 40% owned by BAT industries Plc of the United Kingdom. Imperial Tobacco Ltd is the leading Canadian ~obacco company, and has no financial connection with Impe.dal Tobacco Lid of the UK, which is owned by Hanson Plc although the two companies market brands in common, no~ably Player's. Imperial Tobacco Lid of Canada was established in 1912, and has its headquarters in Montreal, Quebec. I~ parent company Irnasco also owns CT Financial Services (Canada Trust}, the leading Canadian banking and financial services group (acquired 1986), Hardec's Food Systems (acquired 1981) one of ~e leading fast food chains in the US; Shoppers Drug Ma.~JPharmaprix, Canada's leading drugstore group (acquired 1978), and the CS Group, Canada's leading small space speciality retailer, which also operates a ntu-nber of duty-free outlets in Canadian airports. Ic also owns the Genstar Developmeat Company, a property developer. Imasco had a consolidaced zuznover of around C $16.3 billion in 1992. with Imperial Tobacco Lid accounting for 18.8% or about C $3.0 billion of this ~or~l. Imperial is the fourth largest division of Imasco a2ter Hardeds Food Systems, CT Financial Services and Shoppers Drug Mart, but remains the principal profit earner for the group contributing C $432 million or 48.7% of Imasco's ~tal operating profits of C $~5.6 million in 1992. Imasco it.self recorded consolidated ~m'nover grow~ of 4.5% in 1992, but operating profits only i~creased by 0.7% over 1991. Imperial Tobacco Lt~i, however, recorded growth in revenues of 3.3% against 1991, turnover rising to C $3,049.7 million, while operating earnings increased hy 8.8% to C $432 million, largely the result of the advances made in ius share of the domesr2c tobacco products market. Operating marg£~ have improved s~eadily. Imperial results for 1993 are currently unavailable, although sales were higher, Imasco increased sales and posted an 8% increased in profits to C $409 million. Imperial Tobacco, Financial Highlights, 1987-1992 C $Million 1987 1988 1989 1990 1991 1992 Tor3d Revenues 1.926.0 2,018.1 2.385.6 2,707.6 2.952.7 3,049.7 Tobacco Taxes & Duties 1.109.8 1,156.1 1,489.4 1,744.5 1,912.5 1,967.4 Net Revenues 816.2 862.0 896.2 963.1 1,040.2 1,0fl2.3 Operating Earnings 279.1 308.0 334.0 367.1 397.0 432.0 Operating Margins (%) 34.2 35.7 37.3 38.1 38.1 39.9 .Maxket Share Cigarettes (%) 54.1 56.6 57.9 60.0 60.0 66.2 Capitol Expenditare 25.6 18.9 22.9 °,23.2 22.1 35.8 Sou~-ce: Imasco. Cb CD hO ,~ 1994 ERC Statis~ lar~roatioaal plc - -09 - Cut Toba~ O" BATCo document for PFSFC 1 March 1999

Canada Company Profiles Imperial is ~e lead~n~ supplier of cigarette tobacco in Canada wir.h a 43.8% share of dome~ic sales in the year ~ May 1993. It lost some ground to its main c~mpetitors, RJR Macdonald and Rotlu'naas, Benson & Hedges arotmd the turn of the 1990s, although has since regained the imtiative in the market through dominance of the growing expanded tobacco market with its flagship brands, Peter Jackson and Player's. The company also marker.s some pipe tobaccos and smokeless tobacco, although these sectors remain dominated by imported produc~s. R J R Macdonald Inc RJR Macdonald is a subsidia.~." of RJ Reynolds Tobacco International. It has its headquarmrs in Toronto, Ontario, with manufac~-xing located at Montreal, Quebec. It, is the third largest tobacco company in Canada, aithongh it holds second position in the smoking tobacco market behind Imperial. Results in recent years remain tmavailable, . although tobacco operations accounted for some C $8,053 million of the company's C $13.9 billion sales in 1990. RJR's tobacco interests centre maJ~y around the cigarette market with brands such as Camel, Winston, Macdonald and Expor~ 'A', marketed via it~ RJR Macdonald tobacco division. It also has a subsr~nr.ial share of the cigarel;t~ ~obacco markez with brands such as Export, Expo~ Medium, Dally Marl, Sail, Zig Zag, British Consuls and Export Express tobacco sticks. The company pioneered the fast-g~owing expanded tobacco sector in 1991 with Export Spedal Blend, although los~ the initiative to Imperial expanded tobacco products. i Rothmans, Benson & Hedges Inc Rothmans, Benson & Hedges Inc (RBH) was established in 1986 and is a joint venl;ture between Rot.~u'nans Inc of Canada, which owns 60% of RBH and Philip Morris International which holds the remaining 40%. The m~ority owner ofRBH, Rotbxnans Inc, is a publicly traded Canadian Company in which Rothrnans International Plc of the UK has a 71.~G stake. RBH was formed by the merger of the Rothmans of Pail Mall Lid, Canada with Philip Morris' former Benson & Hedges (Canada) Inc subsidiary. Published financial data is for Rothmaas Inc., but comprises mainly the tobacco operations of Rotbxnans, Benson & Hedges Inc. Rot.hma=ts Inc reported profits growth for the sixth consecutive financial year in 1893 (year end March 31s~) since the merger in 1986. Net sales increased by 5.3% in 1993 to reach C $468.2 million, while operating earnings rose by 12.4% to C $91.3 million. Net era--Rings for the year to March 1993 increased by 12.2% to C $55.3 million. 0 0 1994 ERC SLa,'~-~Ics InteruaUonal l~Ic - 30 - Cut Tobscco.~4 Ox ,,.0 BATCo document for PFSFC 1 March 1999

Canada Company Profiles Rothmans Inc, Financial Highlights, 1987-1993 C $MUlIon 1987 1988 1989 1990 1991 1992 1993 Net Sxlesm 284.5 413.9 414.0 3~7.7 417.4 444.5 468.2 Operating Earnings~= 21.5 47.8 54.6 64.5 68.7 81.2 91.3 Ne~ Ea.,u/ngs 99.5 30.4 33.7 40.4 43.3 49.3 55.3 Source: Note: Rothmans Inc. Financial years ending March 31st. a) Net of excise and sales taxes. From continuing operations, before minoritT interest. Loss in market share in cigarettes was offset by gains in fine-cut tobacco in 1990, mainly through ~he success of RBH's Belvedom No. 7 custom cut tobacco sticks. However, market share in fine-c~t has since fallen back with the company lacking a s~rong presence in the growing expanded ~obacco sector. Other brands include Craven A, Belvedore and Mark Ten. 1994 ERC ~.afl-~a lu~emat:iooal plc - 31 - Cut Tobace, a4t4 C~ (yx BATCo document for PFSFC 1 March 1999

( ¢ 1994 ERC S~a,C~c~cs latm'uAdon~ p|c ° ~ - Cut Tobaeco4~ 0 0 BATCo document for PFSFC 1 March 1999

Canada Production & Trade P.-oduc:ion of smoking tobacco fell back by 31.4% between 1988 and 1993 to reach 6,203 :onnes. Produc:ion has r~ an exzent fallen back r.bxougb lower domestic demand, although some f~Is in production have axisen from Canadian concerns souxcing their ~obacco brands from ocher subsidiaries, leading to grow~ in imports. Production of Smoking Tobacco, 1988.1993 Index Tonnes 1988 = 100.0 1988 9,042 100.0 1969 8,134 90.0 1990 6,13,5 6T.9 1991 9,271 102.5 1992~ 7,399 81.8 1993t~ 6,203 68.6 SoLLFce: Note: Statistics Canada, CTMC. m CigareCte tobacco only. excludes small quantities of pipe tobacco. Cigaxec~e ~obacco dominates production, accounting for 99.9% of production in 1993. Pipe ~obac~ remains of marginal imporr~noe to the indusu'y. Produc¢ion of Smoking Tobacco by Type, 1988-1993 Tonnes 1988 1989 1990 1991 1992 1993 C~e:~e Tobacco 9,016 8,113 6,119 9,263 7,399 6,203 Pipe Tobacco 26 21 16 8 8' 7" TOTAL 9,042 8,134 6,135 9,2TI T.40T 6,210 % Breakdown Cigare:r~ Tobacco 99.7 99.7 99.7 99.9 99.9 99.9 Pipe Tobacco 0.3 0.3 0.3 0.1 0.1 0.1 TOTAI, I00.0 100.0 100.0 100.0 100.0 100.0 Souxce: S~a~istics Canada, ERC. 1994 ]~,C Stlti~m lotema~ooa,l Pie " 33 - Cut Tobaccoeb4 0 0 BATCo document for PFSFC 1 March 1999

Canada Production & Trade Produ~ion statistics for smokeless products are unavailable. Smokeless tobacco production is marginal, at an eszima~ed 102 tonnes per annum. Imports Imports of smoking tobacco surged from 803 tonnes in 1988 to 1,405 tonnes in 1993, peaking at 1,748 ~onnes in 1992. While imported pipe tobaccos tend to dominate the pipe tobacco market, much of the increase in smoking tobacco imports in recent years is atrxibutable to imporzs of dgarecte tobacco. Imports of Smoking Tobacco, 1988-1993 Index Tonnes 1988 = 100.0 C $'000 1988 803 100.0 8,581 1989 700 87.2 6,507 1990 5,36 66.7 7,276 1991 711 88.5 8,394 1992 1,748 217.7 17,800 1993 1,405 175.0 15,2.°7 Source: Canadian rxade statistics. i Accordingly, import penetxa~ion has risen subsmntia/ly from under 10% in 1988 to 26.8% in 1993. Smoking Tobacco: Imports as % of Consumption, 1988-1993 Consumption Imports Imports as % of Tonnes Tonnes Consumption 1988 8,372 8O3 9.6 1989 8,069 700 8.7 1990 6,948 536 7.7 1991 6,630 711 10.7 1992 6,837 1,748 25.6 1993 5,242 1,405 26.8 S011rcs: ERC based on CTMC, trade statistics. U-i 0 0 P.O C~ 1994 ~ ~talilb,cl Intemabonal pic - 34 - Cut Tob, a,ccot94 Co BATCo document for PFSFC 1 March 1999

Canada Production & Trade Products from the UK have accounted for much of the increase in imports in recent years. representing 63.9% of impor~ volume in 1993. Other important sources of supply include the Netherlands, the US, Sweden, Denmark and most recently Ireland. Imports of Smoking Tobacco by Country of Origin (Volume), 1988-1993 Ton~es 1988 1989 1990 1991 1992 1993 UK 47 929 898 Netherlands 397 275 305 223 286 213 Ireland 121 USA 50 75 47 159 388 57 Brazil 52 Sweden 72 24 43 30 29 29 Denmark 48 30 37 - 30 21 Jamaica 116 71 69 Others °..36 180 33 183 86 14 TOTAL 803 700 536 711 1,748 1,405 % Breakdown UK 6.6 53.1 53.9 NetherLands 49.4 39.3 56.9 31.4 16.4 15.2 Ireland 8.6 USA 6.2 10.7 8.8 22.4 22.2 4.1 Brazil 3.7 Sweden 9.0 3.4 8.0 4.2 1.7 2.1 Denmark 6.0 4.3 6.9 1.7 1.5 Jamaica 16.6 13.2 9.7 Others 29.4 25.7 6.2 25.7 4.9 1.0 TOTAL 100.0 104}.0 100.0 10~.0 100.0 100.0 Source; Canadian trade smcis~cs. OU 0 0 1994 ERC ..qut'ds~cs lacernst:lons/pie - 35 - Cut Tobaoco,~4 O", ',O '.D BATCo document for PFSFC 1 March 1999

Canada Production & Trade Impo~s of Smoking Tobacco by Country of Origin (Value), 1988-1993 C $'000 1988 1989 1990 1991 1992 1993 UK 481 7,761 6,240 NerherLlnds 5,182 3,678 4,654 3,621 4,682 4,161 Ireland - 2,285 USA 571 896 618. 1,575 3,603 805 Sweden 1,053 365 705 535 588 874 Brazil - 541 Denmark 590 363 525 398 346 Jamaica 412 319 490 Others 1.185 793 455 1,692 768 175 TOTAL 8,58I 6,507 7,276 8,394 17,800 15,227 % Breakdown UK 5.7 43.6 41.0 Netherlands 60.4 56.5 64.0 43.1 26.3 27.3 Ireland 15.0 USA 6.7 13.8 8.5 18.8 20.2 5,3 Sweden 12.3 5.6 9.7 6.4 3.3 4.4 Brazil 3.6 Denmark 6.9 5.6 7.2 2.2 2.3 Jamaica 6.3 4.4 6.8 Others 13.8 12.2 6.3 20.2 4.3 1.1 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 I Source: Canadian trade sr.atistic~. i Trade s~atis~ics do not classL¢7 smokeless tobacco, these products axe classified amongst 'tobacco extracts and essences'. Imports ofr.obacco exrxacrs and essences amounted to 315 tonnes in 1993, up from 278 ~onnes in 1992. Some 310 tonnes were imported from the US, valued at C $6 million. US chewing tobacco and snuff form the mainstay of~e Canadian smokeless tobacco market. (J7 CD r',.) O', 1994 ERC Sta'~-bcl lntemxbona.1 pie - 36 * Cut Tobacco#g4 ,,D C.n C BATCo document for PFSFC 1 March 1999

Canada Production & Trade Exports Smolcmg ~obacco ex~por~s have increased dramatically in recent; years, expanding from under 100 tormes in 1988 ~o 3,035 ~nnes in 1992. This is a~rxibutable almos~ exclusively to large quantities of Canadian Smoking ~obacco being exported to the US prior to re- expor~ illegally m Canada. Exports of Smoking Tobacco, 1988-1992 Index Tonnes 1988 - 100.0 C $'000 1988 9T 100.0 935 1989 141 145.4 1,512 1990 62T 646.4 7,239 1991 2,617 2.697.9 37,400 1992 3,035 3,128.9 46,193 S0u.rcl=: Canadian trade s~a~istics. Accordingly, exports have increased in importance to the domestic industry. Exporm accounted for 41% of production in 1992, up from 1.1% in 1988. Smoking Tobacco: Exporr~s As % of Production, 1988-1992 Production Exports Exports as % of Cronnes) Cronnes) Production 1988 9.042 97 1.1 1989 8,!34 141 1.7 1990 6.135 627 10.2 1991 9,,"71 2.617 28.2 1992 7,407 3,035 41.0 Sollrce: ERC based on CTMC, trade statistics. The US accounted for 973% of volume exporus in 1992. Ocher markets include Yemen, the Ner.herlands and Hong Kong. U'I 0 CD ~; 1994 DC ,.~-a"'b(] lnrzma~o-,ai pic - 37 - Cut Tobacco~4 C~ U7 BATCo document for PFSFC 1 March 1999

Canada Production & Trade Exports of Smoking Tobacco by Country of Destination, 1991 & 1992 1991 1992 Tonnes % C S'O00 % Tonnes % C $'000 % USA 2,386 91.2 35,701 95.5 2,449 80.7 42,201 91.4 Hong Kong 180 6.9 1,!15 3.0 105 3.5 638 1.4 Yemen 291 9.6 1,477 3.2 Netherlands 145 4.8 1,208 2.6 Others 51 1.9 5~4 1.6 45 1.5 669 1.4 TOTAL 2,617 100.0 3"7,400 100.1) 3,035 100.0 46,193 100.0 Source: Canadian trade s'.~istics. Exports of smokeless tobacco are negligible, and are not ca~egorised in Canadian trade statistics. (.n C~ O r,,) O', ¢ 1994 FJ~C Sca~bm Iz=ten~tioncl pie * 38 * Cut Toba~ ".D t/1 ~,J BATCo document for PFSFC 1 March 1999

Canada The Future While consumption of smokeless products is set to drLec gradually downwards, the smoking tobacco market is likely to receive a substantial boost following the Canadian government's decision to reduce excise duty in February 1994. However, an increase in sales of smoking tobacco in Canada is likely to be only temporary, with the market gaininX from sales recouped from the smuggled tobacco sector. A further factor casting much uncertaint7 over the market's futuxe is the proposed tax rises put. forward by the Clinton admimsra~ation. Were these increases to be levied, the initial impact may well be to cut smuggled trade a/together. However, the Canadian government wou/d doubtlessly continue to pursue its anti-smoking campaign with zeal, and take advantage of higher US taxes to hike Canadian taxes further with the porous US-Canada border no longer a problem. Notwithstanding these gloomy scenarios, in the shor~ to medium term, smoking tobacco consumption is set to recover dramat~ca~y with the smuggled trade greatly reduced by the February 1994 tax cuts. However, towards the mid and Ia~e 1990s, demand for smoking tobacco is set to turn down again, with the pipe tobacco segment becom~g increasingly margina/ised, and cigare~.,e tobacco consumption falling back in 1me with steady reductions in the overa/1 smoking population. Market Forecasts, 1993-1998 Tonnes Smoke]ess Smoldng Tobacco Tobacco Total 1993 5,242 285 5,52'7 1994 6,553 280 6,833 1995 6,684 275 6,959 1996 6,516 270 6,786 1997 6,321 266 6,587 1998 6,100 262 6,362 Ludex, 1993 = 100.0 1993 100.0 100.0 100.0 1994 125.0 98.2 123.6 1995 127.5 96.5 125__q 1996 124.3 94.7 122.8 1997 120.6 93.3 119.2 1998 116.4 91.9 115.1 Source: ERC forecasts. © 1~4 ERC .,qc.,atlstt,"- l~,en~t/oo~ plc - 39 - Cut Toba~o~4. 0 0% %0 BATCo document for PFSFC 1 March 1999

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