Regulatory Proposal for Reducing Fire Risks from Cigarettes

Appendix B - Industry Outreach Questionnaires

Annex II - The Impact of a Reduced Ignition Propensity Standards on Canadian Cigarette Manufacturers

Industry Outreach Questionnaire

Fires started by lit smoker's materials are the leading cause of fire-related death in Canada.  Health Canada has taken steps over the past few years to try to reduce this impact, through such vehicles as the Hazardous Products Act and by encouraging the adoption of voluntary standards by the private sector.  Health Canada is now considering mandating a regulatory standard for reduced cigarette ignition propensity.Health Canada wishes to assess the potential benefits and costs of the proposal, as well as how fairly these benefits and costs are distributed across Canada.  To assist us in this evaluation, we are asking for your input.  The following short survey will help us in identifying the cost of this proposed regulation.

Please return the completed questionnaire no later than November 17, 2003, to:

Denis Choinière
Director, Regulations and Compliance
Tobacco Control Programme, Health Canada
123 Slater Street ,AL 3507C1
Ottawa, Ontario  K1A 0K9
Fax:  (613) 941-1551

1) General Information

1. Company Name:
2. Respondent's Name:
3. Title/Functional Role:
4. Respondent's contact information (telephone, mailing address, email address):

2) Familiarity with the issue:

1. Has your company been following this regulatory issue?
2. Has your company participated in any surveys or interviews regarding this issue?  If so, please describe.

3) Has your company undertaken any product or market research and development efforts thus far to address the potential regulations?  If so, please describe them.

4) To your knowledge, have any of your company's competitors undertaken any product or market research and development efforts thus far to address the potential regulations?  If so, please describe them.

5) If the final regulation is a performance-based standard requiring that lit cigarettes self-extinguish at least 75 percent of the time in a prescribed test setting, what changes in cigarette design would be necessary to achieve compliance?  Please list as many potentially viable approaches as you can.

6) Using the results from Question 5, please estimate the likelihood (using percentages) that each approach will be pursued and implemented by your company.

7) Using the results from Question 5, please estimate the likelihood (using percentages) that each approach will be pursued and implemented by your company's competitors.

8) Using the results from Questions 5 and 6, please describe how your company's costs and cost structure will change with implementation of the most likely approach to achieving compliance with the standard.  Where possible, please use actual dollar figures and explain changes to any of the following that apply:

1. Purchased leaf tobacco costs
2. Handling, transport and storage costs
3. Tobacco processing costs
4. Plug making costs
5. Cigarette making costs
6. Packaging, shipping, and quality control costs
7. Business expenses (e.g., building depreciation, overhead and advertising)

9) Using the results from Questions 5 and 7, please describe to the best of your ability how your competitor's costs and cost structure will change with implementation of the most likely approach to achieving compliance with the standard.  Where possible, please use actual dollar figures and explain changes to any of the following that apply:

1. Purchased leaf tobacco costs
2. Handling, transport and storage costs
3. Tobacco processing costs
4. Plug making costs
5. Cigarette making costs
6. Packaging, shipping, and quality control costs
7. Business expenses (e.g., building depreciation, overhead and advertising)

10) Table 1 presents a model of a Canadian cigarette manufacturer's cost structure.  To your knowledge, is Table 1 representative of the average manufacturer?  If not, please comment on whatever differences exist, being as specific as possible.

Table 1 - Cost Structure of a Representative Cigarette Manufacturer (2002 Canadian Dollars per Carton of 200 Cigarettes)

	Labor	Energy	Materials	Depreciation	Total
Purchased Leaf Tobacco			$ 1.152		$ 1.15
Handling, Transport and Storage					$ 0.98
Tobacco Processing					$ 0.22
Plug Making (1)	$ 0..081	$ 0.007	$ 0.326	$ 0.004	$ 0.42
Cigarette Making (2)	$ 0.148	$ 0.014	$ 0.253	$ 0.036	$ 0.45
Packing/Shipping (3)	$ 0.220	$ 0.020	$ 0.511	$ 0.015	$ 0.77
Business Expenses					$ 1.71
Operating Profits					$ 4.43
Taxes (4)					$ 42.89
			Total Wholesale Price =		$ 53.01

(1) Materials cost includes filter materials, adhesives, paper wraps and flavourings.
(2) Materials cost includes paper, tipping materials, starch, adhesives and ink.
(3) Materials cost includes packets, foil, plastic wrap, tear tape, adhesives, cartons and cases.
(4) Includes Provincial Tobacco Tax, Federal Excise Tax and Federal Excuse Duty.

11) Is Table 1 representative of your company's current cost structure?  If not, please comment on whatever differences exist, being as specific as possible.

12) Table 2 estimates the impact of a reduced ignition propensity standard on cigarette manufacturing costs, based on a change in cigarette design involving paper modifications.  Is Table 2 representative of the incremental costs your company would face in changing cigarette designs to comply with the reduced ignition propensity standard?  If not, please comment on whatever differences there would be, providing as much detail as possible on changes in the manufacturing process, associated inputs, product testing and quality control programmes, etc.

Table 2 - Cost Impact on a Representative Cigarette Manufacturer (2002 Canadian Dollars per Carton of 200 Cigarettes)

	Post-Compliance
	Current Costs		Costs (1)
Purchased Leaf Tobacco	$	1.15	$	1.15
Handling, Transport and Storage		0.98		0.98
Tobacco Processing		0.22		0.22
Plug Making		0.42		0.43
Cigarette Making		0.45		0.53
Packaging/Shipping		0.77		0.77
Business Expenses		1.71		1.71

(1) Assumes implementation of a cigarette design involving paper modifications.

13) Based on the requirements for toxicological testing associated with the potential regulations, what would be the incremental cost per brand of testing for your company, and for your company's entire product line (excluding identical brands)?

14) Would the price of Canadian cigarettes increase as a result of the potential regulations?  If so, what would be the likely magnitude of the increase?  Please explain.

15) What other changes do you believe would be likely to result across the Canadian cigarette and tobacco industry as a result of the potential regulations?  Please explain.

16) Thank you for your input.  May we contact you with follow-up questions?  If so, what is the best means of contact?