Habanos s.a.

Habanos s.a.

Assistant Secretary, Tobacco Control Taskforce
Attention: Tobacco Reform Section
Department of Health and Ageing
MDP 701
GPO Box 9848
Canberra ACT 2601
Australia
By e-mail: tobaccoplainpackaging@health.gov.au

La Habana. October 24th, 2011

Re.: Habanos, SA. response to the consultation on Tobacco Plain Packaging: Proposed approach to non-cigarette tobacco products

Dear Sir, Madam,

I am writing to you on behalf of the Corporación Habanos, S.A (HABANOS, S.A) which is a Cuban cigar enterprise in charge of the exclusive distribution of habanos cigars worldwide.

Proposed approach to non-cigarette tobacco products

According to the consultation paper, the Australian Government proposes “to take an approach to the plain packaging requirements for non-cigarette tobacco products that is as close as possible to the plain packaging requirements for cigarettes and addresses the objectives of the Bill. That is, non-cigarette tobacco products should be packaged in retail packaging that I) is the same specific drab dark brown colour in man finish as cigarette products. 2) does not carry tobacco industry branding, logos, symbols or other images, 3) carries only the brand name and variant name in a standardised font, colour and location on the package, and 4) carries the mandated health warnings’. Responding to earlier representations several non-cigarette specific “solutions” are being suggested:
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• As many non-cigarette tobacco products only have a small market in Australia, the Bill does not prohibit the importation of products into Australia in branded packaging. They may be imported and repackaged for retail sale once in Australia;

• The use of adhesive stickers, effectively covering all surfaces of the retail packaging that do not otherwise comply with the plain packaging requirements, including the underlying tobacco industry branding, symbols and other images on the packaging, continues to he one acceptable solution for compliance with the plain packaging requirements;

• In addition to printing directly on the retail packaging in the specified font style, size and colour, 1) pre-printed adhesive labels hearing the brand name and variant or 2) rectangular white labels with dimensions no larger than 50mm by 20mm, on which the brand name and variant could be hand written in black ink or 3) a rectangular white space with dimensions no larger than 50mm by 20mm printed on the purpose-made packaging for this purpose, on which the brand name and variant could be hand written in black ink, are allowed.

The consultation paper also specifics that certain restrictions would apply to the purpose-made packaging. The two largest dimensions for all containers except for cigar tubes must not be smaller than 85mm by 55mm (i.e. the same minimum dimensions specified for cigarette packs). Cigar tubes must be cylindrical and rigid, and may have a tapered or rounded end, but must not be smaller than 15mm in diameter at the opening of the tube. Finally cigar bands should either be 1) removed, 2) replaced or 3) fully covered with a drab dark brown band with the brand name and variant and country of origin printed in a standard font style, size and colour.

HABANOS views: cigar production and consumption

HABANOS, S.A. sells through its appointed distributor 1,000,000 long filler Cuban cigars in Australia each year. This comprises 0.004% of annual total tobacco consumption in Australia as every year 22,000,000,000 cigarettes arc sold in Australia.

The sale of Cuban handmade long tiller cigars in Australia makes up 1.6 % of the total Australia cigar market, the overwhelming majority of which, 98 %, is machine made.

Cigar making continues to be a labour intensive process. The production units are specific, i.e. their sites arc separate from other tobacco product locations, and often well away from the major industrial centres. Many cigar factories are located in the more rural and vulnerable areas of the Republic of Cuba and being handmade the production rate is far away from the cigarette machines which nowadays produce up to 18,000 pieces per minute. One of the most salient features of the cigar industry is that its products are being produced and sold in an enormous variety of models, sizes, brands, types of packaging and prices. The variety of products causes that cigars are generally produced in small production runs.
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The Australian market has a very different consumer demographic to cigarettes. Typically Australian consumers are male and are over 45 years of age earning more than A$ 150K per annum. 50 % are very occasional purchasers, marking a special life cycle event or milestone; 5 % purchase vintage cigars as an investment, 45% are regular Cuban cigar smokers consuming on average 2 cigars a week.

According to the Speciai Eurobarometer report “Tobacco” that was published by the European Commission on 27 May 2010, “cigars, water pipes and pipes are smoked far less than cigarettes” and “cigars tend to he smoked occasionally rather than daily (12% ‘occasionally’ versus l% ‘every day’)”. Furthermore it was concluded “demographically, cigar smokers tend to be men (21% among men compared with 3% among ‘women) and from the higher social groups (17% of higher social groups compared with 11% in lower social groups)”. Finally “fewer cigars are smoked per day than cigarettes as would be expected given that cigars tend to be smoked occasionally”. From the Special Eurobarometer report “Smoking and the environment: actions and attitudes” dated November 2003 it becomes clear that cigar smokers are somewhat older individuals (in 2003 l.9°/ of 40-54 year-olds smoked cigars or a pipe). For these smokers, cigar smoking is an occasional enjoyment.

HABANOS views on plain packaging

We believe that cigar manufacturers have the right to distinguish and differentiate their products from those of competitors. Packaging guarantees origin, quality and investment. Brands and packaging designs are often protected as registered trademarks. Plain packaging would expropriate or fundamentally restrict the essential function of registered trademarks and the right to distinguish products, contrary to national and international law. The development of brand equity and goodwill is fundamental to a market economy, consumer choice, innovation and product development.

Manufacturers have fundamental rights to communicate with consumers, to the property in their packaging and to conduct their business. Consumers have the right to receive information to facilitate the selection process. Plain packaging would breach these rights. The ability of manufacturers to distinguish their products through packaging provides a key means by which consumers arc able to freely exercise their right of product choice. Cigar retailers and consumers use packaging to identify cigar products, easily and without confusion.

HABANOS is of the opinion that there is no evidentiary basis to contend that plain packaging would further improve the achievement of public health objectives. There is no credible scientific and empirical research to demonstrate that plain packaging would 1) produce a degree of awareness of tobacco related health risks amongst cigar smokers that is higher than currently achieved, 2) reduce cigar smoking initiation, 3) increase cigar smoking cessation or 4) reduce consumption rates in continuing cigar smokers.

In our view plain packaging is a disproportionate measure, as it would I) facilitate the trade in counterfeit and contraband tobacco products. 2) result in consumer confusion and 3) impact on the competitive operation of the market.

The further expropriation of the principal display areas of cigar packaging would lead to a series of negative and undesirable consequences, including unjustified limitation on 1) trademarks, goodwill and brand equity, 2) the ability to communicate with consumers and 3) consumers’ rights to product choice, fair competition and product information. Combined with expanded graphic health warnings. plain packaging would furthermore lead to the erosion of the brand equity that has been built up and which is currently attributable to brands and to the serious and unnecessary damage to the legal, fair and competitive market economy in tobacco products. Finally it would undermine the ability of members of the legal tobacco industry to brand and distinguish its products from those of its competitors.
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HABANOS views on the evidence for plain packaging of cigars

HABANOS agrees to the fact that the cigar consumer should be informed about the health risks associated with smoking. However, as the cigar consumer is typically a male adult of mature age. with mostly an occasional and low consumption, we are of the opinion that plain packaging - combined with expanded graphic health warnings - is not necessary to achieve that goal.
We are not aware of any scientific data indicating that that plain packaging, combined with expanded graphic health warnings, is a more effective means of informing adult cigar smokers than health warning texts. The effect of these measures on cigar consumers cannot be predicted by studying the effect on cigarette smokers, as the cigar consumer has a totally different profile (i.e. a male adult of mature age, with mostly on occasional and low consumption).

In appendix B to the consultation paper the Australian government explains why plain packaging is considered to be necessary. Reference is being made to the research evidence in the reports of the Preventative Health Taskforce (“Tobacco control in Australia: making smoking history”) as well as to the further review of the evidence for plain packaging of tobacco products as released by the Cancer Council Australia on 24 May 2011 (“Plain packaging of tobacco products: a review of the evidence”). We would like to draw your attention to the fact that neither the 2009 Preventative Health Taskforce report nor the 2011 Cancer Council Australia report contain a single reference to research on cigar smokers.

HABANOS views on the alternatives to printing directly on the retail packaging

According to the consultation paper, products may be imported into Australia in branded packaging, and may be repackaged for retail sale once in Australia. “Recognising the practicalities of labelling retail packaging with brand and variant information in the context of repackaging. The Government is proposing that the regulations allow the following options (in addition to printing directly on the retail packaging in the specified font style, size and colour):

• pre-printed adhesive labels bearing the brand name and variant that meet the font style, size, colour and background colour requirements applied to cigarette packs and repeated later in this Consultation Paper; or
• rectangular white labels with dimensions no larger than 50mm by 20mm, on which the brand name and variant could be hand written in black ink; or
• a rectangular white space with dimensions no larger than 50mm by 20mm printed on the purpose- made packaging for this purpose, on which the brand name and variant could be hand written in
• black ink”.

Cigars can only he produced and packed in small production runs, as a wide variety of products is offered to the consumer and cigar consumption is very small. Therefore. manufacturers who export their products to other countries use internationally standardised packs as much as possible. This makes it impossible to print the health-warnings on the pack. Allowing the import of branded packaging into Australia and repackaging i.e. applying adhesive labels to those products once in Australia is not a workable solution under any circumstances.
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With respect to applying stickers to the tubes, this would be in practice forbidding the tubes where the top is 1/3 of the normal length. Very often used by HABANOS as a sticker would not allow opening them.

Although the cigar volumes that are exported to Australia may not be very high, they are far too high to repack each and every product in Australia. Du o the wide variety of products that is offered for sale, such an activity could only be done by hand and would therefore turn back the time by approximately one hundred years. The same is true for allowing the industry to use labels on which the brand name and variant could be hand written in black ink. Such an approach is simply unworkable in a highly competitive industry as the tobacco industry. Even though pre-printed adhesive labels would be allowed, plain packaging would nevertheless create a serious barrier to the cigar trade from the Republic of Cuba to Australia.

HABANOS views on the applicability of plain packaging to cigar hands
According to the consultation paper, cigar bands could either be removed or 1) replaced with a drab dark brown band with brand name and variant and country of origin printed in a standard font style. size and colour, or 2) fully covered with an adhesive drab dark brown band with the brand name and variant and country of origin printed in a standard font style, size and colour or 3) fully covered with an adhesive white or drab dark brown band on which the brand name and variant and country of origin could be band written in black ink.

Again we would like to note that removing, replacing or fully covering cigar hands would have to be done by hand. Such an approach is simply unworkable in the highly competitive tobacco industry, will create damages to the product itself when manipulating them lot replacing the old band and would again create a serious barrier to the cigar trade from Republic of Cuba to Australia.

HABANOS views on the colour of the packaging
According to the consultation paper, all retail packaging, regardless of the shape, format and materials used, will be required to be a specified drab dark brown colour (Pantone 448C) in a matt finish. In recognition of the wide variety of non-cigarette tobacco products available and the potential difficulties in producing pre-printed retail packaging for each individual product line, it is proposed that tobacco product brand and variant names will be allowed to appear on retail packaging in several different ways, i.e. pre-printed either directly on the retail packaging or on an adhesive label. Affixed to the packaging or hand written in black ink either directly on the retail packaging in a rectangular space allocated for this purpose or on a rectangular adhesive label affixed to the packaging.

Cigars can be packed in a wide variety of packaging materials, such as wood, polypropylene, cardboard and aluminium. Most of these materials cannot be supplied in the specified drab dark brown colour (Pantone 448C), which leaves adhesive labels as the only workable alternatives for these types of packs. In their original appearance, wooden or polypropylene packs will be banned from the Australian market.
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We should also underline that obliging to a certain kind of inner linen colour in all packs means that we should reopen any box to take out the inner wrapping sheets used inside the boxes to stabilised the bundle of cigars which cannot be solved by simply applying a sticker. In the same way forbidding any insert as established in principle 22 of the consultation means that we should reopen any box to take out the inter- layer sheets used in them which cannot he solved by simply applying a sticker. These are very impractical rules and burdensome for the industry.

HABANOS views on the dimensions of cigar packs and tubes
According to the consultation paper, the two largest dimensions for all containers except for cigar tubes must not be smaller than 85mm by 55mm, the same minimum dimensions specified for cigarette packs Cigar tubes must be cylindrical and rigid, and may have a tapered or rounded end, but must not be smaller than 15mm in diameter at the opening of the tube.

Cigars are characterised by their enormous variation in types, specifications and methods of packaging. Cigar diameters may range from approximately 8mm to more than 2.0mm, whereas the length may range from 60mm to more than 200mm. The foregoing implies that cigars may be packed in packs that are smaller than 85mm by 55mm and in tubes with a diameter smaller than 15mm. For that reason, limiting cigar packs and tubes to these dimensions wild create a serious barrier to the cigar trade front the Republic of Cuba to Australia.

Counterfeit Cuban Cigars and Proof of Authenticity, Feasibility of Repackaging and Financial Implications

Due to the popularity and the high retail price, Cuban cigars have been subject to numerous counterfeit activities in the past, with fake cigars having been produced in Mexico, Brazil, Turkey and Costa Rica among others. To make counterfeit production as difficult as possible, Habanos. S.A. has over the years introduced various measures to make it increasing difficult to produce and sell counterfeit ‘Cuban” cigars. The same measures help the purchaser amid the ultimate consumer to be assured that the cigars he purchases arc authentic Cuban Cigars, produced and distributed by Habanos SA.

The Consultation Paper dated the 30th September 2011 with its proposed approach to non-cigarette tobacco products and specifically cigars, will effectively remove or conceal all these proofs of authenticity in such a manner that the consumer will have no visual proof whatsoever that the cigars he is being offered are authentic.

It should be noted that a particular brand of Cuban cigar, in itself without the original cigar hand is near to impossible to visually identify or distinguish from another Cuban brand of Cuban Cigar, let alone from a counterfeit cigar. It is the packaging it comes in combined with the various components of this packaging together with the cigar ring that proves that the cigar is an Authentic Cuban Cigar.
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The various proof of origin are as follows;

1. The box or packaging itself

The cigar boxes for Cuban hand made long filler cigars as Habanos SA supplies the cigars are quite elaborated and to a large extent hand assembled with various colors and decorative elements that makes them difficult to copy and counterfeit.

The inside of the box is also often quite elaborated with various embossing and printing on the inside and the edges of the lid and the box, and for certain type of boxes an extra printed sheet is attached to the inside of the lid of the box to protect the cigars further.

1.A. The box pressed cigars and its cigar boxes
For some specific cigar types the tailor made cigar boxes are made rather small so that the cigars effectively get compressed when placed and stored in the box, changing the cigar from a round cylindrical form to a more squares form once the box is opened at the retail outlet. The cigars retail this form and are called “box pressed” cigars.

1. B. Cigars packed in tubes
Around 20% of the Cuban cigars imported and sold in Australia come packed in tubes made of aluminum, glass or plastic. Cigars in tubes are then packed into various sized carton boxes in various combinations.

Currently Habanos. S.A. exports tube packaged cigars in 7 different outer packaging types:
Boxes of 5 tube packaging cigars.
Boxes of 10 tube packaging cigars.
Boxes of 20 tube packaging cigars.
Boxes of 25 tube packaging cigars.
Boxes of 10 packs, with each inner pack containing 5 tube packaging cigars.
Outer carton packs of 5 packs, with each inner pack containing 5 tube packaged cigars.
Outer carton packs of 5 packs, with each inner pack containing 3 tube packaged cigars.

These cigars can be sold individually, sold as one inner pack for sold as a complete container. If the current proposal is implemented, each of these components of the packaging; the tube, the inner pack and the outer carton pack would have to comply with the drab brown plain packaging regulations.
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2. Habanos D.O.P. Seal - Protected Designation of Origin
Each box and packaging is sealed with a Habanos D.O.P sticker as proof of authenticity. This is a legal Protected Designation of Origin that various countries have implemented allowing a manufacturer of a certain (agricultural) product to protect its origin so that other foreign manufacturers can not claim their products are made in the same country or region.

3. Republic of Cuba - National Warranty Seal for Cigars and Cut Tobacco
This seal is issued by the Government of Cuba and placed on each individual pack of Cuban cigars. This seal contains various elements assuring the consumer that the cigars are authentic. It has a red serial number at the middle that can be referred back to Habanos SA records. It has a bar code and corresponding number at the end, that allows the consumer to verify the authenticity by going to Habanos SA website and enter the number and obtain verification of authenticity.

4 Factory Code
At the bottom of each box is a three letter code, printed onto the box itself. This is the factory code identifying in which factory the cigars were manufactured. There are over 40 factories producing various Cuban cigars. With this code it is therefore possible to trace back the cigars to the factory where it was made, essential in case of quality problems or if in doubt about the authenticity of the cigars. The codes are changed regularly.

5. Month of Manufacturing
At the bottom of cacti box is also a three letter — two number codes. identifying the month and year the cigars were manufactured. This code is essential for consumers as they have different preferences, some prefer “fresh cigars”, other prefer older cigars, while some prefer vintage cigars that has been stored over 5 years before being consumed. The date code also serves in case of quality problems or if in doubt about the authenticity of the cigar. Combined with factory code described above, Habanos will be able to compare with their manufacturing records and verify if this particular cigar box was manufactured in this month in this factory.

6. The cedar wood sheet inside the be on top of the cigars
This cedar wood sheet, embossed with the brand name. serves to protect the cigars in its packaging and control the humidity of the cigars. In addition, by embossing the brand name it helps the consumer to be assured the cigars are authentic.

7. The Habanos Information Paper
This printed fine paper placed inside the box, in some instances only advice the consumer on how to store the cigars. En other cases it in addition describes the tobacco leaves used in the specific cigar, and names the brand of cigars. Again, this paper severs as a. further measure to make counterfeit difficult.
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8. The yellow ribbon tied around the cigars inside the box
For certain type of packaging where the cigars are placed into the box as a “bundle” a ribbon tied around the bundle is necessary to avoid the cigars moving around inside the box and be damaged during transport or handling. In the case of Habanos SA, this ribbon is always recognizable yellow silk and printed with the brand name and type of cigar again as proof of authenticity.

9. The cigar band
Each individual cigar supplied by Habanos SA has a paper cigar ring surrounding the top of the cigar. This band has the brand name and “Havana-Cuba” imprinted, they are different sizes and forms depending on the brand and the cigar type, and generally extremely detailed and elaborated with various minute details to make counterfeit as difficult as possible. Some of the newer cigar rings even have a hologram incorporated to prevent counterfeit. For a number of brands and varieties the cigars have two cigar rings. Due to the extremely detailed printing process, it is often a counterfeit ring that is the first sign for the consumer that he is facing a counterfeit cigar.

The main purpose of the above mentioned elements are to protect the cigars and to prove and assure the consumer that the cigars are authentic Cuban handmade cigars from the Cuban factories. Furthermore they are extremely detailed and elaborated to make counterfeit as difficult as possible.

The Consultation Paper proposes that all the above-mentioned elements of the packaging of cigars should he concealed or removed. All retail packaging, regardless of shape, format and materials used will have to be a brown color. The Government propose to allow the use of adhesive slickers that must effectively cover all surfaces of the retail packaging that otherwise do not comply with the plain packaging, including the underlying branding, symbols, and other images on the packaging. For the inside of the packaging the proposal is to allow one of a limited range of colours, white, a standard metallic colour, a standard wooden colour or transparent, depending on the material of the Container.

Habanos, S.A confirms that we do not have the resources to create and produce special packaging for the Australian market, which represent 1css than 1% of our total production. Certain elements of the packaging are also imposed by The Government of Cuba, such as the National Warranty Seal.

All the above-mentioned elements of the packaging and the authenticity of the cigars would have to he concealed or removed, and in effect, neither our distributor, nor the retailer, nor the consumer will be able to prove or have any remaining proof that the cigars are authentic Cuban cigars. All elements of the packaging will have to be “neutral” and the cigar bands concealed or replaced by a simple paper ring with brand name, variant and country of origin, a hand that can easily he produced by anyone wanting to create counterfeit cigars.

Therefore it will be impossible for the appointed distributor to repack the cigars for retail sale in Australia, as they will inevitably alter, deface or obscure the Habanos registered trade marks, Cuban Government Warranty seals with its authenticity marks, track and trace measures, D.O.P seals, which Habanos will not permit, and is also prohibited under the exclusive distribution agreement.

HABANOS views on the implementation period

According to the consultation document, the regulations for non-cigarette tobacco products will he finalised before the commencement of the Tobacco Plain Packaging Bill 2011 on 1 January 2012. By 1 July 2012 all tobacco products sold in Australia should be sold in plain packaging. This timetable is unworkable.
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We would like to note that other territories, like for example the European Union, generally acknowledge that cigars are slow moving products. The EU Directive concerning the manufacture, presentation and sale of tobacco products for example stipulates that “transitional periods should be provided for in order to allow the necessary modifications in production to take place and for the disposal of stocks, particularly for products other than cigarettes”. In the context of this specific Directive, products other than cigarettes that did not comply with the provisions of the Directive could continue to be marketed for two years after the date of entry into force, compared to one year for cigarettes.

Overall conclusion

HABANOS strongly oppose the plain packaging bill in its current form. For the reasons mentioned above, it will be impossible for our appointed distributor to comply.

Yours sincerely,
Buenaventura Jimenez Sanchez-Canete
Copresident

Jorge Luis Fernandez Maique
Copresident

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