U.S. Ranks Low vs. Global Affordability of Cigarettes

NEW YORK -- The ever-increasing costs of cigarettes is a constant complaint among adult smokers and retailers alike in this country, but it's a different picture around the world. Wells Fargo Securities LLC performed a cigarette affordability analysis on key global tobacco markets and found that cigarettes have become increasingly affordable in emerging markets over the past 10 years.

Despite healthy price and tax increases, cigarettes have become more affordable over time in developing countries in Asia, and Eastern Europe, the Middle East and Africa (EEMA) compared to the European Union, United States and Japan, where cigarette affordability saw a slight decrease, according to Bonnie Herzog, managing director, beverage, tobacco and consumer research at Wells Fargo Securities.

"In fact, a pack of cigarettes is cheaper than a Big Mac in every one of the key emerging markets we analyzed, compared to developed markets where Big Macs were generally cheaper," she explained. "A pack of cigarettes in emerging markets costs on average US $1.12 vs. a Big Mac, which costs on average US$2.89. This compares to developed markets where a pack of cigs costs US $5.04 vs. a Big Mac cost of US $4.25.

"We believe increasing cigarette affordability in Asia and EEMA has been a key volume growth driver and we expect this to continue as disposable income growth outpaces cigarette price growth," she added.

The affordability of cigarettes has increased in top tobacco markets. In 2011, the percentage of disposable income spent on 100 packs of cigarettes per year was 4.3 percent compared to 5.2 percent in 2003, with emerging markets driving this trend, the analysis found.

"In addition, the relatively rapid rate of disposable income growth across a number of key tobacco markets bodes well for robust pricing power, particularly in emerging markets where disposable income is increasing double-digits," Herzog said. But despite the price differences, cigarettes in the United State are the most affordable on a relative basis, she added.

The Wells Fargo Securities' analysis found that cigarettes are only 1.6 percent of average disposable income in the United States -- the lowest of the top 20 global tobacco markets where the average affordability is 4.3 percent of disposable income.