Philip Morris Axes Australian Cigarette Plant After 60 Years

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The Philip Morris International Inc. production facility in Melbourne. Close

The Philip Morris International Inc. production facility in Melbourne.

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Photographer: Carla Gottgens/Bloomberg

The Philip Morris International Inc. production facility in Melbourne.

Philip Morris International Inc. will close its Australian cigarette plant after six decades and shift production to South Korea, saying government regulations on low fire-risk cigarettes crimped exports.

The closing of the Moorabbin plant in southeast Melbourne will lead to about 180 job losses, about a quarter of its workforce in the nation, the New York-based company said in a statement. Australia, where Philip Morris established its first overseas outpost in 1954, has seen its domestic cigarette market decline for a decade and export opportunities haven’t materialized to make up the shortfall, it said.

Exporters of products from cars to aluminum have announced job cuts and plant closures in Australia this year as the strength of the currency and high production costs rendered local goods uncompetitive internationally. Australia has the world’s strictest regulations on cigarette packaging, mandating the use of uniform fonts and coloring and graphic images including cancer victims and gangrenous limbs.

“They’re reading the writing on the wall that smoking in Australia is on the way out,” Mike Daube, president of the Australian Council on Smoking and Health, an anti-smoking group, said by phone from Perth. “It’s a tremendous landmark.”

Photographer: Daniel Acker/Bloomberg

Several brands of Philip Morris International Inc. cigarettes are arranged for a photograph in Tiskilwa, Illinois. Close

Several brands of Philip Morris International Inc. cigarettes are arranged for a... Read More

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Photographer: Daniel Acker/Bloomberg

Several brands of Philip Morris International Inc. cigarettes are arranged for a photograph in Tiskilwa, Illinois.

Restore Confidence

The announcement comes as BP Plc said it would close its Bulwer Island refinery in Queensland by 2015, with the loss of about 355 jobs. At 5.83 percent, Australia’s unemployment rate is at its highest level since 2003, posing a challenge for Prime Minister Tony Abbott, who won an election last September pledging to restore confidence in the economy.

“Where is their agenda for jobs?” opposition leader Bill Shorten said, according to a transcript of a March 28 interview with Australian Broadcasting Corp. “They’ve got to have an agenda beyond just slogans.”

Over the past decade, Australia has introduced bans on smoking in workplaces and raised tobacco taxes by about two-thirds, according to the Cancer Council Victoria, a health charity. Smoking rates have fallen at the same time, to 20 percent of men and 16 percent of women in 2011-12, from 27 percent of men and 21 percent of women in 2001, according to government data.

Plain Packaging

The most recent measures, introduced in 2012, require that images and health warnings cover 75 percent of the front of packets, ban trademarks, and mandate that the product’s name should appear in a uniform Lucida Sans font on a background of greenish-brown Pantone 448C hue.

New Zealand, the U.K. and Ireland have since proposed laws establishing similar measures, while a group of countries led by Ukraine have brought a complaint to the World Trade Organization over the legislation.

The plain-packaging law had “absolutely no impact” on the decision to close the Moorabbin plant, Clayton Ford, a spokesman for Philip Morris Australia, said by phone from Melbourne. The strength of the Australian dollar, which has also hurt some local exporters, also “didn’t come into the equation,” he said.

The 2010 mandating of reduced fire-risk cigarettes, which burn out if they’re not being smoked, was responsible for the export weakness, Ford said. “If we could produce cigarettes that consumers wanted in those export markets, we could produce those different types of packaging,” he said.

No Difference

Philip Morris has said the plain packaging laws aren’t making a difference. The Australian law hadn’t made smoking among 14- to 17-year-olds decline any faster, according to a study funded by the company last month, and Australian tobacco sales rose marginally in the first full year of plain packaging, according to industry figures.

Local consumers bought cigarettes and rolling tobacco equivalent to about 21.1 billion sticks during 2013, down from 24.9 billion sticks in 2009 and up from 21.0 in 2012, according to the industry data.

The Moorabbin plant is “significantly under-utilized,” John Gledhill, Philip Morris’s managing director for Australia, New Zealand and Pacific islands, said in the statement.

“We’ve been concerned ever since the start of plain packaging that it would put in jeopardy Philip Morris’s operations,” Ben Davis, Victoria state secretary of the Australian Workers Union, which represents plant workers, said by phone. “This announcement came right out of the blue and there aren’t too many other opportunities around.”

Global cigarette companies are pushing into emerging markets, where incomes are rising and tobacco regulation weaker, according to Bloomberg Industries research.

Brazil, Russia, India, China and Indonesia accounted for about 56 percent of global tobacco consumption in 2012, with 3.3 trillion cigarette sticks bought, compared with 2.95 trillion in 2007, according to Bloomberg Industries data.

“Smoking is declining in developed countries, so they’re looking to developing countries to replace that market,” said Daube of the Australian Council on Smoking and Health.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editors responsible for this story: Stephanie Wong at swong139@bloomberg.net Terje Langeland

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