Cigarette prices rise ahead of looming taxes

By JON GAMBRELL, Associated Press

Last update: February 11, 2009 - 4:28 PM

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LITTLE ROCK, Ark. — Though a federal cigarette tax hike remains weeks away, at least two U.S. cigarette makers already have upped prices and another is cutting some wholesaler discounts as demand drops.

Both Altria Group Inc., which owns Philip Morris USA, and Lorillard Inc., which makes Newport cigarettes, increased their carton and pack prices in recent days.

Neither company would say what prompted the increases. But the federal tax on cigarettes will rise from 39 cents a pack to almost $1.01 on April 1.

Lawmakers in more than a dozen states also have proposed cigarette taxes to fund health programs and force residents to quit smoking or avoid starting. The federal excise tax increase will help fund children's health care.

Reynolds American Inc., the nation's second-largest cigarette company, which reported a 13 percent drop in its fourth-quarter profit Wednesday partly resulting from selling fewer cigarettes, has cut some of the discounts it offers wholesalers for the month of March.

Lorillard raised all its wholesale prices 10 cents a pack or a $1 a carton last week, the company said.

Altria raised wholesale prices for its signature Marlboro line and some lower-cost brands this month. Marlboro, Virginia Slims, Basics and other cigarettes rose nine cents a pack or 90 cents per carton, said spokesman Greg Mathe. A second tier at Altria, including brands like Chesterfield and Merits, saw a price increase of 18 cents a pack or a $1.80 a carton, Mathe said.

Mathe said the hikes followed a "periodic evaluation" of Altria's strategies and aren't a response to the looming federal tax increase.

"We've been dealing with a declining cigarette market for a number of years now and it's how we can best manage the business in that type of environment," Mathe said.

Advocacy groups and lawmakers pushing new taxes on cigarettes say price increases drive down cigarette use, which is falling 3 percent to 4 percent a year.

Lorillard declined to comment about its reasoning for the price increase.

Reynolds, whose brands include Camel, Pall Mall and Natural American Spirit, cut back on discounts "to remain competitive in the marketplace," said company spokesman Frank Lester. Reynolds hasn't decided whether to raise prices or how long the discounts will be cut, Lester said.

Changing their pricing lets cigarette companies spread the blow of tax hikes to consumers and raise extra money in a dwindling market, said Eric Lindblom, director for policy research at the Campaign for Tobacco-Free Kids. The advocacy group, based in Washington, endorses raising tobacco taxes as a means to cut smoking rates.

"That way, the wholesalers, the retailers and the consumers are likely to see smaller, incremental increases than one big increase," Lindblom said. "What the industry hopes is that will mean fewer people will be prompted to try and quit or cut back."

Manufacturers pay federal excise taxes on cigarettes, while wholesalers cover state taxes when they sell to gas stations, convenience stores and other retailers.

Fifteen states, including Arkansas, are considering raising their cigarette taxes. Arkansans may just cross state lines for their cigarettes if their tax rises, however, because two neighboring states have the nation's lowest cigarette taxes. Mississippi charges 18 cents a pack and Missouri 17 cents.

Arkansas' proposed 56-cent increase, which already passed the state House, would pay for a statewide trauma system and a host of expanded health programs. Lindblom dismissed Mathe's claim that the increase "unfairly burdens a small group."

"They are killing those people and making them suffer and live horribly sick and disabled lives," Lindblom said. "For them to have this kind of sympathy for them on a monetary level when they don't care they are harming people enormously by their aggressive marketing of their product is two-faced and shameful."

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On the Net:

Altria Group Inc.: http://www.altria.com

Lorillard Inc.: http://www.lorillard.com/

Reynolds American Inc.: http://www.reynoldsamerican.com/

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