Tobacco giant defends ultra cheap cigarette brand

The independent Senator Nick Xenophon is pushing for a minimum floor price on tobacco, as British American Tobacco defends its decision to cut the price of its cigarettes.

It says the former federal government's increase to the tobacco excise is simply feeding the demand for cheaper products.

But Senator Xenophon says this is a "deeply cynical and destructive" move by big tobacco, and he wants to prevent companies from flooding the market with more cheap cigarettes.

Thomas Oriti has our report.

THOMAS ORITI: British American Tobacco is claiming to now be offering the cheapest cigarettes on the Australian market at $13 a pack, which is nearly half the cost of premium brands.

They also claim this price discounting is the result of the Government's own attempts to drive the cost up in order to put people off the expensive and unhealthy habit.

BAT spokesman Scott McIntyre has told RN the company had to act to protect its market.

SCOTT MCINTYRE: What's been happening over the last five years in Australia is we've seen a 66 per cent growth in the low-price segment.

Now, the low price segment is cigarettes which are sold for under $15, and that's in direct effect of the excise system and plain packaging certainly murkies the waters a little bit there.

But excise has driven the top line of cigarettes up to around $25, but what smokers have done is they've gone, I'm not going paying that sort of money for it, I'm not going to quit, I'm going to look for cheaper brands.

So they've forced a whole lot of competition at the bottom.

THOMAS ORITI: Last August, the former government announced plans to increase the excise rate on tobacco.

That resulted in a 12.5 per cent hike each year until 2016. The move is expected to raise billions of dollars, but it also pushed up the price of cigarettes.

Scott McIntyre says there's no denying the health impacts of smoking, but he says with millions of smokers in Australia, British American Tobacco still needs to compete in a tough market.

SCOTT MCINTYRE: We're a legal business and we sell a legal product and our competitors are playing very strongly at this part of the market.

Smokers are walking into retail outlets and demanding the cheapest pack. Forty-two per cent of all cigarettes sold in Australia at the moment are under $15.

THOMAS ORITI: The independent Senator Nick Xenophon isn't convinced.