This means that the tax set to restrict legal tobacco use must be set lower than you would otherwise set it in order to restrict tobacco consumption**. To put the matter equivalently: Tobacco consumption could be better controlled by taxes if substitution towards chop chop could be reduced.
There has been some work done in the past on chop chop consumption by Gilbert Geis , The NSW Cancer Council and Renee Bittoun. Today I went to RMIT University too learn some more about chop chop consumption from Professor Tim Fry. I learnt that in the past, chop chop consumption has been concentrated in the tobacco-growing states Victoria and NSW. This suggests that chop chop is illegally diverted tobacco from commercial plantations. As in previous studies Tim found that chop chop consumers tended to believe it was healthier to smoke chop chop than legally sold tobacco because it was free of industry-added chemicals – an incorrect belief.
That all tobacco production will cease in Australia, from 2008, suggests that a dramatic reduction in the supply of chop chop will occur, so that taxation revenue from tobacco should be boosted. So too should the demand for legally-produced tobacco increase. This also means tobacco taxes can be raised further to reduce cigarette consumption with less concern over substitutions towards chop chop.
One thing that occurred to while I was listening to Tim was whether it is in fact easy to grow and cure tobacco. There are plenty of websites out there showing you how to grow it, how to cure it and marketing seed for the home grower (they will export 600 cigarette tobacco seeds to Australia for $24). If it is as easy as it seems then the disappearance of diverted chop from commercial tobacco plantations may be replaced by backyard production. If it is imported then it will presumably be expensive enough so that the supply restriction will still bite.
I’d be interested if readers have experience of chop chop. I am particularly interested if you have ever heard of it and, if so, on information about where it is sold, its quality and how much it costs.
* The term most likely originates from use of the expression 'chop chop' in Australia to refer to chopped up fodder and sugar cane fibre used for feeding animal stock.
** To the extent there are complementarities with other untaxed, socially-undesirable goods, such as cannabis or alcohol, one might wish to set the tax higher than without such complementarities.