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Despite high GDP growth and a very business-friendly economy, Paraguay has levels of income inequality that are high, even by Latin American standards. Although the number of tobacco companies in the country has risen sharply over the last 20 years, tobacco use is falling among the local population. Nevertheless, strong population growth and high export volumes are set to support overall cigarette production and promote stability in Paraguay’s tobacco industry.
This report analyses the market for tobacco in Paraguay. For the purposes of the study, the market has been defined as follows:
Cigars, Cigarillos and Smoking Tobacco
Smokeless Tobacco and Vapour Products
Explanations of terminology used in this report are as follows:
GBO refers to Global Brand Owner, which is the ultimate owner of a brand.
NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company.
Retail refers to sales of tobacco through retail outlets including supermarkets, hypermarkets, discounters, convenience stores, internet and other store and non-store channels, as well as sales of tobacco through bar-tobacconists and hotels/restaurants/bars.
Duty-paid retail sales are legitimate sales with tax applied to the final price.
Illicit trade refers to sales of duty-not-paid (or DNP) tobacco.
Market sizes are researched at category level, lower data levels are modelled.
Although cross-border and duty-free sales are considered legitimate, they are excluded from duty-paid sales.
Illicit trade (DNP) tobacco refers to contraband, counterfeit and unbranded tobacco, as well as illicit whites.
Attitudes towards cigarette smoking and tobacco consumption are generally not that negative in Paraguay. Health concerns have led many people to the conclusion that smoking is unacceptable, although this is mainly confined to urban areas of the country. Among Paraguay’s rural population, smoking is still considered to be an acceptable habit, especially among men.
The number of tobacco companies operating in Paraguay has increased substantially over the last 20 years and this is due not least to the favourable business environment for tobacco companies in the country. Indeed, Paraguay’s president Horacio Cartes is also a prominent businessman who is perhaps best known for his ownership of the country’s largest tobacco company, Tabacalera del Este.
Nevertheless, Paraguay’s tobacco industry has faced allegations of collusion with the illicit cigarette trade, specifically in relation to massive clandestine exports of unlicensed, locally-manufactured cigarettes. The main destinations for these illicit cigarette exports are the other countries of the Mercosur trade bloc, Argentina, Uruguay and Brazil, although Paraguayan cigarettes are also available through the illicit trade in other Latin American countries, notably Colombia, Mexico and Venezuela. Moreover, these illicit exports dwarf the country’s local cigarette consumption, with estimates putting Paraguay’s domestic consumption at only 3% of its total cigarette production.
Smoking prevalence in Paraguay is not particularly high, standing at just 19% of men and 5% of women in 2013. Moreover, smoking prevalence is falling steadily as increasing numbers of Paraguayan smokers quit due to concerns over the negative health effects of tobacco use. However, these have concerns are limited mainly to the country’s more educated urban dwellers, while the rural population remain largely oblivious to the health risks associated with smoking. Moreover, the country’s young and rising population continues to support overall sales of cigarettes.
The most important anti-tobacco organisation operating in Paraguay is the Ministry of Health. The Ministry is behind the Programa de Control del Tabaquismo, which conducts comprehensive public awareness campaigns warning about the potential dangers of tobacco use. In addition, the medical community in Paraguay is united in its condemnation of tobacco use and smoking, with the Soceidad Paraguay de Neumologia, the national association of cardio-pulmonary surgeons, particular outspoken in its denunciation of cigarette smoking.
The strength of Paraguay’s tobacco industry means that, unlike in other countries, new product development is still a major focus for tobacco companies and cigarette brands. For instance, in recent years, the major players have all introduced cigarettes featuring flavour capsules, including Lucky Strike Double-Click, Chesterfield Fresh and Palermo Duo.
Innovation in Paraguay’s tobacco industry is driven mainly by the leading player Tabacalera del Este, which is in the process of repositioning its leading brand Palermo as a mid-priced brand. Palermo previously had an economy positioning and its parent company is using innovation to offer added value and justify higher prices.
The forecast period is set to see further declines in volume sales of cigarettes, although sales decreases are expected to be less severe than those seen during the review period. Sales growth in cigars and smoking tobacco are expected to be largely static. The main reason behind this stagnation is rising health awareness – a gradual change that is expected to accelerate over the next few years.
Paraguay is a country with high levels of income inequality, even by the normal standards of Latin America. Nevertheless, the country’s demography is very homogenous and comprises mainly a relatively affluent urban and suburban population living within 160km of the country’s capital Ascunción. These urban consumers are generally quite sophisticated and well-educated, while the country’s largely indigenous rural population comprises a much smaller population group.
The prices charged for cigarettes in Paraguay are among the lowest in South America and this is not least due to low taxes. This means that cigarettes are affordable for Paraguayans of all income groups, not least as there are numerous high-quality cigarette brands available at very low prices in the economy price brand.
Tobacco use is not generally viewed as aspirational by Paraguayan people, although middle-income and high-income smokers do tend to signal their status by smoking more expensive brands of cigarettes.
Paraguay’s population is rising at a rate of 1.4% per annum and the country also has a very young population, with 40% of the Paraguay population aged under 19 years old in 2016. Nevertheless, tobacco use is falling, especially among young people, and this is mainly due to concerns over the long-term negative health effects of smoking and tobacco use.
Paraguay's road network is seeing growing investment. Many roads remain in poor condition, however, with most rural roads being unpaved and even those in the capital Asuncion often heavily potholed and prone to flooding in wet weather. Despite these challenging conditions, trade sources report few issues with distribution, due to the bulk of sales occurring in major cities connected by well-maintained highways. In addition, Paraguay is a small country, which further eases logistical challenges. In order to reach into rural areas, players usually turn to third party authorised distributors with a good understanding of local infrastructure issues.
Paraguay’s retailing industry is characterised by the high penetration of despensas, traditional small grocery stores located in residential neighbourhoods throughout the country. For this reason, independent small grocers accounts for around four-fifths of cigarette volume sales in the country, with the remaining 20% dominated by forecourt retailers, leaving small shares for on-trade outlets and supermarkets.
However, despite the dominance of despensas and forecourt retailers in sales of cigarettes, impulse sales of tobacco are hampered by the fact that Paraguayan law prohibits tobacco products coming into direct contact with consumers in retail outlets. All tobacco products must be located at cash registers and only sales staff have direct access to them. Customers must request specific products by name in order to purchase them.
Sales of cigars and cigarillos, meanwhile, are dominated by cigar stores, classified under other tobacco non-grocery specialists. These high-end retail outlets specialise exclusively in the sale of cigars and provide expert advice and sales assistance to a well-heeled clientele. The other prominent retail channel for sales of cigars and cigarillos in Paraguay is tobacco specialists, which accounted for approximately one-third of sales in the category in 2016 with forecourt retailers the only other distribution channel for these products.
Furthermore, the sale of all tobacco products by remote means such as online sales, telephone sales and mail order sales are completely banned in Paraguay.
Paraguay has no significant domestic illicit trade in tobacco products and this is due to the country having the lowest tobacco taxes in Latin America and, thus, among the lowest retail selling prices for cigarettes and cigars.
However, over the course of the past two decades, Paraguay has become known as a major source of illicit cigarettes in other Latin American countries. A study conducted in 2009 by Uruguay’s Tobacco Epidemic Research Centre showed that Paraguay was the source of some 11% of the world’s entire supply of contraband cigarettes. Press reports have also revealed that Paraguayan cigarette manufacturers produced a total of 68 billion cigarettes in 2006, more than 20 times the number of cigarettes consumed domestically during the year. Estimates suggest that at least 90% of Paraguay’s total cigarette production, worth an estimated USD1 billion per year, disappears into the illicit trade.
The most common destinations for Paraguay’s clandestine cigarette exports are its Mercosur partners Argentina, Brazil and Uruguay, the first two of which also share land borders with Paraguay. However, the authorities in numerous Latin American countries have reported high-volume seizures of illicit Paraguayan cigarettes, including Colombia, Mexico, Panama and Venezuela. Smuggled Paraguayan cigarettes have even been found in European countries.
Although there is no minimum legal smoking age in Paraguay, it is illegal to sell or supply tobacco products to anyone under the age of 18.
Underage smoking is quite common in Paraguay and the 2014 Global Youth Tobacco Survey found that 7% of respondents aged 13-15 years old have used tobacco products, while a 2015 survey of children aged between 12 and 18 years of age by the Secretaria Nacional Antidrogas (National Anti-Drug Secretariat) found that 22.6% of those surveyed had smoked at some point in their lifetime, but that only 5% had used tobacco in the previous 30 days. Estimates have put overall daily tobacco use among underage smokers in Paraguay at around 11% for boys and 6% for girls, which is low for Latin America, but quite high by international standards.
Paraguayan law places no limits on the tar levels of cigarettes and there are currently no plans in the pipeline for such limits to the bottom place. However, the use of potentially misleading terms such as “light”, “mild” and “smooth” are banned under the country’s tobacco control laws.
“Full-flavour” cigarettes, which generally have the highest levels of tar, are by far the most popular types of cigarettes in Paraguay. Industry sources have indicated that “full-flavour” cigarettes account for well over half of cigarette volume sales in urban areas, where most of the population live, with low tar cigarettes accounting for as little as 26% of total cigarette volume sales. In Paraguay’s rural areas, meanwhile, full-flavour cigarettes are believed to account for an even higher proportion of cigarette volume sales.
The advertising and promotion of tobacco products is completely banned in Paraguay and this includes all means of communication including television, radio, newspapers and magazines, mobile phone communications, online communications, mailshots and outdoor advertising. However, there is one exception to this general rule, which allows for the use of marketing materials and publicity campaigns conducted within retail stores where tobacco products are available.
Since 2010, the packaging of all cigarettes sold in Paraguay must carry pictorial and verbal health warnings. These warnings must cover a minimum of 60% of the front and 60% of the back of the pack. Text warnings must be printed in Spanish and Guarani, which are Paraguay’s two official languages. However, there have been reports that some cigarette manufacturers have routinely ignored this ban, manufacturing and distributing cigarettes in packs which do not carry the legally mandated health warnings. 2015 saw the passing of new laws relating to tobacco health warnings as the Paraguayan government is becoming stricter in its approach to encouraging the country’s smokers to quit.
Paraguay first banned smoking in enclosed public places in 2010. During 2015, the passing of Law 5538/2015 saw the government reinforce its commitment to the blanket ban on smoking in public. The main change under this law is the introduction of a ban on vapour devices in enclosed spaces. Under Paraguayan law, the use of all tobacco products is banned in all educational and health care facilities, all indoor facilities intended for public activities, retail facilities, all closed working environments and all pubs, restaurants, nightclubs, bars and casinos.
Taxation and duty levies
Paraguay has among the lowest excise taxes on tobacco of any country in Latin America. However, the government of Paraguay has begun to take a more serious approach to the taxation of tobacco and Law 5538/2015 introduced a new excise tax accumulator on sales of cigarettes. Under this law, the tax on cigarettes is now set at 10% and will increase incrementally to a maximum of 20%. All tobacco products also attract the standard rate of VAT, which was at 10% in 2016.
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Chart 1 Tobacco in Paraguay in 2016 Chart 2 Paraguay Socioeconomic Trends
Taxation and duty levies
Chart 3 Tobacco: Convenience Store Chart 4 Tobacco: Modern Retailer: Supermarket Chart 5 Tobacco: Modern Retailer: Supermarket
Table 1 Sales of Tobacco by Category: Volume 2011-2016 Table 2 Sales of Tobacco by Category: Value 2011-2016 Table 3 Sales of Tobacco by Category: % Volume Growth 2011-2016 Table 4 Sales of Tobacco by Category: % Value Growth 2011-2016 Table 5 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 6 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 7 Forecast Sales of Tobacco by Category: Value 2016-2021 Table 8 Forecast Sales of Tobacco by Category: % Volume Growth 2016-2021 Table 9 Forecast Sales of Tobacco by Category: % Value Growth 2016-2021
Chart 6 Cigarettes: Traditional Retailer Chart 7 Cigarettes: Traditional Retailer Chart 8 Cigarettes: Modern Retailer
Table 10 Sales of Cigarettes: Volume 2011-2016 Table 11 Sales of Cigarettes by Category: Value 2011-2016 Table 12 Sales of Cigarettes: % Volume Growth 2011-2016 Table 13 Sales of Cigarettes by Category: % Value Growth 2011-2016 Table 14 Forecast Sales of Cigarettes: Volume 2016-2021 Table 15 Forecast Sales of Cigarettes by Category: Value 2016-2021 Table 16 Forecast Sales of Cigarettes: % Volume Growth 2016-2021 Table 17 Forecast Sales of Cigarettes by Category: % Value Growth 2016-2021 Table 18 NBO Company Shares of Cigarettes: % Volume 2012-2016 Table 19 LBN Brand Shares of Cigarettes: % Volume 2013-2016 Table 20 Sales of Cigarettes by Distribution Format: % Volume 2011-2016 Summary 1 Cigarettes Pricing
CIGARS, CIGARILLOS AND SMOKING TOBACCO
Chart 9 Cigars and Cigarillos: Modern Retailer
Table 21 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2011-2016 Table 22 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2011-2016 Table 23 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2011-2016 Table 24 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2011-2016 Table 25 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2016-2021 Table 26 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2016-2021 Table 27 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2016-2021 Table 28 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2016-2021 Table 29 NBO Company Shares of Cigars and Cigarillos: % Volume 2012-2016 Table 30 LBN Brand Shares of Cigars and Cigarillos: % Volume 2013-2016 Table 31 Distribution of Cigars and Cigarillos by Format: % Volume 2011-2016 Table 32 Distribution of Smoking Tobacco by Format: % Volume 2011-2016 Summary 2 Cigars, Cigarillos and Smoking Tobacco Pricing
SMOKELESS TOBACCO AND VAPOUR PRODUCTS
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