Illicit Trade in Tobacco Products 2013

September 2014

In 2013, one in every 10 cigarettes lit up in the world was illicit, valued collectively at almost US$40 billion, with an equivalent tax loss to global governments. It is a phenomenon that impacts tobacco manufacturers, governments and the tobacco control community and which requires a coordinated international legal and technological response. This briefing outlines the nature of illicit trade and assesses whether a common approach is possible.

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570 billion stick market in 2013

The volume of duty-not-paid cigarettes consumed in the world was some 570 billion sticks with an estimated value of US$39 billion.

Illicit trade continues to grow

Global illicit trade grew by 5% to reach a penetration of 9.5% globally. However, as with all tobacco statistics, China skews the picture. Consumption of illegal cigarettes declined by 3% in China in 2013 meaning that excluding it world volumes rose by 9% with a penetration rate of 12%.

Price differentials remain the key driver of illicit trade on both the demand and supply sides. Consumers purchase illicit products from a desire or necessity to save money, while illicit suppliers are attracted by the substantial profits on offer. Taxation and regulation are recognised as facilitators of demand, while weak governance and under-criminalisation aid supply.

Illicit remains high in Western Europe

Western European share of illicit increased more than any other region between 2008-2013 exemplifying the overwhelming appeal of untaxed products to some consumers in difficult economic times.

Cheap whites on the increase

Illicit whites, cigarettes manufactured legally but with no legitimate destination market continue to gain share in Europe and Asia benefiting from their higher quality and non-adherence to packaging requirements.

A problem in common needs a common approach

Every tobacco stakeholder is impacted by illicit trade. Major companies suffer volume impairment; global state revenue loss is similar to the near US$40 billion market size and public health policies are undermined. Public and private agencies need to act in concert to combat the issue.

What this report includes

  • Top-level strategic analysis of how major consumer trends will influence global markets
  • Consumer insight
  • Impact across all relevant consumer markets
  • Unique graphics and case studies
  • Key market snapshots
  • Accompanying presentation to synthesise main findings

Why buy this report

  • Identify factors driving change now and in the future
  • Understand motivation
  • Forward-looking outlook
  • Briefings and presentation should provoke lively discussion at senior level
  • Take a step back from micro trends
  • Get up to date estimates and comment

Introduction

Scope

introduction

Illicit trade: Key findings

What is Illicit Trade?

Defining legal and illicit sales
Regional trends in illicit: Historic
Regional trends in illicit trade: Forecast

Drivers of Illicit: Demand and Supply

Overview of illicit drivers: Supply and demand
Key demand driver: Price
Demand enabler: Taxation
Do price increases always lead to increases in illicit?
Demand enabler: Regulation
Key supply driver: Financial gain
Supply enabler: Weak governance
Supply enabler: Inadequate sanctions

Logistics of Illicit

Main illicit supply routes in 2013
Transportation and distribution trends
Free zones and cheap whites, the rising kings of illicit

Geographic Analysis

Illicit trade: Regional overview
Western Europe: Half decade of significant illicit growth
Greece: A destination market and transit point for smugglers
Eastern Europe: Illicit threat from further e ast
Poland: At the centre of the EU illicit market
Latin America: A region plagued by illicit
Paraguay: Latin America’s illicit tobacco breadbasket
North America: Differing levels and causes of illicit trade
US: Increase of “smurfing” raises issues
Middle East and Africa: Limited stabilisation after Arab Spring
Iran: Illicit an issue of historic proportions
Asia Pacific: Several illicit hubs, some markets with little presence
Philippines: Threat from domestic non-duty-paid
Australasia: Plain packaging dominates debate
Australia: Illicit fallout to plain packaging?

Responding to Illicit Trade

Who is responsible for combating illicit trade in tobacco?
What the tobacco companies are doing
Why illicit matters to tobacco manufacturers
Why illicit matters to government and public health
Difficulties of a common approach: Sizing the issue
Difficulties of a common approach: The FCTC
The international legal framework
Varying obligations in the Illicit Trade Protocol
Further key aspects of the Protocol: Cooperation and criminalisation
Fighting illicit trade: Available technology
Raising awareness to dampen consumer demand

Illicit and Alternatives

Are illicit consumers more likely to be users of tobacco alternatives?
The putative black market for e-cigarettes
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