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Strategy Briefing

Illicit Trade in Tobacco Products

Nov 2018

US$1,325

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About This Report

New Report Guarantee

If you purchase a report that is updated in the next 60 days, we will send you the new edition and data extract FREE!

In 2017 around one in 10 cigarettes lit globally, excluding China, was illicit, compared to one in 11 in 2012. Valued collectively at more than USD60 billion, illicit sales cause substantial tax losses to countries around the world. Illicit trade impacts tobacco manufacturers, governments and the tobacco control community, and requires a coordinated international response. This briefing outlines the nature of illicit trade, and shows the latest global, regional and country-specific trends.

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Overview

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Key Findings

456 billion-stick market

In 2017 the volume of duty-not-paid cigarettes consumed globally was 456 billion sticks, with an estimated tax revenue lost for governments of around USD40bn.

Illicit trade penetration is growing

Global illicit trade volumes grew by 1.4% in 2017, while the average penetration increased to 7.8%, from 7.6% in 2016. However, as with all tobacco statistics, China skews the picture, where consumption of illegal cigarettes declined by 6.9% in 2017. Excluding China, world illicit trade grew by 4.3%, with 10.3% penetration.

Price differentials remain the key driver of illicit

Price differentials remain the key driver of illicit trade on both the demand and supply sides, helped by porous borders and weak governance. The Robin Hood complex – widespread consumer acceptance of illicit traders as benefactors rather than criminals – remains an issue.

Significant illicit trade growth in Latin America

In 2017 illicit trade in cigarettes grew the most in Latin America, mainly reflecting the worsening situation in Brazil, while significant progress in tackling the issue was registered in China and Turkey.

Cheap whites remain strong in key regions

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.

Tension between key tobacco stakeholders remains an issue

Every tobacco stakeholder is impacted by illicit trade. Companies and states suffer financial loss, while public health policies are undermined. Public and private agencies need to act together to combat the problem. Although recent international efforts to tackle illicit trade, such as COP8 and MOP1, have progressed, the fading cooperation between authorities and the industry is a serious cause of concern.

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Introduction

Scope

What is Illicit Trade?

What is illicit trade?

Illicit trade: key findings

Regional trends in illicit trade: 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 trade?

Demand enabler: regulation

Key supply driver: financial gain

Supply enabler: weak governance

Supply enabler: inadequate sanctions

Logistics of Illicit

Main illicit tobacco routes

Transportation and category trends

Major illicit white source countries: Belarus and Paraguay

Distance selling of bulk tobacco: on the rise in Eastern Europe

Geographic Analysis

Illicit trade penetration in 2017

Difference in illicit trade penetration 2012-2017

Illicit trade: regional overview

USD60bn of value or USD40bn in tax revenue lost to illicit in 2017

Understanding the scale of the problem

Western Europe: largest swings observed in Greece and Turkey

France: sharp price increases create opportunities for illicit growth

Western Europe forecast: Turkey will drive the overall drop in illicit

Eastern Europe: illicit penetration drops in worst affected markets

Latvia: the illicit leader of the region

Eastern Europe forecast: strongest decline is expected in Poland

Latin America: illicit trade growing at an alarming rate

Brazil: illicit approaching half of the entire cigarette consumption

Latin America forecast: illicit growth will remain robust to 2020

North America: differing levels and causes of illicit trade

North America: First Nations and Native Americans in illicit trade

North America forecast: slow decline in both Canada and the US

Middle East and Africa: illicit trade returns to growth in 2017

Lebanon: illicit trade is fuelled by the conflict in Syria

Middle East and Africa forecast: decline in Tunisia, growth in Egypt

Asia Pacific: excluding China, the illicit problem is intensifying

Malaysia: the world leader in illicit penetration is in trouble

Asia Pacific forecast: growth expected across the board

Australasia: illicit remains an issue in Australia, low in New Zealand

Australia: plain packaging discussions still dominate the market

Australasia forecast: illicit in Australia will continue to grow

Illicit Fine Cut Tobacco

Domestic, non-domestic and unbranded: major regional differences

Non-domestic fine cut level in the UK: underestimated by smokers

Unbranded/bulk tobacco smuggling is on the rise in the Balkans

Main non-domestic brands in selected European markets

Responding to Illicit Trade

Who is responsible for combating illicit trade in tobacco?

Tobacco companies involvement

EU’s strategy: separating governments and tobacco companies

Why illicit matters to manufacturers

Why illicit matters to governments and public health

Difficulties of a common approach: sizing the issue

The international legal framework

Difficulties of a common approach: the FCTC

Varying obligations in the Illicit Trade Protocol

Further key aspects of the Protocol

COP8 & MOP1: independence from tobacco industry reaffirmed

Fighting illicit trade: available technology

EUTPD II Track & Trace (Article 15): key events

Track & Trace: growing alienation between the EU and the industry

Rising awareness to dampen consumer demand

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Megatrends

Strategy Briefing

Illicit Trade in Tobacco Products

New Report Guarantee

About This Report

New Report Guarantee

Overview

Why buy this report?

Key Findings

456 billion-stick market

Illicit trade penetration is growing

Price differentials remain the key driver of illicit

Significant illicit trade growth in Latin America

Cheap whites remain strong in key regions

Tension between key tobacco stakeholders remains an issue

Want to find out more about this report?

Table of Contents

Introduction

Scope

What is Illicit Trade?

What is illicit trade?

Illicit trade: key findings

Regional trends in illicit trade: 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 trade?

Demand enabler: regulation

Key supply driver: financial gain

Supply enabler: weak governance

Supply enabler: inadequate sanctions

Logistics of Illicit

Main illicit tobacco routes

Transportation and category trends

Major illicit white source countries: Belarus and Paraguay

Distance selling of bulk tobacco: on the rise in Eastern Europe

Geographic Analysis

Illicit trade penetration in 2017

Difference in illicit trade penetration 2012-2017

Illicit trade: regional overview

USD60bn of value or USD40bn in tax revenue lost to illicit in 2017

Understanding the scale of the problem

Western Europe: largest swings observed in Greece and Turkey

France: sharp price increases create opportunities for illicit growth

Western Europe forecast: Turkey will drive the overall drop in illicit

Eastern Europe: illicit penetration drops in worst affected markets

Latvia: the illicit leader of the region

Eastern Europe forecast: strongest decline is expected in Poland

Latin America: illicit trade growing at an alarming rate

Brazil: illicit approaching half of the entire cigarette consumption

Latin America forecast: illicit growth will remain robust to 2020

North America: differing levels and causes of illicit trade

North America: First Nations and Native Americans in illicit trade

North America forecast: slow decline in both Canada and the US

Middle East and Africa: illicit trade returns to growth in 2017

Lebanon: illicit trade is fuelled by the conflict in Syria

Middle East and Africa forecast: decline in Tunisia, growth in Egypt

Asia Pacific: excluding China, the illicit problem is intensifying

Malaysia: the world leader in illicit penetration is in trouble

Asia Pacific forecast: growth expected across the board

Australasia: illicit remains an issue in Australia, low in New Zealand

Australia: plain packaging discussions still dominate the market

Australasia forecast: illicit in Australia will continue to grow

Illicit Fine Cut Tobacco

Domestic, non-domestic and unbranded: major regional differences

Non-domestic fine cut level in the UK: underestimated by smokers

Unbranded/bulk tobacco smuggling is on the rise in the Balkans

Main non-domestic brands in selected European markets

Responding to Illicit Trade

Who is responsible for combating illicit trade in tobacco?

Tobacco companies involvement

EU’s strategy: separating governments and tobacco companies

Why illicit matters to manufacturers

Why illicit matters to governments and public health

Difficulties of a common approach: sizing the issue

The international legal framework

Difficulties of a common approach: the FCTC

Varying obligations in the Illicit Trade Protocol