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EU’s illegal cigarette trade fell in 2013

| June 25, 2014

One in every 10 cigarettes consumed in the EU during 2013 was illicit, according to a new KPMG study carried out on behalf of British American Tobacco, Imperial Tobacco, Japan Tobacco International and Philip Morris International.

Thirty-three percent of these illicit cigarettes comprised “illicit whites,” an emerging type of branded cigarette manufactured for the sole purpose of being smuggled, according to an Imperial press note quoting the study, which was published yesterday. Given this level of illicit trade, EU governments were said to have “lost” about €10.9 billion to the illegal trade.

KPMG found that while the number of “illicit whites” consumed increased by 15 percent compared with the number consumed in 2012, overall, the illegal trade of cigarettes in the EU declined slightly from a record high of 11.1 percent in 2012 to 10.5 percent in 2013.

This decline was said to have been due to a significant decrease in contraband cigarettes (otherwise licit cigarettes typically smuggled from low tax countries to high tax countries) as the tobacco industry, governments and law enforcement agencies increased efforts to curtail this activity.

KPMG found that the highest proportions of illegal trade during 2013 occurred in Latvia (28.8 percent), Lithuania (27.1 percent), Ireland (21.1 percent), Estonia (18.6 percent) and Bulgaria (18.2 percent).

And it found that the highest volumes of illicit cigarettes were consumed in Germany and France, with 11.3 billion and 9.6 billion, respectively, and Poland and Greece, where “illicit whites” accounted for 9.1 percent and 12.2 percent of consumption, respectively.

Other key findings of the study included:

* Overall, 58.6 billion illicit cigarettes were consumed in the EU in 2013; the equivalent of the total licit cigarette markets of Spain and Portugal combined.

* The prevalence of contraband, which excludes “illicit whites” and counterfeit products, dropped by 26.7 percent to 35.6 billion cigarettes.

* The consumption of illicit whites reached a record high of 19.6 billion cigarettes in 2013, from virtually zero in 2006.

* The highest illicit white volumes in 2013 were measured in Poland (4 billion), Greece (2.8 billion), Spain (2.5 billion), Bulgaria (1.6 billion) and Germany (1.4 billion).

“Despite the overall decline in the illegal market in 2013, the EU’s black market for tobacco remains a significant source of revenue loss for governments and a resilient competitor to the legitimate manufacturers and trade,” said the Imperial note. “This illegal activity not only comes at a financial cost, but it fosters criminality in local communities.

“British American Tobacco PLC (BAT), Imperial Tobacco Group PLC (Imperial), Japan Tobacco International (JTI) and Philip Morris International Inc. (PMI) continue to devote significant resources to combat this problem—above the requirements set out in their Cooperation Agreements with the European Commission—underpinned by the conviction that effective solutions require solid cooperation between governments, law enforcement agencies, manufacturers and retailers.”

For the first time since its inception in 2006, KPMG’s study was commissioned by all four major tobacco manufacturers operating in the EU, which provided KPMG with access to a wider set of data sources, allowing it to further refine and improve the completeness of the analysis.

Prior to 2013, the study was commissioned by PMI as part of the company’s commitments under its Cooperation Agreement with the European Commission.

The 2013 KPMG study on illicit cigarette consumption in the EU is available on KPMG’s website: http://www.kpmg.com/uk/projectsun2014.

Category: Breaking News

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