One in Ten Cigarettes Consumed in the EU in 2013 Were Illegal

Source from:  Business Wire  06/25/2014

One in every ten cigarettes consumed in the European Union in 2013 were illicit, 33% of which were "illicit whites", an emerging type of illegal, branded cigarettes manufactured for the sole purpose of being smuggled, according to a KPMG study published today. At these levels, EU governments lost approximately €10.9 billion to the illegal market.

KPMG found that while the number of "illicit whites" consumed increased by 15% compared to 2012, overall, the illegal trade of cigarettes in the EU stabilized, declining slightly from a record high of 11.1% in 2012 to 10.5% in 2013. This stabilization was due to a significant decrease in contraband cigarettes, legal cigarettes typically smuggled from low tax countries to high tax countries, as industry, governments and law enforcement increased efforts to curtail this illegal activity.

"Our latest research on the illegal tobacco market found that while there was positive news on the decreased trade in contraband tobacco products overall across the EU, there are other trends that are cause for concern, including the continued increase in the number of 'illicit whites' being consumed. Our report also carries a warning to some countries where large volumes of illegal tobacco are being smoked," comments Robin Cartwright, Partner KPMG.

KPMG found the highest illegal trade incidence levels for 2013 in Latvia (28.8%), Lithuania (27.1%), Ireland (21.1%), Estonia (18.6%) and Bulgaria (18.2%).

The highest volumes of illegal cigarettes were consumed in Germany and France with 11.3 billion and 9.6 billion illegal cigarettes, respectively, and Poland and Greece where "illicit whites" accounted for 9.1% and 12.2% of consumption respectively.

Other key findings include:

•Overall, 58.6 billion illegal cigarettes were consumed in the EU; this is equivalent to the total legal cigarette markets of Spain and Portugal combined and represents a total tax revenue loss of €10.9 billion;
•In 2013, 10.5% of all cigarettes consumed in the EU were illegal, compared to 11.1% in 2012 and 10.4% in 2011;
•The prevalence of contraband – which excludes "illicit whites" and counterfeit – dropped significantly by 26.7% to 35.6 billion cigarettes;
•"Illicit whites" reached a record high of 19.6 billion cigarettes, from virtually zero in 2006; and
•The highest "illicit white" volumes for 2013 were measured in Poland (4.0 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. 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 – BAT, Imperial, JTI and PMI. This allowed KPMG access to a wider set of data sources, which further refined and improved 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. Enditem