Sri Lanka: Beedi Smoking Grows As Price Stick Hurts Cigarettes

Source from:  island.lk 10/09/2016

While cigarettes have increasingly come under fire over health issues, triggering a sizable seven-rupee price revision per stick last week, the more deleterious beedi smoking has witnessed a disturbing spike that has translated into a windfall to the trade to substantially grow its market share, industry officials said.

Tendu leaf imports, which stood at a negligible 20% in 2007, has sneaked its way up to a startling 43% in 2015, indicating a triple-figure surge in consumption, while cigarette sales have seen a slump in its market share to settle at 57% during the year (2015).

The downward trend in sales in the four-year period between 2011 and 2014 resulted in a loss of one billion sticks, signifying a considerable 20% dent in business to Ceylon Tobacco Company (CTC), the officials said. Sales at 4.5 billion sticks in 2011 dipped to 3.5 billion in 2014. In 2015, however, there was a growth to 3.9 billion attributed largely to the elections and the change of government.

In the shadow of last week's excise-driven increase, the price of cigarettes is expected to be pushed up further after the 15% Value Added Tax (VAT) comes into effect, industry players said.

There is no available official data on the percentage of beedi smokers as the industry remains largely under-regulated. Information is based on Sri Lanka Customs (SLC) statistics on the import of tendu leaf, which translates into the manufacture of 2,000 beedis per kilo of leaf, officials noted.

Beedi smoking has risen at an exponential rate in Sri Lanka due to the 'affordability' factor as, for the price of a certain brand of cigarettes, a smoker can buy eight beedis, they pointed out.

"Unlike legally manufactured tobacco products, beedis could be more injurious to health as they lack standardization and proper regulation", a cigarette industry official claimed.

Tendu leaf is imported from India, but with no proper scientific mechanism to check on quality standards, the risk of inferior produce being imported remains high. Import statistics also, in itself, doesn't reflect the true picture because the end product in stick form is either imported directly to Sri Lanka or, perhaps, smuggled into the country to meet the growing demand, they said.

The ground reality is that there are more beedi smokers now than two years ago primarily because cigarettes are out of reach for many in terms of pricing, the officials explained. "When a commodity becomes unaffordable, people naturally look for an option, which could be far more disastrous".

An internet search revealed a study conducted in India, which warned that despite the small quantity of tobacco beedis contain, they deliver more carbon monoxide than cigarettes. The beedi industry there is mostly home-grown and more popular than cigarettes.

According to market information in Sri Lanka, 2.9 billion beedi sticks were sold in 2014 and 3.3 billion in 2015, with -7% and 1% YoY growth, respectively, calculated on the basis of 2,000 beedis per kilo of tendu leaf imported during this two-year period.

While the tax on beedi remained unchanged at Rs. 500 million per annum since 2008, CTC channeled Rs. 92 billion in taxes to government coffers. Over the 2008-2014 period, the tax component saw gradual growth as follows: Rs. 46 bn (2008), Rs. 49 bn (2009), Rs. 53 bn (2010), Rs. 66 bn (2011), Rs. 71 bn (2012), Rs. 77 bn (2013) and Rs. 74 bn (2014), CTC, the monopoly manufacturer of cigarettes in Sri Lanka, said.

The excise-driven price increases over the past seven years were 250% on cigarettes and 0% on beedi. As a result, more people opt for the cheaper beedi. Sri Lanka ranks fifth amongst Asian Pacific countries with the highest cigarette prices, the Company asserted.

CTC estimates that a 1.5% share of the total cigarette market is held by illicit products. Quoting available date, the multinational said the high price of legal cigarettes has resulted in an increased demand for smuggled products.

"It is a money-spinner as the total profit from selling a 40-foot container of illicit cigarettes works out to Rs. 200 million", officials said, quoting available data.

The smuggled fags are sold through 'contact networks' at a more competitive price than legal products, resulting in a loss of Rs. 560 million as taxes to the government in 2015. Over the 2008-2015 period, the loss of state revenue due to illicit products was a staggering Rs. 9 billion, they said.

The smuggling of illicit cigarettes could spell disaster to the legal industry of a country, the officials warned, citing the example of British American Tobacco (BAT) winding down its manufacturing business in Malaysia in March 2016 due to high excise taxes, which "ultimately led to the sharp rise in illegal cigarette incidence and significantly lowered legal sales volume, resulting in rising production costs".

Over the past five years, cigarette taxes increased by 110% in Malaysia resulting in legal sales volume also declining significantly whilst illegal cigarettes made up more than 40% of the total market, BAT reported.

As one of Sri Lanka's oldest corporates, CTC has contributed Rs. 600 billion in taxes to the government over the past 10 years.

The 110-year old Company is one of BAT Group's 180 members. Enditem