2015 has been a good year for the Vietnam National Tobacco Corporation (Vinataba) – illicit cigarette trade in the country has dropped by 30% while growth in domestic market consumption has led to Vinataba increasing its domestic production as well as market share.
By Nattira Medvedeva
Ranked among the world’s 15 top consumers of tobacco with more than 15 million smokers, Vietnam is considered to be one of the more smoker-friendly countries in the region as well as the world as a whole. A survey by Vietnam’s Health Strategy and Policy Institute found that Vietnamese people spend about VND22 trillion (US$985 million) a year on tobacco. According to the Global Adult Tobacco Survey (GATS) in 2010, 47.4% of men and 1.4% of women (aged 15 years and up) in Vietnam are smokers. This works out to a market of more than 15 million adult smokers.
Arguably the biggest challenge that Vietnam’s tobacco industry has had to face is the proliferation of illicit cigarette trade, which, according to Vinataba, accounts for more than 25% of the whole market, or more than one billion sticks. This equates to a loss of over VND8 trillion or revenue to the State budget.
A brief summary of Vietnam’s fight against illicit tobacco trade starts in 1990 with a country-wide ban on the importation of foreign-made cigarettes. In September 2014, the Vietnamese government issued its Directive 30 on strengthening the fight against the smuggling of cigarettes, and later – in December that same year – decided to destroy all seized smuggled cigarettes. However, it was also the first year that the implementation of the Law on Tobacco Hazard Prevention was fully enforced, which had a strong and direct impact on production and operations of the tobacco manufacturers, leading to the skyrocketing of smuggled cigarettes: the number of illicit smokes increase 30-40% compared to 2013.
Nevertheless, the fight against illicit cigarettes forged on, with the Vietnamese government and involved agencies, including Vinataba, increasingly intent on defeating this mutual foe. In February 2015, the Ministry of Finance raised the necessary funds to support a campaign of seizing and destroying smuggled cigarettes awarding from VND1,100 per pack to VND3,500 per pack of 20 sticks, regardless of their selling prices.
In March 2015, the Vietnamese Ministry of Industry and Trade issued Directive 04, announcing the continued enforcement of testing, controlling, and the prevention of trafficking, transporting, and stockpiling contraband cigarettes. Then, in November, the Vietnamese government issued Decree 124, regulating administrative sanctions for violations of commercial operations, manufacturing, trade in counterfeit and prohibited goods, and protecting consumers’ rights. According to this Decree, acts of trafficking and/or transporting more than 500 packs of imported illicit cigarettes (instead of the previously set limit of 1,500 packs) will be considered criminal activity will therefore be subject to criminal prosecution. If the prosecutorial authority decides against prosecution by incarceration, offenders will be subject to a fine of VND70 million-VND100 million (US$3,112-4,446).
Decree 124 also states that those found to have conducted trade in illicit cigarettes will face a fine of VND500,000 to 1 million (US$22-44) when the violation involves less than ten packs of illicit cigarettes. The fine will be VND1-2 million for trade in 10-20 packs and up to VND50-70 million for 400-500 packs.
Cigarette smuggling fell by 30% in 2015, compared with the previous year. According to reports in Vietnam News, more than 10 million cigarette packs were confiscated and some VND21 billion from fines was added to the state budget in 2015. Nearly 9,700 cases of smuggling, involving 6,000 people, were detected, of which 179 cases against 263 people were sent to prosecution. The number of cigarette packs seized was up by 19%, with more than 10 billion packs seized in 2015.
The Vietnam Cigarette Association says smuggled Jet and Hero cigarettes account for 80% of the total cigarette consumption in Vietnam, and are proposing that the brand registration of Jet and Hero cigarettes of Indonesia’s Sumatra Tobacco Trade Company should be suspended.
According to previous tests conducted by VINATABA, Jet and Hero cigarettes contain excessive levels of toxic chemicals. These tests found that the nicotine content of both products exceeded permissible levels set by the Vietnamese authorities. They also found that the cadmium content in Jet and Hero cigarettes was 2.11 mg/kg and 2.69 mg/kg, respectively. In comparison, the average cadmium content found in 54 other cigarette brands was only 1.48 mg/kg.
This means that smokers who smoke a pack of Jet or Hero cigarettes a day inhale around 50 mg of cadmium while the maximum daily human intake considered generally safe stands at a mere 20-40 mg. Anything above this level will lead to increased risk of contracting liver disease, ischemia, and high blood pressure.
It has been estimated that at least 850 million packs of Jet and Hero tobacco products are smuggled into Vietnam each year, mostly from Cambodia.
The significant drop in illicit trade in 2015 was a bounce back from 2014, when illicit cigarette trade increased exponentially. Aside from the positive drop in the illicit trade in 2015, Vinataba also saw a 56% increase in their cigarette market share due to a 16% increase in domestic output. These figures were achieved despite a more restrictive environment controlled by the Law on Prevention and Control of Tobacco Harms, which came into effect on May 1, 2013 and bans smoking in certain public places, the sale of cigarettes to minors, and any advertising of tobacco products. It also requires all cigarette packs to feature graphic health warnings on half the surface of the pack.
Vinataba’s indicators of revenues, profits, and budget contribution in 2015 were also 13% higher than the figures for 2014. International exports continued to make up about a third of Vinataba’s total output at 1.2 billion packs.
Looking forward, Vinataba’s plans for 2016 include continuing with their restructuring under the direction of the Vietnamese government along with advancing their management system to expand growth and increase market competitiveness.