Illicit tobacco trade flourished in many parts of the world during pandemic lockdowns in 2020.
Illicit trade is an important issue the industry continues to face despite endless combative efforts. The World Bank estimates illicit tobacco trade at US$40-50 million annually. The International Chamber of Commerce (ICC) forecast that by 2022 total (all products) counterfeit trade will reach US$4 trillion. Illicit trade was already flourishing before, but the pandemic of the past 18 months or so has made illicit trade even more lucrative.
Despite the pandemic largely disrupting most industries leading to economic recessions, higher unemployment rates, and lower disposable incomes, illicit trade is one area, which, like pharmaceuticals, reaps positive gains. Smoking rates increased around the world during numerous government-imposed lockdowns, but with less disposable income some consumers came to view illicit goods available at lower prices a preferred choice instead of the “legit” goods they previously enjoyed. This has occurred across all regions of the world.
For example:
• A recent KPMG report commissioned by Philip Morris International found that the market share of illicit cigarettes in the European Union increased by 0.5% to 7.8% of total consumption in 2020, reaching 34.2 billion of illicit cigarettes consumed, representing an estimated €8.5 billion in lost tax revenue. The rise in illicit consumption was largely due to an 87% increase in counterfeit cigarettes, reaching 10.3 billion cigarettes, up from 5 billion in 2019;
• France saw an unprecedented 609% increase in counterfeit cigarette consumption, reaching 6 billion illicit cigarettes consumed;
• In South Africa, where a complete ban on tobacco sales was in effect during the 2020 lockdown, the illicit trade went from approximately 30% of the total market to 100%, according to BAT South Africa; and
• India’s Authentication Solution Providers’ Association (ASPA) reported that tobacco faced the highest jump in illicit trade in 2020 compared to 2019 and 2018. The Tobacco Institute of India says illicit cigarette trade accounts for a quarter of the market. These are but a few examples.
A Gathering Storm – Illegal Trade During Covid-19, Japan Tobacco International’s study conducted across 50 countries, found that strict lockdown measures imposed by governments in the Asia Pacific region made smuggling illicit goods into those markets harder to execute due to tough restrictions at border points and in-country road control. The illicit tobacco trade in western Europe operated “business as usual” while illicit trade proved more difficult in eastern Europe due to tightened restrictions on movements of goods and people. The MENEAT region presented more of a mixed picture with reduced smuggling and production in the Middle East and a thriving illicit trade in Africa, while the Americas saw a significant drop in illicit supplies and smuggling.
The report also revealed that organized crime groups behind illicit tobacco trade are prepared to wait and see what the eventual relaxation of lockdown regulations will bring, particularly as prices for their goods have already increased during this time and are most likely to further increase as more consumers with less spending power increasingly turn to the black market for their smokes.
As proven time and time again, complete bans and higher tobacco taxes contribute in great part to the thriving illicit trade, pushing consumers to potentially more dangerous products instead. Perhaps a new approach to combating this issue needs to be used, one where all stakeholders whether they be regulators, public health advocates, law enforcement agencies, or even the tobacco industry, work together. The long-held preconceived notion that the industry is evil and not to be trusted at all costs, hence to be disregarded and ignored, must change.