Tobacco industry-commissioned report: large decline in EU consumption, almost no change in illegal trade

Konstantin Krasovsky

Alcohol and Drug Information Center (ADIC-Ukraine), Kiev, Ukraine

On April 17, 2013 Philip Morris International (PMI) issued a press release, based on an annual study conducted by KPMG. PMI claimed the most significant finding of the study is that: “For the sixth year in a row, the illegal trade of cigarettes in the European Union reached a new record high: in 2012 the levels rose to 11.1%, compared to 10.4% in 2011.”

However, further analysis tells a different story. It is true the numbers show that proportion of illegal sales increased as a percentage of total tobacco sales; however this is actually due to an overall decline in the EU tobacco market. The volume of the illegal cigarette trade has barely changed.

Total cigarette consumption in the EU declined from 720 billion cigarettes in 2007 to 593 billion cigarettes in 2012, a decrease of 127 billion. By comparison, in the same time period illicit cigarette consumption increased from 60.6 billion cigarettes to 65.5 billion, an increase of just 4.9 billion. In other words, the illicit trade increase compensated for only 4% of the legal sales decrease.

The decline in total cigarette consumption was partly compensated by the increase in other tobacco products consumption. Even so, the total consumption of tobacco decreased in the 2007-2012 period from 817 billion to 739 billion cigarette equivalents. Overall illicit tobacco sales (cigarettes and other products) in fact decreased in 2007-2012 from 91 billion to 90 billion cigarette equivalents.

The 2012 PMI Annual Report discloses the reason behind the sales reduction: “The total cigarette market in the EU declined … due primarily to tax-driven price increases”.

Despite the legal sales reduction, most EU countries did not experience an increase in illicit sales. If just one of 27 EU countries (Italy) is excluded from the KPMG 2012 Report, the illicit cigarette consumption in the remaining 26 EU countries declined from 59.4 billion cigarettes in 2011 to 57.4 billion cigarettes in 2012.

In Italy, total (licit+ illicit) cigarette consumption has declined from 90.4 billion cigarettes in 2011 to 85.9 billion cigarettes in 2012, despite some increase of illicit sales in 2012. Again, the reason can be found in the PMI Annual Report: “In Italy, the total cigarette market was down … in 2012, reflecting the impact of price increases in 2011 and March 2012.”

Philip Morris’s press release is a misrepresentation of the findings of the KPMG report. In reality, the report revealed that tobacco tax hikes in the EU countries effectively reduced tobacco consumption and had no consistent impact on increasing the illicit market.

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