From Tobacco Info No. 5 - April 2011
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More tax-paid cigarettes are sold as contraband is contained
“In Canada, the total tax-paid cigarette market was up by 4.3% in the 4th quarter of 2010 and by 9.5% for the full year, mainly reflecting government enforcement measures to reduce contraband sales since mid-2009.”
This is the way Philip Morris International (PMI), owner of Rothmans, Benson & Hedges in Canada, the second largest supplier of cigarettes (33%) in the Canadian market, reported earnings for the 4th quarter of 2010, published on February 10, 2011. For the past six quarters, the tobacco giant has systematically delivered this explanation for the growth of its sales in Canada to its stakeholders. On November 17, 2010, at the Morgan Stanley Global Consumer & Retail Conference, Louis Camilleri, chairman and CEO of PMI, provided his estimate of illicit trade at 10 to 20% of cigarette consumption in Canada. In September 2008, the Canadian Tobacco Manufacturers’ Council released a survey showing that contraband accounted for 33% of cigarettes sold in Canada, 40% in Quebec and 49% in Ontario.
The 2008 data was still used in 2010 by the Canadian Chamber of Commerce when it wrote to federal ministers in opposition of the renewal of health warnings on cigarette packs.
More consumers return to the legal market
Like cigarette manufacturers, both the Ontario and Quebec governments, as well as some retailer associations, have signalled a consumer return from the tobacco black market to legal smokes during 2010.
The 2010 Ontario Economic Outlook and Fiscal Review, submitted by Minister of Finance Dwight Duncan to the Ontario Legislature on November 18, 2010, indicated that “tobacco tax revenues are projected to be $166 million higher [than planned in the budget] due to improved enforcement activities.”
In an Update on Quebec’s financial and economic situation, published on December 2, 2010, the Charest government reported a $50 million upward adjustment to budgetary revenue from tax on tobacco since the adoption of the 2010-2011 budget in March 2010. “Given efforts to combat tobacco smuggling, consumers have turned more extensively to the legal tobacco market, thus increasing sales of taxed products,” wrote the Minister of Finance Raymond Bachand.
In the November-December 2010 issue of Your Convenience Manager (YCM), a magazine mailed to convenience store (c-store) operators and other selected retailers, staff writer Michelle MacLeod wrote “increased awareness, tightened border security and stiffer penalties are making it more difficult for smugglers to distribute tobacco. As a result, cigarette sales are up 10% in the c-gas channel. The largest dollar volume growth came from Quebec and Ontario – two of the hardest-hit regions for contraband – where dollar sales improved 18% and 13% respectively.” (Source: The Nielsen Company, Quebec C&G, Ontario C&G, Convenience and Gas, 52 weeks ending June 5, 2010).
In its February 2011 newsletter to its 9,000 members, the Association des détaillants en alimentation du Québec (ADAQ), a key group of grocery retailers, states that contraband cigarettes make up 19% of the cigarettes sold in the Quebec market, a proportion that is much lower than the 40% often cited by propagandists from the Canadian Convenience Store Association (CCSA).
ADAQ reports a 20 to 40% boom in legal sales between 2009 and 2010 in areas where specialized police squads are working against local distribution of contraband cigarettes. Both the Ministry of Health and Social Services and the provincial Ministry of Revenue fund this work through programs against illegal sales. In October, seven Quebec health groups asked for the extension of these efforts to all regions of the province.
By Pierre Croteau
Fewer smuggled cigarettes seized in 2010 after 2009 peak
It would be no surprise if many of the smokers who bought their cigarettes through contraband started, in 2009 or in 2010, to make their way back to the tax-paid cigarette market. From 2001 to 2009, the volume of smuggled cigarettes seized by the Royal Canadian Mounted Police (RCMP) continually increased in Canada.
In 2009, the RCMP seized 976,000 cartons and re-sealable bags of contraband cigarettes. Then, this number dropped to 782,000 in 2010.
Important seizures by the RCMP and the Sûreté du Québec in January 2011 in the Central St. Lawrence Valley Area show that the police services are still watchful and the smugglers are still attempting to reach smokers.