Cigarette Smuggling In Romania Accounts For 36% Of Market

The top three cigarette producers on the Romanian market, Japan Tobacco International (JTI), Philip Morris Romania (PM) and British American Tobacco (BAT), have seen declines in sales in January and February this year.

If in 2008, BAT had a market share of 38.5%, PM had 21.8% and JTI had 20.2%, while smuggled cigarettes accounted for 17.6% of the market, in January and February 2010, BAT’s market share decreased to 32.5%, JTI’s to 15.8% and PM’s to 14.5%, while contraband cigarettes rank first with 36.2%.

Officials of the top three cigarette producers said smuggling was prompted by a near 50% increase in cigarette prices following excise hikes. Tobacco excises in Romania grew by EUR14, to EUR64 for 1,000 cigarettes last year and were further increased by another EUR10 starting January 1, 2010, to EUR74.

„A market share of over 36% for contraband cigarettes means one in three cigarettes smoked in Romania comes from illicit trade. If contraband was market leader in 2009 by profit, now it is also leader by volume,” Adrian Popa, corporate affairs manager with British American Tobacco, told a news conference Tuesday.

Popa said the government will lose an estimated EUR1 billion in taxes and excises because of contraband cigarettes, as cigarette producers expect smuggled products to reach 50% of the total market by the end of the year.

Cigarette producers estimate they will sell 37.5 billion cigarettes in Romania this year and contribute over EUR2 billion in taxes to the state budget.

„Of 20 cigarettes in a pack, 13 are excises and taxes, three are VAT and three are the producer’s costs and profit. The last cigarette is the seller’s profit,” said Andrei Vasilescu, Philip Morris’ corporate affairs manager for Romania and Bulgaria.

Gilda Lazar, corporate affairs manager with JTI, said legal cigarette sales decreased about 40% last year.

„In Romania, a pack of cigarettes of the best selling category costs 9.9 lei (EUR1=RON4.1092), while a similar product costs just RON2.9 in Serbia or Ukraine. The cheapest pack of cigarettes in Romania is RON8, while the cheapest pack in the Republic of Moldova is just RON1,” Lazar added.

Most contraband cigarettes sold in Romania come from the Republic of Moldova (32%), duty-free shops (27.4%) and countries such as Ukraine, Russia or Serbia.

On the Romanian market, a pack of legally sold cigarettes costs between RON8.3 and RON10.9, while a pack of contraband cigarettes costs RON4.5 to RON8.

The Romanian Government has banned the sale of tobacco and alcoholic drinks in duty free shops starting April this year, but cigarette producers said they doubt the move will hinder contraband in any way.

„I’m skeptical about duty free shops. Romanians are creative people and they’ll find other ways,” BAT’s Popa said.

PM’s Vasilescu gave the example of Bulgaria, where cigarette smuggling has not decreased despite the shutdown of duty free shops, because the Bulgarian government hasn’t taken additional measures.