Boom in illegal cigarettes sales in Australia

The volume of illicit manufactured cigarettes in Australia has increased by 154% since 2012 according to a recent report by KPMG.

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Overall consumption of illicit product is estimated to be equivalent to 13.3% of total tobacco consumption, up from 11.8% in June 2012. This is the highest level ever recorded in Australia. This massive increase in illicit sales may have cost the Australian government AUD 1 billion. The report was commissioned by British American Tobacco Australia, Imperial Tobacco Australia Limited and Philip Morris Limited. The companies asked KPMG LLP to provide an overview of the legal and illicit tobacco markets in Australia and provide an independent estimate of the size of the illicit tobacco market. 

Driving factors

In 2010, an increase in 25% was put on cigarette excise duty. This coincided with an increase in illicit tobacco consumption. However this proportion had been steadily declining between 2010 and 2012. Now, six months after plain packaging has been introduced illicit sales are not only increasing but thriving. Illicit white cigarettes are being sold for 45-50% less than the cost of premium brands, e.g. Marlboro. Manchester is now the largest illicit white brand in Australia, enjoying an illegal 1.2% market share. This represents significant growth, up from 0.3% the year earlier. In fact, according to the report, it has better market share than legal brands Camel and Kent. The empty pack survey carried out in 2012 found the Manchester brand in Melbourne and Sydney only. It has now been found in 13 of the 16 main cities. 

Australian Customs and Border Protection Services reveal similar evidence. In 2009, 16% of the volume of seizures came from manufactured cigarettes; this grew to 47% in 2012. Cigarette prices in Australia are among the highest in the world with a premium pack costing up to AUD 15.96. This is 500% more expensive than Singapore where, according to the empty pack survey, the majority of contraband originates.

A statement of Philip Morris International said:

"PMI supports reasonable regulation, but we believe governments have a responsibility to ensure the laws they pass meet their stated goals, uphold the rule of law, are evaluated based on objective standards and do not lead to negative consequences, such as boosting the illegal market at the expense of legitimate manufacturers and retailers."

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