Philip Morris International Inc. is calling for European policymakers to consider the millions of adult smokers who are turning to the illicit market instead of switching to better alternatives.
The 2021 KPMG annual study on illicit cigarette consumption, commissioned by PMI, reveals that illicit cigarette consumption increased by an estimated 3.9%—or 1.3 billion cigarettes—last year, reaching 35.5 billion cigarettes consumed across EU member states. Meanwhile, the study estimates that total EU cigarette consumption declined over the same period.
What caused the increase of illicit consumption?
Based on the report, the increase of illicit consumption in the EU was driven by an estimated 33% increase in counterfeit consumption in France, where it grew to 8.0 billion cigarettes last year. Overall, France remains the largest market for illicit cigarettes in the EU, with a total of 15.1 billion illicit cigarettes consumed in 2021, comprising 29% of total cigarette consumption in the country, which represents a significant growth from 13% in 2017.
“The findings should be a wake-up call. It’s alarming that in states with high excise taxes on cigarettes, like France, instead of driving a decrease in smoking prevalence, we see a rise in counterfeit cigarette consumption. In fact, in France in the past five years, while the average price of a pack of legitimate cigarettes has increased by over half, the number of adult smokers has only marginally decreased,” said Gregoire Verdeaux, SVP, External Affairs, PMI.
“But there is also hope. Other EU countries have adopted differentiated policies on alternatives to cigarettes that support the continued decline of cigarette consumption while reducing illicit trade, and they are already yielding encouraging results. The European Commission in Brussels should make this the foundation for the future,” Verdeaux said.
What does illicit consumption increase mean for the EU?
The annual KPMG report focuses on the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states, as well as the United Kingdom, Norway, and Switzerland— indicates that had these cigarettes been legally purchased, an additional €10.4 billion in taxes would have been collected by governments in the European Union.
“Tax revenue losses will limit gov’ts’ ability to invest in areas such as public safety, public services, or infrastructure, at a time when people across Europe are also facing higher prices of many basic goods. The risk that more adult smokers—especially those among the lower-income population—turn to illicit trade is now significant,” Verdeaux further commented.
“This creates an even more urgent need to ensure that smoke-free alternatives are affordable, to enable them to make a better choice instead of buying from the black market.”
The report also shows that 16 out of 27 of the member states experienced declining or stable consumption of illicit cigarettes in 2021. Poland saw one of the largest declines in illicit volumes, showing a 3.7 percentage point decrease in its share of illicit cigarette consumption.
“The decreasing consumption of illicit cigarettes in countries like Poland is remarkable and reassuring,” commented Alvise Giustiniani, Vice President, Illicit Trade Prevention.
“It showcases the impact of effective law enforcement against criminals profiting from illicit trade in a market where better alternatives to smoking are available and more affordable to adult smokers. These are outcomes other countries should aspire to emulate,” he said.
“It has never been more important to provide in particular the most vulnerable in society with access to information, as well as to develop and implement innovative policies that truly include everyone and facilitate access to better alternatives,” Guistiniani further commented.
What role did the pandemic play in the trade?
Counterfeit consumption was the main driver of illicit trade in the EU; consumption of fake cigarettes reached a total of 12.3 billion—accounting for 34.6% of total illicit consumption.
The study indicates that due to continued travel and border restrictions related to the COVID-19 pandemic, organized criminal groups shifted their focus toward manufacturing counterfeit cigarettes directly within EU borders. Interviews conducted by KPMG with seven different law enforcement agencies found that illegal manufacturing sites are increasingly moving west in Europe to get closer to higher-priced end markets, like France and the U.K.
The growth of a black market where fake and unregulated cigarettes are easily available seriously undercuts legitimate efforts to reduce and eventually eliminate cigarette smoking.
“We are convinced that consumers need to be incentivized. This means focusing on awareness, and ensuring the availability of better alternatives, like scientifically substantiated smoke-free products. Making them accessible as a better option for millions of adult smokers in Europe who don’t quit should be our common top priority,” concluded Verdeaux.