what will we drink
But the head of the Russian Smoking Union, Andrey Loskutov, says Russians should not be afraid of cigarettes disappearing from the shelves.
“Nobody’s leaving. British American Tobacco, Phillip Morris, Imperial Tobacco, Japan Tobacco continue to operate in Russia. They won’t leave.”
– Loskutov said in an interview with socialbites.ca. He did not rule out that tobacco giants could change the usual names of cigarette brands to circumvent the sanctions.
“Of course there will be changes. In which brands – it depends on the current situation. There has been no change so far. It all depends on the supply of certain tobaccos. If Russia can’t import some tobacco, the brands will change,” he said.
According to him, there are well-established delivery routes – in Europe there was a center where tobacco was delivered to Russia. However, it is not yet clear whether a new logistics center will be created.
Pavel Shapkin, head of the National Union for Consumer Protection, is confident that all four foreign tobacco giants will either sell their products to Russian businessmen or return to the market under changing local brands.
“Capacities and brands of outgoing brands will be purchased. Therefore, regular cigarette brands will remain. In the warehouses there is a sufficiently large stock of cigarettes from the companies that left. They will be enough for us almost forever, ”Shapkin explained.
He noted that the Russians “certainly will not go without cigarettes”, as foreign companies will not lose a market with more than 30 million consumers.
What does the tobacco market look like in Russia?
The Russian tobacco market is one of the five largest markets in the world in terms of consumption and sales. Officially, it is almost completely occupied by four foreign companies – Philip Morris (Marlboro, Parliament, L&M, Chesterfield, Bond Street, IQOS heating systems), Japan Tabacco International (Winston, Camel, LD), British American Tabacco (Kent, Lucky Strike) ), Rothmans, Pall Mall) and Imperial Brands (Davidoff, West, Jade, P&S).
All of them announced their withdrawal from the Russian market after the introduction of new sanctions in the spring of this year. Many have considered handing over the business to local government and Imperial Brands has new owners.
But in addition to the “white” tobacco market in Russia, there is also a shade. There are tens of small tobacco manufacturers and brands from neighboring countries, mainly Armenia, Kazakhstan, Kyrgyzstan, and Uzbekistan, unofficially. Legally, these are fakes, but the quality of such cigarettes is usually not inferior to ordinary brands. They enter Russia illegally, without marking.
In the regions, especially in the border regions (southern Russia, Volga region, Altai), such cigarettes can be found more often, and their price is almost always lower than legal tobacco (the difference can be double). The reason for this is the excise duty on tobacco products. High in Russia – 2454 rubles. per 1000 cigarettes in 2022. That is, about 50 rubles. from a package. In other countries, the tax is noticeably lower, so the cost of fake cigarettes is usually in the range of 50-100 rubles. Often, familiar brands of foreign cigarette brands are also illegally imported into the country.
The operator of the Chestny Znak labeling system told socialbites.ca that the share of counterfeit products in the tobacco market is now systematically decreasing.
“Honest Sign” records a monthly decrease in the number of violations in the circulation of tobacco products. “The labeling system significantly complicates the retail sale of such products,” said the press service of the Center for Advanced Technology Development.
But in the first five months of 2022 alone, the system detected 147 million packs of cigarette smuggling attempts. From such volumes, the budget can receive less than 7 billion rubles.
Will parallel import be enabled?
Mark Savichenko, principal analyst at Ivolga Capital, agreed that Russia will not go without cigarettes.
“We should not be afraid of the disappearance of the cigarette brands of these four companies. Until February 2022, conditional “parallel imports” were actively developed in the tobacco market, mainly from the CIS countries. With the decrease in supply from international companies, it is possible to increase the supply of tobacco from Belarus, Armenia and other CIS countries without any specific costs. ”
According to his predictions, there will be attempts to somehow legalize parallel tobacco imports in the medium term: the government is unlikely to want to lose tobacco excise taxes.
Maxim Osadchiy, head of the analytical department of the BKF bank, did not rule out that the departure of key players could lead to a reduction in revenues to the budget for excise tax on tobacco products. In 2021, these consumptions amounted to about 710 billion rubles. or about 3% of federal budget revenues, he added.
“Furthermore, the departure of key players may contribute to increased sales of illegal tobacco products, which will also negatively impact budget revenues,” Osadchy said.
Currently, tobacco products are not included in the list of goods allowed for parallel import. In May, the Ministry of Agriculture opposed the inclusion of tobacco on this list. The department believed that determining the rightful owner for tobacco (as well as alcoholic and food products) products was very difficult. Therefore, the inclusion of tobacco in parallel imports will most likely lead to an increase in counterfeit products on the shelves.
At the time of writing, the Ministry of Industry and Trade referred the request to the Ministry of Agriculture, but they did not respond to socialbites.ca’s request for the inclusion of tobacco products in the list of parallel import goods.