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A mountain or a molehill: is the illicit trade in cigarettes undermining tobacco control policy in South Africa?

Trends in Organized Crime volume 13, pages 299–315 (2010)Cite this article

Abstract

This study estimates the size of the market for illicit cigarettes in South Africa between 1997 and 2007 in order to consider the impact of the illicit trade in cigarettes on the effectiveness of tobacco control policies. Estimates of the illicit market are made using data on smoking prevalence and simulations of smoking intensity. The paper shows that the size of the illicit market to have grown substantially from 1997 until peaking in 2000 between 9.4% and 11.5% of the total market. The most recent estimate for 2007 suggests that the illicit market occupied between 7.0% and 11.2% of the total market. These estimates are significantly lower than the anecdotal claims of the tobacco industry. Although the scale of the illicit market is significant it has not undermined tobacco control policy. Consumption in the total market, including both the illicit and legal market, has declined in size consistently. At the same time, tax revenue from higher excise taxes has offset the tax losses as a result of illicit trade.

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Notes

  1. The illicit trade in cigarettes can be broken down into two main categories: smuggling and illicit manufacturing. Smuggling refers to the trade in illegally imported cigarettes and is often referred to as contraband. Illicit manufacturing refers to illegal manufacture of tobacco products (the production contrary to law). Such laws may include taxation laws or laws relating to licensing or monopoly which restrict the manufacture of tobacco products. Illicit manufacturing includes counterfeit production where products bear a trademark without the consent of the owner of the trademark.

  2. Thus smoking prevalence and intensity will only refer to the adult population

  3. TISA and BATSA claim that they have research on illicit trade although nothing has been published. Numerous requests for this data from the industry have been denied or ignored.

  4. A request was made to the author for the underlying data but the request was denied on the grounds that the data was provided by BATSA who did not want to make the data available for this study.

  5. Also shown in levels in the Appendix.

  6. This figure was then annualized to make it comparable to the other sources. It is important to recognize that this is a self reported measure and is likely to significantly underestimate actual smoking intensity (see Warner, 1978 or Stehr, 2005). This is consistent with the underreporting of consumption of other products like alcohol (Rundle-Thiele, 2009). Under reporting of alcohol consumption may reflect social desirability reporting (Baumgartner and Steenkamp, 2005) where respondents seek to look good according to current social trends (Mick, 1996). It is impossible to know how much this measure underestimates actual smoking intensity without specific research. We will consider the implications of this later in the paper.

  7. Only the most recent Euromonitor (2007) estimate is shown here.

  8. Even though we have estimates of smoking intensity they refer either to the legal market (Van Walbeek 2005) or are an implied calculation by Euromonitor. The only independent estimate of the total market smoking intensity is AMPS. However, the sample is very short and a simulated smoking intensity is used instead.

  9. The Euromonitor (2007) estimate for 1997 is 0.8%.

  10. The decaying factors used in order to achieve these outcomes are 0.995573, 0.99602 and 0.996455 respectively.

  11. VAT is levied on all new goods and services in South Africa with only a few exceptions and is not specific to cigarettes. Almost all substitutes in consumption to cigarettes include VAT and as a result we do not consider it. Even illicit cigarettes (those which have been manufactured in South Africa on which tax is not paid) include some component of VAT since inputs in the production process include VAT and they are not claimed as an input since no VAT is claimed as an output.

  12. Essentially, the higher taxes were offsetting the declining levels of illicit trade.

  13. The tobacco industry has used this argument to lobby against tax increases globally (see Van Walbeek 2005).

  14. This confiscation amounts to approximately 65 million cigarettes which would amount to 3.5% of the total illicit market (using the AMPS +5% estimate).

  15. Zimbabwe might have been the source of many cigarettes smuggled into South Africa given the large price differentials between the two neighbors. In 2006 the most affordable cigarettes in Zimbabwe cost $1.44 per pack of 20 while they cost $2.56 in South Africa (Blecher and Van Walbeek 2009).

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Acknowledgments

I would like to thank Corné van Walbeek, Hana Ross, Luk Joosens, Jonny Steinberg, Antony Altbeker, David Merriman, Klaus von Lampe and an anonymous reviewer for the comments and suggestions and Claire Milne from the South African Advertising Research Foundation for assistance in sourcing the AMPS data. All errors and omissions remain the author’s alone.

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  1. American Cancer Society, 250 Williams Street, Atlanta, GA, 30329, USA

    Evan Blecher

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  1. Evan Blecher
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Correspondence to Evan Blecher.

Appendix

Appendix

Table 3 Euromonitor estimates of illicit market (2002)
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Table 4 Euromonitor estimates of illicit market (2005)
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Table 5 Euromonitor estimates of illicit market (2007)
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Blecher, E. A mountain or a molehill: is the illicit trade in cigarettes undermining tobacco control policy in South Africa?. Trends Organ Crim 13, 299–315 (2010). https://doi.org/10.1007/s12117-010-9092-y

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Keywords

  • Cigarette smuggling
  • Illicit trade
  • Tobacco control