TOP ECONOMISTS EXPLAIN HOW THE PANDEMIC WILL AFFECT THE AUSTRALIAN ECONOMY FOR DECADES TO COME

01/07/21, Smart Company

28/06/21, Imperial Brands media Release

CHEAP TOBACCO STILL WIDELY AVAILABLE IN AUSTRALIA’S ILLICIT MARKET

Disruptions to global supply changes brought about by Covid-19 lockdowns may have reduced the supply of illicit tobacco being imported into Australia. However, the 2020 KPMG UK report on illicit tobacco consumption in Australia still shows that 1 in 6 cigarettes smoked in Australia was illicit last year, indicating cheap tobacco is still widely available.

According to the 2020 KPMG UK report on illicit tobacco consumption in Australia,  illicit trade declined to 16.9% of total consumption in 2020, down from 20.4% in 2019, which, if consumed legally, would have represented an estimated excise value of $2.9bn and, as a percentage of total consumption, the second highest level of illicit trade ever recorded by KPMG UK.

“While we saw a reduction in the overall levels of illicit tobacco consumption in Australia last year, this was largely driven by a decline in contraband consumption, which is illegally imported from overseas. While overall consumption of unbranded tobacco, also known as chop chop, decreased, there were more consumers than ever before reporting they had purchased it,” Head of Corporate and Legal Affairs at Imperial Brands Australasia, Kirsten Daggar-Nickson said.

“There was a more than 220% increase in illicit tobacco crops destroyed by the ATO in their 2019-20 financial year, as Federal agencies executed more targeted tactical operations largely in the NSW and Victoria border regions where chop chop crops are common.”

“In March more than 183 tonnes of illicit tobacco with a potential excise value of $84 million was destroyed on three properties on the NSW and Victorian border. Busts of this scale demonstrate just how sophisticated these criminal syndicates are when it comes to cultivating what is a hugely profitable cash crop,” Ms Daggar-Nickson said.

“We believe that the prohibitive cost of tobacco in Australia creates a highly lucrative market for organised crime to flourish. Australia and New Zealand have much higher prices than surrounding markets in South East Asia.

“With the exception of New Zealand and New Caledonia, Australian prices are more than 159% higher than any other markets within the region.”

Ms Daggar-Nickson said Federal agencies continued to make headway into illicit smuggling and growing operations throughout the country, but the largest gap in enforcement is how to target illicit tobacco at a retail level. “Unfortunately, we still see hundreds of stores across the country openly selling illicit tobacco because local health inspectors are worried about interfering with organised crime and state police just don’t have the powers to shut stores down.

“We believe the Federal Government must seriously consider eight recommendations from the Parliamentary Joint Committee into Law Enforcement which focus on a national approach to combat illicit tobacco distribution by organised crime syndicates.

“The committee recommended that as part of the development of a National Illicit Tobacco strategy, state and territory legislation be aligned with the new Commonwealth offences and enhanced penalties, to address gaps in the current law.

“In addition, it recommends a strategy for the introduction of infringement notices for point of sale enforcement be developed with the Commonwealth providing adequate resources for the development and implementation of this strategy.”

The full report is available here: https://www.imperialbrandsplc.com/content/dam/imperial-brands/corporate/corporate-content/Australia illicit tobacco report 2020.pdf

Key points from the report:

• The total volume of tobacco consumption in Australia in the full year 2020 was 13.1 million kg. This represents a 11.4% decline in total consumption since 2019.
• Total consumption of illicit tobacco declined by 26.6% between 2019 and 2020. This represents a decrease in the proportion of consumption from 20.7% in 2019 to 16.9% in 2020. This decrease is principally due to a decrease in consumption of contraband of 37.3%.
• Unbranded consumption also declined (by 15.2%) but as a proportion of total illicit tobacco increased from 44.9% in 2019 to 50.8% in 2020.
• If this 2.2 million kg of illicit tobacco had been consumed legally, it would have represented an estimated excise value of AUD2.9 billion.

KPMG in the UK undertakes economic analysis, commissioned by the tobacco industry, in a variety of jurisdictions.  The OECD considers the methodology of KPMG the “most authoritative assessment of the level of counterfeit and contraband cigarettes” in the EU. The ‘Illicit Tobacco in Australia’ report was prepared by KPMG LLP in the UK and is an independent piece of work which gives a reliable insight into the level of illegal tobacco consumption.  It was commissioned by Phillip Morris Limited and Imperial Brands Australasia.  KPMG in the UK recognises the wider public policy context within which governments decide regulatory and fiscal changes for the tobacco industry, and that the analysis in this report only considers one aspect. KPMG in the UK expresses herein no view, nor makes any recommendation, in relation to future policy for the industry in this regard.