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Here's what the economic crisis did for illegal cigarettes in Ireland

Short version: the crisis really, really helped illegal tobacco.

Some of the 5 million cigarettes recently seized at Rosslare.
Some of the 5 million cigarettes recently seized at Rosslare.
Image: Revenue

THE DEVASTATION CAUSED by the economic crisis has been well-documented in recent years.

One trade that surged, however, just as the Irish economy collapsed, was cigarette smuggling.

Finance Minister Michael Noonan, responding to a parliamentary question by Fine Gael TD Brendan Griffin, has published a 10-year overview by Revenue.

The figures reveal that the trade in illicit and non-duty paid tobacco boomed as smokers, faced with falling incomes, rapidly rising unemployment and steadily increasing prices, turned to illegal sources to feed their habit.

Similarly, as the chart below illustrates, there was a decline in illicit tobacco seizures by Revenue, as the Irish economy began to stabilise in the last few years.

liveregisterseizures Source: Dept of Social Protection/Revenue

In 2009, the illegal tobacco trade peaked, with Revenue seizing 218.5 million cigarettes with a value of €92 million.

That was a 38% rise from the previous year, when 135.2 million cigarettes (worth €54.4 million) were seized by Revenue.

2009 was the same year that unemployment almost doubled, from 6.4% (in 2008) to 12%, and the average live register – the number of people applying for and receiving social welfare benefits – rocketed by 75%, from 227,069 to 398,159.

Another key measure of the illicit tobacco trade is the percentage of cigarettes smoked in Ireland which are sourced illegally, or didn’t have Irish duty paid on them.

The annual Cigarette Consumption Survey, conducted by Revenue and the HSE’s National Tobacco Control Office, has charted this figure since 2009.

As the graph below shows, the proportion of illicit cigarettes ranges from 16% last year to 24% in 2010, and also closely reflects trends in the economy.

liveregisterillegal Source: Dept of Social Protection/Revenue

In his written answer, Noonan said that recent changes to legislation had helped Irish authorities clamp down on the illegal tobacco trade.

The Finance Act 2012 clarified the legal basis for Revenue officers to open and examine the contents of postal and courier packets that are reasonably believed to contain untaxed excise products.
The Finance Act 2013 introduced new offence and forfeiture measures relating to the illicit production of tobacco, including offences of involvement with illicit tobacco production, knowingly dealing in or delivering any illegal tobacco product and keeping materials and equipment for the purposes of illicit production.

The minister also noted that, following an EU Directive, as of 1 January 2014 there was a new limit of 300 cigarettes being brought into Ireland from Bulgaria, Croatia, Hungary, Latvia, Lithuania and Romania.

Last year, 100 people were convicted in Ireland for cigarette smuggling and related offences, with 38 receiving custodial sentences, and 62 being fined an average of €2,600, according to Revenue.

Price-Comparison-2014 Source: ITMAC

Paying the price?

The tobacco industry in Ireland has argued for some time that a significant related driver of the illegal trade is the high price of cigarettes.

A European Price Comparison by the Irish Tobacco Manufacturers’ Advisory Committee (above) shows that, as of June 2014, Ireland is the second-most expensive country in the EU to buy a standard pack of 20 cigarettes, which now costs €9.60.

In a report earlier this year, ITMAC said there was an established link between the rate of tax charged on cigarettes, and the levels of illicit sale:

Ireland is third-highest on the list of EU countries, behind Latvia and Lithuania, for non duty paid tobacco.
Ireland is also one of the highest taxed for tobacco products with approximately 78% of the price of every packet of cigarettes going to the government in excise and VAT.

Using a different methodology from Revenue, ITMAC estimates the rate of illicit cigarette smoking in Ireland to have been 28.3% in 2013.

6125375524_371a32098d_z Source: Julie via Flickr

Tobacco Analyst Shane Mac Guill, from market research firm Euromonitor International, says the key driver of the illicit tobacco trade is financial.

For consumers, it provides an attractive opportunity to source a product which is often viewed as a necessity, at a discounted price.
For smugglers, price differentials between markets as well as unsuitably weak sanctions make cigarettes smuggling an activity with potentially substantial rewards.
As economies struggle, such as those of Ireland or Spain in recent years, the price sensitivity of smokers (who tend to be disproportionately in lower income groups) to legal duty paid cigarettes rises and the attraction of cheaper illicit products magnifies.

The trend is a global one, according to new research by Mac Guill, which found that of the 10 countries in the world with the highest percentage price increases last year, seven also saw an above-average boom in illicit trade.

Increased consumer demand, however, is not the only way in which an economic collapse can facilitate illegal tobacco:

In times of economic difficulty, demand for the preferred stock in trade of criminal gangs – such as illegal drugs – may plummet, forcing them to shift supply into products for which it may be easier to generate a market, such as illicit tobacco.
Unemployment may also provide more willing participants for illicit tobacco distribution networks, expanding their capacity.

According to Euromonitor, which synthesises available data, the level of illicit cigarette smoking in Ireland was 22.7% last year.

By their reckoning, however, the pattern over the last five years has indeed reflected overall economic trends, including a massive jump from 10.6 to 19.8% between 2008 and 2009, the worst year of the crisis.

Read: Tobacco company questions how much plain packaging will cost the State>

It’s highly likely there will be a legal challenge to plain tobacco packaging, says Law Society>

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About the author:

Dan MacGuill

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