Tobacco Asia

Volume 24, Number 1

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Page 10 of 59

tobaccoasia 11 Counterfeit and Contraband (C&C). To a large extent, these are driven by high excise tax. The higher the excise tax, the higher the rate of smuggling with the United Kingdom as the perfect example. Actual reported consumption of cigarettes in the UK is in the region of 40 billion sticks but real consumption is at least double. Products are fully smuggled in from outside the European Union and accompanied by semi-legal smuggling by purchasing tax-paid products in a low-cost EU country and transporting these to the UK under duty free allowances. Up to 10% of the EU is C&C, 50% of South Africa is C&C, and about 30% of South America is C&C. Asia and Australasia have high double- digit C&C with Malaysia now the highest as a percentage country in the world at 70% C&C. This has become a major problem for the industry and govern- ment regulators with no clear solution is sight. This phenomenon has categorized the cigarette industry as tainted with criminal activity. As a tobacco company, it is almost impossible to open new bank accounts (one of the reasons why Star Tobacco rebranded to Star Agritech). Tobacco Asia: It would seem that tighter anti-smoking regulations and a shift in consumer preferences have led to a drop in the number of smokers and a shift towards new generation products from conventional cigarettes. Some, however, feel that there is still a large market for traditional tobacco products and that market is not going away. What is your opinion? What direction do you see the industry taking (or should be taking) next? Dr. Iqbal Lambat: The global market for combustion cigarettes has declined significantly from the all-time highs in the past three decades of 6.2-6.4 trillion sticks to today's level of 5.3 to 5.4 trillion sticks. Sharp declines have occurred in "old world EU", the US, Japan, and, more recently, China, which is now on annual negative growth. Fueling the declines are high excise tax affecting affordability, restrictive areas where smoking is allowed, and, in the developed world, a move towards cleaner living by younger consumers practicing X-GEN characteristics – no alcohol, no tobacco, and no drugs. On the Middle East and African fronts, consumption of factory manufactured cigarettes (FMC) are on the rise as dispos- able incomes increase, and this region is projected to experience explosive growth in the decades ahead. However, this will not be sufficient to offset global cigarette declines projected at 2-3 % negative per annum till 2030. Vape (especially JUUL) has had an impact in the US taking out some 10% of the traditional cigarette market. And, vape has had some success in a number of countries in Europe but overall has not made a major dent to traditional volumes. On the HNB side, only IQOS from PMI has shown success. Launched in over 40 countries, of the total sales, an estimated 90% are consumed in Japan – which would suggest that the product is a flop (!) in the rest of the world. Japan has always been an early adopter of new technology and in the absence of vape,

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