Tobacco Asia

Tobacco Asia 67 According to recent data prepared by the Russian National Research Center of Competence in the Field of Counteracting Illegal Trafficking in Industrial Products (NSC), the Russian state regu- lator in for tobacco, the share of illegal products in the entire Russian tobacco market is estimated at about 12%. For the North Asian regions this figure is significantly higher, being estimated at about 30%. In a recent interview with Kommersant news- paper, Denis Gagloyev, director of Philip Morris International East in Russia, said that in some Si- berian regions, such as the Altai Krai, the share of illegal tobacco products reaches 30%. The Russian city of Rubtsovsk, which is lo- cated on the Russian-Kazakh border, currently re- mains one of the major transit hubs of counterfeit tobacco products in the North and Central Asian regions. According to earlier data from Nielsen and the Russian ministry of internal affairs, the share of illegal tobacco products in this city is 60% and, based on some unofficial data, could be even higher. As the demand and consumption of tobacco products in North Asian regions remains one of the higher rates in Russia and the Asian countries of the post –Soviet space, one of the major trends for the market over the past several years has been a signifi- cant growth in sales of cigarettes in enlarged packs. According to authorities of Ekaterinburg and Novosibirsk – the largest cities in Ural and Siberia regions, respectively – the demand for cigarettes sold in enlarged packs among the local population is growing, despite measures taken by the state to prevent a further popularization of such a trend. In the meantime, as in other Asian countries, in recent years the North Asian region has seen a significant growth of demand for various tobacco alternatives. This is confirmed by statistics of Rosstat, which states that the number of vape shops in the North Asia region has almost doubled over the past several years, with that growth continuing to increase. That also contributes to the growth in sales of disposable electronic nicotine delivery devices (ENDS) in the local market. Most of such prod- ucts are imported to the region illegally, and the excise tax is paid only for the device, but not for the liquid. According to Russian Association (An- ticouterfeit) analysts, the North Asian market for these devices is estimated at 93.1 million units, with more than 80% of sales in this segment being devices from the Chinese brand, HQD. In the meantime, local authorities and the Russian federal government recently expressed serious concerns regarding the ongoing growth in demand for smoking and tobacco products in the North Asian region. North Asia's tobacco market, particularly the middle- and high-priced segments, shows great potential for further development. In order to restrict further growth, the au- thorities recently introduced a minimum price for tobacco products, which is set at RUB108 (US$1.46) per pack. In addition, due to the 15-year anti-smoking plan to reduce the number of smok- ers among Russian adults to 21% by 2035 which was approved by the government in 2019, there are plans to reduce the number of smokers in the region from the current 35-40% to 21%. As part of the plans, a single pack size will be introduced, with 75% of the pack area covered by graphic health warnings. There are also plans to reduce the depen- dence on global tobacco producers by the provi- sion of support to regional tobacco manufactur- ers. At present the number of tobacco producers based in the North Asia region remains insignifi- cant, with the Alvis factory in Yekaterinburg – the largest tobacco producer in the Ural federal dis- trict – being the last one to suspend production. According to industry analysts, the liquida- tion of Alvis is part of a general tendency to ruin tobacco factories in North Asia, mainly due to the drop in demand for their products – unfiltered (or oval) cigarettes and mouthpiece cigarettes. Anoth- er reason is the lack of investment in the purchase of new equipment for the production of higher quality products. At the same time, there is a possibility that the regions of North Asia could be used as sites for the growing of its own tobacco. So far, almost 100% of local needs in tobacco has been met by imports. However, the production of tobacco may soon begin in the Ekaterinburg and other North Asian regions. Implementation of these plans will be part of an initiative which has been put forward by Petr Chekmarev, head of the commission for the de- velopment of the agro-industrial complex of the Russian and North-East Chamber of Commerce and Industry.

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