Tobacco Asia

Tobacco Asia 61 Russia now has a single minimum price for cigarettes and smokables, which is RUB135 per pack of cigarettes at retail. While the average prices for cigarettes and tobacco products in Russia are now generally lower those in the EU, most ana‑ lysts expect this gap could be liquidated already in the coming years. Further price increases, according to most analysts, are likely to accelerate the expansion of the illicit market. Official estimates currently put its share at around 11%, with the risk that this fig‑ ure could rise further in the short term. Rising prices continue to weigh on demand and on the operations of legal manufacturers, many of which have already scaled back produc‑ tion as consumers reduce consumption or switch to illicit products. The industry is already showing signs of contraction. Data from Russian analytics firm BusinesStat show that tobacco production in Rus‑ sia totaled 10.3 billion packs in 2024, a 3% decline from 2023. The sector has now recorded negative growth for a third consecutive year. According to BusinesStat, legal tobacco output fell by 17% be‑ tween 2022 and 2024 compared with 2021, when total production stood at 12.5 billion packs. Be‑ yond rising prices, sanctions have also contributed to the downturn by constraining the operations of global tobacco companies in the Russian market. Still, despite the ongoing decline in pro‑ duction, producers' revenues continue to grow. According to Rosstat, total revenue for tobacco manufacturers in Russia reached RUB375.4 billion (US$4.1 billion) in 2024, an 18% increase com‑ pared with 2023. Revenue growth has continued this year, driven mainly by Russia's record infla‑ tion, which has pushed prices higher. At the same time, the Russian government acknowledges the risk of further expansion of the illicit market and has begun taking steps to contain it. These measures include tobacco trade reform through the introduction of mandatory licens‑ ing for tobacco sellers. Experts estimate that the Russian budget loses more than RUB100 billion (US$1.2 billion) each year due to illegal tobacco trade, and a further expansion of the illicit market could increase these losses. The government has already introduced mandatory labeling of tobacco products. Accord‑ ing to the Russian State Information System for Product Labeling (GIS MT), more than 300,000 companies have registered in the system to date. However, efforts to curb counterfeiting remain ineffective, as penalties for selling unlabeled prod‑ ucts fail to outweigh the profits generated by il‑ legal sales and therefore do not provide sufficient incentives to operate within the legal market. Since March 1, 2024, licensing has applied to the production, export, and import of tobacco products, but not to retail trade. However, this situation could change in the medium term. The government maintains that the proposed measures will challenge illegal trade while having virtually no impact on the legal market. Most tobacco producers support the latest government actions, believing they could have a positive effect on profitability. Representatives of JTI Russia recently ex‑ pressed such a position, saying that authorities track the company's operations—along with those of other legal market participants—through the Russian GIS MT system, which the state uses to develop a risk‑based oversight framework for both wholesale and retail trade. According to Revaz Yusupov, deputy head of the Center for the Development of Trade and Industry, which operates the labeling system, the introduction of mandatory labeling has reduced the share of illegal tobacco turnover from 15.6% to 10.8%. Prior to the rollout of labeling, the il‑ legal segment had been expanding by about 100% each year. Since labeling was introduced, authori‑ ties have shut down 56 illegal factories, legalized 18 others, and generated an additional RUB450 billion (US$4.9 billion) in budget revenue through the formalization of the sector. Against this back‑ drop, preventing further growth of the illegal to‑ bacco market is emerging as one of the key priori‑ ties for the Russian government in managing the tobacco sector. Seized counterfeit cigarettes in St. Petersburg. Credit: Russian Ministry of Internal Affairs.

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