Issue link: https://read.dmtmag.com/i/550313
38 tobaccoasia prices, only leads to an increase in illegal tobacco trade. "It is worrisome that the authors of these legislative initiatives deliberately use the countries of the European Union as a benchmark for Rus- sian excise tax policy, when it is well known that it was their excise policies that led to a 30-40% growth of the illegal tobacco market," said the communications and public relations director for Philip Morris sales and marketing Irina Zhukova. According to director of corporate relations at BAT Russia Alexander Lioutyi, Russia is not the only place where tobacco supply and demand are sensitive to pricing regulation. It is not often men- tioned in the West, but Russia is part of the Cus- toms Union and the Eurasian Economic Union that also comprise Belarus and Kazakhstan, with Armenia joining in October. It is an economic block that mainly models itself after the EU, but the tax systems in its member-countries are yet to be properly harmonized. Not to mention adjacent markets, with "high prices of cigarettes triggering the inflow of contraband and counterfeit products into the market," according to Lioutyi. "The sharp increase in excise duties in Russia will further increase the price gap with neighbor- ing countries. Smuggling of cheaper products from those countries will receive a new economic incen- tive. The first to suffer from this will be the bud- get, because the Russian treasury will lose income from each gray market pack sold," said Lioutyi. He added that even now, illegal tobacco trade already robs the Russian government coffers of around ₽7 billion in unpaid taxes. Incidentally, the naïve argument that huge in- creases in excise taxes and tobacco product prices would lead to many people quitting smoking does not stand up to any scrutiny. In Russia, the ex- cise tax has increased fivefold since 2008, the price of the cheapest cigarette pack has seen a tenfold increase, but hardly anybody has given up smok- ing. On the other hand, the drop in production is consistent with the rise in illegal products on the market, especially from the Customs Union. "With the increase of excise duties on ciga- rettes, the legal market in Russia has already con- tracted by 5.4% to 351 billion sticks in 2013, and in 2014, it is expected to decline even futher – by 7.4% (to 325 billion sticks)," says JTI director of communications, Anatoly Vereshchagin. A slim silver lining Still, not everything is so univocal. After all, Russia is still an absolutely massive market, and millions of smokers will not kick the habit despite the best efforts of legislators. One interesting phenomenon in the Russian market has been the meteoric rise of slim and su- perslim cigarettes that all the rage these days. The country's slim and superslim cigarettes that are all the rage these days. The market segment has been developing rapidly since 2003. By 2012, Russia accounted for 18.8% of the global consumption of these types of cigarettes. The popularity of this category is evident in the fact that in Russia they can now be found in every price range. Most of the new versions of cigarettes that appear in that country belong in the slim and superslim category. Demand for thin cigarettes in recent years has skyrocketed: consumers enjoy their size and the shorter time it takes to smoke them. The true testament to their overwhelming popularity is a real nugget: in a land where men casually open their beer bottles with their teeth, more and more male smokers in Russia switch to slim and superslim varieties, despite the fact that they were originally thought of as very feminine and still almost exclusively target women in many countries. This trend gives manufacturers in Rus- sia an excellent opportunity to create added value. A cornucopia of unique designs also includes a wide range of innovative filters of various sizes and configurations: carbon filters, filter mouth- pieces, two- and three-section filters, menthol, standard monoacetate, paper and high-tech filters, and even combination filters, such as Essentra's latest BiTech. The future is murky Still, one must always keep an eye on the politi- cal situation. The international war of words has quickly escalated into an economic one, and so far, nobody is seeing any light at the end of the tunnel. With its ban on agricultural products from the US and the EU, the Russian government showed it was prepared to go to some drastic lengths in its game of tit-for-tat with the West. Enter a new bill, introduced by Oleg Nilov, the deputy head of "Fair Russia" political party. The bill, should it ever pass into law, would establish state monopoly on tobacco and alcohol in Russia starting on January 1, 2015. The bill was introduced back in March and was tabled at the time, but it is now being revisited and seriously considered in light of the Western sanc- tions. It is now scheduled to be discussed at the Public Chamber of the Russian Federation soon. According to the first deputy secretary of the Public Chamber Vladislav Grib, "this is not only a question of economic benefits, but also public health. As for the tobacco industry, in Russia it is completely monopolized by foreign companies." And there you have it. If the world's second largest tobacco market is pushed into instituting a state monopoly on tobacco, it is likely to have very serious consequences for the tobacco industry as a whole. The way things stand now makes the future highly uncertain. All that remains for us is to hope.