Illicit Market Continues to Grow in the EU, Largely Driven by Counterfeits in France, According to New Study by KPMG

(BUSINESS WIRE) -- Philip Morris International Inc. (PMI) (NYSE: PM) is calling for European regulators and policymakers to consider the millions of adult smokers who are turning to the illicit market instead of switching to better alternatives. The 2021 KPMG annual study on illicit cigarette consumption, commissioned by PMI, reveals that overall illicit cigarette consumption increased by an estimated 3.9%—or 1.3 billion cigarettes—last year, reaching 35.5 billion cigarettes consumed across European Union (EU) member states. Meanwhile, the study estimates that total EU cigarette consumption declined over the same period.

Based on the report, the increase of illicit consumption in the EU was largely driven by an estimated 33% increase in counterfeit consumption in France, where it grew to 8.0 billion cigarettes last year. Overall, France remains the largest market for illicit cigarettes in the EU, with a total of 15.1 billion illicit cigarettes consumed in 2021, comprising 29% of total cigarette consumption in the country, which represents a significant growth from 13% in 2017.

“The findings of the KPMG Report should be a real wake-up call. It’s alarming that in countries that maintain high excise taxes on cigarettes, such as France, instead of driving a decrease in smoking prevalence, we see a rise in counterfeit cigarette consumption. In fact, in France in the past five years, while the average price of a pack of legitimate cigarettes has increased by more than half, the number of adult smokers has only marginally decreased,” said Gregoire Verdeaux, Senior Vice President, External Affairs, PMI. “But there is also hope. Other EU countries have adopted differentiated policies on alternatives to cigarettes that support the continued decline of cigarette consumption while reducing illicit trade, and they are already yielding encouraging results. The European Commission in Brussels should make this the foundation for the future.”

The annual KPMG report focuses on the consumption and flows of illicit cigarettes in 30 European countries—the 27 EU member states, as well as the United Kingdom, Norway, and Switzerland—and indicates that had these cigarettes been legally purchased, an additional €10.4 billion in taxes would have been collected by governments in the EU.

“Tax revenue losses will limit governments’ ability to invest in areas such as public safety, public services, or infrastructure, at a time when people across Europe are also facing higher prices of many basic goods. The risk that more adult smokers—especially those among the lower-income population—turn to illicit trade is now significant. This creates an even more urgent need to ensure that smoke-free alternatives are available and affordable for all, to enable them to make a better choice instead of buying from the black market,” added Verdeaux.

The KPMG report also shows that roughly half—16 out of 27—of the member states experienced declining or stable consumption of illicit cigarettes in 2021. Among these countries, Poland saw one of the largest declines in illicit volumes, showing a 3.7 percentage point decrease in its share of illicit cigarette consumption.

“The decreasing consumption of illicit cigarettes in countries like Poland is remarkable and reassuring. It showcases the impact of effective law enforcement against criminals profiting from illicit trade in a market where better alternatives to smoking are available and more affordable to adult smokers. These are outcomes other countries should aspire to emulate,” said Alvise Giustiniani, Vice President, Illicit Trade Prevention. “It has never been more important to provide in particular the most vulnerable in society with access to information, as well as to develop and implement innovative policies that truly include everyone and facilitate access to better alternatives.”

Counterfeit consumption was the main driver of illicit trade in the EU; consumption of fake cigarettes reached an estimated total of 12.3 billion—accounting for 34.6% of total illicit consumption. The study indicates that due to continued travel and border restrictions related to the COVID-19 pandemic, organized criminal groups shifted their focus toward manufacturing counterfeit cigarettes directly within EU borders. Interviews conducted by KPMG with seven different law enforcement agencies found that illegal manufacturing sites are increasingly moving west in Europe to get closer to higher-priced end markets, such as France and the U.K.

The continued growth of a black market where fake and unregulated cigarettes are easily available seriously undercuts legitimate efforts to reduce and eventually eliminate cigarette smoking.

“We are convinced that consumers need to be incentivized so that they don’t have to turn to illicit cigarettes. This means focusing on education and awareness, and ensuring the availability of better alternatives, such as scientifically substantiated smoke-free products,” added Verdeaux. “Making them accessible as a better option for millions of adult smokers in Europe who don’t quit should be our common top priority.”

A detailed overview of the results and methodology of the KPMG report is available here. For more information about PMI’s illicit trade prevention efforts, visit PMI.com.

Note to editors

In France, during the period 2017-2021, an average price of a pack of legitimate cigarettes has increased by 50%, to over €10, while the smoking prevalence has only marginally dropped by -1.4ppt to the current level of 25.5% (Source: Journal official yearly publication of WAP—2021 WAP; EU Commission Excise Duty Tables yearly publication—2021; WAP 2005-2021; before 2004: price of most sold brand in France. Santé Publique France, public agency of Ministry of Health).

For PMI, eliminating the illicit tobacco trade has been a long-standing priority. The company collaborates with law enforcement agencies and other organizations all over the world to root out and shut down illegal activities, including counterfeiting and smuggling operations. PMI IMPACT is just one example of PMI’s commitment in this sector—it supports third-party projects aimed at reducing or preventing illegal trade. Ultimately, through PMI IMPACT (now in its third round of funding), PMI is growing and fostering an ecosystem of public and private actors to tackle illegal trade in all its forms.

PMI’s efforts to fight illicit trade are embedded in its day-to-day operations. The company implements preventive and protective measures as a means of supply chain control, uses cutting-edge track-and-trace technology, and holds all customers and suppliers to strict due-diligence standards and protocols. PMI continues to support relevant regulations like the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products and the EU Tobacco Products Directives’ tracking-and-tracing provisions.

Philip Morris International: Delivering a Smoke-Free Future

Philip Morris International (PMI) is a leading international tobacco company working to deliver a smoke-free future and evolving its portfolio for the long term to include products outside of the tobacco and nicotine sector. The company’s current product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, vapor, and oral nicotine products, which are sold in markets outside the U.S. Since 2008, PMI has invested more than USD 9 billion to develop, scientifically substantiate, and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. The U.S. Food and Drug Administration (FDA) has authorized the marketing of versions of PMI’s IQOS Platform 1 devices and consumables as Modified Risk Tobacco Products (MRTPs), finding that exposure modification orders for these products are appropriate to promote the public health. As of March 31, 2022, PMI’s smoke-free products are available for sale in 71 markets, and PMI estimates that approximately 12.7 million adults around the world, excluding Russia and Ukraine, have already switched to IQOS and stopped smoking. With a strong foundation and significant expertise in life sciences, in February 2021 PMI announced its ambition to expand into wellness and healthcare areas and deliver innovative products and solutions that aim to address unmet consumer and patient needs. For more information, please visit www.pmi.com and www.pmiscience.com.

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