Illicit trade in cigarettes spreads its tentacles in Canada

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Author:Don Hedley

Date published:13 Apr 2010

Imperial Tobacco has named the illegal trade route bringing contraband cigarettes into Western Canada the 'TransContraband' highway. Meanwhile, illicit trade is impacting c-stores and efforts to reduce smoking prevalence.

Imperial Tobacco is calling on the Canadian government to crack down on illicit cigarettes which are beginning to make inroads into Western Canada. Illicit cigarettes are already said to account for nearly half the Quebec and Ontario markets while Euromonitor International estimates that, in 2009, illicit trade volume increased by 10% to 9.3 billion sticks which means a penetration (i.e. illicit trade as a percentage of legal sales) of almost 30%, countrywide. Imperial estimates of illicit sales are even higher than Euromonitor International's at 13 billion sticks in 2008.

The illicit cigarettes are chiefly manufactured in unlicensed factories on First Nations reserves in Ontario, Quebec and New York state, then shipped by car and truck through Eastern Canada and increasingly into the West, particularly British Colombia and Manitoba, as confirmed by RCMP (Royal Canadian Mounted Police) raids in Manitoba, in Portage la Prairie and Brandon, confiscating large shipments of smuggled cigarettes.

Regional penetration in Canada varies considerably: according to Imperial, in 2008, illicit cigarettes accounted for nearly 4% of the market in British Colombia, up from 2% in 2007, with illicit cigarettes from illegal First Nation factories supplemented by illicit cigarettes from China, the leading global supplier of illicit cigarettes.

Illicit baggies and student smoking

According to the Canadian Cancer Society the slowing decline in actual cigarette consumption in Canada (i.e. duty paid plus illicit cigarettes) has been due to the increasing availability of cheap contraband cigarettes. As an issue, the situation in Canada is made more delicate by the presence of illegal manufacturing in Native American territories often sold in 200 cigarettes First Nations-made clear plastic bags, also known as baggies. According to reports, a 200 bag of cigarettes sells for CA $10- CA$15 in northeastern Ontario.

A problem in Canada and elsewhere is the effect of illicit trade on the smoking habits of young people. According to the Ontario Campaign for Action on Tobacco, 60,000 students from grades 7 to 12 smoke contraband cigarettes.

Convenience stores impacted

Another consequence of the illicit trade in Canada is that a growing number of convenience stores are closing - more than 2,300 or about 10% of the total in Canada in 2009 as a result of illicit cigarettes taking away some CA$2.5-billion in sales and CA$260-million in profits according to a study by the Canadian Convenience Stores Association (CCSA).

As well as asking for tougher action to clamp down on illegal manufacture on reserves, industry lobby groups have been urging the government to cut taxes on legal cigarettes to reduce the unfair advantage of illegal cigarettes. The latter is unlikely.

For further insight, please contact Don Hedley, Tobacco Analyst at Euromonitor International, on don.hedley@euromonitor.com.

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