Black market cigarette sales jump in Spain

By Miles Johnson in Madrid

A series of increases in the tax on tobacco sales in Spain over the past two years has triggered both a price war between companies battling for recession-hit consumers, and a sharp rise in the sale of black market cigarettes.

“Because of the recession, and falling purchasing power, the problem of black market tobacco seems to be getting worse,” said José Luis Nueno, a professor of marketing at the IESE business school.

According to a report this year by Altadis, owned by Imperial Tobacco , 6 per cent of total cigarette sales in Spain are black market, rising to 10 per cent in Andalusia, and as high as 20 per cent in cities such as Málaga and Seville.

Over the past two years, tax increases have seen an increasing number of smokers in Spain “trade down” to rolling tobacco, or cheaper black, as opposed to Virginia, tobacco brands.

Another option for the hard-pressed Spanish smoker has been to try a fresh wave of Chinese-manufactured bootleg cigarettes that have become increasingly common, or to buy contraband. The former’s untested contents, and possible immediate dangers to health, can make contraband more appealing.

Spain’s porous borders have historically made it an attractive market for contraband tobacco smugglers.

Once the dominant cartels importing non-taxed cigarettes were Galician-based gangs using high-speed boats, but they switched to higher margin crimes in the 1990s, such as cocaine smuggling, and faced a subsequent wave of arrests. Mr Nueno argues that criminal operations in Spain have become much more diverse.

Many of the illegal cigarettes seized by Spanish authorities pass through the country’s borders with Andorra to the north, Portugal to the west, and Gibraltar to the south.

“Spain has three areas where consumption of contraband tobacco is higher – Galicia, because of its proximity to Portugal. Andalusia, due to Gibraltar, and Catalonia, because of Andorra,” said Mr Nueno.

Official figures for contraband cigarettes entering Spain are being based on an extrapolation from the amount seized at customs.

In 2009, 12.3m black market cigarettes entered Spain, according to statistics from Spain’s State Agency for Tax Administration. However, for each packet seized, it is estimated that another 10-15 more could have been smuggled.

Copyright The Financial Times Limited 2012.

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