France: tobacco market in decline for the first half of 2022

According to Customs figures, the tobacco market is experiencing a certain decline in volume for the first half of 2022. Due to the moratorium on taxation on tobacco products, put in place at the beginning of 2021, this decrease in volumes was coupled with a decline in the tobacco market in value.

The figures presented in the table above show the evolution of the tobacco market in volume (evolution of deliveries in volume made in the first half of 2022 compared to the previous year), and in value (evolution of turnover on the tobacco market over the same period). Of all the tobacco products presented, all are down by at least 5%, going up to a decrease of more than 16% for rolling tobacco. This general decrease of 7.4% in volume reflects at least a significant drop in purchases of tobacco products within the tobacconist network, if not a reduction in consumption by the French.

Towards a price increase by the tobacco industry?

On its website, Le Monde du tabac, an information platform associated with the Confédération des buralistes, states: "it should be noted that with the implementation of the tax moratorium, from the start of 2021, the value figures no longer benefit from the effect of price increases"[1]. In other words, the absence of a tax policy desired by Oliver Dussopt, then Minister Delegate for Public Accounts, translated the drop in volumes into a decrease in overall turnover. With a view to increasing the sector's turnover, tobacco manufacturers could engage in a policy of price increases, thereby enabling them to increase their profit margin. However, price increases, when implemented by the tobacco industry, are limited in scope, so as not to lead to a decrease in consumption. Studies conducted on price elasticity highlight that price increases are only effective in reducing consumption if they are significant and regular. Conversely, small price increases, given the highly addictive nature of tobacco products, have no impact on consumption levels, and thus only penalize the purchasing power of smokers, with no benefit to public health. In addition, the limited price increases initiated by manufacturers do not allow for such high tax revenues.

The question of the evolution of the parallel market in France

In support of the KPMG study released at the end of June 2022, the tobacco industry emphasizes that these volume decreases only reflect a transfer of part of tobacco consumption outside the tobacconist network. According to the study published by the consulting firm, purchases made outside the network would reach 34.6% of French consumption, while nearly one in three cigarettes consumed in France would come from contraband or counterfeit. However, these figures are vigorously contested by anti-smoking NGOs. Indeed, according to the scientific literature, the KPMG report, exclusively funded by Philip Morris International, cannot be considered a reliable source of information. The consulting firm is notably accused of deliberately overestimating parallel markets, through an opaque and biased methodology, with the aim of dissuading public authorities from implementing anti-smoking policies, such as a tax policy on all tobacco products. Furthermore, the KPMG study highlights a spectacular increase of 600% in counterfeiting between 2019 and 2020, and of more than 30% between 2020 and 2021. For KPMG, more than 400 million packets of cigarettes consumed in France are counterfeit packets.

In a note, the National Committee against Smoking states that these figures are unlikely, because they "would imply the purchase and consumption of nearly 300 million packets per year in France, or approximately 30 packets per smoker. Such levels of counterfeiting would require unprecedented human, logistical and organizational capacities on the part of parallel networks. Furthermore, such a sudden increase would induce an extremely rapid change in consumption patterns on the part of a large proportion of smokers in France."[2].

FT

[1] The World of Tobacco, Tobacco market over the first 6 months of the year: -7.4 % in volume, -7.6 % in value, 09/07/2022, (accessed 12/07/2022)

[2] National Committee against Smoking, Fighting the illicit tobacco trade in France, 06/2022