Japan Tobacco's establishment in Russia embarrasses the Japanese government

April 11, 2022

Par: National Committee Against Smoking

Dernière mise à jour: April 11, 2022

Temps de lecture: 4 minutes

With Russia as its largest international market, Japan Tobacco International (JTI) is facing several contradictions and has not yet stopped producing or selling cigarettes in the country. This situation places the Japanese government, which still owns a third of Japan Tobacco Inc.'s (JT) capital, in a delicate position.[1].

As the world's fourth-largest market for tobacco products, Russia is JTI's largest external market, accounting for 12% of the group's revenues and 20% of its net profits. While JTI quickly ceased cigarette production in Ukraine shortly after Russia invaded it, it maintained production in Russia while the other three major tobacco multinationals – Philip Morris International (PMI)[2], British American Tobacco (BAT) and Imperial Brands[3] – have successively announced their withdrawal from this country.

Like other tobacco majors, JTI initially announced that it had halted its investments, marketing efforts, and the launch of its latest heated tobacco product under the Ploom brand, but has yet to announce that it will stop producing or selling cigarettes. JTI markets the Camel, Winston, and Mevius (formerly Mild Seven) brands, among others.

JTI, Russia's second largest tobacco operator

Having moved from seventh to fourth place among foreign investors with 40% of the tobacco products market – the first place being held by PMI – JTI is one of Russia's largest taxpayers, providing 1.4% of the total state budget. This strong presence in the Russian market and the uncertainties surrounding it have led to a drop of more than 5% in JTI's share price.

Third largest tobacco multinational with 9% of global retail sales[4], behind PMI and BAT, JTI faces a dilemma in Russia. Exiting this market would not only lead to heavy losses for JTI, but would also put it at risk of having its assets seized by the Russian authorities. Remaining in this market, where it employs 4,000 people, would expose it to international sanctions, as well as a rapid disruption in imports of tobacco leaves needed for its production. The least risky option for JTI will probably be to resell its production tools to a Russian partner.

The Japanese state, embarrassed by its participation in JTI

This situation also places the Japanese government in a difficult position. The Japanese state still holds a third of JTI's capital, which led to it being called into question in 2017.[5] for its failure to comply with Article 5.3 of the Framework Convention on Tobacco Control, ratified by Japan in 2004. This article stipulates that "The Parties shall ensure that these [anti-tobacco] policies are not influenced by the commercial and other interests of the tobacco industry"However, its stake in JT, the parent company of JTI, has brought in 100 billion yen (815 million US dollars) to the Japanese government each year for the past three years.

Japan, which has followed the G7's decisions and is participating in the escalation of sanctions against Russia, has thus announced its support for Ukraine, but is also reaping the benefits of JTI's profits in Russia, a contradiction that Japan will need to quickly resolve. JTI's wait-and-see stance is shared by other major Japanese groups, notably Mitsubishi Corp. and Mitsui & Co., which are also still established in Russia.

Keywords: Russia, Japan Tobacco International, JTI, Japan