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ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
ProjectStellaAstudyoftheillicitcigarettemarketintheEU
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
ImportantNoticeandnavigation
Navigatingthisreport
Thispresentationofkeyfindings(the'Report')hasbeenpreparedbyKPMGLLP,theUKmemberfirm(“KPMG”)forthePhilipMorrisProductsSA,describedinthisImportantNoticeandinthisReportas‘theBeneficiary’,onthebasissetoutinaprivatecontractdated07March,2019agreedseparatelybyKPMGLLPwiththeBeneficiary(the‘Contract’).
Informationsources,thescopeofourwork,andscopeandsourcelimitationsaresetoutintheintroduction,footnotesandappendicescontainedwithinthisReport.Thescopeofourwork,informationsourcesused,andanyscopeandsourcelimitationswerefixedbyagreementwiththebeneficiary.Wehavesatisfiedourselves,wherepossible,thattheinformationpresentedinthisReportisconsistentwithourinformationsources,butwehavenotsoughttoestablishthereliabilityoftheinformationsourcesbyreferencetootherevidence.
ThisReporthasnotbeendesignedtobenefitanyspecificorganisationotherthanthebeneficiary.InpreparingthisReportwehavenottakenintoaccounttheinterests,needs,orcircumstancesofanyspecificorganisation,otherthanthebeneficiary.ThisReportisnotsuitabletobereliedonbyanypartywishingtoacquirerightsorassertanyclaimsagainstKPMGLLPforanypurposeorinanycontext.Assuch,anypersonorentity(otherthanthebeneficiary)whoreadsthisReportandchoosestorelyonit(oranypartofit)willdosoatitsownrisk.Tothefullestextentpermittedbylaw,KPMGLLPdoesnotassumeanyresponsibilityandwillnotacceptanyliabilityinrespectofthisReport.
Inparticular,andwithoutlimitingthegeneralstatementabove,althoughinlightofthefactthatwehavepreparedthisReportforthebeneficiary,thisReporthasnotbeenpreparedforthebenefitofanyothermanufactureroftobaccoproductsnorforanypersonorentitywhomighthaveaninterestinthemattersdiscussedinthisReport,includingforexamplethosewhoworkinormonitorthetobaccoorpublichealthsectorsorthosewhoprovidegoodsorservicestothosewhooperateinthosesectors.
Navigationaroundthisreportisinteractiveandthereadercanvieweachscreenbyclickingonthecontentsboxesabove.
ThekeytrendscanbefoundintheExecutiveSummarytab
MethodologyandcountryreportcanbedownloadedasPDFsusingthelinksintheAppendicestab
Alternatively,viewerscananalysecountry-specificresultsbyclickinghere.
Aglossaryoftermscanbefoundbyclickinghere
ImportantNotice
©2019KPMGLLP,aUKlimitedliabilitypartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative(“KPMGInternational”),aSwissentity.Allrightsreserved.TheKPMGnameandlogoareregisteredtrademarksortrademarksofKPMGInternational.
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Howtousethisreport
Howtodownloadareport Howtofilterinformation Howtoviewadditionalinformation
Additionaltooltipdetails
Hoveryourcursoroveracolouredareaonachartormaptogetadditionaldetailsabouttheselection
Wherevertheseoptionsareavailable,wehaveincludedinstructionsinitalicisedtextforguidance
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Thefollowingscreenshaveanadditionaldrop-downliststoupdatethevisualsbasedontheoptionselected:
1.Executivesummary2.Focusonkeymarkets3.Focusoncounterfeit4.FocusonIllicitWhites
Wherevertheseoptionsareavailable,wehaveincludedinstructionsinitalicisedtextforguidance
Downloadingareport
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AccessCountryReports:Clickhere
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Note:(a)OtherC&Cispredominantlycontraband,butalsoincludescounterfeitformanufacturerswhodonotparticipateintheEPSsurveys.However,thisvolumeisexpectedtobesmallSource:KPMGEUflowsmodel2018
LDS Outflows
461.3 -34.2
LDC ND(L) Counterfeit IllicitWhites OtherC&C
427.1
34.813.0
25.2
5.5
Counterfeit&Contraband(C&C):43.6
TotalConsumption
505.6
KPMG’sapproachtocategorisinglegalandillicitcigaretteconsumption AccessCountryReports:Clickhere
EstimateoftotalcigaretteconsumptionintheEU,2018(bncigarettes)
HoveroverthebarstoviewdescriptionsofeachcomponentThechartoppositeillustratesKPMG’scoreapproachtoestimatingthesizeandscaleofillicitcigaretteconsumption,knownasCounterfeit&Contraband(C&C)
KPMG’sapproach,usingEmptyPackSurveys(frommarketresearchagenciescommissionedbythetobaccoindustry)andLegalDomesticSales(providedbymanufacturersandthirdpartyresearchagencies)allowsittosplittotalcigaretteconsumptionintoitsconstituentparts
LegalDomesticSales,availableineverycountry,underpintheinitialvolumeestimate,whilstEmptyPackSurveysenableKPMGtodeterminetheadditional‘non-domestic’componentofconsumption,whichcanbefurtheranalyseddependingonthesourceandbrandofeachpack
KPMG’sflowsmodelensuresthatinflowsandoutflowsaroundtheEUareallequal,sothattheoverallconsumptionineachcountrycanbeestimated
Hoverovereachcomponentofcigaretteconsumptionforfurtherdefinitions
ForadetailedmethodologyanddatasourcespleasegotoKPMG’smethodologybooklet
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
ExpertPanel:Hoverovertoviewbiographies
MeenaSayal
KarlLallerstedt
MichaelEllis
JillBattley
ClaudeJeanrenaud
ProjectStellaisanannualstudyestimatingthescaleanddevelopmentoftheillicitcigarettemarketintheEU.ThisreportwascommissionedbyPhilipMorrisProductsSAfordatacovering2018.KPMGLLPwaspreviouslycommissionedbyRUSI(RoyalUnitedServicesInstitute)toundertakeProjectSUNin2017.Thestudycoversall28EuropeanUnionmemberstates,withanEUmarketoverview.TherearealsoindividualcountryreportsforNorwayandSwitzerlandinthecountrydashboard.Moreinformationontheagreedscopeofworkcanbeseenintheappendicestothisreport.
ThemethodologyusedtoestimatethesizeoftheillicitcigarettemarketinconnectionwiththeProjectSUNreportshascontinuedtobeappliedconsistentlyintheProjectStellareport,withtheunderlyingdata-sourcesremainingthesame.Themethodologyisunderpinnedbyacombinationofharddata,suchaslegalsalesofcigaretteswithintheEUandtraveldata,publiclyavailabledata-points,suchassmokingprevalenceandaveragepricesofcigarettes,andtheEmptyPackSurveys,undertakenbyindependentmarketresearchagencies.KPMG’sapproachistoreviewalldata-pointstoproducetherelevantestimates.Anoverallmethodologybookletisprovidedwithintheappendices,alongwitha‘keyassumptions’boxineachcountryreport.
TheinclusionofanExpertPanelFor2018,KPMGareappointinganExpertPanelaspartoftheapproachtoreviewingandrefiningtheresultsoftheStellareport.ThepanellistswereapproachedbyKPMG,basedontheirdiversityofexperienceinstudyingandfightingillicittrade(hoveroverthenamesoppositefortheirbios),comingfromarangeofbackgrounds,includingindustry,lawenforcement,academiaandtobaccocontrol.ThepanelreviewedKPMG’sapproachtoassessingthedifferentdata-sourcesandhavemadeaseriesofrecommendationstoKPMGinordertoensurearobustandindependentapproach.Duringtheproject,KPMGprovidedthepanelwithunderlyingdataandwherenecessary,thereasoningandrationalebehinditsassumptions.Thepanel’srolewastoassesstheintegrityofdatasourcesandtoprovidechallengetoanyassumptionsthatKPMGmadethroughoutthestudy,ensuringthatthesewereaccuratelyandtransparentlyreflectedinthemethodology.
Havingspenttimeundertakingthisbackgroundexercise,thepanelwillusetheirknowledgeandinsightstoplayasignificantroleininputtingintothesecondstudy,wheretheywillplayaroleindrivingthekeyissuestohighlightandadviseKPMGonavenuesforadditionalresearch.
Thisreportreferstointerviewswithlawenforcement,whichtookplaceaspartoftheresearchprocessforthefirsttimeinthestudy(andlistedinthemethodology).HistoricreferencestopreviousversionsofthestudyarealsomadewithinKPMG’sProjectSIAreport(availablehere)whichdocumentsseizuresoftobaccoproductsthroughoutEurope.
HavingconcludedthisreportasecondstudywillbelaunchedinSeptember.Thisstudywillgointomoredetailsaroundsomeofthekeyissueshighlightedinthefirstreport,afteradditionalanalysisandresearchbyKPMG.
Aboutthisreport
AccessCountryReports:Clickhere
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Note:(a)IncludesIllicitWhites;ThisisanextractfromProjectStellafor2018,astudyoftheillicitcigarettemarketintheEuropeanUnion,NorwayandSwitzerland.FormoreinformationincludingCountryReportsandMethodology,pleaserefertotheappendices.KPMG’sapproachtoconsumptionisexplainedinthe‘BackgroundtoAnalysis’pageSource:KPMGEUflowsmodel2018
taxrevenuelostfromC&CoftotalconsumptionwasC&C
Customiseviewbyselectingametricandyearfromthelist.Hoveroveracountrytoview5-yeartrend
counterfeitandcontrabandcigarettesconsumed(a)
MapoptionsC&Cconsumption
SelectYear2018
€10bn8.6%-1.1bnon2017 0.0%ptson
2017 369mon2017
©2019Mapbox©OpenStreetMap
C&Cconsumption,2018(bncigarettes)43.6bn
Executivesummary
KeyTrends
Illicitcigaretteconsumption(C&C)remainedstableat8.6%oftotalconsumption,estimatedat43.6bnsticksacrosstheEU
Hadthesecigarettesbeenlegallypurchasedinthecountriesinwhichtheywereidentified,anadditional€10billionoftaxeswouldhavebeenraisedacrosstheEU
Volumereductionsofthelargestcountry-specificflowswerereplacedbycounterfeitandIllicitWhiteswithnocountry-specificlabelling
Challenges
Thenumberofcounterfeitcigarettesgrewby33%to5.5billion,thehighestlevelsincethestudybeganin2006
IllicitWhiteswithnocountry-specificlabellinggrewby15%to9.5bn,thelargestcomponentofC&Cinthestudy
Thesetwocategories(withnoidentifiablesourcecountry)accountedfor34%ofC&C.FromourinterviewswithlocallawenforcementweunderstandthatfactoryraidsandseizuressuggestthatmanyofthesecigarettesweremanufacturedillegallywithintheEU
IllicitflowsfromthethreelargestsourcecountriesofUkraine,BelarusandAlgeriadeclinedby15%intotal
Lawenforcementintervieweesconfirmedthatthedeclinecoincidedwithincreasedinvestmentinenforcement,especiallyatbordercheck-pointsattheEasternEUborder
However,intervieweesalsonotedthatcross-bordersmugglingappearedtobebeingreplacedwithintra-EUillicitmanufacturing,demonstratingtheflexibilityofillicitcigarettetradingnetworks
Improvements
AccessCountryReports:Clickhere
Lessthan1bn
Between1bnand2.5bn
Between2.5bnand5bn
Over5bn
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Source:KPMGEUflowsmodel2014-2018;KPMGanalysisofUNWTOdata;*Discussionswithlocallawenforcementandcustoms
C&Cconsumptiondeclinedin11countriesintheEU
©2019Mapbox©OpenStreetMap
MapoptionsChangeinC&Cconsumptionvsprioryear
Choosetypeofmapandyearfromthedropdownlistsbelowtocustomiseview
Selectyear2018
Whilsttheshareofillicitconsumption(C&C%)remainedstableacrosstheEU,successfulvolumereductionsinsomecountrieswereoffsetbygrowthinGreeceandtheUK
ThechallengesfacedinGreeceandtheUKareparticularlypronouncedastheyalsoexperiencedsomeofthehighestsharesofillicitconsumption(C&C%)withintheEU,alongsideIrelandandLatvia
Decliningillicitvolumes(C&C)inPoland,Germany,EstoniaandFinlandillustrateeffortsatbordercheckpointstoreduceflowsacrosstheEasternEU*
IllicitvolumesgrewinTheCzechRepublic,Greece,ItalyandtheUK,howeverFranceremainedthelargestC&CmarketbyvolumeintheEU
Whilsttotalconsumptioncontinueditslong-termdecline,forthefirsttimesince2014totalnon-domesticvolumes(illicit(C&C)pluslegal(ND(L))volumes)increasedacrosstheEU,drivenbyanincreaseinlegalvolumes,especiallyinFranceandItaly
Theincreaseinlegal(ND(L))volumesindicatesconsumers’willingnesstotraveltopurchaselower-pricedcigarettes,especiallyinotherEUcountries
ThistrendisillustratedinFrancewhereconsumerslivingclosertothebordercountriesofSpain,BelgiumandLuxembourghavetakenadvantageofthegrowingpricedifferencebetweencountriestoincreasinglypurchasecigarettesabroad
2014 2015 2016 2017 2018
427.1440.1451.4458.0459.6
43.644.748.353.056.6 34.831.832.132.129.7545.9 543.2 531.8 516.6 505.6
EUConsumptiontrend,2014-2018(bncigarettes)
ND(L) C&C LDC
ChangeinC&Cconsumptionvsprioryear,2018(ppt)
AccessCountryReports:Clickhere
Increasedby1ppt+
Stable
Decreasedby1ppt+
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Notes:(a)OtherC&Cispredominantlycontraband,butalsoincludescounterfeitformanufacturerswhodonotparticipateintheEPSsurveys.However,thisvolumeisexpectedtobesmall;(b)SeizureinformationsuggeststhatcounterfeitvolumesmayalsocomefromwithintheEUSource:KPMGEUflowsmodel2014-2018;*Discussionswithlocallawenforcementandcustoms
IllicitconsumptiontrendCounterfeitwastheonlyC&Ccategorytoshowyearonyearvolumegrowthin2018,withIllicitWhitesand‘OtherC&C’volumes(predominatelycontraband)declining
However,theamountofIllicitWhiteswithnocountryspecificlabellingincreasedby1.2billioncigarettes
Togetherthesecategoriesofillicitconsumptionaregrowing,howeverbothhavenoidentifiablesourcecountryandmayhaveoriginatedfromwithintheEU
Illicitconsumptionsources
Illicitcigarettetradersappeartohaveshiftedtheireffortstoalternativesourcesofcheapcigarettes,especiallycounterfeitandIllicitWhiteswithnocountryspecificlabelling,whichincreasedtheircombinedshareofC&Cfrom28%to34%
ThemajorityofflowsfromBelarusarealsoillicitwhitesasthebrandssoldinBelarushavenolegaldistributionwithintheEU
Asinprioryears,illicitcigarettescomingfromoutsidetheEUremainedthelargestsourceofC&CconsumptionintheEU,buttherewasevidenceofproductionofbothcounterfeitandIllicitWhiteswithnocountry-specificlabellingwithintheEU*.Ukraine,BelarusandAlgeriaremainedthelargestcountryspecificsources,butalldeclinedaslawenforcementeffortstorestrictflowscontinued
TheEU-labelledvolumeshareofC&Chasremainedstablesince2015,mainlyaccountedforbyflowsfromPolandandRomaniatothehighestpricedcountriessuchastheUKandIreland
C&Cvolumescontinuedtheirdecreasingtrend,butcounterfeitvolumesincreased
C&Ctrendbytype,2014-2018(bncigarettes) SourcesofC&C,2014-2018(bncigarettes)
2014 2015 2016 2017 2018
21.2
19.816.4
14.213.0
31.828.5 28.1 26.4 25.2
3.7
4.7
3.8
4.15.5
56.6
53.0
48.3
44.7 43.6
-4.6%
-8.5%
33.0%
Y-o-YGrowth,2018(%)
2014 2015 2016 2017 2018
9.58.310.510.811.4
6.06.56.26.5
8.34.24.8
5.83.20.53.64.3
4.86.27.7 1.82.2
3.23.12.9
1.51.1
0.91.10.9 11.613.3
13.117.4
21.35.5
4.1
3.8
4.7
3.756.6
53.0
48.3
44.7 43.6
Counterfeit
Othernon-EU
Moldova
Algeria
Belarus
Ukraine
EU
IW:nocountrylabel
Counterfeit
IllicitWhites
OtherC&C
AccessCountryReports:Clickhere
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Source:KPMGEUflowsmodel2014-2018
Counterfeitconsumptionhasincreasedin15EUcountries
Counterfeitvolumesincreasedby1.4bnin2018tothehighestlevelrecordedsincemeasurementbeganin2013
ThecountrieswiththelargestcounterfeitvolumeswereGreece(1.5bn),UK(0.9bn)andPoland(0.8bn)
EuropeanlawenforcementintervieweeshaveindicatedthattheincreasedEUvolumesmaybedrivenbyillegalfactorieslocatedwithintheEU,inparticularinGreece,butalsotheUK,Poland,SpainandtheNetherlands,whereseizuresandfactoryraidshavetakenplace
Counterfeitvolumes,2014-2018(bncigarettes)
2014 2015 2016 2017 2018
3.7
4.7
3.84.1
5.5
Counterfeitvolume,2018(bncigarettes)
©2019Mapbox©OpenStreetMap
Counterfeitvolume
Choosetypeofmapandyearfromthedropdownlistsbelowtocustomiseview
Year 2018
AccessCountryReports:Clickhere
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
IllicitWhitebrandsconsumptionintheEUaccountedforapproximately30%ofC&C
Source:KPMGEUflowsmodel2014-2018;*Discussionswithlocallawenforcementandcustoms
IllicitWhitescontinuetobeamajorsourceofC&CvolumesintheEU,withthelargestbrandsatanEUlevelbeingMarble,NZ,andRegina
MarblereplacedFestasthelargestIllicitWhitesbrandbetween2014and2018.Fest,mainlywithBelarusianlabellingwasidentifiedinmultiplecountriesclosetotheEasternEUborder,whilstMarblewaspredominantlyidentifiedinRomaniawhereitisthelargestillicitflow
AsinprioryearsthebrandscollectedviatheEmptyPackSurveysindicatethatsomeoftheseIllicitWhiteshadBelarusianlabelling,however,manyhavenohealthwarningsorhaveDutyFreelabellinginordertoevadedetection.ThesearecategorisedasIllicitWhiteswithnocountryspecificlabelling
WhilstIllicitWhiteshaveoftenbeenthoughttooriginateinBelarus,RussiaandUkraine,lawenforcementinterviewsalsohighlightedabeliefthatinsomecountriesintheEU,suchasPolandandGreece,theremayalsobeanincreaseindomesticIllicitWhiteproduction
Inaddition,seizuresmadeofplasticbagsfullofcigaretteswithnoidentifiablebrand,indicatedatrendtowardsIllicitWhiteandcounterfeitproductionratherthanthesmugglingofgenuinebrands*
VolumeofIllicitWhitesbycountry,2018(bncigarettes)
©2019Mapbox©OpenStreetMap2014 2015 2016 2017 2018
21.219.8
16.414.2
13.0
Top5IllicitWhiteBrands,2018(bncigarettes)
Year2018HoveroveracountrytoviewthelargestIllicitWhitebrandsinthat
country.SelectayeartoupdateviewHoveroverabartoseethekeyIllicitWhitebrandsforthatyear
AccessCountryReports:Clickhere
Lessthan0.3bn
Between0.3bnand0.6bn
Over0.6bn
ProjectStellaReport
Title Importantnotice&navigation
Howtousethisreport
Backgroundtoanalysis
Aboutthisreport ExecutiveSummary
Focusonkeymarkets
C&Csourcecountries
Focusoncounterfeit
FocusonIllicitWhites
Appendices
Appendices
1.ExecutiveSummaryReport
2.Methodology
3.2017Results
4.Glossary
DownloadableContent
Clickontitlesbelowtodownloadcontent
5.CountryReports
Austria
Belgium
Bulgaria
Croatia
Cyprus
CzechRepublic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Norway
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Switzerland
UK