Jarrod Gilbert: Why Christopher Luxon was right about New Zealand’s tobacco black market

New Zealand's tobacco black market deserves a look. Photo / 123rf

Late last year, when Christopher Luxon said that New Zealand’s world-leading smokefree legislation would result in a black market for tobacco, he wasn’t wrong. Whether growth in the illicit tobacco market justifies scrapping the policy is another thing, but for today, that black market itself deserves a look.

I was an enthusiastic smoker for years, and I never really came across illicit tobacco, so I never took claims about a black market seriously. But I recently had reason to look into the numbers, and they paint a very different picture.

There is a surprising demand for illicit tobacco in New Zealand. Research has placed the illicit tobacco market between 8.4 per cent and 12.1 per cent of domestic tobacco consumption. One study estimated this portion of the market at around 143 million cigarettes per year. This has been estimated to represent about a quarter of a billion dollars in lost taxes.

High taxes on tobacco in New Zealand mean that legal cigarette prices are among the highest in the world, second only to Australia. This creates a great opportunity for enterprising criminals who can get hold of a good source of cheap tobacco. The relationship between taxes and the black market appears to be a direct one: as tobacco taxes have risen in recent years, so too has illicit tobacco’s share of the market.

This is not to say that everyone deterred from the legal market by high prices shifts to the black market. Far from it; although the illicit portion of the market has grown, the tobacco market overall has been contracting for a long time. Between 2012 and 2022, daily smokers fell from 16.4 per cent of the population to only 6.8 per cent. Most people are just choosing to smoke less, quit entirely, or move to vapes.

But some people don’t want to quit and aren’t willing to pay higher prices, and it seems that there’s a bit of money to be made by catering to that market.

Other than flogging it from a dairy or a service station, there are two main ways to get illicit tobacco. The first is to grow it yourself. Tobacco can grow outdoors in New Zealand, and is legal to cultivate for personal use, although I’m told that getting the leaves into a smokeable condition takes a fair bit of skill. I tried some home-grown black-market tobacco not long ago, and let me tell you it was bloody awful.

In good conditions, a healthy plant will yield about 80-100g of dried tobacco. If it were full-price legal tobacco that would be around $210 at retail prices, but on the black market, it might be worth half that. So nobody’s getting rich this way, but it might be a decent earn for someone with a green thumb and a bit of space in their back yard. So long as they’ve got friends who like to smoke tobacco that’s absolutely disgusting, that is.

The other way, and the only real option for anyone looking to make a serious profit, is to import it. This appears to be the large majority of the illicit market. Most of this comes from Asia. Tobacco is grown industrially there, and cigarette prices are about a tenth of what they are in New Zealand – around four dollars a pack vs forty here – so the profit margins are good.

Illicit cigarette seizures at the border are often relatively small, usually just a person sneaking in a few cartons, but can also be big. One seizure from last year found nearly half a million Chinese cigarettes, and one in 2020 found 2.2 million cigarettes hidden in a shipment of roofing supplies from Malaysia. It seems likely that there’s a fair few more shipments like those sneaking by undetected.

Organised crime groups appear to be making a lot of money here. Tobacco isn’t as profitable as drugs – hundreds of dollars for a gram of methamphetamine that can be made overseas for pocket change is hard to beat in any industry – but it is much safer to import illegally. As well as receiving less attention from law enforcement generally, the penalties are also much more limited. Where drug smuggling can land you long sentences, including life imprisonment, tobacco is treated more like an issue of tax evasion, and carries a maximum sentence of only five years. That’s a fairly attractive proposition. As much as I used to enjoy smoking, I think we can all agree no good comes from it. And a bit of bad comes from banning it, too.

Dr Jarrod Gilbert is the Director of Independent Research Solutions and a sociologist at the University of Canterbury.