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Home / New Zealand / Politics

Smokefree law: Big drop in illicit tobacco as Customs is on track for record border seizures - industry survey

Michael  Neilson
By Michael Neilson
Senior political reporter, NZ Herald·NZ Herald·
9 Jul, 2023 05:00 PM7 mins to read

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Green MP Chloe Swarbrick challenges big tobacco companies on daily deaths. Video / Supplied

An anti-smoking researcher says one of the industry’s main arguments against smokefree regulation - that it would cause the illicit market to grow - has been stubbed out by its own survey, which reveals a near-30 per cent decline in black market consumption since 2019.

But Imperial Brands, which commissioned the survey from KPMG, has fought back vigorously against any assertion it is a declining issue, saying the fact legal smoking rates dropped at an even faster rate - 30 per cent compared to 27 per cent - means the proportion now smoked illicitly has risen by 0.6 per cent.

It says the rate will continue to rise, as it has in Australia, as tobacco availability decreases.

Customs NZ also fears the decrease could be shortlived, with 2023 on track for a record year of seizures at the border - indicating organised criminal groups saw tobacco smuggling as increasingly profitable.

Meanwhile, Health Minister Ayesha Verrall said it was pleasing to see there had not been the increase in illicit consumption some had feared.

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She said the Government was cracking down on tobacco smuggling and the illicit trade, alongside legislation passed last year that means people aged 14 and under would never be able to legally buy tobacco and which would also dramatically reduce nicotine levels - both world-first initiatives.

It is part of the country’s aim to reduce smoking to 5 per cent of the population overall by 2025.

In submissions on the legislation last year, British American Tobacco and Imperial Brands Australasia both argued there was already a growing illicit tobacco market in New Zealand and this would be exacerbated by new regulations.

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This was also noted by Ministry of Health officials, stating the policy changes were “likely to exacerbate this”.

Fears of a growing black market were also part of the Act Party’s opposition to smokefree legislation.

British American Tobacco and Imperial Brands Australasia respectively make up about 60 and 30 per cent of the New Zealand tobacco market, worth nearly $3 billion in 2021 (for comparison New Zealanders spend about $5b a year on alcohol).

In making their case, the tobacco giants cited KPMG surveys, paid for by Imperial Brands, that showed between 2017 and 2019 the amount of illicit tobacco estimated to have been consumed annually in New Zealand increased from 191 tonnes to 230 tonnes.

These studies were done with a combination of empty-packet and consumer surveys.

Alongside overall declining smoking rates, this had seen the proportion consumed on the black market increase from 9.2 per cent to 11.5 per cent. This figure was heavily disputed by researchers at the University of Otago, whose own survey came back with a proportion of 5.4 per cent.

A study by Action for Smokefree 2025 (ASH) from 2010 to 2013 estimated the illicit market to be between 1.8 and 3.9 per cent.

Total consumption of tobacco in NZ in 2022. Image / KPMG
Total consumption of tobacco in NZ in 2022. Image / KPMG

Customs NZ estimates it to be somewhere in the middle of all the surveys, at about 6-7 per cent.

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The latest KPMG survey, also funded by Imperial Brands, found the proportion had increased between 2019 and 2022 to 12.1 per cent.

However, the total illicit tobacco consumption had decreased by 27 per cent - from 230 tonnes to 167 tonnes.

Total legal consumption had fallen at a slightly higher rate of 30 per cent, from 1671 tonnes to 1176 tonnes.

If it traded legally, the illicit tobacco would have brought in $247.8 million in excise tax - down from $287.4m in 2019.

The surveys were not completed in 2020 and 2021 due to the pandemic.

Imperial Brands head of compliance and regulatory affairs, Gary Dickson, accepted that the overall consumption of illicit tobacco had fallen significantly, but said the size of the illicit market was still of concern.

Total consumption of tobacco in NZ in 2022. Image / KPMG
Total consumption of tobacco in NZ in 2022. Image / KPMG

It was also concerning that of those who remained smokers, a growing proportion were turning to the illicit market.

Imperial Brands wanted to see the Government establish a national illicit tobacco policy and taskforce, as in Australia.

Meanwhile, University of Otago Professor of Public Health Janet Hoek said the tobacco industry had been “scaremongering” with claims of a rapidly-growing illicit market and their own survey had now proved it.

Hoek said arguments smokefree legislation was equal to prohibition and would see people turn to a black market were “misleading” because nicotine, the active drug, would still be readily available - either as approved treatments (such as nicotine replacement therapies) or through vaping products.

She said tobacco companies used the growing-black-market argument in an attempt to sow fear about the impacts of tobacco regulations.

In her own research and through interviews with smokers she had encountered little appetite to seek out unregulated products on the black market or for homegrown tobacco, which was much more harsh.

There would also be a decreasing market to try to supply illicit tobacco for as the number of smokers in New Zealand continued to decline.

“And we know people get nicotine from other sources, primarily vaping, and I suspect that is what we are seeing here with the decline.”

She said the black market would likely remain less of an issue here than in Australia, which has banned non-prescription vapes.

She said it was important they remained readily available here for people wanting to quit smoking, particularly as low-nicotine cigarettes and tobacco were introduced.

Verrall said the new smokefree laws would mean thousands of people will “live longer, healthier lives and the health system will be $5b better off from not needing to treat the illnesses caused by smoking, such as numerous types of cancer, heart attacks, stroke and amputations”.

She said last year’s Budget provided $16.3m over four years to support compliance with, and enforcement of, the new requirements.

A further $10.3m was provided to go towards cracking down on tobacco smuggling into the country.

The latest data showed continued high levels of illicit tobacco being intercepted at the border - 8.6 tonnes last year, 15.9 the year before and 11.2 in 2020 - up from an average of just over 6 tonnes a year pre-Covid.

Customs interceptions at the border. Image / KPMG
Customs interceptions at the border. Image / KPMG

A Customs NZ spokesperson said there had been a “significant increase in the smuggling of tobacco products over recent years”.

“The illicit tobacco market in Aotearoa New Zealand is already substantial and Customs expects demand for illicit tobacco to increase.

“We are also seeing that the highly profitable nature of the illicit tobacco market in New Zealand attracts transnational organised crime. Both factors undermine the Crown’s revenue and smokefree health objectives.”

Measuring the size of the illicit market was “difficult” given it relied on voluntary participation by smokers and empty-packet surveys, they said.

But the increasing scale and quantity of tobacco seizures at the border suggested organised criminal groups continued to see tobacco smuggling as a profitable activity, they said.

“Customs’ focus is on disrupting the illicit market as much as possible, especially organised criminal groups who seek to exploit the profitability of the illicit market.”

They had filled 10 of 11 new roles to address tobacco smuggling and the team had been operating since March.

“The team has had early success, having already seized large quantities of illicit tobacco and has already charged three individuals for importing tobacco unlawfully.”

Already this year Customs NZ had seized 2.2 tonnes of loose tobacco and over 8 million cigarettes.

“If this trend continues, we will be heading for a record year,” they said.







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