On 5 July the Tobacco Institute of Southern Africa (TISA) hosted an event to brief the media on illicit tobacco trade in South Africa. This follows the appointment by the institute of a market researcher, Ipsos, to find out more about the extent of the illegal tobacco industry. Ipsos found that there are cigarette brands sold in South Africa that trade below the minimum amount of tax payable on a packet of cigarettes. The legal minimum payable on a packet of cigarettes is R17.85, yet there are several brands on the informal market that sometimes sell well below R10.
According to Francois van der Merwe, chairman and CEO of TISA, if this is the case, it can be inferred that these brands are sold illegally since they must be evading tax to sell at such low prices. This is also the conclusion made by the court in a previous case relating to illegal tobacco products. During the media function, Van der Merwe said that although the trade of illicit cigarettes has been a longstanding issue, its prevalence has increased severely in the past three years. As a tobacco farmer himself, Van der Merwe is especially concerned about the effect this illegal trade has on farmers that find themselves at the very beginning of the supply chain.
Van der Merwe says that due to the illicit trade of tobacco, the demand for local tobacco has decreased, affecting the livelihood of tobacco farmers, especially smallholder farmers in rural areas. There are many success stories in the tobacco industry where emerging farmers have been making a living through tobacco farming. Yet this too, is now threatened by the illicit cigarette trade since none of these cheaper brands are manufactured with local tobacco.
The research done by Ipsos showed that the majority of these brands are manufactured by one company and that they are only available in non-organised shops rather than retail stores. The manufacturer of these brands that include RG, Shap, Savannah, and Sahawi, to name a few, is Gold Leaf Tobacco Company. They currently account for 75% of the sales below minimum tax owed. Their brand, RG is currently the second top selling brand in the country right behind Peter Stuyvesant.
The findings of the research done by TISA will be brought to the attention of relevant industry bodies that will need to investigate the matter further. Keep an eye on our magazine, FarmBiz in the following months to find out more about the effect that the illegal trade of cigarettes has on local tobacco farmers. –Ursula Human, AgriOrbit