The FINANCIAL — Cigarettes in Georgia are one of the cheapest in the world; According to National Anti-Tobacco Centre in 2010 predicted tobacco-induced mortality will be 15% of total mortality.
Smokers in New York face some of the highest prices for cigarettes in the world. New York legislature approved a $1.25 tax hike on cigarettes, meaning that taxes alone on a pack in New York are $4.25, excluding 8% sales tax. A pack of smokes in New York is likely to cost around $9.00. In Georgia pack of cigarettes cost around $ 1, (Marlboro $ 1,5) that place Georgia among the countries with cheapest price on cigarette and largest number of smokers. FINANCIAL researched the main reasons why Georgian government is not increasing taxes on Tobacco, meanwhile encouraging smokers to continue buying cigarettes.
Increasing Tax on cigarette has double effect: increasing state budget and reducing number of smokers. According to data of National Anti-Tobacco Center the average number of smokers in Georgia is currently more than 2 million. Georgia is on 2nd place in Europe and among leading 10 in the world, according to Male smokers statistics.
According to the recent survey 80 % from interviewed 600 residents of Tbilisi are smokers. In 1997 approximately 8000 people died from tobacco smoke in Georgia, which constitutes 21% of all deaths, According to the information of National Anti-Tobacco Centre.
According to The FINANCIAL the main reasons why price of tobacco is so low in Georgia are potential smuggling from Russia/Abkhazia/South Ossetia which could be aggravated in case the price was increased. Many Tbilisians enquired by The FINANCIAL believe that world brand cigarettes advertised on central streets are produced in U.S. In fact, smokers can’t buy American Marlboro or Winston in Tbilisi. For example L&M, Chesterfield, Viceroy are produced in Georgia, while Parliament and Marlboro are imported from Ukraine and Czech Republic.
As Philip Morris representative told to The FINANCIAL low price of Marlboro in Georgia is caused by different essence of nicotine/tar put into the Georgian imported tobacco as the state regulations do vary in different countries.
As PMI says they frequently change the suppliers of tobacco therefore they don’t exactly know which countries’ raw tobacco is put in Georgian imported cigarettes though their quality control is stringent.
As Alexandre Avazashvili from JTI says, (Winston, Camel importer), consumption of their tobacco has increased with 32% compared to 2009. Out of which 27% comes on Winston and 44.5% comes to Camel which was mainly due to their marketing campaigns and the low price of tobacco in general. Reminding that JTI takes 23% of the market.
New Food and Drug Administration in U.S. rules say cigarette makers can no longer market products as light, mild, or low. But tobacco companies will still be using color association.
In Georgia it’s still free.
In addition L&M and Chesterfield is produced in Georgia by OGT LLC on which the prices range 1.50-1.80Gel. On other locally produced tobaccos prices are also relatively low 1.20Gel, Pirveli & Comet are manufactured by Georgian Tobacco Company. The rest of the filtered cigarettes brought in Georgia come mainly from Ukraine.
According to The FINANCIAL excise taxes which is imposed on importers varies from 0.6Gel on 20 sticks of cigarettes (one pack) on filtered while 0.15Gel on non-filtered one (AmCham June 2010). The same feature in the US looks the following starting from7¢ in South Carolina-346¢ Rhode Island (*source FTA, US 2010). All of the abovementioned excise taxes fill up a government budget to a great extent.
Annually 11 000 people die due to heart related disease caused by tobacco smoking. (MOH)
Despite such a graving effect of tobacco smoking in Georgia prices aren’t likely to increase in the near future as cigarette manufacturers claim. If now 97-98% of tobacco is legally brought in Georgia, the price increase could also increase the share of smuggling taking place from Zugdidi surroundings and from other remote areas.
As Levan Kalandaze economics’ expert says there are several components when talking about tobacco price. “At first the raw tobacco price is almost the same for all the countries but the excise taxes do differ in accordance with different county policy regulations,” says Kalandadze.
“Drastic increase in consumption of tobacco isn’t expected thus only imported tobacco share can increase. In case the excise taxes are increased then the tobacco production price will also be increased. The only reason why I think the prices can’t increase dramatically is the lobbying from people involved in tobacco industry which is very strong and influential to the government,” says Kalandadze.
“Another very important picture is if the excise taxes were set so high that it exceeded the neighboring countries excises, thus the overall price of tobacco increasing, then huge amount of smuggling would take place and this wouldn’t benefit anyone, local tobacco producers as well as the state,’’ told Levan Kalandadze to The FINANCIAL.
Tax and Smoke
In Macedonia it starts from 61DEN (1Euro)-200 DEN and smoking is prohibited on public gathering places and coffee corners. In India prices are very low starting from 0.0667$-0.448$ and they’re mostly consumed in Northern part of India by laborers. The price of foreign tobacco is also very cheap equaling to 0.1334$ one pack of it. Smoking is also prohibited in Indian religion especially girls refrain from smoking.
In Armenia prices are similar to Georgia. It starts from 0.5$ and goes up to 3$, all these are Armenian production. Imported tobacco to Armenia of Winston cost 1$ and Marlboro 2$. Tobacco prices are even bigger in UK starting from 4$ even many of them having 16 stick of cigarette except of 20.
Alexander Avazashvili, JTI Export Markets’ Corporate Affairs and Communications Director, told to The FINANCIAL the question about price being so low is the same as the question “why salaries are so low in Georgia”.
“If today, for example, a pack of Winston cost like it costs in Italy, then there would be no legal Winston in Georgia. It would be coming from other countries and consumers would smoke smuggled cigarettes. Neither JTI, nor the Georgian is interested in contraband’’, says Avazashvili.
“Another issue is taxation, which directly affects pricing. Key issue for Georgia is to have a predictable taxation system with tax rates not encouraging contraband,” says Avazashvili,
“There are different requirements on the tar that of 10milligramme and nicotine 1milligramme as an example in Georgia. Therefore the requirements are set differently to different countries. We as JTI international run 25 factories of tobacco around the world so tobacco quality is strictly checked everywhere though they are bought on stock markets with centralized trading”, says Avazashvili.
“As for the smuggling which was the very tough in recent years I can say that threat is really in case the prices of tobacco ware increased in Georgia. The main route will still be Zugdidi from where the smuggled tobacco from Russian comes and then is sold on local market especially that of Zugdidi. There were cases when we have seen Abkhazian excised tobacco on Georgian market which was smuggled from Russia then studded with Abkhazian excise,” Avazashvili told to The FINANCIAL.
“We are thankful to pressure from WTO which forced Georgian authorities to make the excises even on locally as well as on imported tobacco. That could be one of the reasons why tobacco consumptions has increased in addition to the fact that we were intensively running marketing campaigns”, says Avazashvili.
JTI is the third largest in size tobacco company in the world which manufactures the world famous cigarette brands and is the leader in CIS countries. It takes 23% of the market in the region. From 2006 to 2010 the JTI import has contributed to the budget 270mln GEL and more than 74mln in 2009.
JTI import is done by Eliz Group. It is estimated that 97-98% of the Georgian tobacco market is legalized. The government role is primary in this case.
“Currently we’re not planning to open up a factory in Georgia that’ll be manufacturing tobacco in spite of the fact that Georgia is the center in the region of South Caucasus. Ukraine factory is manufacturing enough tobacco for Georgia, Azerbaijan, Armenia, and Moldova” says Avazashvili.
“About the quality of our products I can say that it has stringent quality control measured in German laboratory where once a month all of the products manufactured by JTI is checked against some irregularities,” says Avazashvili.
Giorgi Margishvili, representative of Philip Morris International Inc. sys there are many different factors influencing cigarette pricing apart from taxes.”Costs of raw materials and manufacturing, distribution and marketing expenses, consumers’ purchasing power and others… PMI’s cigarettes are manufactured at many different locations around the world, and for all products the company uses stringent quality control at all production stages, to ensure the same quality of the brands across the markets that consumers expect,” Giorgi Margishvili, told us.
22 year old Giorgi is an active smoker of tobacco and he told to The FINANCIAL that even if the price was increased he wouldn’t give up smoking in a short run but he doesn’t exclude non-smoking in the long run. He also believes that the prices can’t dramatically change, because prices have already increased on even local tobacco after the equalizing of excise taxes. Thus in any case smoker will always find way out even shifting to smuggled and low quality tobaccos.
“There is much talk about the price racing on Tobaccos in the Europe and in other countries but most importantly what trends I’ve observed is that price increase very slightly, even sometimes not, affect the consumption of Tobacco at all because people either start spending more on smoking than on food or start looking for alternative cigarettes which is also rare because after all they are still addicted to it,” says Willy Kostucki an outstanding cardiologist in Brussels, with whom we spoke last week..
“One very apparent thing that I come across among 14-15 old adults is that smoking in 99% of them lead to an erectile dysfunctions and other arterial systems of their organs. Common symptoms include heath ache/ brain dysfunction, loosing of memory and so on. Now about the sort of Light cigarettes which are spread everywhere and are demanded by people quite often. The thing is that all the cigarettes put persons’ health under threat and the light ones gradually take effect on peoples’ health but after all has exactly the effect due to the same components despite special filters fixed inside,” says Kostucki.
“There is no such a drug which prevents smokers not to be addicted again. I know that there some anti-addiction drugs and other sorts of devices as well but I rarely see my patients being satisfied with that. Only thing that I can say is that attempt to give up smoking largely depends to an individual decision and endurance which is the most difficult one among youth as well as old. In Belgium the rate of smoking in youth has drastically increase for the last decade or so particularly in women which they associate with fashion/ and gender equality or something like that that’s wrong” says Kostucki.