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European tobacco legislation forces a second small family-owned pipe tobacco company to close

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After Peterson of Dublin closed its doors in 2018, another small pipe tobacco company ceases manufacturing. Planta Tobacco Company from Berlin closed its doors due to the significant costs resulting from the EU Tobacco Products Directive adopted in 2014 and the subsequent EU regulations.

When proposing the EU Tobacco Products Directive, the European Commission admitted that smaller and mid-sized companies would be impacted much more than large multinational cigarette manufacturers, but from its point of view that was a price worth paying. However, few real impacts were calculated and, in the cases, where they were, they hugely underestimated the real compliance costs.

The European Commission and the other EU institutions involved could have simply avoided forcing small tobacco companies out of business, if better legislation had been developed. The adopted regulations were mainly written having factory-made cigarettes in mind, with other niche tobacco products being an afterthought. Differentiation based on product, consumers, manufacturing or companies was simply disregarded.

Pipe tobacco is a niche traditional tobacco product representing less than a one percent of the total tobacco market, enjoyed on occasion by mature adults as a relaxing pleasure, and manufactured, up till now, by several small family-owned companies.

Pipe tobacco is a tobacco product which is not smuggled. Nonetheless, the overly expensive EU track and trace system, aimed at curtailing smuggling of cigarettes, will also apply to pipe tobacco meaning further costs for those small producers.

The introduction of large health warnings meant packaging and machine changes. Again, pipe tobacco was simply disregarded when regulators decided the size of health warnings, designed with cigarette packaging in mind.

Faced with the need to make further machine changes to comply with the new track and trace system and alarmed by the threat of future packaging changes – publicly advocated by the Commission – after the adoption of the law in 2014, small companies simply cannot absorb the costs of continuous disruptions to their manufacturing.

ESTA’s Secretary General Peter van der Mark said: “The EU has failed time and time again to make legislation that does not unduly impact small and medium sized companies. We hope that the Commission’s proposed SME Envoy, announced by the incoming Commission, will be able to ensure that legislation from the Commission does not threaten the viability of European SMEs.”

Tobacco Tax Revenues: Belgium slowly recovering from fiscal shortfall

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The Belgium government reported yesterday an increase of 123,8 million euros of excise receipts from tobacco, which amount to 2,373 billion euros in 2018. This increase is partly due to higher prices in neighbouring countries, such as France where cigarettes packs increased by around 1 euro.

This increase of government revenues follows difficult years for the Belgium government, which recently suffered from severe fiscal shortfalls due to poorly-conceived tax policy on fine-cut tobacco. As demonstrated in the 2018 London Economics Study, Belgium has implemented sharp increases in tobacco excise duties (up to 17-19% in 2016-2017) since 2013, which heavily impacted domestic duty-paid sales and significantly reduced taxation receipts. In 2016 excise duties were increased to raise revenues, but there was a fiscal shortfall of almost 5% (€3.087 billion instead of the expected €3.238 billion). By 2017, tobacco duties had further declined to €3.004 billion, thereby exacerbating the fiscal shortfall.

ESTA Secretary General Peter van der Mark said: “Belgium’s example illustrates the sensitivity of the demand for fine-cut tobacco to changes in excise duties (and price), but also the importance of taking into account the speed of changes in consumer behaviour in response to excise changes; the buffer function of fine-cut tobacco; and the long run consequences on public finances of sudden and ill-conceived policy changes.

Release of the 2018 London Economics study

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ESTA is pleased to announce the release of a study commissioned from London Economics on the fine-cut tobacco (FCT) excise taxation in the European Union. This study illustrates the key economic mechanisms of fine-cut tobacco taxation by using the examples of 4 meaningful FCT markets: Belgium, Germany, the Netherlands and the United Kingdom. The study is based on data coming from publicly available sources including national statistical agencies and the European Commission. The 2018 London Economics study reaffirms the key findings of the initial 2015 study, underlining the buffer function of fine-cut tobacco. By providing an affordable legal alternative to price-sensitive consumers when faced with prohibitive tobacco excise increases, fine-cut tobacco mitigates losses in government revenue resulting from rises in illicit trade and non-domestic consumption. Read More

EU health Commissioner calls to increase taxes on tobacco across Europe

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In an interview with Die Welt, EU health commissioner Vytenis Andriukaitis said Europe needs to think seriously about the accessibility of tobacco products and called for full implementation of the Framework Convention on Tobacco Control by all signatories. When asked where money for preventative measures would come from, Andriukaitis said: “Consumption taxes on alcohol and tobacco, which in any case are quite low in many countries, could be increased by a Europe-wide uniform percentage, and the revenue from this increase would then flow into the EU budget.” Read More

Belgium to follow the footsteps of the UK and France on plain packaging

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Following the decision of some European countries, Belgian Health Minister Maggie De Block recently announced that an agreement had been found to introduce plain packaging for tobacco products. If the effective date of the measure has not yet been specified, the Minister of Health has announced that the ban on branding will apply to cigarettes, rolling tobacco and water pipe tobacco. Ms. De Block justified this measure as she believes it will reduce tobacco consumption as demonstrated in other countries. Read More

Project sun key figures demonstrate the importance of responsible and adequate tax policy making

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The KPMG 2017 Project Sun report on counterfeit and contraband cigarette consumption in Europe shows an overall decrease in the trade of illicit cigarettes, although they are still estimated at 8.7% of total consumption. In total this represents a tax revenue loss of €10bn for EU member states, making illicit cigarettes one of the largest sources of overall consumption. Read More

Germany not planning to follow Paris on restrictive smoking ban in parks

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The city of Paris has turned six parks into non-smoking areas. This ban on smoking is supposed to last for a trial period of four months before a probable extension to all gardens and parks in the capital. So far, there has only been a smoking ban on 500 playgrounds, but this move is considered to be the next step in the city’s anti-smoking policy. Countries like Finland, Iceland, the UK and some US cities have implemented a similar ban. Read More

ESTA members manufacture fine‑cut tobacco, pipe tobacco, traditional European nasal snuff and chewing tobaccos in 10 Member States and export their products across the entire world. Skilled craftspeople expertly apply age old techniques, perfecting the mixture of dozens of varieties, tastes, smells and flavours, continuing a centuries‑old tradition of fine European heritage. Up to the end of the last century, the manufacture of tobacco in Europe encompassed hundreds of small producers creating thousands of signature products. Over the past 30 years, smaller firms have been acquired by larger multinational companies or have ceased activities altogether, leading to employment reductions and the disappearance of traditional brands. In the manufacturing countries, tobacco production is often rooted in less advantaged regions and plays locally a key economic and social role. It deserves protection and at the minimum should be considered when developing regulation.

Read more about the European tobacco industry

Between 2008 and 2012, consumption of  fine-cut tobacco in the EU28 increased by 37%, even though the increase varies heavily per Member State. Because of the severe economic crisis, consumer disposable income was under pressure, impacting the growth of  fine-cut tobacco consumption. This increase demonstrates the price sensitivity of  fine-cut tobacco smokers. 
 
As the economic crisis subsided between 2012 and 2015, fine-cut tobacco consumption declined in the EU and the market adjusted, returning to its pre-crisis normal order. 
 
In 2016, sales of  fine-cut tobacco kept declining by 1.09% in the EU28. This long=term downward trend follows to an extent industry consolidation. 
 
Seemingly out of step, several eastern countries still experience percentage increases in fine-cut tobacco sales whilst starting at very low sales levels. This demonstrates the buffer function of fine-cut tobacco: cigarette consumers who can no longer afford this product find in  fine-cut tobacco a legal alternative to illegal cigarettes that are often smuggled from neighbouring countries outside the EU (see London Economics Study, June 2015). 
Sometimes fine-cut tobacco is mistakenly presented as a “hook” to smoking because of its relatively higher affordability when compared to cigarettes. 
The reality of the market shows a very different picture. In most European countries,  fine-cut tobacco was and still is a niche tobacco product enjoyed by “specialist” consumers and traditional tobacco enthusiasts who enjoy fine European craftsmanship. 
 
Few exceptions exist with high market shares in countries where fine-cut tobacco has a long history and forms part of the cultural heritage. In these specialised tobacco markets, the significance of fine-cut tobacco stems from its century-old local manufacturing. 
 
Read more about fine-cut tobacco
Every year, taxes on tobacco products raise more than €100 billion for EU governments. Tobacco tax policy must be delicately balanced to safeguard government revenues, protect fair competition, jobs and public health, whilst also deterring trade in illegal tobacco. Tobacco smuggling and sales of illegal tobacco products threaten this income and society at large. The fight against illegally traded tobacco is part of a wider effort to protect EU citizens. 
 
A successful implementation of Track & Trace will be of crucial importance, and requires workable standards that fit business and trading practices, making them likely to be internationally shared.
 
Read more about tobacco track & trace
 

The EU is characterised by a very diverse and flexible excise structure, which allows each Member State to set a balanced taxation of tobacco products respecting its national circumstances, interests and objectives.  Last year, excise revenues from smoking tobacco increased across the EU, even though sales declined. This clearly demonstrates the efficiency of the current flexibility left to national governments and that a “one size fits all” approach should not be considered. The few Member States (e.g. France, Netherlands) casting economic theory and the tax-bearing capacity of smoking tobacco aside had adverse effects with declining revenues whilst sales increased.

Read more about tobacco taxation

An obvious correlation exists between the highest levels of illegal and non-­domestic consumption (e.g. France, UK, Ireland, Poland and Finland) and the highest taxation rates applied to fine-cut toconsbacco, in comparison with cigarettes.  The figures clearly show that any alignment of tobacco taxation, regardless of the products’ specificities, will prevent  fine-cut tobacco from fulfilling its buffer function, leading to increased illegal trade of cigarettes and driving down government revenues.

Read more about the relationship between tax and illegal trade