Brussels, August 2025 – ESTA announces the publication of a comprehensive study on the consumption of fine-cut tobacco (FCT) across key European markets commissioned from London Economics. The analysis underscores FCT’s essential “buffer function” – its ability to help retain consumers within the regulated domestic market when consumers of factory-made cigarette (FMC) are outpriced.
The study allows policymakers across Europe better decision-making based on data and correct economic analysis when considering the development of legislation.
The report presents detailed case studies of France, Germany, the Netherlands, Slovakia, and the United Kingdom, exploring how excise duty design and shape consumption. It reveals how domestic FCT serves as a lower-taxed, price-competitive alternative that curtails substitution toward non-domestic and illicit tobacco products.
In France, substantial increases in excise rates between 2011 and 2024 led to FCT prices rising by 198%, while FMC rose by only 103%. The narrowing price gap severely weakened FCT’s buffer function, and non-domestic including illicitly traded FMC consumption reached nearly 50% of the market. Consequently, domestic tax revenues declined, falling to a low of 0.48% of GDP in 2023.
Germany illustrates a contrasting scenario. A deliberate policy of moderate, periodic excise increases maintained a clear tax differential between FMC and FCT. FCT consumption decreased more slowly than FMC, non-domestic and illicitly traded FMC remained low, and tobacco tax revenues held steady despite falling overall consumption.
Meanwhile, the Netherlands saw dramatic tax hikes between 2022 and 2024. Domestic FCT consumption fell significantly faster than FMC, and the narrowing excise differential coincided with steep growth in non-domestic market share – nearly doubling in one year. This shift undermined domestic revenue gains.
In Slovakia, where FCT historically comprised a minor part of the market, recent excise increases made FCT more expensive than FMC – a rare reversal of taxation policy. Though non-domestic consumption remains low, these developments raise concerns that excessive taxation could erode FCT’s buffer effect and jeopardise revenue in the future.
The United Kingdom’s experience is equally instructive. Between 2011 and 2024, rising excise duties and shrinking tax differentials severely weakened FCT’s buffer function. Non-domestic and illicit FMC consumption surged from 13% to 38% of the market. Domestic tobacco excise revenues are trending downwards – and foregone revenues from non-domestic FMC are mounting.
Overall, the study’s conclusion is clear: Tax differentiation continues to be a vital instrument in tax policy and helps mitigate illicit trade and cross-border substitution, whilst preserving both regulated consumption and governmental revenue. Tax regimes that disregard this dynamic risk unintended consequences that harms public finances whilst health objectives are not met.
