Wednesday, June 10, 2009

Cigarettes in Cambodia

I was surprised to read this in a Time article:

"Cambodia, for instance, is to knock-off name-brand cigarettes what Belgium is to quality chocolates."

I have to confess I had always believed international branded cigarettes found in Cambodia to be the real thing, even though the prices are so cheap (USD1 for a pack of Malboros, Davidoff etc). Why shouldn't it be? After all, isn't it government duties and taxes that inflate cigarette prices? Also, locally made cigarettes are only USD0.30 so at a dollar, imported cigarettes are more than three times the price. Isn't that reasonable?

(Cambodia only imposes a 10 per cent excise tax, 10 per cent VAT and 7 per cent duty on imported cigarettes. Contrast this with Vietnam, which imposes a 55 per cent excise tax and 10 per cent value-added tax on cigarettes and maintains a ban on imported cigarettes).

In addition, most people tell me they can't tell the difference between a Marlboro here and that back home, although I had one Singaporean friend who said they tasted different.

But it seems it is true. In May of 2006, 2.5 million counterfeit cigarettes worth over US$100,000 on the market in Cambodia were burned, an action praised by the Charge d’Affaires of the US Embassy. The Marlboro and L&M contraband had been seized in October 2005. The culprits were charged but I could not find what their punishment was.

In May this year, 10 Cambodian cigarette smugglers were arrested by soldiers at the Thai-Cambodian border in Sa Kaeo province in Aranyaprathet as they were about to smuggle 5,500 fake cigarette packs into Thailand. The Thai military official was quoted as noting the fake cigarettes were produced in Cambodia, the cigarettes are distributed under Thai brands such as Krong Thip and Sai Fon.

I wonder: Who makes these fake cigarettes in Cambodia? Is it the same cigarette factories that make other branded cigarettes and they simply roll the tobacco in different designed paper and stick them in fake boxes? They must be - it would be too expensive for a small outfit to do.

Besides counterfeit cigarettes, Cambodia is also a transit for smuggled (genuine) cigarettes. According to the World Bank , Cambodia is one of 7 countries where smuggling exceeded 30% of cigarette trade in 2000. The others were Bangladesh, Colombia, Latvia, Lithuania, Myanmar and Pakistan.
Wholesale smuggling requires well-organized transportation and distribution networks in order to ensure sales of large consignments of cigarettes without any possible taxation. Wholesale smuggling requires presence of other factors – corruption, public tolerance, established organized crime, well developed networks of street sellers and/or other methods of black market sales.

Therefore, some of the countries with the highest taxation levels have a relatively small percent of smuggled cigarettes whereas countries where taxation levels are much lower - such as Spain, Italy or Central European states - seem much more prone to and affected by illicit cigarette trade.
The world’s largest cigarette manufacturers are themselves actors in wholesale smuggling. In January of 2000, Center for Public Integrity released a report documenting the involvement of British American Tobacco and Philip Morris in cigarette smuggling in Canada, Hong Kong and Latin America. According to the report, the companies consciously manipulated the labels of duty-free, transit and legally exported cigarettes to reach markets without customs and local taxation.

In this 2006 report, the two most common cigarette brands confiscated at Tan Hop, in Vietnam and most other areas along the border with southern Laos and Cambodia, are Jet and Hero cigarettes which are made in Indonesia by the Sumatra Tobacco Trading Company. I do not know if Sumatra Tobacco themselves participated in the smuggling or it was done by bootleggers.

In any case, just like the illicit drug trade, the smuggling is driven by demand. Retailers in Vietnam like to sell Jet and Hero because they are cheap, and the cigarettes enter Vietnam via smuggling from Laos and Cambodia. The marketing manager from one foreign-invested tobacco company said that retailers could make about VND500 (US$0.03) profit from a packet of smuggled cigarettes, which is 10 times higher than a locally produced packet.

Apparently, in 1990, after Vietnam banned foreign cigarettes, there was a Cambodian government report that referred to ‘‘warehouses [that] exist in no man’s land…stocked with cigarettes supplied by trucks driven through the Cambodian check point’’, and suggested that 80% of cigarettes imported into Cambodia are subsequently smuggled into Vietnam. This complements a 1999 media report that suggested approximately 10 million cigarettes, with a street value of US$350,000, were being smuggled into Vietnam’s southern provinces from Cambodia on a daily basis.

This information is from "Almost a role model of what we'd like to do everywhere: British American Tobacco in Cambodia, a fascinating case study of how BAT established itself in Cambodia, and its aim of gaining not just market share, but political influence. I did find this bit hilarious: "BAT became increasingly concerned with Kong Triv’s (their Cambodian JV partner) ‘‘unstructured’’ business practices, ‘‘guided only by considerations to increase capacity for more new brand launches, the aim for self-sufficiency and earliest quick return and profit’’.

The 2004 report claims 70% of Cambodian men and 10% of Cambodian women smoke, a figure I found shocking. The figure is different from a 2004 Tobacco survey by the Cambodian National Institute of Statistics at the Ministry of Planning, which found 54 percent of Cambodian men 20 years and older smoke, compared with 6 percent of women 20 years and over.

(Personally, I think the latter figure is more accurate. It does not seem to me that many Khmers smoke--most of my Khmer friends and the tuktuk and moto drivers around town don't. Many are young and don't seem to have picked up the habit. It is the older generation, especially the cyclo drivers who I find smoke. I often see old Khmer women at the market smoking too.)

Cambodia may soon have graphic warnings on cigarette boxes, as required under the WHO's Framework Convention on Tobacco Control, which Cambodia signed in November 2005. So if you want to see what Cambodian cigarettes look like now, before they are ruined by pictures of deformed babies and blackened lungs, go to this strange website dedicated to Cambodian cigarettes. The guy(s) behind the website has good imagination:
"Since the dawn of time, Cambodians have been smoking cigarettes. It all started back in prehistoric times, when lightning struck an ancient forest, deep in the jungle. Some wild tobacco plants caught fire, and while the cavecambodians were fleeing, they got a whiff of pure tobacco smoke. From there, the rest is history. After setting up in their new caves, they used tobacco leaves (not yet having invented paper) to wrap dried and shredded tobacco leaves. They used the fire that they had saved from the forest fire struck by lightning to light these tobacco sticks, and called them 'ba ray'."

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