Rusne Naujokaityte, Senior Research Analyst at Euromonitor, explains the situation of the tobacco industry in the Baltic States. In 2009, the recession heavily impacted the economic situation in Lithuania, Latvia, and Estonia. The credit crunch was primarily to blame; lowering consumer expenditure and raising the unemployment rate. Governments raised taxes in hopes to put more money into the economy.
Due to the tax increase, a regular pack of Marlboro cigarettes jumped in price from 1.7 Euros in 2008 to 2.5 Euros in 2009. Such a price increase in regular cigarettes forced consumers to search for a cheaper alternative. They turned to open markets and bazaars, which often sell tobacco products illicitly. Penetration of illicit trade in the Baltic States jumped to nearly 35% in 2009 as a result of these circumstances.
Illicit trade is not expected to decrease in the upcoming years, mainly due to the government’s inability to deal with organized crime in the economic downturn. In addition, contraband from countries like Russia and Belarus, where cigarettes are six times cheaper, is expected to keep the Baltic States full of illicitly traded tobacco products.
Illicit trade has impacted the economy brands of tobacco in the Baltic States as well. Economy cigarettes are often the most illegally traded – leaving premium cigarettes to gain a bigger share in legal sales. However, since many consumers opted for illicitly traded economy brands, companies with mostly premium brands in their portfolios suffered the most. In fact, Phillip Morris is the only company still manufacturing cigarettes in the Baltic States.
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