Vendors in France are discreetly selling smuggled and counterfeit cigarettes, contributing to a booming underground market valued at 2.3 billion euros in 2023. A significant portion of tobacco sales now comes from illegal sources, with 43% of cigarettes consumed outside the legal market. Rising prices have driven consumers to purchase tobacco abroad, leading to substantial tax revenue losses for the government. Proposed price hikes aim to curb this trend, but significant challenges remain as illegal sales continue to thrive.
In the shadows of public scrutiny and even on bustling streets, vendors discreetly sell packs of cigarettes at enticing prices to unsuspecting passersby. However, the reality is that many of these products in France are often smuggled or counterfeit versions of well-known tobacco brands. A recent study by EY, commissioned by Philip Morris International and Japan Tobacco International, revealed that this illicit trade amounted to a staggering 2.3 billion euros in France in 2023.
To fuel this underground market, clandestine factories operate within French borders, often under deplorable working conditions. Guéric Jacquet, a partner at EY, highlighted the profitability of these operations, stating, “Setting up a factory in France can yield an 80% return on investment within just three months. We have networks capable of supplying, producing within France, and particularly distributing directly via street vendors and social media,” as reported to CNews. It’s important for consumers to be aware that purchasing these street cigarettes can result in a hefty fine of 135 euros.
Rising Trend of Illegal Tobacco Purchases
In addition to the underground networks, many consumers are also traveling abroad to buy tobacco. Louise*, a 24-year-old from Pau, frequently visits Spain to purchase her tobacco cartridges at a fraction of the price. She also takes advantage of the trip to fill her car with fuel, noting, “Two birds with one stone,” with a smile. According to EY, cigarette packs in France can be 40% to 100% more expensive than in neighboring countries. The combined effect of smuggled, counterfeit cigarettes, and international purchases accounted for an astonishing 38% of the French tobacco market in 2023, a significant increase from 23% in 2019.
Supporting this trend, a KPMG study found that over 43% of cigarettes consumed in 2023 were acquired outside the legal domestic market, marking an increase of nearly 9% from the previous year.
France now leads Europe in the consumption of counterfeit and smuggled cigarettes, with a staggering 16.8 billion illegal cigarettes consumed in 2023. This figure equates to nearly half of all illegal tobacco volumes across the European Union, far surpassing Greece (3.5 billion) and Germany (1.6 billion).
Philip Morris International has expressed concerns that the government’s tobacco strategy, running from 2023 to 2025, has failed to reverse the trend of parallel purchases, which might account for one out of every two cigarettes smoked in France. They argue that instead of decreasing the number of smokers, increased taxes have only perpetuated this complex underground market. Xavier Puech, president of Philip Morris France SAS, noted, “The tax policy has kept smokers reliant on cigarettes, as repeated tax hikes have pushed them into the D system.”
Urgent Need for Action
As the government grapples with France’s significant deficit, the shift of tobacco consumers towards illicit purchases represents a substantial loss in tax revenue. Estimates for 2023 suggest this loss could reach 7.26 billion euros, with 2.7 billion euros directly linked to counterfeiting, according to a statement from Philip Morris last September. “For three consecutive years, revenue from tobacco tax hikes has failed to counterbalance the decline in legal sales, exacerbating a public deficit of over 1.3 billion euros,” the tobacco giant emphasized.
On November 21, Élisabeth Doineau, general rapporteur of the social affairs committee, proposed an amendment to the 2025 Social Security budget aimed at raising the price of a cigarette pack to 12.70 euros by 2025 and maintaining that price until 2027. The Senate has already adopted this proposal with overwhelming support (241 votes in favor, 2 against). While this decision has sparked dissatisfaction among consumers, the Alliance Against Tobacco describes it as an “absolute urgency.” They stress that it is crucial for the government and lawmakers to address the ongoing fiscal moratorium that has lasted three years.
The government has assured that there are no plans for further price increases on cigarette packs next year. Budget Minister Laurent Saint-Martin, addressing a gathering of tobacconists, stated that any adjustments would be “contained.” He explained, “Significant price discrepancies with our European neighbors may weaken sales, especially in border areas, and sustain the parallel market,” while announcing a major initiative to tackle fraud and illegal trafficking, dubbed Colbert III, set for 2025.
*The name has been changed.