Identifying an approach to measure the illicit market for tobacco

To capture the total volume of the illicit tobacco trade in the EU and member states, as well as distinguish between the legal and illegal market, types of tobacco products, and types of illicit trade, researchers propose a combination of five methods and three cross-validating resources.

What is the issue?

Illicit trade in cigarettes and other tobacco products is a global phenomenon which results in significant loss of revenue for governments and legitimate businesses, while offering an important source of income for organised crime and terrorist groups. With many illicit products failing to comply with EU legislation on ingredients and the presentation of health warnings, illicit trade in tobacco also presents a potential public health risk.

Due to these harmful effects, the EU and its member states have made the fight against the illicit tobacco trade a policy priority. Finding an appropriate method to do so is an important first step in countering this phenomenon. However, measuring the size and scale of the illicit market has proven to be extremely challenging.

How did we help?

RAND Europe was commissioned by the European Anti-Fraud Office (OLAF) to develop an independent methodology to measure the illicit market for tobacco.

Based on in-depth literature reviews and interviews with key informants, researchers shortlisted five methodologies which could be used to help the EU and its member states to capture the total volume of the illicit tobacco trade, as well as distinguish between the legal and illegal market, types of tobacco products, and types of illicit trade.

What did we find?

Researchers produced a longlist of 11 methodologies that have been or could be used to measure the illicit tobacco market and assessed them against a standardised set of criteria. This resulted in a shortlist of five preferred methods:

• Discarded pack survey: Collection of discarded cigarette packs to obtain a representative sample of cigarettes consumed in a given area.
• Comparison of sales/tax paid and self-reported consumption: Calculation of the difference between consumption of tobacco products at national and/or local levels (e.g. measured through user surveys) and tax-paid sales for the same products at the same geographic level.
• Consumer survey (with pack inspection/surrender) : Survey of tobacco users asking about various aspects of their smoking behaviour. During the survey respondents present their latest tobacco product for inspection or surrender it for later analysis.
• Consumer survey (without pack inspection/surrender): Survey of tobacco users asking about various aspects of their smoking behaviour without any request or requirement for physical evidence.
• Econometric modelling: Estimation of the volume of tax avoidance/evasion based on a demand function for tobacco products, drawing on variables that may affect total consumption and factors hypothesised to have an effect on the illicit market.

What do we recommend?

As individual approaches, the five shortlisted methods are not on their own sufficient to meet the minimum criteria as set out in the study. Researchers therefore recommended a set of options based on combinations of these methods, each with different levels of resource requirements.

When designing and executing any these options, three types of additional sources were also identified that should be made an integral part of the process:

Wastewater analysis

1. To cross-validate self-reported tobacco consumption
2. To help identify priority focus areas (e.g. geographical, certain products, certain types of trade) based on observed trends in consumption

Analysis of Track & Trace data

1. To provide aggregate data on legal sales of tobacco products
2. To cross-validate the legal supply of individual packs collected via discarded pack or consumer surveys
3. To provide data that can be used to cross-check the aggregate results of discarded pack surveys or consumer surveys with pack inspection/surrender
4. To help identify priority focus areas based on observed trends in legal supply

Stakeholder consultation

1. To identify priority focus areas
2. To reflect on recent and ongoing trends
3. To offer input to data interpretation and analysis

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