Cigarette producers are experiencing falling sales this year as a result of cigarette smuggling, but are still banking on exports. Can exports save domestic cigarette production?
Philip Morris on Wednesday announced it closed the plant of Otopeni for a two-week period and sent 450 employees in technical unemployment, paying only 75% of their wages. This is the first tough move made in the tobacco industry in the past year, a market where producers constantly raised prices by 40-50% to cover the sudden excise increase in 2009 and early 2010.
"The profitability of Romanian operations is unfortunately seriously hurt by the high level of cigarette smuggling," states Andrei Vasilescu, Corporate Affairs Director with Philip Morris Romania & Bulgaria, who explains that domestically one in four cigarette packs is sold illegally.
Asked whether Philip Morris will further resort to the move of temporarily closing the plant this year, Vasilescu said it depended on the outcome of the steps taken by the state against cigarette smuggling.
Cigarettes make the biggest consumer goods market of Romania, with a value put at around 2.4bn euros in 2009, where three major players, British American Tobacco, Philip Morris and Japan International Tobacco, are present. All these firms have raised the weight of exports in domestic production since 2007, according to market data.
The market in 2009 contracted by 10-15% in terms of volume and estimates for this year point to deeper decreases in legal trade amid the higher excises and the weak government measures against smuggling.
The only major investment announced in the tobacco industry in the past one or two years was operated by JTI.
Cigarette producers are experiencing falling sales this year as a result of cigarette smuggling, but are still banking on exports. Can exports save domestic cigarette prod
