Monday, February 18, 2008

The fourth-largest market

If you are looking for a bargain, Rio’s Centro Uruguaiana is the place to be. Normally expensive brand-name sneakers, faux designer purses and wristwatches sell at rock-bottom prices—as do cigarettes.

Telling fake from real isn’t easy, however—even for the trained eye. That afternoon we present several cigarette packs purchased at Centro Uruguaiana to Dante Letti, president of market leader Souza Cruz.

After examining the packages from different angles, he concludes they are “probably” genuine.

The packs carry the mandatory health warnings depicting shriveled lungs and sickly babies and are fitted with official-looking tax stamps.

The only way to be sure, says Letti, is by sending them off to a laboratory for analysis. But by the time a cigarette pack is opened, the damage has of course already been done.

The challenge facing legitimate cigarette manufacturers in Brazil is enormous. Illicit product accounts for a whopping 28.6 percent of the domestic cigarette market.

And while that is down from 34 percent in the mid-1990s—due to a combination of improved law enforcement, new tracing technologies and other industry initiatives—this still means that roughly one in three cigarettes sold in Brazil is unlawful.

In terms of sales, Brazil’s illegal cigarette market ranks fourth in Latin America, outstripping the total market in several countries.

Counterfeits account for a comparatively small part of the black market. Smuggling and tax evasion are even bigger concerns.

As is often the case, differentials in tax rates are to blame. Brazil taxes cigarettes at about 70 percent of their retail price, compared with 20-25 percent in Paraguay. It doesn’t take an advanced degree in mathematics to picture the potential profits to be made from manufacturing in Paraguay and sneaking your product across the border for sale in Brazil.

And many appear to have made that calculation. According to some estimates, Paraguay has 40 cigarette factories—on a population of less than 4 million.

If they were serving the domestic market only, Paraguayans would be consuming an ungodly number of cigarettes, and their country would probably replace Asia as the World Health Organization’s top priority.


hr said...

Dear Taco,

Excellent coverage so far on your Latino tour.

I had done business for a few years with the region. Stopped about a year back. Had a contact in Ascension who bought machinery spares and some garniture tapes from me to sell in that region. I can relate to many things you experienced.

Nice to see Noel shopping – what about you ? Did you shop anything ?

Keep the blog going. Interesting reading.

Kind regards,


Charles Duke said...

Very interesting. Zippo has a significant problem with counterfeit lighters in S.A. generally and in Brazil/Paraguay especially. I had to laugh when I saw the Zippo display in the picture. Counterfeit cigarettes lit by a counterfeit Zippo lighter filled with counterfeit Zippo fuel, both from China!