They admit to an ‘increased number of seizures and size of tobacco products originating from Ukraine’ in 2017; and in 2016 that, ‘Marlboro products represented a particular issue for PMI with approximately one in five consumed in Ecuador being duty-not-paid.’ They note how ‘Indonesia was identified as a high-risk market for diversion’ and that the ‘distribution model in Iraq is complex. This creates a heightened risk of product outflow.’8
I find this level of frank disclosure on PMI’s part moderately encouraging – but I’d really still like to know what exactly they are doing about it. There is a plethora of relatively simple solutions that could help secure the tobacco supply chain, and yet big tobacco fights tooth and nail against any suggestion of introducing them. (I’d also like to know why they only published this report once, and then never again.)
Just to be clear – industry does secure some of its supply chain quite rigorously, with upstream tobacco leaf traceability being possible down to the farm level.
In fact, a company like BAT has a fairly complex supplier network – its website shows that it has 350 000 farms, 1 500 direct materials suppliers and 30 000 indirect suppliers, all of whom it says are subject to rigorous independent audits and supply chain due diligence checks, and all of whom are assessed against risk scoring criterion.9
So, BAT would have us believe, in their own words, that, ‘All suppliers undergo an independent on-site audit, conducted by the global audit firm, Intertek, in order to be appointed as a supplier and then are re-audited every three years. The Intertek audit includes criteria covering forced labour, child labour, wages and hours, health and safety, environment and management systems. We also use our integrated supply chain due diligence programme to assess supplier’s inherent risks, using a series of independent indices. We prioritise those suppliers identified as being exposed to the highest risks for either a self-assessment or an on-site audit.’10
But this same company seemingly then tells us that it has no control over where its cigarettes end up; that it simply ships cigarettes in response to orders.
It is something of a mystery why the company would so intently secure its upstream supply chain for inputs into its manufacturing process, but do very little to secure its downstream supply chain for its outputs, in fact going so far as to very clearly state that it has no control over where its cigarettes end up or who they are sold to.
On Philip Morris’ own website, the company says that it only marks and tracks a percentage of its own cigarettes11 (in 2017, the last year for which I could find data, they say they were only marking 75% of their packs) and we don’t know to what extent the other big tobacco companies are using it.
In the JTI reply to my request for comment, they noted, ‘We have implemented far reaching anti-illicit trade measures, aiming at securing our supply chain. The tracking and tracing of our products are also part of supply chain control: at this date, 75% of our global production is tracked and traced.’
But why only track 75% of your packs?12
Every expert and his dog has recommended that all tobacco packs should be securely marked, so that packs can be traced through the supply chain, and so that we can see where a pack came from. Big tobacco has been telling the world that it has its own track and trace solution that can do just that: Codentify.
Codentify’s genesis is important: it was developed as part of the obligations imposed on PMI under its agreement to settle smuggling related charges in the EU (that would be the same agreement that saw PMI having to pay compensation to the EU to the tune of $1,25 billion for the smuggling of its packs). They subsequently licensed it for use by all of the big tobacco companies. It creates a code (really just an alpha-numeric number) that is printed directly onto packs during manufacturing, so – if you know how to read it – it could in theory tell you who made the pack.13
Like many others, I am sceptical of Codentify-type digital tax verification solutions (in other words, one that simply uses an alphanumeric code to mark cigarette packs, without another visual security feature like a physical tax stamp), simply because they are easy to copy or clone, with the same code being reprinted on multiple packs. You would only know that a pack had a fake code on it if you scanned a second item with the same code. It is a highly inefficient enforcement tool from a customs agency perspective – the cost of detection, in terms of the sheer number of checks an enforcement officer would have to do to detect duplicate codes far exceeds the potential revenue loss.14 In a peer-reviewed paper, tobacco control economist Hana Ross – along with my colleague Michael Eads – estimated that in a relatively small market, a law enforcement authority would have to inspect almost 31 000 packs per week to have a 95% certainty that it did not miss a fraudulent pack under Codentify-type systems. A material-based track and trace solution – so, using a physical tax stamp – would require only 59 pack inspections a week to have the same level of confidence.15 (Inexto, which bought Codentify, claims Professor Ross is not a track and trace expert. I’m not sure that is true, but she is a world-renowned expert specialising in the economics of tobacco, and her team’s math adds up. Read the paper, make up your own mind.)
In Europe alone where 30 billion-plus fast-moving consumable items move through the market every year I am happy to argue that the statistical probability of finding a twin code is next to nil.
The digital tax verification-type solutions being advocated for by the tobacco industry are hardly more than a fig leaf for a morally bankrupt industry.
Not too long ago – in 2013 – BAT was accused of bribing a politician in Kenya to make sure that a cigarette track and trace tender was not awarded to an independent service provider.16 In Uzbekistan they tried to convince government to introduce a tax stamp traceability system for smaller manufacturers, but from which it wanted to be exempted itself.17
After SARS announced a tender for a traceability solution to mark cigarette packs – after 12 years of promising to do so – in the space of less than six months, around 22 directly-related articles appeared in the media. Of those, only 3-13% argued in favour of a secure marking solution (one of them by Eads, one by the tax stamp association ITSA, and one by South Africa’s Council Against Smoking). The rest all advanced an industry line that sought to delay, derail or dilute SARS’ efforts to better secure the tobacco supply chain. The media onslaught was relentless: the new system had been ‘rushed’, ‘would capture only the legal market’, would ‘drive illicit trade up further’, accused SARS of ‘wasting billions of rands’, and the industry raised concerns about rolling out such a ‘sophisticated system’. And yet every single expert agrees that traceability is the one key solution to curbing illicit tobacco. But it works to big tobacco’s advantage if the supply chain stays opaque. Because they need our governments to believe that big tobacco has it all under control, and that additional checks and balances on big tobacco’s supply chain are not necessary.
Between industry rhetoric and administrative capture, governments around the world are simply not adopting good practice measures that could easily regulate the tobacco supply chain. One would also have imagined that the tobacco industry could easily have taken a leaf from what other industries are doing to better secure their own supply chains.
The ability to know where your products are, or to trace a product back to where it came from, is not something that is unique to the tobacco industry. It is something that other companies with commodities that are far less susceptible to criminality have faced and quite successfully manage.
For many consumer products, traceability is an issue mostly because of the genuine desire to protect their brands and their reputation, and so they can coordinate product recalls if necessary.
We generally don’t associate cigarettes with product recalls because there are not that many recorded instances, but it does happen: PMI had to recall 8 billion cigarettes (worth $100 million) because the filters used had been sprayed with a plasticiser containing half a dozen chemical contaminants, which together formed methyl isothiocyanate, a commercial