Cigarette producers are experiencing falling sales this year asa 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 ofOtopeni for a two-week period and sent 450 employees in technicalunemployment, paying only 75% of their wages. This is the firsttough move made in the tobacco industry in the past year, a marketwhere producers constantly raised prices by 40-50% to cover thesudden excise increase in 2009 and early 2010.
"The profitability of Romanian operations is unfortunatelyseriously hurt by the high level of cigarette smuggling," statesAndrei Vasilescu, Corporate Affairs Director with Philip MorrisRomania & Bulgaria, who explains that domestically one in fourcigarette packs is sold illegally.
Asked whether Philip Morris will further resort to the move oftemporarily closing the plant this year, Vasilescu said it dependedon the outcome of the steps taken by the state against cigarettesmuggling.
Cigarettes make the biggest consumer goods market of Romania,with a value put at around 2.4bn euros in 2009, where three majorplayers, British American Tobacco, Philip Morris and JapanInternational Tobacco, are present. All these firms have raised theweight of exports in domestic production since 2007, according tomarket data.
The market in 2009 contracted by 10-15% in terms of volume andestimates for this year point to deeper decreases in legal tradeamid the higher excises and the weak government measures againstsmuggling.
The only major investment announced in the tobacco industry inthe past one or two years was operated by JTI.
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