The law against smoking is not applied
Based on the law, cigarette packs and billboards read that smoking is dangerous to the health. The fight against smoking is going on all over the world-there are special programs, discussions, demonstrations, laws are passed…Basically, there is a huge fuss. But that doesn’t really have an effect. Cigarette sales have gone up a lot over the past couple of years and there are more and more smokers around the globe. For example, the number of female and minor smokers has increased in Armenia…
In 2006, the Armenian government passed a “law on limits of cigarette sales, consuming and use” and there is one proof showing how ineffective that law is. On March 1, some MPs were already violating the law they had passed, while some didn’t even know there was such a law.
In one of our previous editions, we had touched upon the coffee market in Armenia. It doesn’t matter if we pick good or bad, cheap or expensive coffee; one thing is for sure-Armenians love to drink coffee and some Armenians just don’t picture drinking coffee without a cigarette. Basically, Armenians love to smoke.
Addicted to smoking: in numbers
Now let’s take a look at what’s going on in the tobacco market in Armenia.
The first question that may come up is how many cigarettes are sold in Armenia a year, both from the perspective of number of cigarettes and the price.
Nobody can say for sure how many cigarettes are sold in Armenia yearly. Let’s try and come up with the number based on logical and estimated calculations.
According to the National Statistics Service (NSS) of Armenia, 2,720,000,000 cigarettes were produced in 2004. As for the price, that made up 15,348,000,000 AMD. Based on the exchange rate of 2004, that is about 28.8 million dollars.
Based on the statistics of the NSS, in 2004, cigarettes worth 39.5 million dollars were imported in Armenia. But that doesn’t mean that foreign cigarettes exceed the local cigarettes, taking into consideration the high prices of imported cigarettes.
Here we kind of get the picture, if we take a look at the results of the research conducted by the State Committee on Protection of Economic Competition.
In 2004, local producers “Grand Tobacco” and “International Masis Tabak” have sold over 55% of cigarettes in Armenia (GT-45.2%, IMT-10.1%). “Cigarrone” hasn’t sold that many. According to the representatives, they only form 3% of the market.
It turns out that only 40% of foreign cigarettes are sold in the Armenian market. Based on calculations, in 2004, nearly 2 billion foreign cigarettes were imported in Armenia.
One of the specialists of this market told “168 Hours” that based on his calculations, about 2.7-3 billion cigarettes are imported in Armenia yearly. According to one of the representatives of the importing organizations, Armenians smoke 5 billion cigarettes yearly.
We repeat that we are only estimating, but the sales are almost this much. That’s not very low and obviously, there is a lot of competition.
Who’s competing against whom…
To make a long story short, we can simply say that the fight is between local producers and importers.
According to the State Committee on Protection of Economic Competition, there are 13 businessmen in this field. The committee only gives out names of the top 3 contenders in the market.
“Grand Tobacco” is in first place (45.2% production and 30% in sales). “Pares-Armenia” comes in second with 19.7% production and 25.4% in sales. This company imports products from the “Phillip Morris” company (Marlboro, L&M, Parliament, etc.). Third place is “International Masis Tabak” (10.1% production and 7.4% in sales). Let’s not forget to mention that “Pares Armenia” places first in taxes. The company placed 6th in the list of 300 large taxpayers in 2005 (6.1 billion AMD). “Grand Tobacco” places second with 4.8 billion, while “International Masis Tabak” comes in 11th with 3.1 billion AMD in taxes. I must say that there are huge sums of money “going around” in the cigarette market. That’s why everyone knows about that business.
The shady sides of competition
On the outside, competition is going fairly well. There was a time when we used to see commercials. Now, tobacco companies mainly compete through other means, including demonstration aimed towards the fight against smoking. But when you get to talking with local producers and importers, you find that the two practically hate each other. It is worth mentioning that most of the criticisms are aimed towards “Grand Tobacco”.
There’s some kind of extremist mentality. Importers believe that it’s better not to smoke, but at the same time claim that the smoker should smoke foreign cigarettes. Why? Here’s the answer:
Large tobacco companies, such as “British American Tobacco”, “Phillip Morris”, etc. are well-known in most counties around the world and always follow up on quality. If local and foreign cigarettes have the same price, then the main issue here is the “brand”. Basically, we have this approach-if it’s local, then it’s bad. “168 Hours” interviewed owner of “SPS Cigarrone” S. Poghosyan about this. He doesn’t share this opinion.
“We can compete with any tobacco companies importing cigarettes to Armenia. The problem is that the people keep thinking that the local cigarettes are low in quality. But our cigarettes, for example in China, are not local but rather foreign and compete with many brand name tobacco companies in quality and price,” says Mr. Poghosyan.
Many are interested in the following question: how real are the percentages shown on the pack (nicotine and resin)? The state body fixes the percentages and gives a license. What’s interesting though is that Armenia doesn’t have such a state body.
According to Mr. Poghosyan, his company has a mechanism, which checks up on how many substances the cigarette contains. But their cigarettes are also checked up on abroad, especially by the “Filtrona” English tobacco company. “168 Hours” wasn’t able to contact the owner of “Grand Tobacco”, but according to our sources, it also has the same mechanisms. But the rest of the questions remained unanswered.
According to specialists, the minimum price for producing packs of cigarettes is 8 million dollars. The owner of “Cigarrone” assured “168 Hours” that he can mention the brand names of his mechanisms and the specialists can see what quality it has, but “Grand Tobacco” didn’t assure anything.
The “Ours is different” slogan for “Grand Tobacco”, which has turned into an aphorism in Armenia, doesn’t say a lot about the quality. “Local cigarette production” simply means that the raw material is not local. There was an old Armenian commercial one time with the slogan “sow the tobacco”. Specialists are of the opinion that the “sowed Armenian tobacco” is not high-quality. 90% of the tobacco is so-called “Oriental”. It’s not high in quality and well-known tobacco companies use less than 5% of that in their “blends”. So, not everything we have is good.
Besides that, if we take a look at the data of the National Security Service, it’s clear that Armenia doesn’t have enough “tobacco seed” for local production. As of 2004, Armenian produced 484.4 tons of fermented cigarettes. According to specialists, 65,000 packs of ordinary (non-slims) cigarettes were produced from one ton. We get the following if we do simple math-the local raw material would be enough to produce 630 million cigarettes. We accept the fact that these calculations are not done by professionals and aren’t that correct, but there is a huge difference between 630 million and 2,700,000,000. It turns out that most of the local raw material for tobacco production is imported. The owner of “Cigarrone” doesn’t hide that fact and states that even the “oriental” raw material is imported from Italy. But where do “Grand Tobacco” and “International Masis Tabak” get their raw material from? This remained unclear.
It’s worth mentioning that there are also a lot of issues concerning the product imported by well-known companies. How is it that the same foreign cigarette is sold at a lower price in Armenia than in the U.S. or Europe? Many are of the opinion that that is based on the low-quality of local products.
Owner of “Distrimex” (distributor for “British American Tobacco”) M. Minasyan believes that some of the reasons for that include the cheap work force, the high taxes on cigarettes sold abroad, etc., but never because of low-quality. He’s even sure that some foreign companies are at a loss in Armenia due to the “presence” issue.
“Of course, the cigarettes sold in the former Soviet countries are currently produced in Ukraine and other countries, but under the control of foreigners. So, the quality has nothing to do with it. The companies just can’t put up with getting losses,” says Mr. Minasyan.
Everyone has the right to believe or disbelieve the fact that a company works with losses, but nobody will believe someone who says that the quality of the “Marlboro” cigarettes produced in the U.S. is the same as that of the cigarettes sold in Armenia.
Specialists in this field assure that the contents of nicotine and resin listed on the pack are accurate, but quality doesn’t only depend on that. The cigarette is like a “bouquet” and you need to pay special attention when making it. Nine to twelve different cigarettes are used in “blenders”. Meanwhile, according to the legislations of many countries, local producers must use a minimum of 10% raw material. As to what quality it has and how better it is than the Armenian cigarettes, that remains a mystery.
In any case, try not to smoke and if you do, don’t go along with the commercials or patriotism, but rather your taste and logic.