How the Russian solves the problem of counterfeit

#industry news

Despite the ongoing struggle of the state against illegal trafficking in various sectors of the economy, the share of consumers of such products remains. For example, according to surveys, almost a quarter of Russians bought cigarettes below the single minimum price set by the state, that is, they purchased counterfeit or contraband. In such circumstances, experts believe, it is especially important to maintain balanced and predictable regulatory approaches together with business, so as not to create prerequisites for the expansion of the illegal segment.

Almost a quarter of cigarette consumers in Russia in the last months of 2023 — the first months of 2024 bought cigarettes below the unified minimum price (EMC) set by the state, which means they purchased counterfeit or contraband, according to a study by the Public Opinion Foundation. According to the survey, 54% of Russian smokers are more likely to buy a pack of cigarettes if the price of it in the store is noticeably lower than usual. 39% of smokers are more likely not to buy such a product, the study says.

According to experts of the Public Opinion Foundation, the study revealed low consumer awareness of the EMC for cigarettes, which acts as an indicator of the legality of the product. Since January 1, 2024, the EMC has been set at 129 rubles per pack. According to the foundation's research, only 16% of the surveyed smokers know about EMC, 17% have heard something, and 65% are hearing about it for the first time.

Cigarette consumers are poorly aware of the problem of the illegal tobacco market, according to the Public Opinion Foundation. Thus, according to the survey, 35% of respondents consider the trade in illegal cigarettes to be a frequent phenomenon. Another 25% consider it a rarity, and 18% believe that it is almost not found. According to the fund's experts, the willingness to buy cigarettes at a noticeably lower price than usual, as well as poor awareness of the EMC, reflect the potential risk of consumers switching to illegal products.

The National Scientific Center of Competencies in the field of combating illicit trafficking in industrial Products (NNCC) estimates the share of illicit trafficking in tobacco products in Russia by the end of 2023 at 12.6% in terms of the smoking population.

According to the NNCC, the largest contribution to illicit trafficking is made by cigarettes illegally imported into the Russian Federation from the EAEU member states. The share of this segment in the center is estimated at 6.9%. Traditionally, this type of illicit trafficking is dominated by products of Belarusian origin with a share of 84.5% of all illegal products from the EAEU member states, according to the calculations of the NSCC. By the end of 2023, the minimum budget losses on excise taxes on cigarettes reached 99.2 billion rubles, which is 22% more than a year earlier.

As explained in the NSCC, to study such complex markets as the tobacco market, an approach is used that combines two interrelated research areas. In addition to the quarterly analysis of the retail sales market in the regional context, field studies are conducted to determine the share of illegal product turnover: the collection of empty cigarette packs discarded by consumers on the streets of settlements.

The Data Matrix labeling also serves as a criterion for the legality of products on the tobacco market. Mikhail Dubin, Chairman of the Board of Directors of the Center for the Development of Advanced Technologies (CRPT), the operator of the state labeling system "Honest Sign", notes that over the past five years the tobacco market has noticeably whitewashed and it is increasingly difficult for gray players to supply illegal goods.

According to Mr. Dubin, before the labeling began, the share of illegal trafficking doubled every year and exceeded more than 15%. In the first year of labeling, the trend was reversed, and this level decreased by a quarter, he points out. Today, the CRPT estimates the gray market share at about 12%, which is lower than a year earlier. Last year alone, the activities of 15 illegal tobacco factories were suspended, and 46 such enterprises were identified during the labeling period, Mikhail Dubin says.

According to the CRPT, the labeling system is under constant development in order to whitewash the market, protect consumers and ensure fair competition. This year, the company notes, a permissive regime was launched for the sale of tobacco products. When scanning the marking, the store's cashier refers to the "Honest Sign" to check whether everything is in order with the product and whether it can be sold. The correctness of the marking code, prices and other parameters are checked. According to Mikhail Dubin, during the first month of using the technology, a significant reduction in violations was recorded: sales of products with price violations decreased by 62%, sales of counterfeit products decreased. All the facts of such violations are recorded and transferred to the supervisory authorities, he points out.

Rospotrebnadzor noted that labeling also made it possible to switch to a risk-based approach to control. As Marina Kochneva, deputy head of the Department of Federal State Supervision in the field of consumer Protection, told at the Anti-Counterfeit forum at the end of 2023, three risk indicators are already working on tobacco products, and now Rospotrebnadzor is actively working to coordinate control and supervisory measures with the prosecutor's office. As a result, Ms. Kochneva explained, the service's specialists can only come to the store where there are violations and receive the necessary information by analyzing the codes on the pack and using the information when drafting procedural documents.

The effect is expected from the entry into force on September 1, 2023 and March 1, 2024 of the provisions of the new law on regulation of the tobacco market, which provides for licensing of production and turnover, as well as establishes requirements for equipment for the production of such products. Market participants expect that the new requirements will help to further squeeze illegal products from the market.

At the same time, experts point out that in order to effectively combat the illegal market, it is important to continue the joint work of the state and business to maintain a balanced regulatory environment that will ensure predictability, a long-term planning horizon and a systematic approach based on taking into account the positions of all parties involved. Such work will make it possible to counteract the creation of the very prerequisites for the formation of an illegal market, according to the industry.