New Zealand's illicit tobacco market reaches a quarter of all cigarettes sold
Chelsea Daniels interviews RetailNZ CEO Carolyn Young about the findings of a new report on illicit tobacco in New Zealand.
Summary
Chelsea Daniels of the New Zealand Herald's The Front Page podcast speaks with RetailNZ CEO Carolyn Young about a new report warning that illicit tobacco now accounts for more than 27% of cigarettes consumed in New Zealand. Young identifies two key brands — Manchester and Double Happiness — sourced from the Middle East and Asia respectively, and controlled by organised crime groups. She draws direct parallels with Australia, where the same trajectory led to 125 firebombings in Victoria in a single year and where illicit tobacco now represents 75–80% of the market. Young argues New Zealand has a narrow window to act before the situation becomes similarly uncontrollable, and calls for a multi-agency illicit tobacco task force, possible licensing requirements for tobacco retailers, and a review of excise tax levels.
The conversation also addresses the impact on legitimate retailers such as dairies and superettes, which are losing customers — and associated sales of everyday goods — to nearby illicit tobacco stores, and the risk that some may be tempted to sell illicit product themselves. Young responds to a question about conflicts of interest arising from RetailNZ's membership including major tobacco manufacturers, explaining that the report was produced internally without outside influence and that tobacco companies would not have a seat at any proposed task force table.
Key Takeaways
FULL TRANSCRIPT
The scale of illicit tobacco in New Zealand
Chelsea Daniels: Illicit tobacco is quietly taking hold across New Zealand. A RetailNZ report warns the country could soon face the same violent black market spiral that's been seen in Australia. It's found more than a quarter of Kiwi smokers are using illicit tobacco, most sourced from China and the Middle East. Some cartons are being sold for as little as $15, with supply controlled by organised crime groups. So what's driving this trade and how serious is this threat? Today on The Front Page, RetailNZ CEO Carolyn Young is with us to talk about the report's findings and what action we need to take now. First off, Carolyn, tell me about the illicit tobacco trade in New Zealand as it stands.
Carolyn Young: It's actually much bigger than people think. Reports show that it's up to 27% of current sales are actually in illicit tobacco, which is quite a sizeable number. What we're seeing is that tobacco is getting through customs — it's not getting caught at the border, so it's getting into the country. And then what happens is that it's in the hands of organised crime. They set up a shop, like a tobacco store, and they're selling illicit tobacco and other tobacco paraphernalia. They operate cash only. They sell about $1.8 million worth of product in a year. And they're selling tobacco at a price point around 30 to 40% of the full price — so $13 to $15 versus $40 to $50 — a significant reduction in price. There are no controls around whether they're checking that someone's over 18. They've got them on display, so effectively advertised, which was against the legislative requirements. They're branded packets, so they're out there and seen rather than being behind a closed cupboard where you can't see them and with big health warnings on them. So it's quite a different marketplace.
And that's how it started in Australia — you had businesses setting up, popping up these stores, and they operated cheap tobacco. From there, the international gangs in Australia came in and then threatened other businesses and insisted that they sell the tobacco. And if they didn't, they would firebomb their business, they would threaten their family. That's where a lot of the crime has started from in Australia. The retail crime and the illicit tobacco crime has just escalated, with 125 firebombings last year in Victoria alone. Massive problem. And in Australia, it's about 75% to 80% of the sales that are reported to be illicit tobacco.
Penalties and the organised crime dimension
Chelsea Daniels: What are the penalties in New Zealand at the moment if someone is caught selling or importing tobacco products?
Carolyn Young: Relatively low. There's a fine of around $5,000 to $20,000, and you may get imprisonment of up to six months. These businesses run by organised crime groups aren't just doing one store. From talking to investigators in the health department, we know they could link seven stores together — you're talking about nearly $30 million a year in turnover through illicit tobacco. So six months in jail, if they get charged and caught and it goes to court and they go to prison, is a lot less than if you get caught for doing meth.
Obviously there's a difference — tobacco is a legal product that you can sell. You could set up a store without having to be licensed. You just have to comply with the legislation. Whereas meth is illegal. But we know that smoking kills and we know that it brings organised crime, which brings that violent and aggressive behaviour we've seen in Australia. Retail crime is a really big issue for retailers now. We don't want it escalating to a higher level and we don't want illegal products in the retail environment.
Chelsea Daniels: Is New Zealand seeing those early signs of organised crime infiltrating the retail sector, like what's happened in Australia with the so-called tobacco wars?
Carolyn Young: Yes, absolutely, it's already started. It's a mix, really — between a small business like a dairy selling cheap tobacco under the counter, and these pop-up tobacco stores that are solely selling illicit tobacco. The health department can control the ones they know about — they can go in and do some work, but it takes a lot of time, and more are popping up than are being caught. The escalation and the speed at which it happened in Australia was really rapid. We feel we've got this window of opportunity to actually shut the door before the horse bolts. In Australia, they put in tough legislation and tough measures once it was completely out of control, and those new measures have not brought it back to where they want it to be.
Vaping regulation as a point of difference
Chelsea Daniels: In Australia you can't buy vapes in some states — I think it's prescription only in some places — and they're being sold under the counter as well. Is that where we have a leg up, that you can buy nicotine vapes in New Zealand?
Carolyn Young: Having access to vaping as a smoke-free alternative is a really good transition from smokers into a smoke-free and non-smoking environment. It's really a smoking cessation tool, and we have adopted a different strategy than Australia and we think that's a great strategy. There might be other products that need to be considered as part of the combat against illicit tobacco in New Zealand, and because we can catch it early we've got the opportunity to investigate that further.
The interesting thing with vaping is that if you sell vape products you have to be registered and licensed — there's a whole set of regulations around that — but with tobacco you don't have to be. We know tobacco kills and does a lot of harm, and the research at this stage is that vaping is much less harmful than tobacco. So maybe there should be some look at the alignment between how vaping is sold and how tobacco is sold. If I wanted to go and set up a tobacco store, I can do that without any checks and balances at the moment. But if I wanted a vape store, I would have to go through the checks and balances.
Chelsea Daniels: You'd have to apply to the Ministry of Health for a licence and it's a completely controlled environment.
Carolyn Young: Much more rigorous. And I think that's what we indicated in the forward piece of the report — we often let products into the New Zealand environment without really setting up a regulatory regime or understanding what harm they might cause. You may be too young to remember, but not that many years ago we had synthetic cannabis come into the New Zealand market, and before it was assessed for how dangerous it could be, it was available to be sold and bought before regulations came in place. So we're saying: let's actually really understand what's needed and put the framework around it.
The case for a multi-agency task force
Carolyn Young: You need an illicit tobacco task force like what they've done in Australia. Get a round table together with experts from health, customs, police, and retailers in the room to really understand what's needed to make sure we have a safe environment and what other considerations should be looked at. Because it's not a one-trick pony — an illicit tobacco task force won't solve the problem on its own. You need a multi-pronged approach and you need everyone working together collaboratively.
Chelsea Daniels: What are some of the other prongs?
Carolyn Young: You could consider licensing — whether or not you should need to be licensed to sell tobacco. The government could consider whether we should sign up to the WHO protocols around smoke-free. You could review the level of excise. We know that one of the reasons Australia is such a target for an illicit market is because the excise is so high. Economic supply and demand works to a certain point, and if something's pushed too far, the price gets too high and the illicit market opens up. So at what level is the excise tax the right level? Assessing that and really taking that opportunity to look at it should be something that's considered. There's a range of things that need to be looked at to come out with the right protocols.
Chelsea Daniels: I think there are around 350,000 regular smokers in New Zealand today. Presumably they're the toughest group — everyone who had a chance to quit probably already has. And this is the last group who are obviously quite willing to pay $50, or not happy about it, but they do pay that exorbitant amount for cigarettes with the excise tax. It feels like there's already a cap when it comes to the excise tax.
Carolyn Young: It feels like that, but what we've seen is that the excise tax revenue has actually decreased by about 15% over the last seven months, and that's because there's less being sold — but there's not less being consumed. What we're also concerned about is that in order to meet smoke-free targets, we need to make sure that young people don't take up smoking. If people are buying cigarettes through an illicit tobacco store, they're not going to be checking whether someone's 18. Their whole point is to sell the tobacco. And at a price of $15, it's much more affordable. It's a big cost on the health system, and what we don't want to see is control of tobacco through international crime syndicates.
The two key brands and the Australian connection
Carolyn Young: We know that one of the brands comes in from the Middle East and another comes in from Asia. There are two big brands — one's called Manchester and another's called Double Happiness. They're the two key brands coming into the New Zealand market already, and they're the brands that are very prominent in Australia. So we believe there's a link between what's here and what's happening in Australia. We want to make sure that that level of crime doesn't happen in the retail environment in New Zealand.
Chelsea Daniels: Do you think consumers think about the fact that when they're happy to buy a packet of cigarettes for $13 or $15, the organised crime group importing it isn't only importing illicit tobacco — they're also responsible for meth? Do people think, "Oh, it's tobacco, it's legal, I'm just getting it cheaper"? But that money actually goes to these organised crime groups. How do you think we can get that through to people, especially during a cost of living crisis?
Carolyn Young: You've hit the nail on the head. If you take the numbers — stores selling around $5,000 a day, and they've got seven stores in their chain — that's nearly $12.8 million a year. That money's not going back into the economy. It's buying guns, it's buying meth, it's setting up meth houses, it's doing other criminal activity. That's not where we want to be heading in New Zealand. The money being made from the sale of illicit tobacco is going into other criminal activities. If you talk to the police, they're absolutely clear about what international crime gangs do and what harm they could cause in the New Zealand environment.
That education piece is important, because it will be unknown to many people. If you don't smoke, you're not going into a store to buy tobacco. You're unaware of how much they might be and what a secondary market could do to the New Zealand environment. And that's the key thing — making sure we really understand those lessons from Australia and the large level of crime that's happened over there and continues to happen, because it's a big turf war between the big gangs. The two big international gangs are causing a lot of this — they're wanting to take over areas of towns and suburbs, threatening retailers, legitimate retailers, around having to sell their tobacco in their stores, having to meet certain levels and really taking the money back through. So it's a really difficult environment for a retailer.
Conflicts of interest and the independence of the report
Chelsea Daniels: I noticed in the report that RetailNZ, as a declaration of interest, lists major tobacco manufacturers among its members. How does RetailNZ ensure important independence and credibility when addressing tobacco policy while also representing manufacturers?
Carolyn Young: We represent retail and retail-adjacent businesses — anyone that works in retail is what we represent, and we represent best practice. What we've done in the report is produce it internally. We sat down and talked to a lot of people, researched online what's been happening overseas and in Australia, talked to the police, talked to health, talked to customs. We haven't distributed the report to anyone until today. So we weren't influenced by anybody else's thinking. We don't have all the answers, but we know there's a range of things that need to be considered.
When we looked deeply into Australia and what they've done and what they could have perhaps done earlier, that's where our suggestions come from. We're saying more work needs to be done to consider how those things would play out — what would the role of an illicit tobacco task force be, what skills do they need, how much money do they need, how would they attack this problem, and how could a framework be used to assess other new products that might come into New Zealand. So that roundtable is really critical, and having people from health, police, and customs on it — the tobacco companies wouldn't be at the table. They're not there. This is about policy and understanding how to combat illicit tobacco in the New Zealand market.
Chelsea Daniels: Presumably tobacco manufacturers would want shopkeepers to be safe when legitimately selling their products.
Carolyn Young: Yes, and I think — obviously I can't speak on their behalf — but what we do know is that we support, and my understanding is that they also support, the smoke-free legislation. Their market has a declining sales space anyway, because we know we're trying to have fewer people smoke because of how harmful it is. But what we're wanting to make sure is that it's a safe market and that we don't have threats of violence to people's families and businesses, firebombs and things like that happening in the New Zealand environment.
Impact on legitimate retailers
Chelsea Daniels: What have you been hearing from people on the ground at the coalface?
Carolyn Young: The challenge for businesses is that in some areas one of these tobacco stores has set up right next to a superette or a dairy or someone that sells tobacco. And so they're losing customers. The customers that come in and buy a packet of cigarettes might also buy the paper, a bottle of milk, and a loaf of bread. Now they're not getting any of those sales because people are going to the illicit store and then going elsewhere for the other items. So they're losing sales of everything adjacent to the cigarettes they're selling. It just makes it a much harder environment for them to stay open without, I guess, turning to the dark side — going next door and saying, "Can I buy some of those cigarettes?" Because if you can't beat them, you join them. And we want to make sure that's what doesn't happen here.
Chelsea Daniels: Have you heard of any instances in New Zealand where shopkeepers or dairy owners have been threatened and told they must sell this product?
Carolyn Young: Personally, I haven't heard that, but there may be some information from some of the health investigators — they may have found some of that. Because that's what's happening in Australia, and that's the next phase that rolls through. And this is where we're saying we've got this window of opportunity to take action.
We have sent the report to the Minister, and the Minister has reviewed the report, is supportive of our findings, and is wanting to do some work around getting police, customs, and health together to understand how we could get better outcomes than what we're getting currently.
Chelsea Daniels: Thanks for joining us, Carolyn.
Carolyn Young: Thank you very much.