US tobacco giant Philip Morris has shut down its two factories in Colombia partly because of illegal cigarette sales, highlighting a spike in contraband cigarettes.
Coltabaco, a subsidiary of multinational Philip Morris International, announced on June 5 that it had shut down its cigarette factories in Colombia, eliminating some 800 jobs in Medellín and Barranquilla. The move also hurts Colombian tobacco growers, though the company said it will honor all its pending contracts with growers and will provide them with a stipend to help with the transition to other crops, according to a company news release. The company purchased about 50 percent of the country's tobacco crop.
Black market cigarettes have surged in Colombia recently. Last year, illegal cigarettes accounted for 25 percent of the market, nearly double the amount in 2016. A recent increase in the tax on cigarettes has made it difficult for legal manufactures to compete on price, according to a recent study by a Colombian trade association. A pack of contraband cigarettes can be purchased for 2,740 pesos, or less than $1, about half the price of a legal pack.
The illegal cigarette trade costs Colombia some $144 million in taxes. The contraband cigarettes are most popular in poor, rural regions of the country where nearly half of the packs sold are from black market sources.
InSight Crime Analysis
The illegal cigarette trade in Colombia is concentrated in northeastern departments near the Venezuela-Colombia border -- a major smuggling route for all kinds of contraband.
More than three-quarters of the cigarettes sold in the departments of La Guajira, Cesar and Magdalena are trafficked, according to the trade association study. Some 80 percent of illegal cigarettes are distributed in small neighborhood stores. La Guajira is also a hotspot for gasoline smuggling.
It’s unclear whether any single criminal group is behind the increase in cigarette smuggling in Colombia, but this region is where the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia – FARC) used black market cigarettes to launder drug money.
Cigarette smuggling is not only a problem in Colombia but is widespread in Latin America. Paraguay’s Ciudad del Este -- a city near the Tri-border Area of Paraguay, Brazil and Argentina -- has long been a haven for smugglers moving cigarettes. Panama and Belize are cigarette smuggling hubs in Central America. And Mexico sees massive trade in smuggled cigarettes, with even major criminal groups seen to be cashing in on the business.