North Asian Tobacco Market Grows Steadily. Include E-cigarettes(heatnot burn herbal sticks) and conventional cigarettes.

North Asia refers to the Asian part of Russia and the Siberian region, including the three regions east of the Urals, namely the Urals, Siberia, and the Russian Far East. Despite the continuous spread of the Covid-19 epidemic in North Asia in the past two years, the market is flooded with counterfeit and illegal products, but the demand for tobacco products in the region is growing steadily.

Historically, North Asia has the highest consumption of tobacco products compared to the rest of Russia and its Asian neighbors, especially those in Central Asia. The smoking population in Chukotka, the easternmost region of the Russian Far East, is currently estimated at 48%, one of the highest in the entire North and Central Asia region, according to the latest figures from the Russian Federal Statistical Service (Rosstat). In contrast, the number of smokers in southern Russia varies between 3-7%.

With a population of around 53 million people in North Asia, most analysts and manufacturers believe that its tobacco market has huge potential for further growth, with the mid- to high-end tobacco market having the most growth prospects, due to the integration with the rest of Russia and its Asian neighbors. In contrast, the average salary of North Asian residents is higher.

As such, the region has historically served the interests of both legal tobacco producers and suppliers of counterfeit and illicit products. According to a spokesman for Russian Interior Minister Vladimir Kolokorsev, the large number of counterfeit tobacco products on the market has been one of the main problems for the tobacco industry in the country’s North Asian region, and in recent years it has become more urgent. The health of local consumers poses a threat, resulting in serious losses for legitimate producers.

According to the latest data compiled by Russia’s National Research Center (NSC) on Combating Illicit Trafficking of Industrial Products, the demand for illicit tobacco alternatives has grown in recent years, with e-cigarette(heating device) shops almost doubling. The share of Tobacco Asia 63 products in the overall Russian tobacco market is estimated to be around 12%. In North Asia, the figure is much higher, estimated to be around 30%.

Denis Gagloyev, Russia director of Philip Morris International East, told Kommersant in a recent interview that in some Siberian regions, such as Altai Kraj, the proportion of illicit tobacco products is as high as 30 percent.

The Russian city of Rubtsovsk, on the Russia-Kazakhstan border, remains one of the main transit hubs for counterfeit tobacco products in North and Central Asia. According to early data from Nielsen and the Russian Interior Ministry, the proportion of illicit tobacco products in the city is 60%, and according to some unofficial figures, the proportion may be higher.

As the demand and consumption of tobacco products in North Asia is still high in Russia and post-Soviet Asian countries, one of the key trends in the market over the past few years has been a substantial increase in the sales of large pack cigarettes.

Despite measures taken by Russia to prevent the trend from spreading further, demand for large packs of cigarettes is growing among local residents, according to authorities in Yekaterinburg and Novosibirsk, the largest cities in the Urals and Siberia.

At the same time, like other Asian countries, the demand for various tobacco alternatives in North Asia has grown significantly in recent years.

Statistics from Rosstat show that the number of e-cigarette shops in North Asia has almost doubled over the past few years and continues to grow.

This also contributed to the growth of sales of disposable electronic nicotine delivery devices (ENDS) in the local market. Most of these products are illegally imported into the region, and excise tax is only on the device, and e-liquids do not need to be paid. According to analysts at the Russian Anti-Counterfeiting Association, there are an estimated 93.1 million e-cigarette(heated  herbal sticks) devices in the North Asian market, with more than 80 percent of sales coming from Chinese brand HQD.

At the same time, local authorities and the Government of the Russian Federation have recently expressed their deep concern over the continued growth in demand for smoking and tobacco products in North Asia.

To limit further growth, the local government recently introduced a minimum price for tobacco products of 108 rubles ($1.46) per pack. In addition, the government approved a 15-year anti-smoking plan in 2019 to reduce the number of adult smokers in Russia from the current 35-40% to 21% by 2035. The government is also planning to introduce a packaging that covers 75% of the area with graphic health warnings.

The government also plans to provide support to regional tobacco manufacturers, thereby reducing reliance on global tobacco producers. At present, the number of tobacco producers in North Asia is still insignificant, the Alves factory in Yekaterinburg is the largest tobacco producer in the Ural Federal District, but also the last one to stop production.

Industry analysts said the closure of the Alves factory was part of a broader trend of bankruptcies in North Asia, largely due to a drop in demand for its products – filterless rod cigarettes and mouthpieces. Another reason is the lack of investment in procuring new equipment to produce higher quality products.

In addition, North Asia is also likely to grow tobacco. So far, almost 100% of local tobacco demand has been met through imports. However, Yekaterinburg and other North Asian regions may soon start tobacco production.

The implementation of the above-mentioned plan was incorporated into the initiative of the Director of the Development Committee of the Agro-Industrial Complex of the Russian and Northeast Chamber of Commerce and Industry, Petr Chekmarev.