Wednesday 13 June 2012


As tobacco excise rises, so too do incentives to grow illicit tobacco for excise-free sale.

I'm a bit surprised that the fine for rather serious excise evasion was this low:
A 60-year-old Motueka man has been convicted and fined $6000 for illegally growing tobacco leaf.
Lawrence Reginald Jury apppeared in the Auckland District Court on Monday charged with being a party to the unlawful manufacturing of tobacco.
In 2010, Customs officers searched Jury's address and found 4,790 kilograms of tobacco leaf.
Customs says that would represent almost $2 million in revenue if the tobacco leaf had been manufactured at the time.
Spokesperson Shane Panettiere says Jury was providing flue-cured leaf to a person who he knew was unlawfully manufacturing tobacco.
Ross Ferguson, 64, of Wellsford was convicted and fined $1500 for unlawfully manufacturing tobacco with Jury.
This level of penalty can be efficient if there are large nonpecuniary costs associated with any conviction and if the probability of being caught conditional on growing illicit tobacco is very high. I don't know how obvious illicit tobacco production is, nor do I know whether it's more expensive to hide than illicit marijuana production should enforcement ramp up with excise increases. But I am a bit surprised that Radio NZ gave this one the headline "Illegal tobacco crop ends in hefty fine". I'd have expected fines more proportionate to excise avoided - perhaps even multiples of the avoided excise if the probability of detection isn't that high. But maybe there were extenuating circumstances about which I'm unaware; there's suggestion that the growers intended the grown tobacco for other uses. @MarkHubbard reminds me that IRD will likely be pursuing separate action; I'll be interested to see what the final penalties are.

I still think it would be fun to try to benchmark the elasticity of illicit tobacco supply by comparing sales of loose tobacco with sales of filters or tobacco papers as excise changes, correcting for time trends in reported marijuana use. Alas, I don't think there's available data on consumer purchases of 'roll your own' supplies.


  1. On difficulty of concealment:
    They are big plants, and the revenue per kg isn't all that high, so you'd have to cultivate a reasonable area to make some money. What they found was about 2 ha of tobacco (using Virginia data - Plus, in tobacco-growing areas we could always smell it curing.

    1. Fines don't need to be high if probability of detection is high. Revenue per kg will go up with excise, but nowhere near revenue per kg you'd get from marijuana.


  2. Quite true above about concealment, growers of tobacco were worried from the start,they had a conference, and think now it just better to switch smokers over to dope, the transfer of addiction means quantity levels of medium quality dope required, growing several plants at a time is easy to conceal.
    Biggest difficulty is owning the land, and proving you don't know nothing, some farmers can be absent