The Economics of Tobacco in Italy

Italy has a state monopoly on tobacco called Amministrazione Autonoma dei Monopoli di Stato (AAMS) translating to the Administration of the State Monopoly Autonomy, a branch of the Ministry of Finance, which began in 1927. It makes cigarettes under license, distributes products from overseas in partnership with manufacturers and looks after the production and marketing of Italian tobacco and tobacco-based products. Its premier brand, and Italy's best-selling cigarette, is MS (Monopoli Stato= State Monopoly). Cigarettes are not sold anywhere but only at stores called "Tabacchi"and the prices are fixed. Tobacconists sign nine-year contracts with the state for their licenses. The monopoly's market shares show that Philip Morris has increased in shares and the AAMS has decreased (35).

Tobacco Store/Bar
Italy: Cigarette Market Shares, % (35)
Company 1995 1996 1997
AAMS 40.3 39.0 37.6
Philip Morris 51.9 52.0 53.8
BAT 2.5 2.6 2.9
R.J. Reynolds 2.1 2.2 2.7
Others 3.2 3.5 3.0
Italy plans to privatize the industry so the government created the Ente Tabaccchi Italiani (ETI) to replace AAMS because the AAMS suffers from poor management, outdated production methods, excess capacity and lack of investment. The ETI would create one or more companies to be floated on the stock market with a quota of shares reserved for the public. To combat employees fearful of losing jobs, the ETI decided that the employees will continue to work formally for the AAMS but will be deployed to the ETI. However, Roberto Vicentini, a trade unionist, believes it will never be totally privatized because "nearly three quarters of the sale price of tobacco is direct revenue for the state in the form of tax charges and excise duty."(35).
Italian tobacco farmers believe that the new tobacco regulations could link the premium given with the quality of leaf produced. They feel that only through quality tobacco, can the industry face competition from lower-priced foreign tobacco and that the EU needs to support the tobacco sector because it provides jobs in areas with no alternative industries.
  • Italy has an all-types quota of 132.800mkg (EU's biggest producer) (1).
  • Italy and Greece are the main producers of raw tobacco: 75% of the total EU production.
  • In 1986, Italy produced 145,000 tons of tobacco (1.1% of total agricultural production) and had 64,000 tobacco growers selling 30% to manufacturers, which is being taken up by the state monopoly.
  • Production doubled from 1971-1981 and has increased by 25% from 1985-1989 (27).
  • In 1997 the tobacco industry had 90,758 tons in volume sales with cigarettes dominating the tobacco market comprising of 98.9% of volume sales (26).
  • In 1998 Italy had sales of 92.3kg of tobacco with cigarettes accounting for 98.5% of sales out of a total market of 21,353 billion Italian Lira (11).
Italy warns the EU that a reduction of tobacco-production in the EU would not affect amount of smoking, but instead would cause the level of leaf imports to rise (1).

  • Tax per pack of cigarettes in Italy (US Dollars, 1995): $1,597
  • Excise domestic tax (lire per kg or 1000 cigarettes, 1999): Lit 7280000
  • Excise foreign tax (lire per kg or 1000 cigarettes, 1999): Lit7 280000
  • Domestic ad valorem tax (1999): 54.27%
  • Foreign ad valorem tax (1999): 79.2% (38)

With high taxes and prices favoring local cigarettes, smuggling becomes a big problem.

  • Smuggling accounts for 10-12% of cigarette sales and sometimes rising to 15% or 50% (in Naples).
  • Revenue is lost and, therefore, unavailable for social benefits (1).
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