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Sneaking a Smoke – Paraguay’s Tobacco Business Fuels Latin America’s Black Market

As a small country of 6.9 million inhabitants, Paraguay rarely draws international attention. Unlike some of its neighbors, it does not face debilitating violence, nor is it overwhelmed by paramilitary or gang activity. In fact, Paraguay has enjoyed economic growth in recent years. But beyond its apparent normalcy, the nation is grappling with pervasive corruption and organized crime.

One particular sector seems to play a significant role in the nation’s corruption-related challenges—Paraguay’s tobacco industry. According to a 2009 study by Uruguay’s Tobacco Epidemic Research Center (CIET), Paraguay accounts for approximately 11 percent of the world’s supply of contraband cigarettes. Paraguayan cigarette manufacturers produced 68 billion cigarettes in 2006, more than 20 times what the country consumes. Estimates suggest that 90 percent of the nation’s production—worth an estimated $1 billion—disappears every year to the black market.

More recent figures paint a similar picture. In 2013, the International Tax and Investment Center (ITIC) put Paraguay’s illicit production at 65 billion cigarettes per year, many times higher the country’s annual domestic consumption of only 2.5 billion. In other words, Paraguayans are puffing away on less than three percent of the nation’s output. A KPMG study commissioned by British American Tobacco from May 2015 pegged the country’s domestic consumption even lower, at 0.78 billion cigarettes smoked in 2014.

In most cases, smuggled Paraguayan cigarettes head to the black market in Argentina, Brazil, and Uruguay. Some have been found as far away as Colombia, Mexico, Panama, Venezuela, and even Europe. Paraguayan cigarette brands represented 73 percent of the total illicit…