'Grabba' smokers a new headache for Carreras

McPherse Thompson, Assistant Editor - Business

The cigarette market is experiencing a culture shift with a resurgent tobacco farming sector that has spawned the 'grabba' phenomenon and retail tobacco entrepreneurs, as smokers hunt for less costly alternatives to feed their habit.

It's just one more headache for Jamaica's top cigarette company, Carreras Limited, whose sales have wavered and its market tested by a liberally applied excise tax policy and smugglers.

Carreras' revenue fell 13.6 per cent to J$2.58 billion for the quarter ended June 2011, while net profit decreased by 22.3 per cent to J$523.4 million, according to its latest financial results released to the Jamaica Stock Exchange.

Managing Director Richard Pandohie said Monday that Carreras' sales volume continued to be negatively impacted by a number of interconnected variables, including the ongoing illicit trade, and its defensive cigarette pricing policy as a consequence of taxes imposed on the product in 2008, 2009 and 2010.

Smuggling a problem

The 2008 taxes resulted in a 100 per cent increase in the price of cigarettes, another 30 per cent increase in May 2009, and an additional 30 per cent in January 2010.

"Smuggling bypasses the whole tax structure, and if you can beat the tax system, you are well on your way to making a lot of money," he said, referring to the illegal trade in foreign-made cigarettes imported into Jamaica.

Pandohie said Carreras' market was also being impacted by 'grabba' sales, which has become part of the popular culture.

"You see it in the dancehall, hear about it in music," he said.

Grabba refers to tobacco sold in small packets by traders or vendors, which is then hand-rolled into cigarettes. The packets are traded by informal as well as former sellers. (See Sunday Business for more).

The grabba packets retail for as little as J$10 to J$20, the amount required for a single roll, while cigarettes cost between J$600 and J$700 per pack of 20, or J$30 to J$35 per stick.

On the more traditional problems of high taxes and illicit cigarettes, Pandohie said Carerras would continue lobbying the various stakeholders, including the contraband enforcement team in the Customs Department to put a dent in the illegal trade.

New product at testing phase

The company also recognises that it has to become a lot more commercially savvy.

Pandohie said the company was exploring the commercial possibilities of introducing a new product to more effectively compete in the present market, but was still at the testing phase.

Carreras' secondary line of revenue, interest and investment income grew by 26.6 per cent to J$35.2 million in the June quarter, in line with the company's expectations.

The company said that despite the challenging environment and the lower net income for the period under review, the board has approved an interim dividend of $1.50 per stock unit to be paid out of accumulated profits on August 25.

Carreras has also advised shareholders that the Financial Services Commission has approved the winding up of the group's superannuation scheme.

mcpherse.thompson@gleanerjm.com