Carreras says devaluation, inflation hit the company hard
Impacted by inflation and devaluation costs the past few years, Carreras had been contemplating an increase in cigarette prices before new custom fees forced the company to make the move, says Marcus Steele.
The new managing director of the Twickenham Park-based cigarette distributor told Caribbean Business Report that for the past several years, as the company took a beating from successive taxation measures, it had been absorbing "as much as possible" of rising costs — cumulative 29 per cent inflation and 8.4 per cent devaluation between 2010 and 2013 — within the operations of the company.
"The truth is, coupled with cumulative inflation rates of 29 per cent, and devaluation rates in excess of eight per cent over the three years, and challenged even further with successive hikes in the rate of taxation on the business over that same period, it was becoming increasingly clear that some recovery measure had to be undertaken by the management," said Steele.
"We are charged as managers of the company to safeguard and secure a return on the investment of our shareholders," he continued. "Therefore, when now faced with an increase in the customs user fees as was announced recently by the government, the company had to do a full review of its operations and sustainability and following such a process it was determined that, to protect shareholder value, an increase in the prices of our products was warranted at this time."
Smokers started paying more for cigarettes last Monday after Carreras said it was forced to increase prices in response to the introduction of the custom administration fee on imports -- part of the $16.4-billion tax package announced by the Government last month. Cigarette lovers will now pay $5,800, 17 per cent more, for a carton of the popular Craven 'A' and Matterhorn brands, or $650 per 20 pack. A carton of Dunhill or Rothman will now cost $5,980, and $700 for the pack of 20 sticks of cigarette. Carreras has recommended a retail price of $100 for three sticks.
The new customs administration fee is scheduled to come into effect on April 1.
Carreras has long argued that heavy taxation on tobacco products in recent years has facilitated the boom in the illicit cigarette trade. The company has claimed that major players in the black market have been able to avoid taxation, making it easier for them to undersell legitimate traders and flood the market with contraband and counterfeit goods.
Steele noted that the company has gone further to clearly outline to the authorities, supported by local law enforcement officials, that there is a further direct linkage to the illicit trade in cigarettes and the organized transnational criminal enterprise operating in Jamaica and across the region. Government must take these factors seriously when making decisions, he said.
"As such, while we represent an easy target and a 'go to' for additional revenues for governments, they should thread cautiously, manage the overall industry in a joined up way -- always looking at the unintended consequences," said Steele, adding "That is why, and even in the context of facing increased levels of taxation, the company determined in times past to absorb these additional costs after extensive consideration has been given to all the other potential implications of also responding with a price increase."
Carreras introduced some new products such as the Pall Mall and Turf cigarettes to the market last year to address the illegal operators through providing more affordable products.