A recent conversation with executives from Souza Cruz mentioned contraband entering Brazil from Paraguay had decreased slightly and was now 14-17 billion – no more than this.

We thought this number a significant under-estimation.

Contraband – now 500,000 cases from Paraguay

Recent sources confirmed an estimated 500,000 master cases every month arriving in Brazil from Paraguay.

This increased from 400,000 and is more than likely caused by the recent closure by Receita Federal of several Brazilian cigarette producers.

Ironically, the closure has not benefitted the local suppliers but has migrated rapidly to Paraguay.

While Brazil insists on a disproportionately high tax burden for cigarettes in comparison to its neighbours this is likely to continue.

The Brazil market is estimated to be around 150 billion cigarettes 60 billion of which now come from Paraguay.

That’s an estimated 7 billion Reais in lost tax revenue.

Brazilian Government closes more plants…………………

The Brazilian tax authorities shuttered Phoenix – an independent cigarette producer in Sao Paulo – last Wednesday, July 16.

This makes five independent plant closings in 14 months – American Virginia’s Rio plant, Sudamax near Sao Paulo earlier this year, Cibahia in Sao Paulo a few months ago and Cibrasa in Rio around the same time, representing an annual volume of around 20 billion cigarettes.

If the taxes truely were not being paid you may be pleased but in Brazil it is not that simple.

The lost volume will not be recouped by the Brazilian Government but will be picked up by the many Paraguayan producers who’s product manages to arrive in Brazil – despite efforts to prevent them.

85% of Brazil’s cigarette price is taxes; so it is easy to see this represents about 2.5 billion Reais (or almost $1.6 billion.)

In this case the only viable way to reduce the contraband entering Brazil is to moderate the tax difference. You can increase the cigarette tax in Paraguay (already it contributes 10% to Paraguay’s gross tax receipts) or reduce it in Brazil.

The remainder of Brazil’s independents are probably feeling a little nervous right now – after all who’s next?

Does Souza Cruz’s ex-President – Flavio de Andrade – own Veneto Tabacos, Paraguay?

That Dante Letti has suceeded Flavio de Andrade as President of Souza Cruz is fact. Less clear is the exact reason why Flavio departed. Was he passed over for a promotion as has been rumoured or was it the discovery of his covert ownership of Veneto Tabaco – one of the top four producers in Paraguay. If correct, this is sensational news. But is it correct?

It has been rumoured for years that “senior management of Souza Cruz” may be involved in one of the cigarette manufacturers in Paraguay.

That’s all – just a rumour.

Until recently it was thought Luiz Santi was the owner of Veneto. Luiz used to work for Souza Cruz in Paraguay and is said to know Flavio well from when they worked together in sales and marketing.

Nothing remarkable as plenty of ex Souza Cruz employees have found refuge in the tobacco business in Paraguay.

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