Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 520-539)



  520. So one of the poorest nations on earth, which was in turmoil, whose internal trade under the Taliban was almost at a standstill, women were not allowed on to the streets without wearing burkhas so presumably the opportunities for them to smoke were pretty restrictive, in all of those circumstances you thought that was a realistic amount of cigarettes to be consumed in Afghanistan?
  (Mr Dibble) It was a single digit market share in Afghanistan, and the retail price was 30p per packet, we were barely breaking even but we were establishing a sales presence.

  521. You do not think people might look at that marketing strategy with a little cynicism?
  (Mr Davis) I think some people are looking at it with a little cynicism, and with hindsight the product went to the market and did come back and the route was obviously opened up by smugglers. We had some product coming back to the UK and so we ceased supply.

  522. It is a long time since I worked in industry, I freely confess, but I did for a spell work in industry, and one of the things which people normally do very well is have a reasonably clear idea of the people they are going to trade with and what benefits are going to be coming from them, so one of the things which surprises me about this is that you entered into a trading arrangement with distributors in Afghanistan with virtually no knowledge of the country and the type of place it was, what kind of a market it was, who was likely to buy these cigarettes in Afghanistan, do you think that might have been a little naive?
  (Mr Davidson) No, our marketing manager visited the market, he came back with a market report on the brands readily available on the market. The brands which were there amongst others were international brands, so in our estimation it was a viable market for us to penetrate.

  523. What about when you discovered that most of it was being diverted back—
  (Mr Davidson) I do not think so, I think the—

  524. Why did you stop trading with them?
  (Mr Davidson) Apart from the trouble which eventually happened there, it also coincided with the fact there were some seizures so we were under a period of review. Then, simultaneously, there were the other troubles there and we have not resumed supply, but that is not to say we would not in discussions with Customs talk about resuming supply.

  525. One final point, I am told in my constituency that a lot of licensed premises have stopped selling cigarettes through cigarette machines or over the bar since there is no market for that. Have you any statistics about the effect of the collapse of sales in licensed premises?
  (Mr Davis) Not to hand, but we could certainly try and obtain some for you.

  526. You have no idea? You do not have any figures about what amounts of cigarettes end up in licensed premises?
  (Mr Davis) Most licensed premises have a cigarette vending machine. I think virtually 99, 98% of all cigarette vending machines in the UK are in licensed premises, and we can certainly research what the volumes have been.

  527. My information is that is almost certainly true, it is a historical fact, and my information is that some of them in my constituency, and maybe we are unique in this, have now decided it is not worth having a cigarette machine because people seem to be purchasing their cigarettes by other means. Do you not think that is pretty disturbing?
  (Mr Davis) Yes, obviously we would prefer to see duty-paid vending packs sold through vending machines in UK pubs.

  528. My information, and I hasten to add I am not one of them but people tell me, is that in my constituency increasingly—and the same is true for some alcohol as well—anybody who buys cigarettes in a shop or through a vending machine or through the usual channels must be a fool, because you can buy them so much cheaper out of the back of a transit van in certain parts of the town. Does that not disturb you?
  (Mr Davis) Yes, indeed, and it is very much the area we are working on, or trying to work on, in co-operation with Customs to try to eliminate the whole smuggling problem, and that is one of the corollaries of the smuggling problem, it leads to sections of the market becoming disorderly.

  529. Bearing in mind some of it is one of your brands.
  (Mr Davis) Some of it is our brands, some of it is other people's brands. At the end of the day it is not us which is causing that, and where product has come back in significant quantities we have ceased supply.

Mr Osborne

  530. Obviously quite a lot of the ground has already been covered, so I will pick up on some of the points which have already been made, but can I begin, Mr Davis, by asking you a simple question, have you ever been involved in the sale of cigarettes in the knowledge they were likely to be smuggled back?
  (Mr Davis) Never.

  531. You have never been involved in the sale of cigarettes in the knowledge they were likely to be smuggled back?
  (Mr Davis) No, I have not.

  532. The same with you, Mr Davidson?
  (Mr Davidson) Never.

  533. Mr Dibble?
  (Mr Dibble) Never.

  534. So when you sold cigarettes to Latvia, Moldova, Andorra, Afghanistan and Kaliningrad, you did not believe there was any likelihood they would be smuggled back?
  (Mr Davis) No. As I say, we were very much trying to develop export markets for our products.

  535. But this is a third of your export market, these five places.
  (Mr Davis) We are trying to become a more international tobacco company, along with the big multinational tobacco companies, that is what we aspire to be, and therefore we have to try to export our products.

  536. So you chose Afghanistan, the source of 90% of the world's heroin; you chose Moldova, the largest source of human prostitution in terms of women being smuggled into Western Europe; you chose Kaliningrad, which is notorious as a crime-ridden enclave of the former Soviet Union and is notorious as being run by criminal gangsters. You chose some pretty odd locations. You did not choose China for your export-led strategy; you did not choose India.
  (Mr Davis) It is illegal to import into India.

  537. According to your own figures you do.
  (Mr Davis) Duty-free but not Indian duty-paid.

  538. You just happened to chose Latvia, Moldova, Andorra, Afghanistan, Kaliningrad. I frankly do not believe you sold cigarettes to those countries and did not think some of it would return back to the UK.
  (Mr Davis) Please do not run away with the impression that these are the only countries we supply cigarettes to, we are talking about over a hundred countries here.

  539. Over a third of all Regal and Superkings cigarettes went to the following five destinations, Latvia, Kaliningrad, Afghanistan, Moldova and Andorra.
  (Mr Davis) Yes. Latvia is a hub market. I think we have covered the Andorra part. Latvia is a hub for many other countries in Eastern Europe. It is not that odd. These are established markets with a very—

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Prepared 10 January 2003