Examination of Witnesses(Questions 520-539)
MR GARETH
DAVIS, MR
BRUCE DAVIDSON
AND MR
JOHN DIBBLE
WEDNESDAY 19 JUNE 2002
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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