Decoding Emerging Markets in Latin America: Leveraging Paraguay to Support Brazil's 9 Billion Market?

If we want to define a rise path for the electronic cigarette consumption market globally, the answer may be to extend from North America, Western Europe, Japan and South Korea, the Middle East, and Southeast Asia all the way to Latin America. Nowadays, Southeast Asia has become the strongest growing regional market, and the degree of competition is increasing day by day. Therefore, more and more companies are turning their attention to Latin America, attempting to establish an advantage first. However, compared to the openness and friendliness of Southeast Asia, the Latin American market appears extremely complex. On the one hand, the Latin American market tends to be conservative in terms of e-cigarette regulation as a whole, with most of the major economies in the region implementing e-cigarette bans; On the other hand, due to inadequate enforcement of bans and rampant smuggling, a highly prosperous black market for e-cigarettes has emerged - Brazil is such a typical market. This time, we will use a tweet to comprehensively review the Brazilian e-cigarette market, from its regulatory status and public opinion orientation to the current status of the e-cigarette market, providing reference for e-cigarette companies interested in seeking gold in Latin America. In a nutshell, Brazil is definitely not a simple electronic cigarette market.
Starting from 2009, the ban has been implemented, and the call for lifting the ban has limited influence
Since 2009, Brazil has been implementing a ban on e-cigarettes - prohibiting the sale, import, and advertising of e-cigarettes. That year, the National Health Administration issued a ruling opposing the commercialization of e-cigarettes. Brazil's ban on e-cigarettes is related to its consistent strong smoking control policy. Brazil is considered a smoking control model and the only country to follow all WHO recommendations on smoking control, including education, consumption bans, and taxation. As a result, the smoking rate in Brazil has plummeted by about 70% in the past 30 years, to 12.6% in 2019.
Although Brazil implements a ban on e-cigarettes, the use of e-cigarettes is not illegal, and e-cigarettes are becoming increasingly popular in Brazil. According to Ipec Intelligence data, in 2018, only about 500000 adults in Brazil tried e-cigarettes, exceeding 940000 in 2020, and further increasing to over 2 million in 2021, an increase of over 300%; According to Jaime Recena, Director of Government Relations at the Brazilian Bar and Catering Association, based solely on an estimate of 2 million e-cigarette users, the Brazilian e-cigarette market has reached a scale of approximately 7 billion reais per year.
A telephone survey called Covitel shows that currently 19.7% of Brazilians aged 18-24 use e-cigarettes; In terms of gender distribution, 10.1% of males are e-cigarette users and 4.8% are female users; The region with the highest number of e-cigarette users is the central and western regions, accounting for 11.2% of the population in the region; A survey by Datafolha in February 2022 showed that 3% of Brazilian adults use e-cigarettes daily or occasionally, with the majority coming from smuggling; Based on the current total population aged 18 and above, Brazil may already have approximately 4.7 million e-cigarette users.
In the face of the popularity of e-cigarettes, Brazil has always had calls for lifting the ban, but its influence is limited. Due to the continuous changes in the global issue of new types of tobacco, the emergence of new academic research, and even the promotion of the e-cigarette industry, the National Health Supervision Administration has been regularly reviewing existing e-cigarette regulatory measures since 2017. However, according to local media in July 2022, the Brazilian National Health Supervision Administration still voted to maintain the ban. According to local media reports, only one person voted against the meeting - Philip Morris' lawyer.
Monica Andreis, Executive Director of ACT Promo ç ã o da Sa ú de, a non-governmental organization specializing in tobacco control policies, opposes the legalization of e-cigarettes in Brazil. She points out that "Brazil plays an important role in tobacco control policies in Latin America and even around the world, and the decision of the Brazilian National Health Inspectorate may affect other countries in Latin America
Stella Bialous, a Brazilian tobacco expert and professor at the University of California, San Francisco, has always been opposed to lifting the ban on e-cigarettes. He has publicly stated, "Once e-cigarettes are allowed to be commercialized by law, they will enter the distribution network of tobacco companies, which have one of the best distribution systems
Retail channels cover both online and physical channels, making "micro commerce" the norm
From the above background, it seems that the sales of e-cigarettes in Brazil all give people a sense of "underground trading" and "black market perception", but this is not the case. Electronic cigarettes have always been available in Brazilian e-cigarette stores, supermarkets, tobacco merchants, online shopping platforms, and even music halls and gas stations, and there are even well-known chains among them.
A typical case is Carrefour. On September 1, 2022, the Brazilian Ministry of Justice and Public Safety issued a ban in the official gazette, requiring 32 retailers nationwide to stop selling e-cigarettes within 48 hours, otherwise a fine of 5000 reais (approximately $969) per day will be imposed. It is worth noting that the Ministry of Justice and Public Security directly ordered enterprises to stop selling electronic cigarettes, including the well-known supermarket chain Carrefour, which is the largest supermarket chain in Brazil, with more than 1000 chain stores, accounting for 25% of the domestic retail market in Brazil.
It is worth noting that the objects named in this ban include chain supermarkets such as Carrefour and EXTRA, e-commerce platform OLX and second-hand e-commerce platform Enjoei, and even Internet cafes and snack bars in Caetite region, where the population of Bahia in northeastern Brazil just exceeds 50000. Although the Ministry of Justice and Public Security of Brazil has not published the screening criteria for this warning list, But this largely indicates that the sales of e-cigarettes have basically spread throughout Brazil.
In addition to chain supermarkets, tobacco stores are also one of the main sales channels for e-cigarettes in Brazil. In March 2022, Brazilian media reported that in the Pinheiros region of western S ã o Paulo, e-cigarettes and tobacco oil must occupy at least four shelves of tobacco stores, with prices ranging from 60 to 680 reais, with the cheapest being disposable. According to the interviewee, as of the time of the report, e-cigarettes had been sold locally for over 3 years.
In addition to legitimate chain stores and other physical channels selling e-cigarettes, the emergence of "micro commerce" is also one of the current situations of e-cigarette retail in Brazil. According to local media reports in Brazil, they mainly sell disposable products with an export volume of 800, purchasing from Paraguay where e-cigarettes have been legalized at a price of 30 reais and selling at a price of 60 reais.
Ant Moving Freight - Paraguay has become the bridgehead of Brazil's e-cigarette black market
From the above, it can be seen that although there has always been a clear ban on e-cigarettes in Brazil, it is actually non-existent - a relatively strict restriction may be that e-cigarettes are not allowed to be used in non-smoking places. In fact, based on the current laws and regulations in Brazil, the possession and use of e-cigarettes have never been prohibited - it can be done without legal prohibition, providing a basis for the legitimate consumption of e-cigarettes in Brazil.
The thriving import and export trade, coupled with the compact nature of e-cigarettes, has led to a large number of e-cigarettes entering Brazil through smuggling channels.
According to data from the Brazilian Federal Taxation Bureau, the amount of e-cigarettes smuggled increased by 600% from 2020 to 2021. Among them, the amount of e-cigarettes seized in South Mato Grosso Oblast in 2021 was close to 5 million reais, while the amount of e-cigarettes seized in Parana Oblast in 2022 increased by more than twice compared to the previous year - two entry ports bordering Paraguay.
As one of the few countries in the Latin American region with clear legal status for e-cigarettes, Paraguay is currently the main source of e-cigarettes in the Brazilian market.
According to relevant reports, the routes for smuggling e-cigarettes into Brazil are as follows: e-cigarettes produced in China enter Paraguay, which is legal for e-cigarettes, and then enter Brazil in a form similar to "ant relocation". After entering Brazil through two ports bordering the states of South Mato Grosso and Parana, they are concentrated in the central Brazilian state of Goas, which serves as a warehousing and logistics center, and are connected to highways in the northern, northeastern, and southeastern regions of Brazil, Distributed to various parts of Brazil - currently two ports and warehousing logistics centers, Goas, have become a key hit area in Brazil.
In other words, the market size of Paraguay's e-cigarettes may largely represent the sum of its domestic market and the Brazilian black market.
Brazilian e-cigarette market category preference: open+disposable
Due to the unique channel nature of Brazilian e-cigarettes in the black market, there is currently no comprehensive and accurate data on the Brazilian market. However, based on the data from Paraguay, the upstream channel of Brazilian e-cigarettes, as well as the e-commerce platforms operating in Brazil, as well as a large number of officially announced cases of smuggling e-cigarettes, it is not difficult to see the category preferences of the Brazilian market.
Open smoke still accounts for a significant proportion in Brazil. Open type large smoke is the main category of electronic cigarette stores, occupying a high proportion of display. The main brands include VOOPOO, VAPORESSO, GEEKVAPE, SMOK, Eleaf, and other brands; In non e-cigarette monopoly channels, large quantities of over 1500 cigarettes dominate at once, with brands including VAPESOUL, ELFBAR, IGNITE, NIKBAR, BalMY, Xtra, Yuoto, etc.
The above is a brief summary of the current situation of the Brazilian e-cigarette market, which can be summarized as the increasing demand and the lack of legal regulation, resulting in a multi billion level black market. This means that any enterprise that wants to enter this market faces various uncertainties and unknown costs. We still believe that legal compliance is the prerequisite for the sustainable, healthy and orderly development of overseas e-cigarette enterprises.