Piping Up
Ruth Gunning, board director of the European Shisha Community Alliance, discusses the challenges facing the water pipe tobacco sector in Germany.
By Stefanie Rossel
While still a niche, shisha has become more popular in Germany in recent years. The country is the largest market for water pipe tobacco in the European Union, with entrepreneurs introducing many new shisha brands. Germany is also home to large communities from Turkey and the Middle East, where smoking shisha has historically been a popular pastime. Many Germans try shisha on holidays in Turkey, Egypt or Dubai and subsequently seek it out when they return home.
According to estimates by the European Shisha Community Alliance (ESCA), smokers consume about 5,500 tons of shisha annually in Germany. A quarter of it is consumed in the country’s approximately 6,000 shisha lounges. But the market has a severe black market problem—around 45 percent of water pipe tobacco is nonduty paid or counterfeit.
As part of the country’s recently passed tobacco tax reform, the German ministry of finance will increase taxes on shisha tobacco by an additional €23 ($27.24) per kilo by 2026. Furthermore, pack sizes will be limited to 25 grams from July 1, 2022.
Tobacco Reporter spoke with Ruth Gunning, head of EU engagement for shisha manufacturer Al Fakher and a board director for the ESCA, about the challenges facing the sector.
Tobacco Reporter: Water pipe smoking is a social activity, with much of it taking place in shisha lounges. Which impact has the Covid-19 pandemic had on the German shisha market?
Ruth Gunning: It has been an extremely difficult period, and unfortunately the relief has been slower than originally anticipated so far in 2021. Many of our members have been unable to operate—lounges due to the restrictions that have been put in place and some retailers have had to remain shut due to the nonessential nature of their business. Not just in Germany but across Europe. Much of the use was driven into the home.
As the hospitality sector was allowed to reopen, initially with outdoor areas being most popular, we started to see more anti-tobacco groups being very vocal about banning outdoor smoking and linking it to the spread of Covid-19 despite having no evidence to support this. Shisha is nothing like cigarettes, yet these groups seem to conveniently forget that people’s livelihoods are fully reliant on the shisha sector operating at full capacity. We estimate that there are about 65,000 people across Europe with jobs that are dependent on the shisha category. ESCA has had to work hard with its members to try to ensure that shisha bars and lounges are afforded the same opportunities for reopening as others in the hospitality sector. All of our members are fully committed to upholding extensive hygiene standards to ensure their customers are protected and feel safe.
Amid the crisis, Germany, uniquely in the EU, passed a law to reduce the packaging size for shisha tobacco to 25 grams in order to curb illicit trade. What is your take on this measure?
We support any efforts to help to reduce the problem of illicit trade. The problem with this new proposal is that it requires significant enforcement, which will undoubtedly not happen. It also doesn’t properly address the growing problem of illicit [trade]. Enforcement in Germany, particularly in lounges serving illegal product, is very low, and now with the increase in prices for consumers, the incentive for smugglers will grow and/or people will buy elsewhere, i.e., in countries where they can access larger pack sizes at cheaper prices.
What impact will this regulation have on manufacturers?
Complexity and cost. This new size will require a reconfiguration of the production process in factories. New equipment and materials will be required, and Germany will be the only country to have this, which will be costly. Manufacturers who are hardest hit by illicit [trade] may face real challenges in protecting the legal market if the government does not step in and enforce its new laws.
What does it mean for shisha lounge owners?
Again, it’s a question of enforcement. Many lounge owners are legally compliant; they are already required to serve only 20 gram packs to consumers. But because there is a lack of consistent enforcement, those who seek to abide by the law lose out. They already compete on an uneven playing field.
Will the new rules help reduce tobacco consumption in Germany?
The more restrictions are placed on products like shisha, the more the illegal market grows—and with that comes an added risk to consumers. Therefore, I don’t think added restrictions will reduce tobacco consumption; it will merely drive it underground.
Germany and Europe’s aim to reduce tobacco use is totally understandable. And in fact, globally, many people recognize that a move from combustible to heated products can be beneficial. However, it is important to remember that shisha is very different from cigarettes. Shisha is heated at a much lower temperature compared to cigarettes, which are burnt, and the aerosol produced when shisha is heated comprises 60 percent water vapor compared to 15 percent in cigarette smoke.
According to the Federal Institute of Risk in Germany, on average, people in Germany use a shisha once or twice a week. If you compare this to cigarette use, where on average users can smoke 20 [cigarettes] to 30 cigarettes a day, the difference in consumption pattern is staggering. The exposure to tar, nicotine and carbon monoxide over a one-week period for average shisha smokers is far less than that for average cigarette smokers. Shisha is much lower on the risk continuum than cigarettes, and as governments aim to reduce cigarette and combustible tobacco use, they should not apply the same regulations to shisha.
Whilst shisha is a tobacco product and is not harmless, it is used very occasionally, it is a social activity, and it has cultural and historical roots. Shisha consumption is a lifestyle choice for adults, is a force for good and is part of an inclusive society.
Your association estimates that illicit product accounts for more than 45 percent of the German shisha market. How does this compare to the situation in other EU markets?
It’s not the worst in the EU because the taxes are not the highest when compared to other countries. However, with the newly imposed excise hikes, this will likely change from January 2022 onward. The biggest factor driving the illegal business in Europe is the EU’s position on shisha taxation. At the moment, shisha is taxed in the “Other tobacco” category, which includes pipe tobacco, cigars and cigarillos. These are very different products to shisha in terms of use and market size. The range of taxes in the EU goes from €22 per kg to €250 per kg. This, combined with the open borders, causes a great deal of instability in the shisha tobacco market. The French market, for example, has 85 [percent] to 90 percent illegal shisha, and that is solely because the tax is so high. Spain, on the other hand, is almost 100 percent legal because it has reasonable taxes. This provides the Spanish government with full control over the sector.
Many countries, such as Russia and now Germany, have introduced a special tax category for shisha alone. But more is needed. In addition to its own tax category, ideally, shisha should be taxed based on the percentage of tobacco contained in the shisha. Shisha only contains about 15 percent tobacco and should be taxed based on this. In Russia, they switched to a tax system that only taxes the actual tobacco content, and they converted the market from almost 100 percent illegal to 100 percent legal in a short period of time.
What, in your view, would be a better solution to tackle black market for hookah tobacco?
The most obvious solution is to apply excise according to the weight of the tobacco. This would bring prices down and significantly reduce incentive for organized criminal gangs to smuggle and counterfeit shisha products. Additional sensible solutions are to stock, prepare and serve shisha in sight of the consumers and from its original packaging. This requires enforcement by authorities and also a desire by consumers to be served genuine product. Consumers should demand certain standards. Introducing a licensing system for shisha lounges with license renewal to be subject to compliance performance—for example, with withdrawal of a license after three infringements—would also be a possibility. Furthermore, there should be regular inspections of inventory and significant fines for those involved in selling illegal products.
Which countries have handled this issue most successfully and could serve as an example?
Spain is really the best example I can give. In addition to the steps outlined above, another known and proven way to get illicit trade under control and to meet the objective of protecting public health is to ensure that the tax rate takes into account the rates in neighboring countries, tax increases are planned over the long term and are increased in regular and small increments and close cooperation between industry and authorities. Additionally, enforcement and penalties should be strong enough to act as a deterrent. A legal market is easier for the authorities to monitor, and legal manufacturers are obliged to follow all product, packaging and marketing regulations, which strengthens the authorities’ aim of protecting public health. Criminals that are involved in the illegal trade of shisha don’t follow any regulations or laws, and the authorities cannot monitor the product as it is mostly sold out of sight and “under the table.”
What about the future of shisha in Europe?
The next big piece of legislation that we need to be prepared for is the revision of the Tobacco Products Directive. The EU has already stated that it aims to ban flavors for all tobacco products. Shisha is inherently flavored; therefore, it would act as a de facto ban of the product. That would be disastrous for thousands of businesses across the EU, deprive EU citizens of the ability to legally consume shisha and exacerbate an already flourishing illegal market.
