A monopoly is a market situation in which a single seller controls the entire supply of a good or service, thereby preventing competition. In Italy, the tobacco monopoly is a well-established and regulated reality, with the State choosing to intervene directly in the cigarette and tobacco product market for historical, economic, and public health reasons.
First, let’s clarify which products are relevant to this topic. Nowadays, there is considerable confusion about the concepts of tobacco, cigarettes, smoking tobacco, electronic cigarettes, and similar items.
To be consistent, we refer to the definition provided directly on the website of the ADM, the Italian Customs and Monopolies Agency, which defines what processed tobaccos are (i.e., products subject to monopoly regulation):
“Processed tobaccos, according to both EU and national legislation, are subject to excise duties. The following are considered processed tobaccos:
Cigarettes
Cigars
Cigarillos
Finely cut tobacco for rolling cigarettes
Snuff and chewing tobacco
Other smoking tobaccos (pipe tobacco, waterpipe tobacco, plant-, herb- or fruit-based smoking products such as hookah molasses)
Inhalable tobaccos without combustion”
History of the Monopoly
The monopoly in Italy has deep roots going back centuries and has undergone many transformations over time. The salt tax is perhaps one of the oldest forms of taxation. Since ancient times, monopolies were created to regulate prices, control intermediaries’ profits, and subject those profits to taxation.
In Ancient Rome, salt was so valuable that soldiers were paid with it—hence the word salary, still in use today.
The division of Italy into small states had previously led to varying forms of tax collection. After unification, it became necessary to standardize all existing tariffs.
The foundational law regarding the Salt and Tobacco Monopoly is Law No. 710 of July 13, 1862. However, another Law No. 710 of April 21, 1862 (later amended by Law No. 1356 of July 7, 1863) established a new tariff for salt and tobacco prices, turning them into an indirect consumption tax collected through fiscal exclusivity.
This decision was taken for several reasons: primarily, tobacco was seen as a significant source of tax revenue. Moreover, state control allowed regulation and limitation of tobacco use, which was already known to have negative health effects.
Over the centuries, the tobacco monopoly underwent several changes. In the post-unification period, it was reaffirmed and strengthened to stabilize Italy’s public finances. In the 20th century, new laws and regulations were introduced to adapt the monopoly to evolving economic and social conditions.
With Royal Decree-Law No. 2258 of December 8, 1927, the State Monopolies Administration was established to manage the monopoly services for the production, import, and sale of salt and tobacco, and the production and sale of state-owned quinine. This institution deeply affected Italy’s social and economic landscape, contributing to the development of new manufacturing centers (saltworks and tobacco factories), which altered the urban structure of several areas through increased industrialization. The salt sales monopoly was abolished in 1974.
A significant later piece of legislation is Law No. 76 of March 7, 1985, which reorganized the entire tobacco sector by introducing stricter regulations for the production and distribution of related products.
Organization and Management of the Tobacco Monopoly in Italy
As mentioned earlier, Italy’s tobacco monopoly is managed by the Agenzia delle Dogane e dei Monopoli (ADM), a public authority in charge of regulating and overseeing the sector. ADM is responsible for monitoring the production, distribution, and sale of tobacco products, ensuring compliance with current laws and regulations.
The organizational structure includes strict controls throughout the entire tobacco supply chain. This involves product quality monitoring, verification of production and sales licenses, and implementation of anti-fraud measures to prevent smuggling and illegal cigarette sales.
Economic Aspects of the Monopoly
The tobacco monopoly significantly impacts the Italian economy, especially regarding pricing and taxation. Tobacco product prices are state-regulated, with minimum prices set to prevent unfair competition and ensure adequate tax revenue.
Taxes on tobacco products are very high, with specific excise duties making up a large portion of the final retail price of cigarettes.
The monopoly’s impact on the market is considerable. On one hand, it provides stability and predictability, protecting consumers from excessive price fluctuations. On the other hand, it limits competition and innovation, preventing new players from entering the market and reducing product variety.
Excise taxes represent a significant percentage of the retail price of processed tobacco—ranging from 22% to nearly 60%, depending on the type of product.
How Are Tobacco Products Distributed?
The distribution of tobacco products in Italy is strictly regulated. Only licensed retailers, who possess a specific sales license, are allowed to sell cigarettes and other tobacco products. These licenses are issued by ADM, which sets strict criteria for obtaining and maintaining them.
Tabaccai (authorized tobacco shop owners) must comply with numerous obligations:
They must sell tobacco products at state-regulated prices, with no discounts or promotions allowed
They are prohibited from advertising tobacco products
They must display health warnings about the risks of tobacco use
To learn more, you can read our article on the ban on cigarette advertising and sponsorships.
Advantages and Disadvantages of the Tobacco Monopoly
The tobacco monopoly has both advantages and disadvantages.
Advantages include:
The State can directly control the quality and distribution of tobacco products, thereby protecting public health
It ensures substantial tax revenue, which can be used to fund public services and addiction prevention programs
Disadvantages include:
The monopoly limits competition and innovation, preventing market diversification and new entrants
State-regulated prices may be higher than those in a free market, potentially penalizing consumers
In other countries without a tobacco monopoly, the market is usually more competitive, offering a greater variety of products and potentially lower prices. However, the lack of state control might lead to weaker public health protections and increased illegal sales of tobacco products.