When Prohibition Creates the Market

The warning coming out of New Zealand this week should sound very familiar to anyone watching what has happened in Australia over the past two years. Officials are worried that the illicit tobacco market is becoming more organised, more sophisticated, and increasingly tied to transnational criminal networks. The fear is that New Zealand could follow Australia down the same path, where the illegal cigarette trade has escalated into violence, arson attacks on retailers, and gang involvement.

The story reported by Radio New Zealand captures a country standing at a crossroads. On one side are law-enforcement officials warning that the black market is expanding. On the other are public health academics insist the scale of the problem is still unclear. But beneath this debate lies a deeper question that neither side fully confronts.

What happens when governments try to regulate nicotine so aggressively that they leave people with almost no legal alternatives?

That question sits at the centre of both the New Zealand and Australian experiences.

In the article, customs officials describe an illicit market that is becoming more organised and large-scale. In 2025, authorities seized more than 11 million illegal cigarettes and over five tonnes of loose tobacco. Shipments arriving from China disguised as clothing contained hundreds of thousands of cigarettes. Investigators have discovered underground manufacturing operations assembling cigarettes from imported tobacco. Distribution networks are stretching from Auckland to regional towns.

The seizures are only the visible portion of the trade. As customs officials openly admit, the products they intercept represent just a fraction of what enters the country.

And yet the public health response to this situation is remarkably familiar.

Rather than questioning whether extreme tobacco taxation and restrictive nicotine policies might be driving illicit supply, the standard explanation remains the same: organised crime is the problem, not the policies that created the opportunity.

In Australia, the results of this thinking are already visible.

Under the government led by Anthony Albanese, Australia now has some of the highest tobacco taxes in the world and one of the most restrictive regulatory environments for nicotine alternatives. Legal cigarettes can cost over $50 a pack. At the same time, nicotine vaping products have been pushed into a tightly controlled prescription model, and the retail market has effectively been shut down.

The predictable outcome has been the emergence of an enormous illicit market.

According to the Australian Criminal Intelligence Commission, illicit tobacco has become a multi-billion-dollar criminal enterprise. Rival gangs have fought for control of supply chains and retail outlets. More than two hundred arson attacks have been linked to the illegal tobacco trade, along with multiple homicides. Small retailers have been threatened or forced to sell illicit products.

In other words, the market did not disappear when legal access became difficult or expensive.

It simply moved underground.

New Zealand policymakers are watching this unfold with increasing concern. Customs officials warn that the “trajectory” of Australia’s illicit tobacco market is deeply troubling because both countries share the same basic conditions: extremely high tobacco taxes and strong demand for nicotine.

If those conditions exist, the logic of the black market is almost unavoidable.

Where there is demand, someone will supply it.

What makes the debate in New Zealand particularly striking is the contrast between two different interpretations of the same situation. Law enforcement officials warn that organised crime is expanding its role in tobacco smuggling. Public health academics argue that the overall size of the illicit market remains uncertain and may still be relatively small.

Both statements may be true at the same time.

Black markets often grow gradually at first and then suddenly accelerate once supply networks and distribution channels become established. By the time the scale becomes undeniable, the infrastructure supporting the illicit trade is already deeply embedded.

Australia offers a perfect example of this dynamic. For years, warnings about the growing illicit tobacco trade were dismissed or downplayed. Today, authorities are dealing with organised criminal networks that are deeply entrenched in the market.

New Zealand may still have time to avoid repeating that experience.

But avoiding it requires acknowledging a difficult truth about nicotine policy.

People are not trying to purchase cigarettes because they love paying enormous taxes. They are trying to purchase nicotine. If governments eliminate or severely restrict safer ways of obtaining nicotine, they inevitably strengthen the market for combustible tobacco and illicit supply chains.

This is where the conversation in New Zealand becomes particularly important.

The article briefly notes a crucial difference between the two countries. Unlike Australia, New Zealand still allows vaping products to be sold legally through regulated channels. That distinction matters. When smokers have access to lower-risk alternatives, the demand for illicit cigarettes is reduced.

But vaping is not the only alternative that can play this role.

Oral nicotine products such as nicotine pouches offer another pathway away from cigarettes. These products deliver nicotine without combustion, smoke, or vapour. They are discreet, easy to regulate, and widely used in countries where smoking rates have fallen dramatically.

The most striking example is Sweden, where the widespread use of oral nicotine products has helped drive smoking rates to some of the lowest levels in Europe.

Yet in many countries, including Australia, these products are either banned outright or trapped inside medical prescription systems that make access extremely difficult.

The result is a policy contradiction.

Governments claim they want to eliminate smoking, but they simultaneously restrict many of the products that could help smokers leave cigarettes behind.

When safer alternatives are blocked or heavily restricted, the system leaves smokers with two choices.

Pay extremely high prices for legal cigarettes.

Or turn to the black market.

Neither outcome serves public health.

A regulatory framework that allows a wide range of safer nicotine products would change this dynamic completely. If smokers can legally access affordable alternatives such as vaping products, nicotine pouches, heated tobacco devices, and other reduced-risk options, the economic incentive to buy illicit cigarettes weakens dramatically.

Demand shifts away from the most dangerous product.

And when demand falls, the criminal market shrinks with it.

This is the core lesson emerging from the Australian experience. Enforcement alone cannot solve the problem. Governments can increase seizures, create specialised police units, and impose harsher penalties, but these actions only address the symptoms.

The underlying driver remains the same: a large population of nicotine users with limited legal options.

New Zealand still has the opportunity to learn from what has happened across the Tasman. Instead of tightening restrictions further, policymakers could take a more pragmatic approach. Maintaining access to vaping products, permitting nicotine pouches, and supporting a broader harm-reduction framework would give smokers real pathways away from cigarettes.

Such policies would not eliminate the illicit market.

No country has ever achieved that.

But they would dramatically reduce the size and profitability of that market, making it far less attractive for organised crime.

The alternative is already visible.

A system where cigarettes become increasingly expensive and restricted, safer alternatives are limited or banned, and criminal networks step in to supply what the legal market no longer provides.

Australia is living that reality now.

New Zealand still has a choice.