You cannot make sense of Melbourne’s tobacco arson wars without first making sense of the economics underneath them. The fires are violent, ugly, and increasingly familiar. The reason they keep happening is that whoever controls the distribution of illicit tobacco into Victorian retail is sitting on one of the most profitable consumer-goods margins available anywhere in the country. The fight to control that distribution is what the “wars” are about.
This is our plain-English explainer of how Australian cigarette pricing got here, why illicit product is so much cheaper, how the supply chain works, and what state and federal governments are doing about it.
The price of a legal cigarette
Australia has, by international standards, the highest legal cigarette prices in the developed world. A pack of 25 brand-name cigarettes at a Melbourne convenience store in early 2026 retails at around $50 to $55, depending on brand. The bulk of that price is Commonwealth tobacco excise. The retailer’s share is small. The manufacturer’s share is small. Every other dollar in the till goes through to Treasury.
The excise rate has climbed steadily for more than a decade through a series of legislated annual increases on top of indexation. That policy was deliberate. It was designed to drive smoking rates down by pricing the product out of habitual reach — particularly for young, low-income and price-sensitive smokers. Measured against its public-health goal, it has worked. The Australian Bureau of Statistics records adult smoking rates roughly half their level of 20 years ago. Australia has one of the lowest legal smoking prevalences in the world.
The price of illicit tobacco
The illicit market sells the same drug at a fraction of the price. A pouch of chop-chop — loose, unbranded tobacco, sometimes locally grown, more often imported — retails at Melbourne tobacco shops for around $30 for 50 grams. That equates to roughly 50 hand-rolled cigarettes. Compare that to a pack of legal cigarettes at $50 for 25 sticks, and the per-stick price gap is more than four-to-one.
Unbranded cigarettes — manufactured offshore, packed without health warnings, smuggled in by container — sell at black-market retail for around $15 to $20 for a pack of 25. That is a per-stick price gap closer to three-to-one against the legal product.
Disposable vapes are a more complicated story but the basic shape is the same. Imported in bulk for a few dollars per unit, they retail through illicit channels for a fraction of what a Therapeutic Goods Administration-approved nicotine vaping product costs through a pharmacy.
The margin that drives the wars
The arithmetic at the wholesale end of the illicit chain is what attracts organised crime. A 20-foot shipping container of chop-chop, landed at the dock, can have a delivered cost of a few hundred thousand dollars and a Melbourne wholesale value running into millions. The mark-up between the dock and the corner store is enormous, and every layer of the distribution chain — importer, wholesaler, regional distributor, store-level operator — takes a cut.
That margin has produced two things. The first is a rapid expansion of illicit retail outlets. The Australian Tobacco and Vape Coalition and several mainstream press surveys have estimated that hundreds of Melbourne tobacco and vape shops are selling some volume of illicit product, with a smaller core trading exclusively in it. The second is a fight over which network gets to supply which shops — the fight that has produced more than 200 arson attacks since 2023.
The supply chain
Most of the illicit tobacco entering Victoria comes from offshore. South-east Asian and Middle Eastern manufacturing centres are the most commonly cited source jurisdictions in seizure data published by the Australian Border Force. Some chop-chop is grown locally — on farms in northern Victoria, southern New South Wales and Queensland — though local production is a smaller share of the market than imports.
The chain typically runs in four stages:
- Import — container shipping into Australian ports, with rip-off crews paid to remove targeted containers before customs inspection in some cases.
- Wholesale — warehoused in industrial-estate units across Melbourne’s outer suburbs, broken down into retail-ready stock.
- Distribution — moved by van to retail outlets across Melbourne and regional Victoria, often on weekly delivery cycles.
- Retail — sold for cash through tobacco and vape shops, with no electronic record of the transaction.
The cash component is itself a feature, not a bug. It is what makes the trade attractive to organised crime independently of the tobacco margin: it generates large volumes of clean-looking cash that can be cycled through other businesses for laundering purposes.
The excise critique
Several Australian economists, and some public-health researchers, have argued in recent years that the excise policy itself has helped create the illicit market. Their argument runs like this. As legal prices climbed, the gap between legal and illicit product widened. As the gap widened, the demand-side incentive to switch to illicit grew. As demand grew, the wholesale margins available to organised crime grew. And as those margins grew, the violence around distribution grew with them.
That is not a universal view. Tobacco-control researchers and several public-health bodies have argued that the policy has worked on its core public-health metric — smoking rates — and that the answer is enforcement, not retreat. Federal Treasury has commissioned a review that is expected to look at both sides of the argument. We are not going to adjudicate it here. But the existence of the debate is itself part of the policy environment that the wars are happening inside.
What governments are doing about it
Three sets of responses are running in parallel. They do not yet add up to a coherent national strategy, but each piece is real.
Federal: the Commonwealth has lifted enforcement resourcing for the Australian Border Force on the import side, expanded the Australian Taxation Office’s illicit-tobacco capability, and tightened the regulatory framework around personal vaping imports. The federal vaping reforms of 2024 channelled legal nicotine vapes into pharmacies, with the explicit aim of starving the disposable-vape black market of demand.
State: Victoria has legislated for a tobacco business licensing scheme, giving Consumer Affairs Victoria a regulatory lever it did not previously have. The licensing regime allows the state to refuse a licence on character grounds, suspend a licence after compliance failures, and remove a shopfront from the legal trade entirely. The licensing scheme is being rolled out through 2026.
Policing: Taskforce Lunar continues to make arrests, with public tallies into the hundreds, and Australian Federal Police investigations into the senior end of the supply chain are continuing. We cover both elsewhere in this series.
What it would take to bend the curve
The honest answer is that the curve will only meaningfully bend when the price gap narrows or the supply chain becomes too risky to operate. Neither is going to happen quickly. Excise policy is politically sticky — cutting it is treated as a public-health retreat, even when the public-health logic is contested. Supply-chain risk is rising slowly through enforcement, but the import side is large and has multiple redundancies built in.
The most likely realistic future, on our reading, is a slow grind: licensing knocks out part of the retail base; the arson wars cool as the territorial fight settles; the trade does not disappear but becomes less violent. We are not there yet.
If you have information about illicit tobacco distribution, the Australian Border Force takes confidential reports through Border Watch, and Crime Stoppers takes anonymous tips on 1800 333 000.
Reported by Mei Calloway, community safety.
