Tobacco is grown in some southern and western regions of Ukraine. The area of tobacco production declined from 21,700 hectares in 1980 to 3,700 in 1996. In the late 1990s, this area was about 3-4 thousands hectares, which constitutes about 0,01% of the area cultivated for agriculture crops (Table 1.5).

Tobacco production in Ukraine was very high in the 1980s (28,190 tons in 1987). It declined in the early 1990s (9,000 tons in 1992), and especially in the late 1990s – the average annual production in 1996-2000 was less then 3,000 tons.

The yield per hectare was about 0,8 tons in the early 1980s, then increased to 1,5 in 1987, and declined to 0,67 in 1996. In late 1990, the yield per hectare was about 0,8 tons.

The decline of raw tobacco production took place mainly in big Soviet-type tobacco enterprises (collective farms and state farms), while small household farms and new private farms increased their production. Since 1998, they have been producing more than half of the raw tobacco in Ukraine.

In 1999, Ukraine produced 3,260 tons of raw tobacco (1,580 tons were exported, mainly to Russia, Moldova, Belarus, and Lithuania). Also in 1999, Ukraine imported 49,140 tons of raw tobacco. 97% of the cigarettes produced in Ukraine consist of imported tobacco.

In 2000, Ukraine imported 42,200 tons of raw tobacco. According to agricultural statistics, 3,020 tons of raw tobacco was produced, while 5,080 tons were exported (mainly to Russia). These negative differences could be explained by re-export. Fermented tobacco factories produced 5,623 tons of fermented tobacco (Table 6.1). These differences could be explained by the under-reporting of actual tobacco growing. At any rate, tobacco growers did not have problems with over-production (as in Turkey, where the state tobacco monopoly has to burn some amounts of raw tobacco in order to keep high prices for tobacco growers).

Table 6.1. The production of raw and fermented tobacco in Ukraine in 1993-2001 (tons)

The government does not give subsidies to tobacco growers and does not keep minimal prices. In January 2001, the parliament adopted the «Law on Encouragement of Agriculture Development for 2001-2004». It states that every tobacco factory should use a minimal proportion of Ukrainian grown tobacco, which should reach 10% in 2004. The law was lobbied by the All-Ukrainian Association of tobacco growers and the association “Tutun-Impex” (a Ukrainian-Russian-Swiss joint venture, which owns several tobacco fermenting factories in Ukraine). This law was attacked by the tobacco industry. Their representatives stated that Ukrainian tobacco is of poor quality and too expensive to use at in such a scale. They proposed to cancel the law. In July 2001, the parliament adopted changes to the law involving state regulation of alcohol and tobacco products These changes prohibit any discrimination of raw tobacco by origin, but the President vetoed this law. In June, the Government issued an order stating that by the year 2001, factories should be using at least 3% of locally grown tobacco. The representatives of the tobacco industry say that they try to use Ukrainian tobacco, but only for local brands and according to their actual needs. The All-Ukrainian Association of tobacco growers argues that the quality of Ukrainian tobacco is not worse than imported tobacco, and insist on enforcement of the law. Since both sides defend only their vested interests, we try to consider the situation both from the points of view of public health and state revenue.

6.1. The protection of domestic tobacco growers and the import duties policy – international experience and its use for Ukraine