1.4. Production

Tobacco production per capita in Ukraine had almost tripled in 1940-1985, and in the 1980s it was rather stable - about 80 billion cigarettes annually (Fig 1.3). Most cigarettes were without filters. Ever since 1990, the whole economy has been in crisis, including the tobacco industry. Up to 1993, tobacco production had been nearly cut in half, but then started to increase. Presently, tobacco production in Ukraine is lower than in Soviet times (Fig 1.2).

Tobacco factories

In the early 1990s, the state tobacco and cigarette monopoly was dismantled. As elsewhere in Eastern Europe, transnational tobacco companies (TTC) developed joint ventures with the former state-run companies. Foreign investors established joint ventures with six of the eleven cigarette factories operating in Ukraine (See Table 1.6). Their joint project capacity was 55 billion cigarettes annually, while the joint capacity of the remaining five factories was only 15 billion. In 1994, 1996, and 1998, the six joint ventures produced respectively 37.3, 37.7,and 54.5 billion cigarettes, or 79, 84, and 93% of the total production in Ukraine. In 1999, despite the closure of the RJR-Lviv factory, the share of joint ventures production was 92%, and in 2000 and 2001 increased to 95%.

Table 1.6. Production of cigarettes in Ukraine in 1993-2001 (in billions)

The remaining five factories barely survive, and investors have no intentions of saving them. BAT-Priluky managing director Peter Quittenbaum said, «They can’t be profitable. They have no capacity for growth.» (Tobacco Reporter, July 1996). Foreign investors simply wait for small factories to close by themselves. However, the only tobacco factory thatwas closed in the 1990s was the Lviv factory of R.J.Reynolds (in 1998). This factory was re-opened by its former workers in support of national capital, but the number of workers and annual production is much less than before. Many small factories have opened since 1998, when a new tobacco factory was opened in Donetsk (Eastern Ukraine). In 1999, Bulgartabak (a Bulgarian state tobacco monopoly) registered a joint venture in the city of Poltava. In 2001, 25 enterprises had licenses for the production of tobacco products, while one of them did not operate. The rest of the 24 tobacco factories could be divided into 3 groups: 1) big TTC factories; 2) medium factories (mainly old ones); 3) small new enterprises.

TTC factories

The annual production of these factories was from 2 to 19 billion pieces (Table 1.6, Fig. 1.4). 

In 1994-1996, they produced about 38 billion pieces together annually, while in 1997-2000 they annually produce 50-55 billion cigarettes. All of these factories produce both filter and non-filter cigarettes. In 1994-1997, most of their production was non-filter cigarettes. In 1998, 1999, and 2000, they changed the proportion of non-filter cigarettes to 49%, 34%, and 18% respectively. In 2001, this proportion also was 18%. In 1998, the RJR-Lviv factory, which produced mainly non-filter cigarettes, was closed. The production share of Reemtsma, BAT, and RJR-JTI in 1994-2000 was more or less stable: 40%, 17%, and 17% respectively. Philip Morris increased its share from 4% in 1994 to 25% in 2000 (Fig. 1.5). 

In 2001, the production shares of Philip Morris, Reemtsma and BAT were almost equal – 27-28% with 11% for JTI (Fig.1.6).

Medium factories

There were 8 such factories in 2000. The annual production of these factories in 1995-2000 was from 0,05 to 3 billion pieces (Table 1.6, Fig. 1.7). Three of them are rather new (Donetsk, Lviv and Poltava). The remaining five decreased their production from 10 billion pieces in 1995 to 2 billion pieces in 2000. The most dramatic decline was at the Dnipropetrovsk and Odessa factories (Fig. 1.7). Medium factories produce mainly non-filter cigarettes. In 2001, the 8 medium factories produced 3,7 billion cigarettes, 84% of them non-filter. The Poltava factory produces only filter cigarettes, while the Donetsk, Monastyrische, Kamenets-Podolsky, and Odessa factories produce only non-filter cigarettes.

Small enterprises