5.8 Prices
Price indices for 1991-2000 are presented in Table 5.2. The prices on tobacco products increased as for all other goods, but much less than for other goods on average. Taking into account that the proportion of more expensive filter cigarettes increased from 18% in 1992 to 89% in 2000, the real price increase is even lower. For most of the other goods, a price reduction that comes as a result of privatization considered to be a good factor, but for cigarettes, lower prices usually mean higher consumption and higher health risk. From this point of view, the result of privatization of tobacco factories in Ukraine is negative.
Table 5.2. Price indices in 1991-2000 (December to December of previous year)
|
Consumer price |
Agriculture and |
Tobacco products |
||
|
1991 |
Times |
3,9 |
4,3 |
4,4 |
|
1992 |
21 |
17,9 |
30,4 |
|
|
1993 |
102,6 |
121,8 |
89 |
|
|
1994 |
5 |
4,7 |
2,6 |
|
|
1995 |
2,8 |
2,5 |
1,9 |
|
|
1996 |
1,4 |
1,2 |
1,2 |
|
|
1997 |
Percent |
110,1 |
114,1 |
111,6 |
|
1998 |
120 |
122,1 |
183,9 |
|
|
1999 |
119,2 |
126,2 |
125,6 |
|
|
2000 |
125,8 |
128,4 |
117,2 |
|
|
1991-2000 |
Total, times |
326297 |
298410 |
213200 |
|
With K=100000 times |
3,26 |
2,98 |
2,13 |
|
The prices for three categories of cigarettes (filter, non-filter and imported) according to the monthly data of the State Statistics Committee in 1996-2001 are presented at Figure 5.4. We also calculated inflation-adjusted prices using the CPI (consumer price index) with CPI for 1997 equal to 1. We can see that while nominal prices are increasing, the adjusted prices have different trends. In 1996-1998, the average annual prices for domestic cigarettes were very stable: 0.53 UAH for filter cigarettes and 0.27 (1996), 0.29 (1997) and 0.33 UAH (in the first half of 1998) for non-filter cigarettes. The difference is exactly equal to the increase of excise rate for non-filter cigarettes. In August 1998, the excise tax rate increased (see Figure 7b), and soon after this the exchange rate Euro/UAH increased dramatically and continued to increase in 1999. Since the tax rate was established in Euro, adjusted prices increased and reached a maximum in October 1999: 0.92 (filter), 0.625 (non-filter), 1.89 (import) UAH. In November 1999, a tax rate was established in UAH and actually decreased (see below). In December 2000, the tax rate for non-filter cigarettes decreased even more. As a result, adjusted prices substantially decreased. In June 2001, they were less by 25% (filter), 40% (non-filter) and 19% (import) compared with October 1999. This kind of decrease in real prices could cause increase of cigarette consumption.
While in UAH the average annual nominal prices in 1996-2001 (Table 5.3) increased more than 3 times, in dollar value they are fairly stable: 25-30 cents for filter cigarettes and 13-18,5 cents for non-filter cigarettes. However, if prices for non-filter cigarettes are calculated without the excise tax they are even more stable: 13,3-14,6 cents per pack in 1997-2001. This price stability reflects the fact that the tobacco industry of Ukraine is fully dependent upon import (raw tobacco, materials, equipment) and controlled by the TTC, which need profits in hard currency.
Table 5.3. Average annual prices for cigarettes pack in
Ukraine
|
Year |
Nominal (kopecks) |
Nominal (US cents) |
Average annual excise rate per pack (US cents) |
Non-excise nominal price (cents) |
Inflation adjusted price (by CPI) in kopecks |
|
1996 filter |
45.17 |
24.68 |
|
|
52.7 |
|
1996 non-filter |
23.42 |
12.80 |
1.3 |
11.5 |
27.4 |
|
1996 import |
88.50 |
48.36 |
|
|
103.4 |
|
1997 filter |
52.75 |
28.36 |
|
|
52.7 |
|
1997 non-filter |
29.08 |
15.64 |
-2.35 |
13.3 |
29.1 |
|
1997 import |
108.33 |
58.24 |
|
|
108.3 |
|
1998 filter |
72.08 |
29.42 |
|
|
64.4 |
|
1998 non-filter |
44.75 |
18.27 |
-3.7 |
14.6 |
40.0 |
|
1998 import |
151.42 |
61.80 |
|
|
135.1 |
|
1999 filter |
117.08 |
28.35 |
|
|
86.2 |
|
1999 non-filter |
76.33 |
18.48 |
-4.7 |
13.8 |
56.1 |
|
1999 import |
244.08 |
59.10 |
|
|
179.8 |
|
2000 filter |
142.33 |
26.16 |
|
|
82.0 |
|
2000 non-filter |
92.50 |
17.00 |
-3 |
14.0 |
53.4 |
|
2000 import |
303.58 |
55.81 |
|
|
174.9 |
|
2001 filter |
145,50 |
27,09 |
|
|
75,2 |
|
2001 non-filter |
87,25 |
16,24 |
-2 |
14,3 |
46,3 |
|
2001 import |
315,29 |
58,71 |
|
|
162,8 |
Tobacco factories without foreign investments sell their non-filter cigarettes for a very low price. In 2000, the wholesale prices for non-filter cigarettes was: 0.30-0.32 UAH (Kamenets-Podolsky factory), 0.36-0.42 UAH (most of the ONIFs and the "Kozak" brand of BAT), 0.52 UAH (Pheodosia factory), 0.60-0.63 UAH (Reemtsma). However, despite the high price, Reemtsma controlled 56% of the legal market. Since ONIFs produce cigarettes almost without profit and maintain very low prices, they cannot compete with TTC even in the non-filter cigarettes segment. To increase market share and sales, cigarettes need to be affordable and easily accessible to all smokers. TTC created their own distribution system for the whole country and reach people even in remote areas, while the production of ONIFs is mainly sold in their own regions.
ONIFs undertake very little marketing, whereas the multi-national cigarette producers spend millions each year in aggressive and highly effective marketing and promotion. This is another reason why they can compete with the very cheap cigarettes of ONIFs.
| Who we are? |
 |
 |
 |
 |
 |
 |
 |
 |
|
|
