Modern economic POTENTIAL OF UKRAINE

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Alcoholic beverage industry

The State Concern of the Alcohol and Alcoholic Beverage Industry (Ukrspirt Concern) consists of Ukrainian alcohol and alcoholic beverage industry companies. There is a state monopoly on alcohol spirits production in Ukraine. Licenses for alcohol production were granted to 82 state alcohol plants, including 74 companies in Ukrspirt Concern, 5 enterprises subordinate to the Sumy regional state administration (Dubovyazovskiy, Novosukhanovskiy, Popovskiy, Stetskovskiy, and Naumovskiy alcohol plants), 1 enterprise subordinate to the State Administration Office (Chortkivskiy alcohol plant), and two enterprises subordinate to the State Committee for the Medical and Biological Industry (Ladyzhinskiy and Mezhirechenskiy alcohol plants).

These companies have significantly increased the production of ethyl alcohol over the last several years. More than half of the manufactured alcohol was exported. Meanwhile, existing capacities of alcohol plants are more than 50% idle at present. In the opinion of experts, existing excessive capacities is one of the reasons for the illegal production of vodka. To strike this phenomenon at the root, the decision was taken in 2003 to produce a high-octane oxygen petrol agent at some alcohol plants. Thus, Ukraine can export rectified molasses high purity ethyl alcohol, grain rectified high purity ethyl alcohol, extra-rectified ethyl alcohol, lux-rectified ethyl alcohol, industrial ethyl alcohol with denatured agents, and high-octane oxygen petrol agent (fuel ethanol).

Approximately 400 business entities have been granted licenses to manufacture alcoholic drinks. At the same time, about 900 business entities have wholesale rights to trade in liquor and approximately 150-200 ths. business entities are empowered for retail trade.

The production of alcoholic beverages has already gradually started to expand after a period of maximal contraction. Export of output is also on the rise. Ukrainian alcoholic drinks can be found in Poland, the USA, Canada, Israel, and other states in addition to CIS countries.

Grain and molasses, by-product of sugar output, are the main raw stock for the production of alcohol. Experts estimate that approximately 3-3.5% (1-1.5 mn tons) of the total grain on the market is used for technical processing, which means for alcohol production.

The production of ethyl non-denaturated alcohol constituted 29.0 mn dal in 2005, which is 27.4% or 6.2 mn dal more than in 2004. Meanwhile, it is 2.2 times less than in 1996, when the largest volume over years of independence (63.6 mn dal) was manufactured. It is 2.1 times more than the 1998 total, when the minimum volume of alcohol was manufactured (15.7 mn dal). 76 companies (70 enterprises of Ukrspirt Concern, 4 plants subordinate to Sumy regional state administration, and 2 enterprises subordinate to State Committee of medical and biological industry) dealt with the production of ethyl alcohol in 2005.

The production of alcoholic beverages was restored in Ukraine in high record rates over the last decade. According to preliminary information, almost 44.8 mn dal of alcoholic beverages were produced in 2005. It is 11.4% or 4.6 mn more than in 2004 and 10.8% more than in 1993, the year when the record high volume of alcoholic beverages (40.4 mn dal) over the years of Ukrainian independence was manufactured. At the same time, it is 2.2 times more than in 1998 when the lowest production volumes were recorded (20.8 mn dal). 58 enterprises were involved in the production of alcoholic beverages in 2005 (63 enterprises in 2004). This downward trend in manufacturing enterprise numbers has been experienced since 1998. Meanwhile, the 10 largest enterprises in the industry produced 8.14 mn dal or 52% of the aggregate alcoholic beverages’ in 1998. The same group amounted to 34.5 mn dal or 77% of the aggregate production in 2005. It shows that the largest competitive companies are remaining on the market. The market leaders, which are the production branch of Soyuz Viktan LTD and subsidiary Ukrainian vodka company Nemiroff produced 39% of this output in 2005.

Leading companies are active in expanding the product range of their output, promoting their wares both domestically and abroad, increasing production volumes, and improving both local and foreign sales networks. The presence of a broad raw stock basis, extensive production experience, high level of strong liquor consumption in Ukraine and neighboring CIS states, as well as relatively low prices and high quality stimulate the success of this output.

Analysts estimate that the total volume of domestic alcohol consumption in Ukraine was approximately 20.2 mn dal in 2005, exceeding the results of 2004 by 29.5%. Significant growth in strong liquor production promotes the increase of consumption. Average consumption in Ukraine over the last five years constituted 19.6 mn dal.

The assessment of vodka and alcohol drink consumption volumes in Ukraine varies due to substantial illegal production. Meanwhile, the volume of domestic consumption amounted to 26.6 mn dal in 2005, which is 16.6% less than in 2004, judging from initial information on the production, export, and import of alcoholic beverages. The growth of competitive output consumption in particular beer and wine, as well as an increase in export sales can be possible reasons for this. Meanwhile, the average volume of consumption over the last five years was 27.2 mn dal (without considering smuggling and illegal production) based on estimated information on production/import/export. These figures correspond to the evaluations of specialists in the industry, who estimate the total capacity of Ukrainian alcohol drinks market at 30-35 mn dal per year.

Alcohol is used not only by producers of strong liquors, but by the making industry, perfumery industry, manufacturers of medicines, low-alcoholic drinks, spirit vinegar, explosive agents, and cellulose nitrate.

The export of alcohol in the mid nineties constituted approximately 58-68% of its production and reached approximately 43 mn dal. Then exports dropped sharply because of a production slump and the general economic crisis, along with the growth of strong liquor production. It constituted approximately 17-21% of production or 27-28 mn dal. Export volumes have been restored again over the last years thanks to production growth and the fine-tuning of foreign sales. However, export deliveries are significantly less than in the beginning of the 1990s. In particular, the export of alcohol in 2005 reached 9.8 mn dal. It is 19.7% or 1.6 mn dal less than in 2004. Austria (24%), Turkmenistan (18%), and Hungary (14%) were the main purchasers of Ukrainian-made alcohol. At the same time, Ukraine is not a large importer of alcohol due to its sufficient domestic production. In 2005, 1.037 mn dal of alcohol was imported, roughly 1.7% or 18 ths. dal less than in 2004.

Alcoholic beverage export developed similarly. It constituted approximately 54% of domestic production in the middle of the 1990s or almost 19 mn dal and then abruptly dropped to 0.22 mn dal or 0.9% of production. During the last years Ukrainian companies actively promoted their output to external markets due to increases in production volumes and the saturation of the local market. Export of this output grew to 19.5 mn dal in 2005, which is 2.2 times more than in previous year. Russia (88%), Moldova (4%), Kazakhstan (1%), Israel (1%), and Armenia (1%) are the main importers of alcoholic beverages. The import of spirits to Ukraine has quantitatively and qualitatively altered versus the figures of the first half of the 1990s. Specifically, compared to 4.06 mn dal in the middle of nineties, it made merely 1.3 mn dal in 2005. Though cheap alcoholic beverages were imported previously, now only commodities that can compete with high-quality Ukrainian output or exclusive goods are delivered.

The industry keeps rapidly growing after the production slump in the 1990s. This can be seen in production, export, and consumption volumes. It is projected that one of the Ukrainian vodka brands would become one of the top three world vodka brands in 2006. The number of producers is diminishing, while the remaining manufacturers have significantly expanded production volumes and are investing notable resources into equipment, technologies, and advertising their output. Companies are active in developing schemes of sales expansion on domestic and foreign markets through improving sales networks and advertisement support. This industry can become one of the leaders in the Ukrainian food processing industry due to the recognized quality of Ukrainian output along with relatively low prices, a good raw stock basis, and the high level of strong spirits consumption both in Ukraine and neighboring CIS states.

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