[Intl-tobacco] Tobacco Industry of Russia--Progress and Prospects (fwd)

[Robert Weissman]

Tobacco Industry of Russia--Progress and Prospects
Source: Tobacco China, Tuesday, 6/20/00

    Background: This report was issued by the General director of the
association of the producers of tobacco commodities "Tabakprom" Mr.
Terevzov, at the symposium "Prospects of the development of tobacco
industry and technology for Europe and Asia", in frames of the
internatioal fair of tobacco industry and equipment "Euro Tab 2000", which
was hold in Amsterdam, 16--18 June 2000.

According to the different estimations in Russia smokes from 30 to 40% of
the population, moreover there is the certain trend to increase the number
of smokers. The stable annual consumption of the tobacco market of Russia
in present time is estimated in volume of 250-260 Billion cigarettes.

The tobacco industry of Russia includes more than 30 of big factories and
more than 60 of works, including ones with the non-complete technological
circle, being established in the resent few years.

Association "Tabakprom" includes 23 big cigarette factories which produce
approximated 90% of the cigarette made in Russia.

Russian tobacco industry is one of few branches of industry which
increases annual volume of production. So in 1994 it was produced 136 Bln.
Pcs. The increase of the volume of the production is being done mostly by
the manufacturing of the filter cigarettes, including light ones with low
tar and nicotine contents, and also cigarettes with special filters.

The expected production volume of the year 2000=A1=AAis not less than 270 B=
ln.
Pcs.  Thus with the capacity of local factories which reached already
310-320 Bln.  Pcs. and expected production volume in the current year, the
tobacco market is being fully covered with the local products.

The volume of the produced and sold goods is stipulated only by the demand
of the consumers. The acute question emerged of the overproduction of the
cigarettes, of the competition and of the surviving of the particular
enterprises.

Structure of the demand of the smokers also changes quickly=A1=AAin recent =
10
years the production of papirosa was reduced 2 times, and the same time
the volume of production of the filter cigarette is being increased
reaching the almost half of the total production volume.

Annual grow incomes of tax payments from the tobacco industry to the
budgets of all levels. Only in the period from 1997 to 1999 they increased
3 times.

Modernization of production facilities and the stable increase of the
volume, improvement of the quality of cigarette is being done mostly by
Russian and foreign investments to local tobacco industry. From the
beginning of 90th totally 2 Bln. doll. US has been invested to the tobacco
industry.

The import of the cigarettes to Russia has definite trend to decrease,
from 1997 to 1999 import decreased more than 3 times. The decrease of the
import of cigarettes, which usually more costly than local ones, is
stipulated not only by relatively low purchasing capacity of the
population, but also by the continues grow of the production volumes of
the local high quality cigarettes, including ones with low tar and
nicotine contents, which are not worse than import brands. This brands
are: "21 century", "Emperor", "Golden Ring", "Java Golden", "Peter I",
"LD" and others. Besides that in Russia few years before began and is
successfully growing the local production of the international brands as
"Magna", "Pall Mall", "Dalllas", "Bond Street", "Marlboro" and others,
which makes importation of them unsuitable.

Thus the Russia tobacco market according to the results of the year 1999
consisted of 150 Bln. filter cigarettes, from which 128 Bln. were made in
Russia, others=A1=AAimport. The rest of the market share was occupied by
non-filter cigarette i.e. 130 Bln. pcs. and more than 15 Bln. pcs. of
papirosa.

For producing of 270 Bln. of the cigarette is to be used not less than 240
thousand tons of leaf tobacco, the crop of leaf tobacco in Russia in the
recent years is not more than 1-2 thousand tons and it mainly from the
former Soviet republics dropped drastically. At the same tine considerably
increased the import of tobacco froma abroad=A1=AAi.e. from Greece, Turkey,
China, India and other counties.

So if before the beginning of 90th Russia imported the cigarette and
tipping paper, acetate filters, aluminum foil and other materials of
various kinds and characteristics, the acetate fiber for the filter
manufacturing is being produced, a number of the factories have free
choice=A1=AAto buy the materials either locally or from abroad.

To the group of the biggest factories belong such enterprises as "Petro"
and "Nevo-Tabak" in St. Petersburg, "Philip Morris-Izora" in Leningrad
province, "Donskoy tabak" in Rostoy-on-Don, "BAT=A1=AAYava" and
"Liggett=A1=AADukat" in Moscow, "Balkanskaya Zvezda" in Jaroslavl, "
"BAT=A1=AASaratovskaya tobacco factory" in Saratov, " Krasnodartabakprom" i=
n
Krasnodar and number of other enterprises.

All factories situated in Russia belong to two categories=A1=AAfactories wi=
th
foreign investments and without foreign investments. In present time more
than 10 factories and works are controlled by foreign firms.

In conditions of the severe competition on the market, Russian tobacco
industry has to solve the extremely difficult tasks, the most import from
which being the improvement of quality of the local tobacco products
together with the considerable cutting of production costs. That needs big
investments for technical re-equipment and introducing of the new
technologies.

Using own and foreign sources of financing the factories in the first
place make the reconstruction of the primaries, install the modern
equipment, which enable to provide the most effective technological
process with the reasonable costs, and also in considerably short time to
refund this costs. The equipment for sauce and aroma are being brought
into the technological circle which considerably facilitates the
possibilities for the manufacturing of the new products.

The cigarette factories---members of the Association pay great attention
to the improvement of quality and safety of the tobacco products. For this
purpose by every factory---member of the Association the long term
programs were developed and the complex measures are being implemented
which enable to reduce tar and nicotine contents in the cigarettes to the
levels stipulated by the Ministry of health of the Russian Federation. Due
to the introducing of new technologies in recent years the average tar and
nicotine contents in Russian cigarettes considerably dropped. All brands
manufactured now by the factories=A1=AAmembers of the Association meet the
requirements of the Ministry of health and more strict norms for the
future are being considered.

At the same time, the Association, being concerned of the health of the
nation and of the safety of it's genetic fund, supports the initiatives of
the deputies of the State Duma on banning of the sale of the tobacco
products to under aged persons, sale by automatic machines, sale in the
organizations of the health=A1=AAcare, education, culture, sport and a numb=
er
of the other measures.

Despite the fact, that all tobacco enterprises are joint stock companies,
i.e.  in fact private enterprises, the state provides the policy of
regulation both in the sphere of the wholesale. Such policy is conducted
by determination of the excise-taxes, import taxes for tobacco goods,
requirements for the obligatory certification of these products, putting
on the products of the special stamps, licensing of the import of leaf
tobacco and tobacco goods, licensing of the activities on the production
and wholesale turnover of the tobacco goods, and also issuing of the
regulations, including state standards for tobacco goods.

And now, in conclusion allow me to briefly tell You about the members,
charter, aims and tasks of the association of the producers of tobacco
goods "Tabakprom". The non-commercial non-government association of the
producers of the tobacco goods "Tabakprom" was established on the
initiative of the Russian cigarette factories in November 1996 with the
purpose being to protect rights and represent the interest of the
producers in the state ruling and administrating bodies, and in public
organizations.

The main directions of the activity of the Association are relations with
the state Duma, Government, Ministries and departments, solving of the
problems with taxation on local and import products, levels of tar and
nicotine contents in the cigarettes and number of other questions which
are put by the Board of directors and the members of the Association.

The number of members of the Association grow every year. In present time
the Association already includes 23 cigarette factories, including 6 ones
with foreign capital and 2 enterprises: printing factory for production of
packs for cigarettes and factory for production of the expanded stems,
which is in fact the enterprise with foreign investments. Many factories
express the wish to be admitted to the Association. Enditem

SOURCE BY: TobaccoChina Online dispatch from Amsterdam, June 16