belonging to the Commonwealth of Independent States (CIS) have arrangements for economic cooperation in many aspects of business. CIS free trade policies were important in spurring trade among members in recent years. The upward trend for cigarette exports by CIS countries (mostly to other CIS members) caused the export value to rise to about $263 mn by 2005—a level about five times the 2001 amount. The value for CIS cigarette exports might increase to a range of $400 mn in 2007.
The comparatively low price for cigarettes exported from CIS countries contributed to the reduction in imports from the EU and US in recent years. The average price per pack of cigarettes is increasing as the share of quality-blended brands grows. The average price for cigarettes from Russia averaged about 21 cents per pack of 20 during 2003–06, compared with about 16 cents per pack of 20 exported by Ukraine. The low wholesale prices for cigarettes leaving factories left attractive prices for small traders even after various taxes were added.
It appears that a close contest has emerged between Russian Federation and Ukraine for first place in cigarette exports to other CIS countries. The two economic giants of CIS have the economy of scale from new cigarette factories and the improved quality and marketing expertise provided by multinationals. This tends to cause smokers in some countries without all the latest manufacturing technology and blended brands to seek cigarettes from either Russia or Ukraine. Rising income from exports of petroleum and natural gas give Russian Federation a higher per capita income than Ukraine. Both countries have had stronger economic growth in rural areas in recent years with the help of multinational grain trading companies and their financing of needed farm inputs. This has bolstered purchasing power in rural areas and contributed to increased sales of higher quality cigarettes with a significant shift away from previously important oriental brands.
The 12 countries belonging to CIS include Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. The total population of CIS is about 279 mn, Slight gains for population in CIS countries in Central Asia recently helped to nearly offset the declining population in Russian Federation and Ukraine. Russian Federation had a population of 148.8 mn in 1998, compared with about 142 mn in 2005. Ukraine suffered a population loss from 50.5 mn in 1998 to about 47.8 mn by 2005, partly due to migration of young workers to better jobs in Europe and North America. Per capita cigarette sales appear to be rising in some CIS countries because quality brands are replacing the traditional oriental or dark cigarettes.
More Flexible Trade Policies Contribute To Greater Mix Of Exporters:
Prior to 1991 imports and exports of cigarettes were mostly handled by state trading agencies. The monopoly of the government trade companies was phased out in the early 1990s. Multinationals with new manufacturing facilities in Russian Federation and Ukraine became the leading exporters of cigarettes recently. Cigarette trade has shifted to a predominately private enterprise activity.
The role of suitcase traders in using cigarettes sales as a way to help finance their travel has been significant. Although the cigarettes they usually buy from supermarkets or street vendors have a price including the 20% value added tax, the purchases may still allow the small traders to find a place to sell them at a slight profit. Prior to 1991 most foreign trade activities were the function of a government firm. Recently, the freedom for anyone to become involved in foreign trade in most CIS countries has opened up a lot more business activity, especially in certain consumer goods. Russian Federation has provided better retirement payments recently as petroleum revenues bolstered cash inflows to the national budget.
Many retired people appear to enjoy some business activity including travel to other countries with a suitcase full of cigarettes or some other high value item for sale. They use the money saved at home to also buy items in the other country, which will sell for a profit back home. The way charter flights of small traders and tourists have plenty of passengers for trips to Dubai indicates how some average Russians and Ukrainians are enjoying the freedom to travel. In contrast, it was difficult for average citizens to get permission or foreign exchange to travel prior to 1991. While many government workers of the former USSR did travel on government business or projects, they were limited in their role of private business. They were allowed to do simple activities like stamp collecting, but trading in cigarettes was not allowed. Recently, the freedom to travel and trade in many consumer goods has become popular among many individuals. The shortage of foreign exchange was also a barrier to travel beyond CIS in the past. Prior to 1991, it was forbidden to carry the ruble out of the former USSR, and that rule was not really needed, because no banks in Europe would accept that currency, The currency conversion barrier has eased, although many travelers carry a roll of US dollars or euros with them when they travel outside their home country. The Russian ruble has recently appreciated against the US dollar.
In April 2005, Ukraine raised the cost of a license to sell cigarettes for manufacturers, wholesalers, stores, and kiosks. This apparently resulted in a decision by managers of some small shops and kiosks to stop selling cigarettes.
Shift To Higher Quality Brands Contributes To Expanding CIS Cigarette Trade:
The quantity of cigarettes exported from Russia and Ukraine combined may increase to a range of 40 bn pieces in 2007, with shipments of about 20 bn pieces from each country. This will reflect a dramatic growth rate since 2004 when their cigarette exports were reported at 18.1 bn. Much of this increase is the replacement for cigarette imports previously coming from the EU and US with deliveries from other CIS members.
Net imports of cigarettes into CIS declined from 109.6 bn pieces in 1998 to a low of 12.8 bn in 2005. A large share of the imports came from the US in 1998, compared with less than 1% of the 2005 imports. Russian Federation shifted from net imports of 74.8 bn pieces in 1998 to net exports of 7.7 bn pieces in 2005, and probably over 10 bn for net exports in 2006. Ukraine apparently had net exports of over 10 bn pieces in 2006, compared with net imports of 3.6 bn pieces in 1998.
Competition Intensifies In Search For Cigarette Sales To Net Importers In CIS:
Uzbekistan had net cigarette imports of about 9.6 bn pieces in 2005, and Kyrgyzstan had net imports of about 4 bn pieces. Net cigarette imports into Belarus declined from 11.3 bn pieces in 1998 to about 4 bn pieces by 2005. Moldova had a trend in cigarette trade the reverse of most other CIS members, with a shift from net exports of about 450 mn pieces in 1998 to net imports of about 3 bn pieces by 2005. A location between the busy EU and CIS cigarette trade arenas appears to have pushed Moldova into a net import setting for cigarette trade. Georgia’s cigarette manufacturers strived to produce more premium brands to compete with imports, and net cigarette imports into Georgia declined from 2.1 bn pieces in 2004 to about 700 mn pieces in 2005.
Smaller CIS Cigarette Exporters Find Opportunities In The Middle East:
Cigarette exports from the ten CIS members other than Russian Federation and Ukraine have been comparatively small, but innovations to find niche markets have brought some interesting trade patterns. Some of these countries have found new export opportunities beyond the CIS arena. A competition from the improved brands available at attractive price from the two major CIS exporters intensified, some exporters from Azerbaijan and Kazakhstan expanded exports to the Middle East.
Armenia Has An Expanding Two-Way Trade In Cigarettes:
Armenia’s imports of cigarettes from other CIS countries increased in recent years while the arrival of premium brands from Germany averaged about 178 mn pieces annually during 2003–05. Total cigarette imports into Armenia averaged about 2.6 bn pieces during 2003–06, compared with 1.2 bn in 1998 and 2.2 bn in 2002. Exports of cigarettes from Armenia increased from 15 mn pieces in 1998 to 307 mn by 2003, and averaged about 525 mn annually during 2004–06. Some of the deliveries of cigarettes by small trucks driven to Tabriz, Iran may not be included in export numbers. Some brands of cigarettes purchased in Armenia for less than $1 per pack may be sold for a profit in Iran. Output of cigarettes in Armenia averaged about 3.6 bn pieces annually during 2003–06, compared with 3.2 bn in 1998.
Belarus Has Close Cooperation With Russian Cigarette Marketing:
Belarus was the third major CIS cigarette exporter in 2005 with the shipments of 3 bn pieces, compared with 1.3 bn in 2004. Cooperation with Russian cigarette marketing apparently contributed to the rise in exports from Belarus. Some brands from Belarus are sold at low prices by street vendors in Russia. The two-way trade between Russian Federation and Belarus in cigarettes has left Belarus as a top destination for Russian cigarette exports in the last several years.
Total cigarette imports reported by Belarus declined from 11.6 bn in 1998 and 6.8 bn in 2004 to 5.4 bn by 2005. While the US had been a supplier in 1998, most of the imported cigarettes came from Russian Federation, Ukraine, and Germany in 2004–06. Reported imports of cigarettes by Belarus from Russia declined from an average of about 5 bn pieces annually during 2002–04 to about 2 bn pieces in 2005. A rebound for German shipments of cigarettes to Belarus occurred in 2005 when deliveries rose to 568 mn pieces, compared with 206 mn pieces in 2004.
Middle East Markets Gain Importance For Some CIS Cigarette Exporters:
Kazakhstan’s cigarette exports soared to about 1.6 bn pieces in 2005, compared with about six times the 2004 level, partly due to greater deliveries to Iran and other countries in the Middle East. Azerbaijan’s cigarette exports more than doubled in 2005, reaching 3 bn pieces with greater exports to Iran. Armenia has also expanded cigarette exports to Middle East markets and exports averaged about 500 mn pieces during 2004–06, compared with 307 mn pieces in 2003.
Multinationals Helped To Modernize Ukraine’s Cigarette Industry:
Ukraine has efficient factories with mostly new equipment and facilities to produce quality blended brands. The old days with a large production of oriental and oval cigarettes have faded. Output of cigarettes in Ukraine increased to a range of 120 bn pieces in 2005, and further gains occurred in 2006.
The Philip Morris factory at Kharkov accounted for about 31% of the cigarette output in Ukraine during 2005. Various versions of Marlboro are popular. A ban on marketing cigarettes in old style packaging tended to favor the newer designs of packaging of filter tips from Philip Morris.
The factory operated by Imperial (formerly Reemstma) in Kiev has moder equipment and a good record for efficiency. Good gains for sales by Imperial in 2005 with a rise of 1% in market share to 19.8% indicated that the brands offered for sale were doing well.
The BAT factory at Priluki accounted for about 18.7% of Ukraine’s cigarette production in 2005—down from 22% in 2004. Expanded exports to Middle East markets might be sought in 2007.
JTI’s purchase of Gallaher helped to boost the JTI share of Ukrainian cigarette output to over 27% in the recent year. This includes the JTI plant at Kremenchug and the recently acquired factory at Cherkassy. Sales of Winston advanced 55% in 2005 when Monte Carlo was a brand with an increase of 27% in sales, compared with 12% for Camel.
Combined cigarette output coming from multinationals rose from 96.2% in 2004 to about 97.2% in 2005. Cigarette output from local Ukrainian factories had been about 4.2 bn pieces in 2004, but production was down about a fifth in 2005. The Ukrainian Tobacco Company had an increase output of cigarettes at the Monstyriysk factory to nearly 800 mn pieces in 2005, while output at the Donetsk factory fell more than a fifth, and the Lvov factory had a reduction of about 50%. Newer standards required on nicotine and tar made manufacture of some non-filter brands more difficult. Some of the inexpensive predominately oriental brands may soon be gone.
Smokers in Ukraine have shifted heavily to the blended American type cigarettes. This trend caused Ukraine to rank next to Germany as the second major destination for US exports of burley tobacco in the first three months of 2007.
Ukraine had been a large importer of cigarettes from the US in the 1980s, but Greece emerged as a larger supplier for a while in the 1990s. Total cigarette imports into Ukraine declined from 8.3 bn pieces in 1998 to a low of 1.85 bn pieces in 2004, before rebounding to 2.3 bn pieces in 2005. The leading supplier of cigarettes into Ukraine in 2005 was Russian Federation with the delivery of about 1 bn pieces. Total cigarette imports into Ukraine rebounded about a fifth to 2.3 bn pieces in 2005.
Ukraine became a much larger importer of leaf tobacco in the last five years, with dramatic gains for imports of quality flue-cured leaf. Total leaf tobacco imports into Ukraine increased to a range of 94,000 tons by 2006, with greater imports from the US, Brazil, and China. US exports of tobacco to Ukraine increased dramatically from $12.8 mn in 2005 to $40.05 mn in 2006, and moved up 128% to $19.8 mn in January-March 2007. US exports of burley tobacco to Ukraine more than doubled in 2006, reaching 7931 tons, following by a gain of 106% in January-March 2007 to 3,626 tons. Competition from Brazil and India has made expanding US sales of flue-cured tobacco to Ukraine more difficult, and shipments of this type to Ukraine drifted downward from 298 tons in 2002 to 150 tons in 2006.
Moldova’s Cigarette Imports Show Strong Upward Trend:
Imports of cigarettes reported by Moldova increased from 350 mn pieces in 1998 to 3.1 bn pieces in 2005—a gain of 138% over the 1.3 bn imported in 2004. Travel from Ukraine to Moldova does not require a passport. Apparently some small traders from Ukraine travel to Moldova to find sales. An interesting open air market is operated north of Odessa near the border with Moldova, with about 100 booths operated by small business operators. The boom in output of blended filter tip brands in Ukraine contributed to the boom for cigarette imports into Moldova. When imports more than doubled in 2005, domestic cigarette output declined 7% to about 9 bn pieces in 2005.
Exports of cigarettes from Moldova declined from 800 mn pieces in 1998 to a low of 14 by 2003, before the rebound to about 117 mn pieces in 2005. Moldova’s tobacco production declined from 25,000 tons in 2000 to about half that quantity annually during 2002–05. Most of the oriental tobacco harvested in Moldova is exported to other CIS countries.
Uzbekistan Is The Leading CIS Cigarette Importer: Imports of cigarettes into Uzbekistan increased to about 9.8 bn pieces in 2005, compared with an average of about 7.5 bn pieces annually during 2001–03. Output of cigarettes in Uzbekistan increased from 8.3 bn pieces in 1998 to an average of about 14.2 bn pieces during 2002–05. Cigarette exports from Uzbekistan averaged about 22 mn pieces annually during 2001–03, before rising to 500 mn in 2004, and dropping back to about 220 mn pieces in 2005. Uzbekistan’s production of oriental tobacco averaged about 19,000 tons annually during 2000–02, but was about a fifth less annually during 2004–06.
Rising Petroleum Revenues Bolster Purchasing Power In Azerbaijan:
Cigarette imports into Azerbaijan zoomed from 1.4 bn pieces in 2004 to about 6.4 bn pieces in 2005. Exports of cigarettes from Germany to Azerbaijan nearly doubled in 2005, rising to about 2.5 bn pieces, and accounting for about 39% of total cigarettes reported by Azerbaijan. High world petroleum prices mean a sharp increase for petroleum revenues for Azerbaijan, and apparently strong demand for imported premium brands from Germany, Ukraine, and Russian Federation. Efforts to east the trade surplus with Ukraine may encourage imports of more consumer goods manufactured in Ukraine.
Azerbaijan has an interesting border trade with Iran. Exports of cigarettes from Azerbaijan increased from 1.3 bn pieces in 2004 to 3 bn pieces in 2005. Some cigarettes from Azerbaijan are exported to Turkmenistan by boats across the Caspian Sea.
Georgia Has Steady Cigarette Output And Fluctuating Imports:
Cigarette output in Georgia was steady in the range of 7.4 bn pieces annually during 2002–06. Cigarette imports into Georgia rose to a peak of 2.5 bn pieces in 2004, but declined to about 1.1 bn pieces in 2005. Some of the fluctuation may reflect the movement of cigarettes to small traders.
Cigarette Imports Into Turkmenistan Peaked In 2003:
Imports of cigarettes reported by Turkmenistan reached a peak of 8 bn pieces in 2003 and then declined steeply to 3 bn pieces in 2004 and had a further drop to about 1.7 bn pieces in 2005. Apparently rising petroleum wealth means that local cigarette output has expanded to take a greater share of the prosperous market. Cigarette output in Turkmenistan averaged about 4.7 bn pieces annually during 2003–06, compared with 3.7 bn pieces in 1998.
Kyrgyzstan Importing More Cigarettes:
Kyrgyzstan was a larger exporter of oriental tobacco in the past, especially to Russia and Ukraine. Advantages of free trade with other CIS members allow smokers in Kyrgyzstan to buy improved brands imported from suppliers in Russia, Ukraine, and Kazakhstan. Cigarette imports into Kyrgyzstan showed a strong upward trend from 107 bn pieces in 1998 to 4.2 bn pieces in 2005—compared with about 1.8 bn pieces in 2004. No exports of cigarettes from Kyrgyzstan were reported in 2003 or 2004, but 68 mn pieces were exported in 2005, apparently to bordering countries.
Kyrgyzstan’s production of leaf tobacco declined from 35,000 tons in 2000 to about 8,000 tons in 2002, and drifted lower afterwards. The FSU provided special arrangements for cigarette manufacturers in other member countries to buy oriental tobacco from Kyrgyzstan, but the new free trade setting tended to cause a shift to other suppliers perceived to have a higher quality.
Tajikistan Remains An Elusive Market For Imported Cigarettes:
In contrast to the upward trend for cigarette imports by other CIS countries in Central Asia, Tajikistan has continued to rely on local output. Cigarette production in Tajikistan averaged about 6.4 bn pieces annually during 2002–06, compared with 5.9 bn in 1998. Tajikistan imported about 500 mn cigarettes in 1998, but no imports were reported for 2002, and only 8 mn pieces for 2005. Tajikistan reported no cigarette exports in 2004, but 30 mn pieces were exported in 2005. Cigarette output was steady at about 6.4 bn pieces annually during 2003–05. Output of oriental tobacco in Tajikistan fell from 7,000 tons in 2000 to an average of about 4,000 tons annually during 2002–05.