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.
Alcohol is used not only by producers of strong liquors, but by the wine making industry, perfumery industry, manufacturers of medicines, spirit vinegar, explosive agents, and cellulose nitrate. Market analysts think that alcohol was used in the following proportion lately: 42% for vodka and strong liquors, 3% for low alcoholic drinks, 21% for wine making, 9% for medicine, 6% for perfumery industry, and 19% for other purposes.
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).
According to data of the State Concern of the Alcohol and Alcoholic Beverage Industry (UkrSpirt Concern), in a year enterprises of the concern may produce 61.45 mn dal of alcohol out of food raw material, 35.6 mn dal of vodka and liquor beverages, 47.8 ths. tons of bakery yeast, 27,960 tons of dry fodder yeast, 109 ths. tons of liquefied carbonic acid, 9,400 tons of alcohol preserved juices, 28,072 tons of high-octane oxygen petrol agents, as well as 2,028 tons of windscreen wiping liquids.
Besides to main output – alcohol and vodka, alcohol and liquor plants have launched production of some 30 more types of products: bakery yeast, dry fodder yeast, carbonic acid, denatured ethyl alcohol (commercial alcohol), high-octane oxygen petrol agents, as well as commercial spirit products – windscreen wiping liquids, solvents, insecticides, non-freezable fluids etc., mineral waters, soft beverages, confectionery products, mayonnaise, food spirit vinegar, enzymatic agent, alcohol-based juices, rye malt, brewer’s malt, wort concentrate, pasta, wine, canned fruits and vegetables, isoamyl alcohol, hop extract, perfumes, egg powder, corn products, etc.
The number of effective licenses for production and whole/retail trade in alcohol products has considerably reduced recently. The main reason is growing cost of the licenses, which started back in 1995. While in 1996 the license for the right of wholesale trade in alcohol and tobacco products was around UAH 1,700 (100 tax free allowance), the figure in 2002 increased several times up and came to UAH 5,000.
In 2003, the cost of the license increased ten times showing annual payment at UAH 50,000. Correspondingly, the number of issued licenses reduced: year 2003 – 2,926 licenses for the right to run wholesale trade in alcohol beverages, in 2004 – 1,312 licenses, and in 2005 – 676 licenses. The number of licenses issued for production of alcoholic beverages in 2003 was 662, in 2004 – 502 licenses, and in 2005 – 434 licenses. Starting January 1, 2007, following the Law of Ukraine No.374-V dated November 17, 2006, entities having a license for import or production of alcoholic beverages and tobacco articles should run further supplies of these products only upon available wholesale trade license. The cost of the latter is UAH 500 ths.
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 traditional markets in the 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 31.55 mn dal in 2007, which is 6.3% or 2.14 mn dal less than in 2006. Meanwhile, it is 2 times less than in 1996, when the largest volume over years of independence (63.6 mn dal) was manufactured. It is 2 times more than the 1998 total, when the minimum volume of alcohol was manufactured (15.7 mn dal). 67 companies (62 enterprises of Ukrspirt Concern, 4 plants subordinate to Sumy regional state administration, and 1 enterprise subordinate to State Committee of medical and biological industry) dealt with the production of ethyl alcohol in 2007.
The production of alcoholic beverages was restored in Ukraine in high record rates over the last decade. According to preliminary information, almost 37.096 mn dal of alcoholic beverages were produced in 2007. It is 5% or 1.798 mn dal more than in 2006 and 8.2% less 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 1.8 times more than in 1998 when the lowest production volumes were recorded (20.8 mn dal). 52 enterprises were involved in the production of alcoholic beverages in 2007 (61 enterprises in 2006).
This downward trend in manufacturing enterprise numbers has been experienced since 1998 up to 2006. 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 28.96 mn dal or 79% of the aggregate production in 2006. It shows that the largest competitive companies are remaining on the market. Top ten producers produced 83% of gross output or 30.6 mn dal. The market leaders, which are subsidiary Image Holding of JSC Image Holding, subsidiary Ukrainian vodka company Nemiroff, and the production branch of Soyuz Viktan LTD, produced 57% of this output in 2007.
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. Their trademarks are already well-known in Ukraine and abroad. 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.
The assessment of vodka and alcohol drink consumption volumes in Ukraine varies due to substantial illegal production and smuggling. Meanwhile, the volume of domestic consumption amounted to 27.2 mn dal in average over the last five years (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. Consumption in 2007 constituted approximately 32 mn dal according to analysts’ estimations.
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 (denaturated and non-denaturated) in 2007 reached 9.2 mn dal. It is 23% or 2.7 mn dal less than in 2006 (11.9 mn dal). Poland (21%), Hungary (18%), Moldova (11%), Georgia (9%), and Austria (9%) 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 2007, 1.52 mn dal of alcohol was imported, roughly 4% or 0.06 mn dal more than in 2006 (1.46 mn dal).
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. According to analysts’ estimations, export of these products in 2007 dropped to 3.77 mn dal if estimated for 100% alcohol (around 9.43 mn dal of end products), which was by 9% more than the previous year volume (3.45 mn dal if estimated for 100% alcohol or 8.63 mn dal of end products). Russia (75%), Moldova (4%), Armenia (3%), Israel (2%), and Kazakhstan (2%) 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. At the same time, import augmented up to 1.74 mn dal in 2007 if estimated for 100% alcohol or roughly 4.35 mn dal of end products. It is by 57% more than in 2006 (1.11 mn dal if estimated for 100% alcohol or 2.78 mn dal of end products). 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. 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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