TOBACCO ADvrsoRy couNCIL TEL: 071-630-9638
S.Apr.91 16:36 Na.00? P.03
A" VIS I
FE-URVARY 1991
Test'.'I"-e East
P"
lVe Tobacco Industry
and Eastern Europe.
SASY
European Sumou for Adon
on S"ing Prwonflon
Mn r&k"
UA=SM AArMWARACCLOU
117. nw Jos A&"
1040 mWeLs
TAL 32-2-732.2A.68
fox. 32-2-"6-91-V2
I
C=)
--j
--4
Q-4
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
8.Apr.91 16-36 No.007 P.04
SUMMARY
1. Alviwdi.,g ill thu V.-Ii. (if Agrk lilltirv.
al-will-Aitul of ckWlrutt~ ill J~jsf- Funal.:
n..,: rnlell ('6S
hillical in 1975 it, M Nflkn in IM. In 190)
cig-mle ctnomnlWiowi in the FC. C(WllLri%,% wx;
ctluiawd at Mo 1911il.j
AM 550 hillion in 11W U.S.
1. Fawnt M-nix: in entwmmi.-i opflwtuoity rix thr
Thartinatictud T");woo Ctxnlvpil-~ (TTCA, with
Itk.
ck-clining ciltminilwitin fjgstn~ in ilm. VU.-A.
hts( indtfsrty c;xrxxu mmin uiwvmin intl mg3rd
tlwx%,- tkw IT%I&-Lts a,%
wry "-y ,ith wany pi"6. A4;,.vrJing to thcw tminnu
it L, atill fixt e-ady ra expcm drinutic chanxt.,
3. 71,u m-nnoinic sippcion in the ccutturiLi d
Ejsr,,trn and Cknind Euruix: L4 nir-c the sarm.
llut sixill: chini~tvrwir%
am sham-d in varying degm-c-i a intemay. sudi as
high inflaiman, luw purdl-init lu^ver~ lack 43f
hard Wrrt:rwk~ ;Lad
E&- 1-mx,lik:rm tit cv)nvoiihility.
4. In ou-1, ft-l-f -xialiat w-n1lik, a shift fault
a Lvnczal-llklnn~M cconsmiy t%lvjrLk- a inute
inark-A-f-oricnicd tirw
ww, jn,.6rA-nck-nt ct-lv2nk:., is Lak-ing place.
Illowcver. accurding tti westri-n st2ndirds nwity
(work-i in ra.-L-rn and
CL-ntral Cwope at. ron viall t. hc are eq,-iprwd
wid, auchi,wq whieh 6 tc.-Id.
5. Mcw sx~ g-mitictits in E"cre, rumpe want to
cwjlc and incMN-us for invesrvm hy w,-zwni
irldiLwit..i. Their twin inlacst lies- in inint
vusicurv%. The ktww.huw. thc equirnx-rd and the
rcchru16gy uf wesk-rn
amlipallies are the main =vwL% wity dw kAvwi
indLISIfy in Famcrn Europe is looklt%q Auvird u)
~)ln( venturt-s.
6, Twnsnarinnal ToWLru Qxtyfniex were Aft-ady
pmwnt in M.'refft rurrque- tx-ftxc IM. but iheir
irarkrt imfua
was w4my anlited (",. than 3%). The rallowing
compAni- wun: flit alost iclim. Philip MurrLs.
Reynold% P.Al*.
Reaw-a and ALLstria Tihak. Slacc 1999, Eastern
FALmilcan cutsittrics Itare reprcscntcd new
opportunities
for rrvs in terms of sales. licemsing and joint
ventures. The first ricspumse of TrCs towards
Lutern
Europe is creating Soodwill, listening to their
probicals. proposing sollutionn, Inviting them to
thele
headquarters or Itest being extrenwly friendly.
The second r=puroc Is tite business dealls.
7. Adv%r"ng for cigamuc% ib unknown and
frld-wicick-n in Lament Zurojx, which tnakLn, it
dirri-It to 4itrod-
w"ern srylc brands. 7be strategy of dw
TrArwlacilvai ToWero 0milunics m-gardinill this
advetti%ing Iran Is cu
pq:muadc the new govcrntoiums to aWish the
xd%vniving rmtrictions. to adverrise at %ak-s
poinet. to organise
sp,moLmitip and "mWanal activities and to
advelf.l.! illupfly frogn Ab(cud
& Tile enjeWncy nm-uma putsued by " ~ovk-t
gmirnnxni to allevare, the cliprLut: %ittlruge
durbig the -%invner
of 1990, resulted in an agr-mment between the
RLm-lan tovertuvent and two U.S. uAwc- ccniqxinics
to sell M
billinn ciliaMM's at a pri-M Of 1,9 hillUM 401121s
or I dollar I I cum. a package. According to our
agirnaLlni. Philip
Munii and RcynukL,. are getting a prx3fit of 50
Lents for each pack nf 20 clipm-tres sold - in
toril 85D million U-S.
"laml I
The IttLwan agwonenr is a cl-r cxunpk- : dw
tobacvo lcomfun;c% am nia t1wre to Wp, thvy ;am ~w
imcm-4W in
=Wng profas, hoth in Uw shod And the long tenn.
C>
LNI
Ln
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
8.Apr.91 16:36 Na.007 P.05
-T-E S- T THE EA ST.*
THE TOBACCO
INDUSTRY
AND EASTERN EUROPE
CONTENTS
hurtacliterion ........................
......................... .. ........
r. The Vienna Conremire - The sixth
World 'I*ol rarm WiNtion and Sym1witittin
..........5
EL Tlkc istilwitrance of Easicni Kunqu-% :
thc consusni-Akwi figumm
............................... .....
M A survey ufarti0e.% Mai F2.%tem EuroW
and dic I*rminailocial T;Awcco CoorrrAni-4.
appearing in TWwnj Tirade jourwis ....... .
..........7
1. OpIwarttinides And r6kb ....... .
..................... . .. -.7
2. kuain'mici in bid slia1w
.................................. .7
3. The Msnunfli,j, of the foliuca)
ax)rK)Pulk ..
...................................... .
.................
4. Jbf.' nLvd for niock-mi%ack an of TcAucvc.
Manuf4cluring
....................................... ..
5. 11w cry (Of IWIP .......... ...........
............... ........ 10
6. Mw rL-jxjww n(Tr2ai-natitmizil TkArivcn
Cninpanles: I)citq, eximniely -ffiLnd1%--
and m%prkaing
.................................................
11
7. A -im-ific a Axtade fur ITC4 :
dw adwrtiing han .................... . ........ .
........ 12
IV. A sliecLif cew -Audy : 11u.- Iftc-Ack-.0
(asid mwak-7) : dw Russian cnk-r w Ixty
34 hilli, "' I L& O)preit . .
............................. ....... 14
GINIt'lu.'k.11.1 .... .... . ..........
......................... ...... 16
C)
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
INTRODUCTION
in die fight of rccent developments, Lwern Eumr*
hav;
become more and more in area of particular
Interest,
especially for thiz wh*cm tridustry.
This is illustrated by the emphasis 111ven tn
Fastefti
Europe during the sixth World Tobacco Puchibition
and
Symptwitim in Vienna, as w%:U is by the tobacco
uaik!
journals. such as Tob3cco Rerxincr, VbrlJ Tobacco,
8.Apr.91 16:36 N0.007 P.06
Tobacco International and Tobacco journal
Intettuftial.
This mptA ainis wsumma&w stiff exrJ3141 flow
Easurn
Eunnic has been hiShlightt-d tn theft Journabs am
at the
conference.
1. THE VIENNA CONFERENCE:
THE SIXTH WORLD TOBACCO EXHIBITION
AND SYMPOSIUM
rw sLuh Vbdd TUxaccr) Fxhjbifton and Symposium wa3
hLIJ in Vienns from the 22nd to thc 25Lh OLu)her
19N.
It was oWniscd by the trade jou(nal -World
Tobacca..
hcavily advertised in all w1mcco trade journals
and
sponsored by uAxww cwrpsnift, such as Austria
Tabak,
Pld[Lp Murrb and Reynolds.
According to (he organisers -wich 193 companics
exhibitine. representing 31 COUSIVICS, the sixth
Wxld
Tobacco Exhibition was the largest and must
comprehensive gathering of the tobacco Industry
wuridwidt.%. The nuin purpose of this exhibition
was to
sell all kinds of machinery (such as p2rking,
blencling.
cigarette nuking. cutting machin"y etc).
Part of the exhibition was the Sympm-sium. which
covered three arvas : the tobacco industry and the
Eurcipcan Community; the tobacco Industry and the
environment; and the tobacco industry and Fastern
zurope.
The main topic was lamem Rumpei for wi&kh the
orSanisers bad picked an advantageous and Unacly
llocatlov6 Victim, called the gaw-way to Fastcrn
Fiampe,
was selected long before the uphetaval occurred in
the
Eastern Eun)pcan countries. As the director of the
exhibition explained, When we dww viennS 2S thi:
vwnw it was because of its traditional links with
ftstern
Europe and the thottSht that an International
uA=cco
indwArf exhibition would hclp to cnenurage
east-west
Wild. We did we realise dat, hWory would be tna&
in
October 1989 and the Full meaning of perestrolka
bcceirric, evident. The timing of the Wairld
TobacCo
Exhibition and Symposium Is thus even murc
DicfipitC the 24VA.ICIP Publicity for this
Conference,
despitc the perfmt )=tjon and timing and despite
the
claim of one of thc ctHXlPnI;-4T% Ow Difftam
GeincraI
a AL"ria Thak. that <awfid caiiiiattb u( the mi"wr
ni
pLopic cnipgcd in thiv toluccf) Imlinitry woildwi&
air
about 30 millioru. only 300 partIcIpants attended
the
abcth WorW Tobacco Symposium 134 dt:kPiC3 IMM
Phillp Morris, 14 trom Austria Tabak, 13 fruin
Reynolabi, but Wily 5 fitain ZAT, 5 from Gallaher.
4
from Reemutna. 3 fMM ScIta and 3 froin Iniptri2l
Tobacco. 20% of the delegates atme rnmit thc three
CoMpanIcs which sponsored the ccxdcrcnce (Austria
Tabok sponscred die wticutrie receptiot% Reynolds
the
pre-dinncr cockrad reception and Plailip Mcwrfx
the east-
vvc.%t trade reception).
PhIllp Morris was the most actively prewnt at the
conicruncir ancl assived visitors Win Fastcrn
Furo~,* to
conx to the exhil*". Ibir quevion rawins why oal)
5 rwrxm represented BAT and 4 RccmLsma. Since BAT
is no longer numba aft of the cigarette
m2nufacniners
and left Entomb (die InIcirmarlon and
doc-umentation
centre of the tramnatincial tobacco cottilunks).
is sL%=,
that the distrust among tobacco companics, surh as
Philip Morris and BAT, has Lic-Ltimc Strater and
trever.
It should also be said that tra"nadnaW companks,
do not develop their marketing strategies at such
sneellings, but [A the hgadquarTers of dw-
compank-s
thcmxclvcs. Discretion is too important. not only
because all companies arc competkois. but also
bccatew
any knowledge acquM by dw rr%.Lra of their plans
in
r"M Eumpc could be councerpr,xiuctivu.
Rcyu*W. (or Imance. has already txvn critki" for
its markt-ting strategy iowiis.6 black M)* in th,
U.S.
earlier this your. sndAct&-d to -iihimw dw new
Wand
-Uptown-, which wai targeted (o increase black
Amcrk-an cigarette consumption. BAT is ocriainly
arm
inactive In Zaam Furrqw, Ixit did not 9L%-m to
beiiieve
that a cuArcrice dominated by the U.S. companies
could lv-qp tu &velop its maricerinjtmmt~-gy.
Pcirliaris Lhb Is an Indication diat the
ccurirkiiiiiin in
fix.-jern Ptieniv wdl IX: n-ry inet-mv.
_J
01%
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BAT Industries document for Province of British
Columbia 23 April 1999


JOBACCO ADvrsORY COUNCIL TEL: 071-630-9638
S.Apr.91 16:36 No.007 P.07
11. THE IMPORTANCE OF EASTERN EUROPE
CONSUMPTION FIGURES
According to the FAO (Food and Agricultural After
China (11.5M blUlon cigarectm) and the
OrWanisvion) report -TohZC03- supply. demand anti
(556 bidlon). the U.S-S.R. (468 billion) was the
tWed
trade projcuiluns. 1995 and 2000-, total tobacco
largest consumer of cigarmcs; In 1989. The per
consumption raw by 4.3% a year in the period
capita consumption a( cigarettes In Pastern Europe
1974-76 to 198446 In dcvckpW& courtules, and by
was highest In Poland 1 3206 cigarettes for the
1.2% in isastern zuropc, but dcLrL%s&l by 0,7% In
popuLation 15 years and older. Wrldwide, only
Western Pumpc anal by 1.1% La North Anu-rk-a.
Cyprus, Cuba and Orcuce have a higher pcr capit;t
cominifitkin than Poland.
mote precLwly. im.. Wing to the U.S. Deparratcric
0(
AV&ukurc, consumWion of cigm-um in Ea.-Acrn Eurupc
in tlw U.S.S.R. the per capita codsumpiion is 215o
naw fnxn 665 bi0i*n In 3975 to 757 billion in 19M.
In cigarcttc3 or one third less than the per
capita
[Sarcruc Lonsumption in the PC countries %-As
I= C cnmumrx;un Ln Padami.
c I at 50 billinn, and 556 billion in the U.S.
TAIc 2
Tahk- I s
Pr capka cip'-ette
;o_umptloo
~tt'
Consumption of .3
c1 pre
n Zastcrn Europe In IM
In Eastern Europe In the period 1975-1989 (15 ycam
and okk-r)
(in million pkim)
Per capita mpulnkm 1990
1975 19M 190 lm dg. consunlixion 15 Yvan
Im and okler)
EZSR 419.532 421.186 455.100 4(A.000
AAzLnia ijw Lim 2.mo 2-60o pabild 3.2PA
(26-936-000)
rug3ria 13.211 13.000 17-000 16.500 HunlrAry 3.173
(8-461-000)
C-nech.4-akli 22.955 24.000 28-040 26-400 Yugosuvb
3.118 (18.421-000)
FAs riermany 26-929 31-0R0 32-M 5L2115 F&'q
rwrrnany 1416 (13-3SIL000)
Hungary 25.7s3 26.05o nm 26im ]SUIS36A 2.311
C7.139.000)
Poland 83.875 94-A51 92.744 95.100 CzpchcWo~akia
2.179 (12.112.000)
Rottullil 30.000 34-000 36.000 31A50 U-S-S.R. 1150
(217.622.000)
Yusivdavia 40.553 54M9 55-419 57-450 ltoni;ania
004 (17.753-000)
Allmnia 1.162 C2.237.000)
TOTAL 664.638 701.136 746.682 757-035
TOTAL (32&9ta-000)
Source: U.SM.A.
Source U.S.D.A.
Flgurc I I
Con,SUMPdOn OfCIPMU" In Fastcrn Xmrope In the
pcrkid 1975-19"
(in million ple-ces)
IM : 6M.638 million
1980. 701.136 million
1985: 746.6H2 atillion
1989: 757-035 06MM
source us.r)JL
-4
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cc
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
S.Apr.91 16:36 N0.007 P.08
Ill. A SURVEY OF ARTICLES ON EASTERN
EUROPE AND THE TRANSNATIONAL
TOBACCO COMPANIES, APPEARING IN
TOBACCO TRADE JOURNAL
1. OPPORTUNMES AND RISKS
iliastern Europe represents an enormous
opportunity for the transnationsill tobacco
companies ('ITCs), with the declining consumption
(15uren In the West. but Industry experts remain
uncCrUin and regard thme new markets as Ycry
riaky with a=ar pittalls. According to d-c ex[wtu
it
is UM tuo early to expm dranwac ch3nr& " unlike
the end result of the political upheov3l. the
final
outcome of a potential economic restructuring of
Eastern
Europe M-mims to be seen (Source : TcAmcc,)
jourrwl
Even Mr Z. Bryckner of the Vcrhand der
CipreffenindustrW CermanY an---d at the sixdL
Worid
Tobacco Symposium that the situmlon and
developments In East GeMaQT te=ifk uncertain: .7be
ftc,.nu de"'lopments In Emmert ftwope have had
grew
impact even an out Industry. Despite various.
joint-
venrures. buying of companies and new product
launches by western companies, It would be sheer
specuLittion to soft for definite that die
cipm-ut: markets
of Eant Germany and Western Europe will Srow
tog,ther. l40 one can -my at " point in thne what
the
-official hclpp for dic F&A German dPmvx Industry
by
Western companicA -ill consist of, and how the
consumers in 1he FAV will -P-1d to this hCIM.
The German Transpational Tobacco Company,
Reemesma, has alr~y had a hod expc&vwL with die
tsk..otter of the fiviner E- Gi- Tlul-co Company.
WA Neirdbauscri. -1&h proisced the brand -CADINED
which was Ism year's ma kiA leader In East Gemuny
wM 35W 11he tar and nicotine content are Vencrally
twice as high In East C' Ctirany as in V;:u
Gertnany. and
Reerritsma dcCided to wCMernw&- tbc cxtent of
Cabinet-
8 nd to make it much lighter in lar Content.
HOwi:vel
East acrritam did not like thk duu~e of t2ste and
the
market share tit UAnct. dnVped from 33% to 1U* in
September. The production fen from g6o million
asaftats a month as die bulonnifts or (he year 10
W
million in %ejV4-jTd Xff (S4Auve : Der Spiegel.
5/11/90).
jAr. 2immcl. of Austria Talask summarises the
opt)odultitics in EaStem Europe in the W-Ing way :
4 rim-suitent in Eastent Euraptran markens k full
of rkk.,
Hu,-wr, flic powi-dial reward may overslixdow the
pdall.
4 mrunias willing ;o get nwwc active In therrict
svialiji
000.11rie3 MILM think in longer term% quiL:k
return an
invermenents is unlikely. Rut being active quite
at dw
beginning of this period of transition officts.
plenty of
opporTuairr (Source : Tobacco Repoiter, Octcilvr
19%).
2. ECONOMICS IN BAD SHAPE
The economic situation In die countries of Camem
and
Central Funipe Is not die safne, b4x some
ch3racterixks.
are shared in varying dnrecs of kucrL4% %udi as
high
inn"tion, low purchssin$ power, currency
recrinversinn,
Merrix) debts and poor infrastructure (fm,1%
telcphnne.
GIRMI).
Inflaii0m ratat
Yugoslavia, for ifflnrice, has a high Wation
perikilern
(2000% In 1989) and according to the Vienna
presentation of Mir. Phula, a PolLsh w6acco
industry
C011SUIC31U. PoLand had an inl6tion rate L-L-A
year whL-h
excccdtd 50% per month. The Polish government
Inuciductt.1 slxxk therapy widt a fiscal, monetary
and
income policy. As a result inflation dnppNd rruin
M in
January to 4-5% dw next month.
Low income
in Poland. real wages decreased drastically : In
January
IM alone, thiA drop surpassed 50%. The Inctc-Ase
of
Prices and the drop of income have their effect an
d5 z'"W ssks- WQ*Acm cillia"cue brands 2A
MOO Of three times as expensive as local twunds.
which
means that for ordinarystuokers they are out of
range-
According to Mr. Pkula *Mac cheapebt PoUt
cm% alxjut 14 ccrick wiwn die nx.PA eWnsive cog 50
Wftl- Marft-jm pnxJuc%%J in Poland ucmkt PM
licence
cm 90 cum,., ,ivzn iwqxwtcd fh3m Switzvdantl or
die
USA one can hor thcm tot USS1.45. It is worth
mentioning that. IKC' net. after L&X. average
1111try In
Poland amounts to USSIOO per month which is
"ivak-nt to 14 thousand Popol arne or 1,400
ioiVnftd
Ma.11xim or Q. nxi citarr-ric5%
in Itungary local brands com 50 cenis and f6rclign
Ixjiw6 st.rh a% Marliuvo (when r~lizrcd undcr
lkwicc)
r'j
C:)
C7%
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
8.Apr.91 16:36 No.007 P.09
- 19 P I* -
F"P- r TW
I.So cents. which is too high for dw average
llunrrian
onnimnier. Indu.%ity sotirces evinute that
consunirAkin U(
licensed brands Is split 50 50 between Hungarian
confiurntft.. and 16rcign Lour6o.
WOrld Tob2cm even ohoves In kxAcptvmIwr IM
imic : W',th livingvandirds failing " an
atinuphere
of accmu2mic uncertainty in Hungary. the rise in
the
market shum or liwmed boands from 4,2% to 5% lam
Mr was an achicmucm,
in YUSmLavla the high inflttinn rate and tkw drW
in the
standard of living hAve hui their rfFem an
ccm-iumpikin
potterns Srnool*W~ Stlu*m A particular
characier!,~tic of
the matter in 190 was the "-nd Lu dicaper brand1s
Q(
cigareres. 11he chcapm cigarunt: Swup In WgoslAvid
captured 20.2 per cent Of IOL21 consumption, In
comparison with 14.7 p,r cent In 1988. The
consumption of liccnbcd brands. which are In the
highen price catcrury. drupp%;%J form 20.8 per
cent in
i9 a to 16.3 percent, In 19e9.
(source: Tbh3ccojmrnaI Inwmadortal. No. 4,1990).
The lack of currency and the problems of
converdblLfty
11 m: oqpnisers of the Tocki Tobacco Syni1xislum
wclc
aware of this cutrrtxT prohicni and invited a
British
banker, Mr. Linger. to explain the problems of
tzanstictions in Fistern Eurnpo. The title of his
presentation was -Anyone can sell in today'x
markets.
The problem is Setting [aid
Mr. Unger explained that innst Fastern European
countries lack hard currency and lprctcr
councertrada ingeractim.. In which payment is made
aidxrr wholly or partly in the fdwm ci goodL
Ilowcvff,
Mr. Linger told the audience of uAxicto trade
People
that counceitrAde tiny be co-dy. time consuming
and
oompler, but in am tom or another, countertrade is
most certainly here to stay and surely it is
better to
licceptr countergrade, than nut unide at all.
in Poland the internal cnnv%,ru1LAIity of the
Zloty was
enacted In December 1"9 and mallsed throughout
1990. In Czechoslovakia the process towards a
'ble currency will Ix-gin in 1991.
conveni
Tile conclusim of Mr. Zimr"Li in Tobaccu Reporter
(OcL
1990) : -A% k-)ng w Eastcrn ctimnick-i ate M
conveng)k
with hard currencies. companies still need a lot
of
fAntasy for harter agirecinew. 3s parts of the
blend and
additional rnaterfalm still have Vp be Imported,
3. THE DISMANTLING OF THE
TOBACCO MONOPOLIES
In nuw fivnwe.-Axialist countric~ a shift inint a
central.
plannrd ecmxny to-ards mirket-wicated Indervrident
cm'fankni is taking place.
I'hc sr,..vw i&-w of Tiobaom Irdn,utvul nt ocitgyr
1.
1"0 an Eastern Europe discl-.113'e.11 the procc's
of
&-n.nding the Utinceo 6.coming
independent and privatL%utkin of the tohacco
imltwry,
after what is cafled the -UpIK=val in d-A.- East,
-The tobacco and cigarette Industries of each
-country were traditionally state run
orltanlrjtIons
from leaf growlao, to Processing. Import and
capaM to cigarette manufacturing. and machinery
and cquipment: purchases,
In the ,~Uucturing Irom centrally-planticd to
market
economics, this *Uphe:tval* will affect (lie
tobacco
Indtowy In inany ways, to differing rkjrt;%z ( ).
in Poland, whcrc changes have Sr2doally taken
place since die early 19W.% tu Hungary wilkil has
never totally adopted the Soviet way of thinking.
to
East Ccrmany, which no longer exim as a separate
country thun Wc:bg Gernu-say, die Indus" is taking
on a new lotsk
The EAstern upheaval for the tobacco industry
d1 wrorrficany means dra (lie bege stiit~-run
foteign trade
butt2us - Agren in PtAand. Koirol in
Czechoslovalrix.
Monimpex In Hungary - will no longer hold a legal
manopoly on the purchase of foreign leaf or
manufacture of cigarettes. Their future dependt
upnn
their shiliry to continuc to provide diw toocts,
servicm,
and cow-ultancy lxatur drAn dicir competiron ( ).
Currently Industries of these countries are In
varying
degrues of dismantling. each of Poland*s cigarette
lamwle,, is a sqmrA(e comMirf, responsible for all
W
buying. marhInLry purdiases, brand forniu6clons,
etc. in
Czeduvinvakia a plan b proposed to do thesame.
thing.
although the facittries am much smaller,
(Sourcc: ecllt(wW, Ttjlncco InternaUonal, Oct.1,
1990).
The clearest example of dismantling so far luns
been the P-t Gcrm-in stage-owned monopoly,
which has been dbsoivcd, split Into difrcat units
and taken over by the TTC*s Philip Morris,
Xtynokft and Retmftma.
11'he fnrmcr statauwned tobacco monopoly VEIJ
xcwnFA-t TaIxk In 0mrsden/Sixony. which coruamcd
u(
nint rxodik-Tinn sku3 all over the country. was
I'livxplit
into selutraic legal and curuwatic units eTwmang
fully
an thc-ir own, of which only three cnntinucd to
mistufaction: c1gam-ttai. The threv %ircs wcre
f)ftnuk-m
With I 1 .5 I)IIIi0n CigarCUCS 2111111.11y. Nord.
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
hau,semMiuriaLlia with avrr 10.0 billkon ind rAir
Betita
widi 2tt-und 5 billion. Dresclen has becii taken
river by
Philip Mcm7it. Nordhausen by ltecinwiw and Ras
&-rM
by Itcy-Ids.
.BAT, wlikh was odgimlly Interested In taking a
share in
the Induitry, evvitiu2ily decided not to and uptcd
In.%tvad tu set up 1U own sales organisattrin, in
the
country. Mr Hans Ttxiiac~ Q( BAT
CitAreftenfahriken, told
vbrid TcAmcco Ia.,& immidt thtic die company was
in thc
pmr ^_% ofsetting up a sak-i force of up to 60
pettitic
with a headcluartuts in r~asf Berlin and seveml
regictnal
(3 oume: Worldrobaccn,&~Wx-t 1990).
lit frungAry the ptwem towards more Independent
faeto,rics surtcd as early as 1970. when the Facr
uAraccu,
faoxwy 4x-pn its nx)defnised puntilai-ture of
dg3sect-A
it Ix-cartic in enterprise with restricted
Independence
wWan th,. Trust of the Hungarian Tobacco
Friwrivises.
jug like the other tubacco factories of r6cs,
SatnW-
jaw1liely and Debm-mn.-
wiWe the de$,ee of dismartAkng of tuWcco
WAW41101les
is well advanced in Hungary and Poland, even In
Rulgin-ria th~ dotnestic due-cer will 3cc sorrw
Mount Of
peivatis2cion, according to the vicc-presideric of
ftiSarrahsc : -BulliarWs nine cigarette factotievc
are
beginning to orpnize dicit production freely.
C~,ral
&ecticin will come irwit Bulg3rcab2c, but whm to
jr-1,
tol,xicco and supplks will be up 0 die
inAnu&ct%Wersm--
This looseninji-up. of the monopoly Is intended to
create cumpcrition which will improve domestic
ciga,rctw quality and encourage savings In
manuricturing. such as labor costs. Although
changes
d1 regicen to stuAlo6h dit: morwipoly of tobacco
Ia ad=
Eastern I!uropean countries, Bulitartalac plans W
kftP
Raeff the core of the indust-ry.
(source: Tobacco InictrAUUML Oct. 1,19m)
11 he dcveIp-rU:n9 JAL1110MAnill, IS Stitt
undt.2r. -Some
people In the gemminent favot a free matitcl
SYSU-311;
odtm Still want the state to ou&W die ecosvomy.-
0 ource : Tdiacco Reporter, Oct'lier 1990)
rinstay JQ_;h* USS19 . a process of dcmmWintion
Lit
taking p6ce.
4)ug to prrstroika, a period of transition Is In
Santa for
the Soviet Unkm and the relations betw=n m4iublim-
.11W mpubliLs or die Soviet Union are eager 0
obtain
ritimir Indepenclewc or even to become separate
301-
so in die future. a possible Investor at exporter
will
Itave, to nersiate directly witli dw Wbacm
Ownflankm of
independent republics rather thin with central
atilluiritic-3 in Moscow.-
(Source ; TeAv:n-ri Kcrwhelsr. Ot-ILOUff 195W
8-Apr.91 16:36 No.007 P.10
-Before (the recent chAnuva) It was nex necessary
to
work with m-priattlitadves of trich m-public,
(rurrendy)
them Are 15 rL-IxjAics which dc-al duuugh
Prodltu"-,
sold Ivan W614v. a dimanr of the tobatxti division
of
Prmknfm& the law Sovl~t foreign trade owni7ation,
*Now ilk= W much change and the relations, bctwcun
the union and states must be firmly established.
Although the stares sand tf%Cir 1`04`0231 trade
orders
through Prodintoril. there Is no fornizal
Agreement
Lx-tweva repblk-s (or (dom~vic) ihipa.-nis. o -
(Source; Tobacco LarefriukWMI, Oct. 1. 1990.)
As dcanitralization occurs and the sciurace
rcpublics
take claW of dvir own production. Anicrit-an
exiwas,
predict that -shonage., will occur from the
resultant
hurvaurratic cardusiun..
(Sawce . Tobacco laterita ricwnl, Oct. 1. 1990)
4. THE NEED FOR
MODERNISATION OF TOBACCO
MANUFACTURING
According to western standards many factorics in
Fasscm and Contral Europe art too sntall to be
e&%-Uvc
and afe equippet! with itrachinery which is too
old.
This point has brm dc-k~-d by DC Ziounel of
Austria
Tah3k
-Primarily needed in the way of capicaJ Invesnuent
am
madtines. The bstem lobacrn busincmm. (czccIxing
the
Gerinan Dia nocrade It"Wic, of CDR) suffers from
old
production facilities Gow capacity and quality).
Most
machinery was Installed in cite Sixties. Modern
equipment does exist on a low scale IA awn of the
factories, but due to a lack of xpare parts snd
auxai:sry
materials, the output is below avcrage. Crobacco
Rc[x%u-; Octuber 1990).
After the widely reported "rage of cipm-us In the
Soviet Union aM the smokers' iarm-sts whiLh
included
workere strikes in Sberia, and strum protests In
Moscow,
the problem of & UM uirmus Industry are probably
the bcA known in the Wes.
-Only six out of 24 Soviet cigarette factories
were
working because die odwr 18 had had to close down
due to lack of mawrlaW. Radio Moscow said the
closures were due to Ompairm of their production
equipirient and Inlitastrucrures*..
(Source: World Tafacm. Scr&--znlx-r L990.)
According to an littmational spire pam-C exlNutm.
every
fairwry throughitut. dw Soviet Union is erpiipM-J
with
different rmchinery,
-under Gre-zhaev sit Wrork-s that had hard
currency
were audx-mizLd to buy the machinery dx-y nce&d.,
he
said. -They did, and thcrc ww, no cx"dimtion among
dw putchawm All cite 6ciorics Im8lit nischines
framil
rQ
<--)
BAT IndustrieS document for Province of BritiSh
Columbia 23 April 1999


TOBA.CCO ADVISORY COUNCIL
TEL: 071-630-9638 S.Apr.91 16:36 N0.007 P.11
d0 cfem awnufaciumn. Now they need space parts and
dwm In a great variety of machinery, Impacting
uptm
this shortage of spare parts Is the lack of
foreign
curreftly.
(Sourm : TaIxim International. I Ocuix:r 1990.)
in rect.-nc yeam. the asakount of money that has
btcn
made av3ilahlc for buying spare parvi has been
f3ilint
and individual racturies havc not been allowed to
purchase pelts for tivemischres. 1u f1gurm say It
all : iu,
1986. the tobacco Industry was allocated 1.500,000
%2 rd- rouWes to purcha.,c spaces from ahniad, but
by
bw yL=r, that figurr had druliped to 3M,000
rOuble&
Hcrv are scow fumlk:r exaMPles
.0,2mcce factories in Xp&n,%Ix,rlA am generally
quite
smaii. There are now 14 manufacturing units
whic-it all
prod%jce less than 60 bdlion cigarettes annually.
The
Novi Sad ptant was closed in 1989 and rcuW
C105111"
we txpencd In 19M rive, faLuxics still
maftur2kture 10LI
than two billion cigarettes per year. &M two Of
them
even k-u tb3n onc billix)-n. which is iiinply too
smail to
be proricable. The survival of these unim is
que.-climable,
(jolo,orce . TobaccuJournal hwernatkmwL No. A.
1990.)
The~ productic)n of dVsettes in ajilgarfA timpped
in
1"9 to Ian ftn 86 thousand mIl1k)n pieces. because
Of
sulj.Llurjl changes and plant nvadcrnization. Thme
of
Sulgastabac's nine cig2rettc factories am now
being
refurbished. The projectb Include a neW Pril-rY
proctuing department in the company's manL up-("cc
filocps-y in i3l3g*rjr=j and a cwnpletely new
f3c'ulcY iA
Wia to replum the old one them.
(Source : Tb1xK-co journal International, N-u.2,
1990.)
- -The tobacco industry 13 obsolete 14 terms of
eq,ipment.. said [on Sgerpu of Prud-expoct. the
larp
official kweign trade organix-ation in Romanla,
*The
kuhuary is operating an machinery that IS 29
IC2.1t 20
years oW. aid Mr. SLaqw, who mentioned that each
facumy has a space pan wo&,Iv*p. 'Better to say
they
try to nuke spare pwu*. Due to dilapidated
coWitkx'is,
Scerpu said that there is very low productivity
throughout the Industrr.
(Sowce : Toh*Lco Internatkwul. Oct. 1, 1990.)
. La_rolud there arc five procitwers of cigarettes
kxzj,~d in Krakow, Itachmi. Punan. Wx and Aupstaw.
All these factories arc poorly equipped and the
e&~.uveness ratio is much below weacm, siandads.
An
gve,rjIl sbckncss of production discipline In
Polish
jictrm~s c3n%cd pertnanent shortages of cipm-tics
on
the Mwi iva.ka dirtmStwout dkc Ws,
(source : Pitula Vicruls Qnfetc(144 19M.)
5. ME CRY FOR HELP
Mr Slwmty~wk of die LWR ha.-L ix-.n for mny )vjm A
cnaW rducco industry evrxn ancl was one of IIK:
key.
note speakets at dm- Vicnna curd1crunce.
The tol~~mo trade 3udicoce, who aknost never
a.,%kcd
quLstlons after _3L catio , su IY kc up d
pm -n ns ddcrt wo an
a.,k,,J Mr Shemywk at tem wn quest.orm Thi3' m.&y
not lx: surprising: &JM19 is hy far the biege-st
nackct.
His m~%mge was cIL-Ar: due to lack ofcunrncy~ (bK:
to
old equir4exv and due a3 pmblems of
dccumtralivit;on.
the USSR tobAcco wtlimry Is in big tn-mlAc. lit
wantc-d
mnee cfrK-jecxy, more wduiol"y and laLs
bucesucraLy.
ilwrc is no money, but titere is great interest in
joint
ventures with wesmrn uAxacco companies.
jAr. pituta suessed the same point of view
concerning
&~1,14 : Adclkk=Ily the PoIL%h partners prefer to
join
forces with western partners In the hape o(
capitAisinS
an pfeseni Lax incentive-s foe joint venturci.
enjoying
higher s3larics and wages, and last but not least.
obtaining access to wc.-Acm technniogiev.
The know-Liow, the equipment and the technology
of western companies are the main reasons why
the t*Wcco Induatry In Ustcru Europe Is looking
forward to joint ventures. But as Mr. Pinda
pointed
out, the process towards privnisuion 6% to be
carrk:d
out wWt die risk a mig2kc2 and uncxpcct~d obst2d0l
:
rica of an. domc.%uc capital Is nct " enough to
Uke
on new burdens. Secondly. there is still a lack of
experience in carrying out such ventures. Finally,
Po6h
society Is not accusuimed to such nocions as
shares.
sock exchange. bonds tic,
Most new gowmients in Fwwra Europe vruu to create
possibilities and incencivts (or Laveamcm by
Wevern
industries, 71wir main interest Res in)rjint
venture&
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
S.Apr.91 16:36 No.007 P.12
6. THE RESPONSE OF
TRANSMA71ONAL TOBACCO
COMPANIES: BEING EXTREMELY
afRIENDLY- AND NEGOTIATING
it should be said : TTCs -e- akady present In
Eastern Ettrope befoec 11989, but their market
Lmpaci
was very limited (less than 3%). The following
cornpanics were the most active-. Philip Morris.
Rcyjjolds, BAT, Wmurna and Awau Tab31L
Philip Morris's involvement In t%c Soviet Union
began In 1974, when Soviet trarle offacials asked
the
company to recomniend ways for the government to
raise its revenues from, and the quality of,
Soviet
cigarettes. In 1975, PM helped produce a cigarette
celebroing the inint. ApoUo-S*yuz space flight.
This led
to =Ports to the SoviLu which tooled rriti-m dtan
dave
billion ciVretres berwixn 1978 and 190.
(source. Globalink)
in Rungarr the Eger Tuhacco Factory estaNislied a
licence contract with Philip Morris in 1975 and
with
Austria Tabzk In 1976. Anodier Hungarian ractory
(Deirecen) curiLracted Reynolds in 19A6 and put
Camel
2 nd 'Winston on the market as Hungarian licence
producits. A third factoty Teen) eraLm-d linto a
licence
contract with BAT in 19R9 and awnufaimires pall
M211
and I lu.
(Soutice: Borbely: Vtcn= conference)
in Krakow. &Ialid. a licensing agreement Is in
existence with PhIllp Morris for the producli,,n
of
Marlb(iro. Other recent liccnsInS agreent ents
ac",
Reynolds with the Radon cigarette factory and
Retworrut wich Ow Pomn f3ctory.
(Source: Tobacco International Oct 1, 1990.)
Reynolds already markets its cigarettes In Bulpd3.
4 manis. the USSR,
Czechnakwakla. Hungary, Poland. RL
and Yugoslavia. whil3t Philip Morrb has
3ulbidlarl.
and afriticuLs in Bulpria, Cxwhoglivakla. Fist
Germany.
HunVry, Poland and Yugoslavia.
(Source Tobacco journal tnwrnadoftal, 146-3, im.)
Since 1999, ta*tcrn European countries have
mpt,csented new opportuaides for ITC6 in terms
of sales, licensing and Joint ventures. The flM
response of TrCs towards Famcm Europe is creating
goodwill, listening to their problems, proposing
solutinna, Inviting them to dielt headquarters or
just
being extremely friendly.
jAr. Rcwfxqy said at the Vienna Con(crunce -The
ra:,v
tendency directing Hunprian c1prume production to
blend types had an Influvrice on Hungarian tobacco
lirowing. apeclatly on dw flue- cured Virginlas.
It -ax
Philip Moffis -ho, for the first tirric. rc.liscd
the
nerm-ity to IWII)...-
JBIGM hu Z 31MIaSu of hard currency : no prublem,
Philip Morris is full d sympathy: -Oft-3ux of the.
currency shorts&*. Eiger TcAmc&o Factory
mmunersics
Philip Morris for the licence fLv partly wkh
llunptliiin
to'b"'c'm- partly with counteivide- says Me
rooman,
din:ctuir of the Eger Factory. ACCOrding to
Dtxnan, 4t
becairm- comirion for du: young expems of dic
(Elict)
Factory to SPCM several moniks;n dk: rt=lly mudeen
and sophisticated Plants of the thecign partners :
Linz
CAustrix Tabak), ?k-uclutelind Kkhitu)nd (Phdip
Morris)
CSource : Hunir-arian Tobacco journal 1990.
Special.
c6 tion- Vienna conr"em").
Philip Munis also assited visitont from Pastern
Eumpe
to come to zhe World Tobacco exhibition and
"rdeinrri in Vienna.
However, hc;nS friendly and inviLing people is not
the
monopoly of Philil) Morris. While dic
Ilamburg-based
Reerntorna, negotiated with the Nordhausen
uUnatenw-M In ronner b5t C"IX fur co- opeork3n,
eem in sot wdluux ers
R "n"t vi"d ne 1000 Ne 'n emPlOY 90
vW its plara. in Langenlugen (near Hanover), as
part of
2 9-d"dl 6-Ft-
(Source: Tobacco Internatkxul, May 15,1990.)
Besides the goodwill policy, many nciiWatlarts are
taking placc. Austria Tabak &r Instance is
negwisting
with Poland, HuntAryand V~Wnx6via.
(Source : TcArAcco Journal Iwermtkxtal. No. 2,
1990.)
JILP*bnd. the tobacco aunufacruring conccrit in
Radorn
is currently in contact with Reynolds. Another
minufacturer In Poznan is negotiating widi
Reerntsma,
whilst Philip Morris is having talks with a
tobacco
manufacturing concern In Krakow.
(Source : TcArAcco Journal Internadonal. No.S.
1990.)
The most important ncgutlations are taking place
to
conquer the biggest market : the USSR : -Top DAY
africials were visking Soria for further talks an
a joint
veniure with. Sulgarrahac whkh would give it
acccss to
the 460 billion Russhn market..
(Source: The Sunday Tak-srapk 9 October 1990.)
in an ajjrvvu*w with the Kuyhyshey tobacco
factory.
Philip Morris Is to produce 250 million MARLRORO
cigarettes In 1991. on reportedly new electronic
equipment. The factory will also produce Soviet
c1 preffes which will bc up to huernsilonal
standards.
Sales of the clgirC41- would begin donustic2fly in
April
1991. Along with th~'annouriccuwnt of the ItjIt
deal.
was the announcement that they were to ernturk
upon a
longer-term Investment pro'gram to Improve
"ufacLuting Ucilieieq throughutit the Soviet
Unkut,
(source; Tobacco Intemakinal. I OcL 1990.)
C:)
--4
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
8.Apr.91 16:36 No.007 P.13
a-M, Pd
yp-.-- r YP7
7. A SPECIFIC OBSTACLE FOR
rrC'S : THE ADVERTISING BAN
Ad-lim".9 fix cigarvii- 6 unkjuwn;ssxl lisduckk-il
ill
Fz.,tern lunqw. wisich aul,c, It dirrkult to
'.k-J'M 'lyk? lin-1, 111.
1-4--:
a) Mrssinde the nrie gorersoments to ab*11sb the
aster'-flying m.t'i'llums.
Act-d;.,j4 r. an aeticl,! in TWwc- J-wmil Ininutic
wtil
(Nu Z 1990). a Lun, k-minit the ldvv,ti,inFt
Wn wa., Winic held iii PW- ad. Hill 4g-mrtling lo
he
article. it was ,(ill uncicur wht-thur wc.%sern
nurintaf turcm' adven 6;ng ninilsaign,-6 arv tu 1w
ack;Ixtd.
In Hungary. jJ%q-rti-ik-ixs r. it WLNent lirmsd%
are i-ery
%;iRiuiwna .Ak-% junistL Arrvialins- Ii. the
vitv-fw#..,-K-k-li4
ij( i'lidip Morri., InIvrnational. Gcniliivr. t1u;
suvicts
-n -,1.&x Nuis tin curtiin strWitig twpi4,...
lly the 4:11ti 4 (Ili% he 5uKKcL%' I'M %ill tu
--c: C-lixurd rnjtlu~t sJoIlliy.%. as %%vfl ;~
irichimrich,
like tliow on Irslyacro kimb".
(Source: KOv Ytirk rimvs. Selvi-irdscr 27.19W)
0 Spoorsorluir andpruniuMaof aciftftlex
The Philip M-rL% ficcrxc in illunpry is
suisfinited by
wij'itxlm ~rxm-liip activirk~s Including the
ftrinnia I
Rally Cie. inuCtircycle raicing. and -Marlisum
Week..
~ixb-xiog Lvitural evenim in 3rid
2 mund the city of EXcr.
(SoUrce : Tobicco laterriation3l,
oct4w 1, 1M.)
From AuStsst 14 to 19, 1989
ItCUM(SMA otrallLW&I a canlissign
entitled -West SOeS ?23t- In
MO-M-'s lied Square. Itmiswinia
sold the cizarettt~ as pan of a
proasoticinul packiSe : a pUstic
bag cooWning nric pack uf %XL%L.
laurvitc lighter, pencii and
tlccker, all for fivit roubles.
:
Ru"- n sinokcri; were ippim-My
excited to dh%cavcr West - they
bought more than 400.000
Cigatuff- aid [am of advejtWng
nuterial during the cvcnL .
(30utcc: Talsacco ReVOrter, April
19 M)
d)l 111egaf advertising from
abroaA
The leliall basis for pritshibitinS
adwati,-iinji; in Hungary is not a
law with MatuturY unctions. but
merely a irilliti-terl2l recoln-
mendation.
According to -MmU Tuhamx~ oC
SCrACITTIKI 19W. the 111.11A&UiAn
Industry Is miffed, by the
'~pvarance of full-palic culour
:dvarthwinents for cipmucs in
Sow magAzintri willing us take
ad-antalitu of the ine,ftahle
crinfuslon and bck,,(,vntn.,l in a
peril xi a rapid political change.
N)
CD
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADVISORY COUNCIL TEL: 071-630-9638 S.APr
.91 16:36 N0.007 P.14
T1 w jJ%%-niwnw-nIs roinc rnun ahnutl and
IIUIIXJriin TQNfetil..,Cyle 1%syj%jo-t,; :jft-
%1,r% IVIIX,14r jjjICjMg
timnlK, cin ncu 116-4 dicy can lakv ukauup: I)(
the -4x1k.v' If Ilk. ruqW.I.Ition and .1.31 is
illi"g
kxjihn1c, in the -Anu- -ay. ('. ipi-A ilk-g-A
PaMidIX-11A, VC 9IW UlCX' ennfi-n-Mv -A W%wcu fmi;
m- Tim; R-ian cirvgiot tiking a pkud4. Id
11MIA-4.U.' . lill 4
KLIM[W- In Pul2nd (28-Mit N,3,ouluo 19W) enoild
grant pukei o0UrII% let). .4muJing ht fnitu ti( a
lkk
J.,-ne kv thrm,;eh-es thai oranis in %~t"Ma
ctutwimd rkialdl
MAIPX'40 jdvert-axnm
r*Q
Xt-
BAT Industries document for Province of British
Columbia 23 April 1999


TOBACCO ADvISORY COUNCIL TEL: 071-630-9638
8.Apr.91 16:36 Ne.007 P.15
IV. A SPECIAL CASE-STUDY: THE BIGGEST
DEAL (AND MISTAKEP THE RUSSIAN ORDER
TO BUY 34 BILLION U.S. CIGARETTES
CX all Fast Ettropean Coun(riux, the USSII is the
ffxw
Important C19am-lb: nualulat1wer. 395 hillion
d92ret[W
in 1969.
TAk 3&
Produtilon ofdprettes
In Eastern Europe In 1"q
3".000
BulgioiA 91.WO
Po4nd 90.000
Yu%-AAVLa SLOW
R,imania 12-000
East Gcnrany V-645
Htm&iry 264W
Czeciewlrivalcia 24.WO
Aflmnia c5m
TMAL 750.754 million c1gamies
Source U4.n.A
jjowiz,er~ with consumption ASures artx&nd 468
ballrin
cigarettes in 19M. there Is stiff demand for 73
blloll
cigutucs which are ImportiLd from ochcrcountrhm,
inainty Bulpria. Sulgada products 91 billion
cigarettes.
while dorni-olc sales mach only 16.5 billion
c1garrnes.
TM U&SH is the bule-st initiorier of cipm-tt*3 in
dx:
world.
Table 41
Impoeftflon of dpftUes In dw USSR
1965 31413
19 M
IM 53.404
t9 w 5& W
1"5 XMI
Igo
Souft-c U.S.0A.
Besides the chronic dernand for 60 to 75 billion
clgimu-3 each year. dx: ProducWn 41t leit gobacm
wen,
down frmn 35c.ooo comes in Iges to 25&235 oxviln
in
1969, ss the planted aicas decre2sed fruit 195.ooo
z"e3
in 1965 u) 114.200 acres in 19M
-AccimUnS to Pravda, the tobacco V~m in A&ikfavij.
the republic that adjoins Romania. have
dr2stI,:jlly
md-ct-ci the acm-age uA&-r t0b3cca in favour c(
more
Jucrari-e cm"..
(Source: Wmid Towi.cu, Septmid)Lf 1990.)
In otlitr wurds~ by 1989 glAe USSR tobacco and
c Prettc PeOdt"Oft was *im-jdy LpsuMclcrtt for its
considerable domestic needs.
The situation In 1990 becjtuw worso_
-11w toixicco UxItistry o( the EMR pericluced
17-000in
fewcr ciptretws during thf- first sL% trx)nrhs of
1990 than
it did duruts the Saitti: Miod of I&v yeu And. it
dm:
solue glint, imports were far fewer thin had been
budg"ed foc. mainly Lve-c-atise of dOrk-ullies
exix-rienced
by the Bulgarian tolburco iridu~Lry. most or an
ciprL-tte.
supply prnblems that hAve Ocairred in dic Soviet
Union
reccruly can be graced back to a lack of
foreigncurnvey,
inv4lzptgncnt in tfic tohWo ImAt$rry them.
j6faChkiery for
the production of cigamues is allnuhcruged only by
a
few comirin;es in dic world anti has to be
impogted into
tile USSR. Currently. the manufacturinS of rdlers
has
~M comrJettly paraly3ed and ihe SoviLt Indis" has
no paper to make cigarette packs. There is no
aluminhint fuil. and to produce pack2glial;
without it
would mean fcscttinS Man"facturfrig lines and.
comiLpwady. a loss of pnKluctivicy. Currently,
tuo, 16 of
LM Russian FederaWns 24 cigarette fictoriLz ate
cio.,,j
for rep"Im..
Oourcc : World Tiobacco, September 19%)
The result was in scutc shortage of n&j wt,,a
during the
MAMIDer of 19M. endinS up In workeW aftes, street
prt*cms and Iun$ lines before dic -Tabak- kkrJm '
As the civm-tic shortar: wOrsawd, Soviet president
Garb;ichc, fired Mkidn, a first dc-pury prime
millister
and head of cite procuremc-nc commission that
administers agricultur2l, matters and farm
commodity
asks - kvJ,idft wixicra.
To alleviate the stiorage aM forestall further
rioging and
workers' strikes, the Soviet government has punued
emetVim-f measums. On Aug"" 24, the Soviet wad.,
ruprescigutivc In Washinpm1% D.C., coritacrW um
U.S.
DetrArtim!nt of Commerce, mquesing trade ptolx*alx
firum tI.S. cigam-tic manufaciiirm. Six-olli.211y,
die Suvwi
cathaisy a.ked fo. Informitiom cutwerning typci or
cigar-ties j,,allable. quality of bramls. Auidanvc
an
M)
C3
-
-j
-,j
BAT industries document for Province of British
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TOBACCO ADVISORY COUNCIL TEL: 071-630-9638
prices and pritential Wivery timelahles.-
(~qvrw ; ToNcw krm'r. actuirr 15. 1990.)
QWy dk=.2&-%:kAj= an September t3,1990. die dL-At
was mule puw;c that the tvo lasest tudiacto
cwtipanics
In the United Soles. PI%Wp Morris and JVR Nabisco.
had agmcd to sell 34 billion dprmt= to the Soviet
Unpon's large-st repumic, Russu, represenMI; the
la"
Ainsk. import onk-r for each of the firuis, Philip
Murrib
will 3hip 20 billion U.S.-itiade cigarettes and
R.I.
Reynolds Will xhip 14 billiw beginning by e2rly
Ocinbet
and candaiding by the end of 1991, pomil)ly to be
joitse-d by odwr Cipmu companies In the future.
(RJR
later agrectl to ship 3.2 hillim mixe cipm-ttoz).
in early September, RAT gave i price qU01ation to
supply four billkni ctSsrvttiz to the Russian
RcrAiNic rot
sormt tra&-A)W asset-
71 x: M$1.9 billion is to be paid in cash iod
undisclosed
c0 unjg"j;j&- kem% - itenu Jjk-h can msfly be soid
un
interruttiortaj markets.
(Source: Toinem Ixfriaiimul, O%.to1x:r 1, IM-)
Philip A&,rris otricia6 say that the sak of U.S.
cigaresies
to the Soviet Union, the culmination of a 16 year
relationship. axild eventually result in die
compiny's,
winniag as much as 20 purcunt of die Suvier market
-11
we do out jobs well. I wcxjkf assume that within
15
years. we could go jo percent, 15 percent. even 20
pcrccw of the rnarket- saki Philip Morris
international
vice pxskkw. Andm'aS 6CW'AW.
The company is confident that the Sovieu will Stwe
them Smatter Lultudc because of the speed with
which the deal was negotiated -three days for the
agreement In principle, and seven triore for the
assaill &' "..- J%L
45 ourcc : New York rmcs~ Septcraher 27. 199CO
jhc Speed Of the sW--L perhaps gives a possible
expAsnation for die financisl mistake that Ek
Russians
made. 1ju- U&w Is a huge azarkeL wWh Is difficuk
to
Conquer. because of the advertising bait. Par
opening
such a potential market, ='a acc willing to
sork-nd
nwkxw and nWlkx%s of dollani. Par instance. the
Mitch
affiliace of lbithinans, Tutmac, decided to give
250.000
pw-kcjs of roll-yotir-own wWLco free of darge to
the
Soviet UnkwL
($our=: N= HandrlW3d. 26 Ner-lber 1990).
The moffis-Rcynolds agreement, however, not only
Mcao,, tha U.S. c1gan-nes can be arM -khm
dilliculty
in wxWI cipm-ne kjosks. Imo also could KW,
accottlitig
to th,,- v&u sucg-r joijrnal of selwatilxv 17.
bctwe&t %
and i00 inillkin drvibm of pnAt to Philip INkiffL,
and 40
sninkm to Feynoteb.
8.Apr.91 16:36 No.007 P.16
'40 LIM
"r 'I
Accord.ng to our own cWculallons, the prunts of
Philip Mwtij and Reynolds will he cyou malre
EmportuaL 1.7 billion parkajits of 20 cIg2rettc3
am
king sold at a pcim L4 1.9 hill;on "tafs, at I d*W
centx a pack2*:.
The estInLated cost sLruclurc In 1939 of a 114
pack
of 20 cigarettes is as follows
--
U.S. Tobucco
4.1 cents
Im(unted Toixitt-a 1.7 cents
Other MaLcrial 3.7 cems
Packaging 4.5 cents
tibur 4.9 cents
Freight and ract4my averheids 2,0 cents
Ach-ettisitill; 2'Z ccrus
Other Promotion 8.5 cents
Adtttini.%tettion and odier 5.2 cetits
TOTAL 36,9 rents
11 he cog of pmducing 20 dgmertft in the U.S. is
36,A
centi at which 10,7 ccnu are for advertising and
promcAk)n. In Russia the 3dvtAb4ng rr r4 will be
I=&
However. other costs Csuch as transport and
countestrada eosts) should be added, whic.-Is
could rAL--
the prick: in 60 cents a packate.
This estimate mcans chat Philip Morris and
Reynolds an Scethit a P"ifit of 50 cents for each
pack at cigarettes wId : In total 850 mUlIon U-S.
dollars I
W now underAiind why tant= experts 2wsa eirrited
alxxjt this de-al.
-77w Soviet deal Is one of the most Lasportaw ddnp
91 hat has happened to the Industry bi a Iong, "
time and not last because It Is Solos to raise
earports.-sald Lawm= Adelman, an analyst wids OLan
Vtitter Reynolds Inc. By enabling die companies to
use
ldk- Factory c2paciity, the deal will raise die
profits on
cigarettes sold domestically. 'rhis I.% an
uplifting
cx(wtienc-e rnxn a profit point o(view,* he said.-
(Source: New York runes. Septeredwr 17. 1990.)
C)
BAT IndustrieS document for Province of BritiSh
Columbia 23 April 1999


16 :36 N0.007 P.17
-630-9638
TOBACCO ADVISORY COUNCIL TEL: 071
FINAL COMMENTS
judido Mackay of the kslan conjult3ncy on Tobacco
C*r&tA 1133 Spent Many years studying the ellem o(
Transnational Tobacco Companies an national
monopolies In the Third World. Accotdln$ to Ms.
Mackay. the arri%-:1 of the transnational tobacco
companies has a maw efrL-ct ujx;n state
inonopulia,
usually rhruugh &wsrtages -
1. The courtship ; Vhcn foreign conapAnk., enter a
country there are ofIcts of help with techooluSy
in
tarming and nuinurarturing. lice u4j% ovCf3W and
co-
pmduction of glossy arAs3zint-q-
I The marriasc . NeXT cume tim joini ventures or
roraiat;on of SAWduries, in reality a 1bor in rhc
door,.
At *:s jtxSe advertL-ing and pmvnotlon by the
foreign
co-Panits havc begun to CrCep in, usually of a
xWhjSEjC,Ljon UnIC110-A'n to UIC naliOrlal
MOIX"Jy.
3. TlW Marriage turns sour . Mic relationshir then
zecomes less hartuoniou3. with accuutioru; that a
zonop* pre-vants free nu&,t acce~--
1. The divorce : Finally rhe natiunal monopolies
aAcaken ne nwy be dLqh*rvJo&
in Eastern Europe, the Announcement of the
marriage will be for 1991. Both for economic
reasons (the transfer of pronix to the TIVs) and
for health reasonx (ature &$Src"lvc marketing
practices), the rephtcenient of [be centrallsed
monupotics by the TTt7s should be opposed.
.1
00
BAT industries document for Province of British
Columbia 23 April 1999