The largest exporter of Slovak beer to Ukraine, the joint stock company "Starý Prameň" of Michalovce has not exported a single bottle of beer to Ukraine since last September. "Not only Michalovce brewery but any other brewery either has not exported any beer to Ukraine. It is not just beer, it also is food commodities, oil, flour, sugar, actually everything that had been exported to Ukraine from Slovakia," said Milan Lapišák, the managing director of the brewery and chair of the board of the Starý Prameň company, who was discussing the causes and effects of suspended exports to Ukraine.

Mr. director, as from 1 September 1998 the new customs law came into effect, by which the Ukrainian government started its protection of their domestic market. Was the subsequent increase of import duties and charges the main reason why you stopped exporting beer to Ukraine?

Yes, it was. Ukraine imposed high duties and import charges on all imported commodities which are also produced in Ukraine. Imported goods thus do not sell. One has to know the situation which preceeded the event. Imported goods were cheaper than those manufactured in Ukraine. That was illogical and due to the fact that much of the imported goods arrived illegally to Ukraine. The Ukrainian administration imposed a tougher system but at the same time disadvantaged any import in order to protect the domestic market.

Could you explain in more detail what effects did the protecting measure have on your business? Did it hurt you the same it hurt EU beer exporters?

The situation at the Ukrainian border is different from standard market economies' borders. There had been import surcharges and duties before, but there were ways of avoiding them. Unfortunately, I do not know how that was done. I am not a businessman operating in a shadow economy. We used to sell beer to the Ukrainian traders at the gate of our brewery, we did not transport it to Ukraine. They were our best partners as they paid in hard currency upon the takeover of the goods. I have no idea how our beer got to the other side of the border. We may suspect that not everything was done right.

Before Ukraine implemented the tough regime at the border, our beer sold at 70 kopecks (about 8 Sk). Just to compare- their local beer Obolon sold at 1 hrivna and 20 kopecks. The local beer was much more expensive than the imported one. Now duty and import surcharge has to be added to our beer, making it 50% more expensive than the Ukrainian one. I understand the protectionist reasons of Ukraine, there is certain rational. What makes the new situation even worse is the poor purchasing power of the Ukrainian population, it is much less than in Slovakia. When a Ukrainian citizen should pay a dollar or a dollar and half for one beer, he would carefully consider buying a foreign beer or drinking a local and little cheaper one.

One thing is how these measures affect us, and the other thing is how could Slovak government help us. The Ukrainian government helps the local producers by protecting them. The question is who helps us, and whether there is any interest in us exporting our beer to Ukraine.

Does your skepticism mean that you gave up the hope to export to Ukraine? Or what help do you expect from the Slovak government?

No businessman should have illusions about being helped. Once you start your business, you have to rely on yourself. I have never expected the government to help us, I expected certain prerequisites and framework of economic policy which should be legible to me so that I could decide whether to start doing business or not. There are certain basic things and standards in the world. Every government in the world protects its local manufacturers and own economy. Unfortunately, this is not true about our country. When talking about Slovakia, the yearly consumption is 550 million litres of beer.

Slovak breweries have the capacity to produce that much. More than half million hectolitres of beer are imported to Slovakia, mainly from the Czech Republic. Slovakia so far has been the largest exports territory for the Czech beer brewers. Is it right to import that much beer? Of course, it is right on the one hand, because the consumer can choose, why should there be any restrictions? I have never supported imposition of quotas. I, however, support implementation of certain protectionist measures that would make the prices of imported beer higher than those of the local beer. That would be some help for the local producers. When the Slovak market is fully liberalized and open (something our economy cannot afford right now), when there is no protection whatsever, and any amounts of beer are imported, we can be sure that would be the end of a number of breweries.

You suggest Slovakia take similar measures to the Ukrainian ones? That may not be possible, I am afraid, because Slovakia, to the difference from Ukraine, is a WTO member, and such measures would be against the WTO trade rules.

Do not misunderstand, please. I do not want any help from the Slovak government, I just want normal standard conditions. I just want something the European Union does, i.e. EU which we want to join. EU member states support exports of domestic products when there is surplus or the product does not sell well in the local market. I want to mention a particular example. We produce malt in addition to beer. We have one of the largest malt factories in Slovakia, and we export almost all our malt. These times not only quality, but also the price is the decisive factor. We lost the markets where we used to dominate. Our prices are not competitive. The market gets malt from western Europe, mainly France, Germany, the Netherlands and Belgium, malt that is subsidized with 77 ECU per ton. This amount converted to Slovak crowns, equals to 3200 Sk. The average price of malt is about 8000 crowns per ton. Have you an idea of how much our subsidy for malt was? They promissed us 800 crowns per ton, but we have not got the full amount of the subsidy yet.

Is beer export subsidized too?

Forget it. Beers ranks among commodities everybody considers lucrative for export. We not only get no subsidies for beer export, we do not get any support either. We, the largest beer exporter, were in an exhibition in Ukraine recently. They gave us some room somewhere in a park where nobody knew about us. A couple people came, most of them were the usual bag carrying exhibition visitors. There was no promotion, the relevant departments at the Ministries of Economy and Agriculture do not develop the necessary activities. They sure would defend themselves, but let us look how efficient they are. The state does not help us with subsidies, but why is not there some other help, e.g. better promotion at international exhibitions or fairs.

When will the Michalovce brewery resume its export to Ukraine? Are you going to ask the Ministry of Agriculture for export subsidies?

We would like to resume our export right away. I believe we shall do it.

I even believe there must be someone in the government who would be able to persuade others too, especially the economic ministers, that the European Union market is not the only one for us. The eastern market really does exist. That there is a European superpower which is our next neighbour. If we forget 55 million people living there, we must not forget, though, a 55 million market.

Unfortunately, I have to say that since the Speaker of the Slovak Parliament Mr. Migaš fled from Kyiv (in 1996 - editor's note), we have not had an ambassador to Ukraine. And our government has not done anything about it. Sure, it may be more important or lucrative to settle the issue of ambassador to Canada or the U.S. Bad luck for us, if we do not make our living by selling to Ukraine, well, I am not sure if Canada or U.S. would be of any help to us. I would be glad if we had someone to communicate with in Ukraine, if it were somebody who could help us, economists and business people.

If you do not export, your brewery may collapse. You laid off more than 100 employees since September. Is the threat of a breakdown the reason why you are looking for a strategic foreign partner? Or do you need a partner in order to increase your current output of 100 thousand to 300 thousand hectolitres of beer per year?

It is quite natural, I think. Everybody who is not strong enough alone, tries to find someone else to join. My train of thought is similar. Its the market rather than production. In the Zemplín region where we are the dominating trader of our product, we have not got adequate marketing or advertising promotion. For that we need a strategic partner or a foreign investor capable of providing available resources. The money in our banks simply is not available to us. It is money that would bring you to the ground. I say, an entrepreneur depending on Slovak commercial banks and their interest rates is a poor fellow, the Slovak banks would only help him to go bankrupt.

I, the owner, have not got enough own capital, and I have no opportunity to get capital in normal commercial banks. I am willing to share what I have with anybody, I am ready to offer a lucrative market in Ukraine.

Slovak Trade FORUM