Valentyn MELNYCHUK: "The state supports us? Just the reverse"

But, as yet, excise duties have not been raised, it is very hot in Ukraine, and suffice it to drop in at any shop to make sure that the slogan, Buy Ukrainian, is being put into practice, although this industry is often developing, as they put it, "not owing to but inspite of..." The state, which constantly declares its love for the domestic producer, is crushing him in its embrace.

Yet, the producer is alive and kicking and even has quite ambitious plans for the future. This was also confirmed by our conversation with chairman of the board of directors of the Chernihiv-based Desna Brewery Valentyn MELNYCHUK.

"What has to be done to make beer sell?"

"If the beer is of insufficient quality and unstable, no market studies will bring results. We also regard service as a high quality of serving our customers. This is important for our enterprise, for it is in the very north of the country and bears rather high product transport costs. We are trying to streamline these costs, so that the consumer does not have to pay extra and, of course, so that our products are competitive."

"How does the state assist in fulfilling this task?"

"Quite often, as they put it, just to the contrary. For example, the higher excise duty rates in 1998 played a nasty joke on both brewers and the Ukrainian budget. Hundreds of millions of hryvnias were in fact lost simply because of the raised excise duties. That decision was canceled 4 months later, and the industry again increased output. And God forbid, they raise the excise duty again, which is now being rumored in the Cabinet.

"Our tax legislation forces us to raise prices. As to quality, we successfully compete with imported products, we have European quality, but the price factor dependent on the state's tax policy knocks us out of normal competition. Who stands to gain? Perhaps Verkhovna Rada and the Cabinet of Ministers? But, in any case, not the people of Ukraine."

"And do you support the domestic commodity producer yourselves?"

"We would like to, but nothing comes out of it under our system. For example, we allocate money for the development of hops raising. But no one knows where the money in fact goes and how it is used. The fact is that we, in spite of all our patriotic intentions, have to buy hops abroad because those we grow do not meet our elementary requirements. Fancy me telling the buyers that I am given bad hops! Now, for instance, we have attracted a Dutch firm as an investor to set up in this country the production (raising) of beer-quality barley, but they ask: are you sure our money will definitely go to raise barley? And nobody can give any guarantees of it. It was the same story with our money: we allocated 2% for raising hops, the Ministry of Finance received and the Ministry of Economics distributed it. And where it actually went is anyone's guess."

"Do you ever manage to break through to foreign markets?"

"Once we expanded into the Russian market. Turnover was $350,000-$400,000 a month. Then came the decisions of our government, then, in reply, those of the Russian one, then again of the Ukrainian one. As a result, our beer is no longer competitive there even with far-abroad products. Last year our turnover was as 'high' as $2,000.

"As to the far abroad, we are trying to get there, but at first we want to achieve high and stable quality. This task has been fulfilled now. European experts have awarded us six points for our quality, so our beer is considered a leader in Central Europe. But we cannot work to our own detriment. These are the conditions our government has created for us. We are being pushed out of the domestic market and blocked from entering the foreign one."

"You are talking about ill-conceived governmental policies that strangle producers, but, still, your enterprise is far from bankrupt."

"We have bet on the quality of our products and reasonable prices from the standpoint of cost-effective production. We think one must pay for quality. At the same time, we try to be present in every territorial sector of the Ukrainian market: in the center, in the east, west, and south, always pursuing a stable commercial policy. We do not produce or put on the market knowingly unprofitable beer which is below the break-even point.

"Besides, beer producers have set up an association of their own, which comprises, in addition to us, enterprises in Mykolayiv, Zaporizhzhia, Donetsk, Kharkiv, and Kyiv's Obolon. Its purpose is to lobby our interests and explain to the government, the Ministries of Finance and Economy the probable consequences of their actions.

"In our internal policy, we bet on restructuring our production. I also think our team-based system of strategic decision-making is worth noting. We sent a group of young people to study at the International Business Academy, and when they came back to our enterprise, they were already a closely-knit team. It is they who worked out for our factory its strategic development program until the year 2005."

"It is no secret that the successes and future plans of the Chernihiv-based Desna Brewery are associated with your investors and partners from the Interbrew firm. But are the Belgians trying to get a monopoly on the Ukrainian market?"

"Monopoly has a negative feature that keeps our partners from aiming for it: in such a case there would be no suitable rivals left, which destroys the incentive to work better. Interbrew also knows this very well. When there is sound competition, everybody stands to gain, for this improves the quality of products, raises profits, and leaves prices stable. There is no movement, no growth, without competition. This is why the enlistment of investors in the economy of Ukraine is a positive factor. They bring us not only the money, know-how, and equipment, which in any case will stay behind in Ukraine, but also the spirit of healthy competition."