Putin puts monopoly plans firmly in play
The Russian president, Vladimir Putin, has publicly endorsed the idea of Russia returning to some form of state alcohol monopoly in order to boost excise income and tackle alcohol-related harm. Ben Cooper examines the government's proposals and assesses their potential effectiveness.
Recent remarks by Russian president, Vladimir Putin, appear to indicate that the return to some form of state alcohol monopoly in Russia in the near future is a real possibility. Putin was echoing views expressed earlier this year by agriculture minister, Alexei Gordeyev. Political support for such a move is clearly growing.
Given Russia's significant alcohol-related problems - notably illicit production and excise evasion and a high incidence of alcohol-related deaths and alcohol poisoning - it is hardly surprising that the government is seriously considering such a move, but such a step does raise some interesting questions.
Having abandoned the state alcohol monopoly in 1992 as part of the post-Communist economic liberalisation, its reinstitution could be viewed by some as a retrograde and authoritarian step. It is also likely to bring into question whether state monopolisation is in fact the best way to tackle all the problems Russia is facing in this area.
With regard to the first question, Alexei Krivoshatko of the Moscow-based investment house, United Financial Group, believes the formation of a state alcohol monopoly is now a distinct possibility but it would not represent a major interruption to the development of a market economy in Russia.
"The state monopoly is a bad thing in principle but right now around 30% of production of vodka is illegal," he told just-drinks. "This would increase the size of the white market, increase excise revenue and create a level -playing field."
Most estimates of the size of the illicit alcohol market in Russia range from around 25% to 30%, though some put the figure far higher than this. The state-owned producer, RosSpirtProm, is thought to account for around 50% of alcohol production, while the Russian vodka market is thought to be worth around US$9bn a year, with volume sales somewhere in the region of 2.2 billion litres.
However, poor quality illegally produced vodka is a prime cause of many of the thousands of alcohol-related deaths every year. In the first four months of this year, according to Agence France Presse, some 13,000 people were thought to have died from accidental alcohol poisoning. Poisoning from illicitly-produced alcohol is thought to kill around 40,000 a year.
General alcohol-related health issues are arguably an even greater problem. According to the World Health Organisation, around 700 Russians die each day from alcohol-related illnesses. Consumption is high, whether of legally or illegally produced alcohol. The WHO estimates that the average Russian adult consumes 14 litres of pure alcohol a year, primarily vodka.
The exact form the monopoly would take is not yet clear though it appears likely that it would be along the lines of that proposed by Alexei Gordeyev earlier in the year. That would essentially involve the formation of a wholesale monopoly producer supplying alcohol excise paid to other companies.
According to the Gordeyev proposals, the government would set up a state-owned joint stock company which would be a universal supplier. "The need to strengthen the state's role on the alcohol market has been recognised by everyone and the Ministry of Agriculture proposes that the state should assume control over the wholesale alcohol trade," Gordeyev was quoted as saying earlier this year.
Alcohol producers were critical of the Gordeyev proposals. The National Alcohol Association said at the time that the new controlling body would be unwieldy and would not solve the problem of counterfeit alcohol, as the illegal producers would simply find other ways around the system. It also said that as the general price of alcohol would rise as a result of the changes, this would actually create more opportunities for illegal producers.
The criticisms of alcohol producers in Russia raise some interesting questions about the efficacy of monopolies in controlling illicit alcohol production and limiting alcohol-related harm. Scandinavian countries tackled problems of alcohol-related harm by the introduction of liquor monopolies. However, in these instances the monopoly extended to both production and retail. According to a WHO publication on alcohol policy measures entitled, Alcohol: No Ordinary Commodity, retail monopolies are rated very highly as a means of tackling alcohol-related harm. Interestingly, even though EU membership forced Sweden and Finland to relinquish the state production monopoly, the retail monopoly was considered so important that the countries negotiated for its continuation.
Ben Baumberg, policy and research officer at the alcohol policy think-tank, the Institute of Alcohol Studies, believes that the introduction of a purely wholesale monopoly would be less effective in tackling alcohol-related harm than the Scandinavian models, though they may have some success at boosting excise revenues.
"Retail mononoplies are clearly more effective because you have more contact with the consumer," says Baumberg. "The prospective benefit of a wholesale monopoly would depend on how much of the market it can get away from untaxed and dangerous illicitly produced alcohol. If they manage to have an effective way of tackling illicit alcohol use and legal tax-paid alcohol increases as a share of the market that would have an impact on alcohol-related harm."
In other words, the efficacy of the introduction of a wholesale monopoly would be highly dependent on the introduction of complementary allied policies. As yet, not enough is known about the precise nature of the Russian plans to make an accurate assessment of how effective the policy might be in those terms. What seems clear, however, is that the introduction of a state wholesale alcohol monopoly would need to be combined with tighter control and regulation of the distribution and retail of alcohol if the desired dual effect of boosting alcohol excise revenue and reducing alcohol-related harm is to be achieved.
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