Russia gets to grips with cheap vodka

Russia gets to grips with cheap vodka

Russia's Government will increase a defacto minimum price on vodka by around 70% over the next two years, as part of a duty tax escalator on alcoholic drinks.

Last week, Russian president Dmitri Medvedev enforced a law that will see gradual rises in excise duty on alcoholic drinks from 2012 to 2014. Cheap vodka is set to be hit much harder than beer, however.

Tax on vodka will rise by 10% in January 2012 to RUB254 (US$8.1) per litre. The next rise will be in July, up to RUB300. In 2013, this will rise to RUB320 and, in 2014, to RUB400.

The tax on beer will also rise, but less steeply, taking into account its lower strength and a three-fold tax hike implemented in January 2010. “Excise taxes on beers of less than 8.6% abv will go from RUB10 per litre to RUB12 in 2012, RUB15 in 2013, RUB18 in 2014 and RUB21 in 2015," a Heineken spokesperson told just-drinks. He refused to comment on the possible sales impact. 

The Government's plan will especially harm low-end vodka producers, who account for around 90% of the vodka volumes in Russia, according to Vadim Dobris, director of the Russian research center Cifrra, which specialises in the alcohol market. He told just-drinks this week: “The minimum price for a half litre of vodka is US$4 now. In two years this will be US$6.5. People with a low budget can’t afford this.”

Last month, Renaissance Capital predicted that Russian vodka consumption would fall by 30% within five years, as a result of tax rises. It forecast that the premium end of the market will benefit, but lower-end producers will disappear. Tougher controls, meanwhile, will stamp out illegal vodka.

Dobris, however, thinks illegal vodka will gain new customers. He said: “The government measures will boost the production of illegal vodka. Currently one third of the vodka is sold legally, one third in the grey market [no tax paid] and one third consists of illegally-produced vodka. These proportions will change drastically."