Russian Vodka Makers Hammered by Moonshine

13 March, 2009 by

By Ian Neubauer.

The economic slowdown has ballooned demand for illegal vodka in Russia and is sending many of the country’s legitimate producers broke.

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Five million litres of untaxed vodka was sold in Russian stores in 2008, accounting for 29 per cent of sales, The Moscow Times reported.

Much of it is also smuggled overseas. Criminal syndicates have a long history of building pipelines to funnel cheap, sometimes toxic vodka across Russian borders, with a bust last week uncovering a 2km-long pipeline crossing the Estonian border.

The Russian Government has paid lip service to tackling the problem but has made things worse by increasing excise tax on alcohol by 10 per cent last year.

A litre of standard vodka now attracts $3.33 in tax in Russia, while a litre of illegal vodka sells for as little as $4.38.

 "The higher that the excise fees on alcohol are raised, the more the industry will be turned over to the black market," National Alcohol Association chairman, Pavel Shapkin, told the newspaper. "We asked the state to reduce the level of alcohol fees just for this year but still have not heard an answer."

To its credit, the Russian Government created a new state body in January to help regulate the alcohol market. But it may be too little too late for the country’s legal vodka producers, which last year saw a 7.6 per cent decline in output.

"A lot of alcohol companies are facing difficulties right now," said Rye, Man & Gor Securities analyst, Yekaterina Andreyanova. "We are seeing more technical defaults and the bankruptcy of a couple companies."