Cheap Russian Vodka Becomes History

Minimum retail price of a half 0.5 liter bottle of vodka must be 89 rubles (approximately $3).This price is stated in a draft of the decree prepared by the Federal Service for Alcohol Market Regulation. The decree covers both imported and locally produced vodka. New prices may become effective as early as January 1, 2010. This does not mean, however, that cheap and, often, low-quality vodka will be less available for the Russian consumer.

The price of bottles exceeding 0.5 liter will be calculated based on the stated price for half a liter. This means that a 0.7 liter bottle must be priced at 124.6 rubles ($4). The increase in the minimum retail price of vodka is implemented within the government’s anti-alcohol campaign.

Among other suggested measures are high consumer prices for other alcoholic beverages and limiting the number of retail places selling alcohol as well as limitations in times of sale.

Dmitry Dubov, Deputy Director of the Association of Manufacturers of Alcohol and Alcoholic Beverages calculated the minimum cost of a bottle of vodka. He added up the cost of product itself (16 rubles, or $0.5), excise tax (38.2 rubles) and VAT (10 rubles). Considering minimum mark-ups in wholesale and retail stores, the price of a 0.5 liter bottle does not exceed 89 rubles, RBK reports.

It is assumed that 89 rubles vodka will allow forcing out the so-called “grey” product from the market. Legal manufacturers of vodka were very enthusiastic about the new decree. The stated minimum price will be mandatory for all commercial enterprises. Violation of the new law will result in a fine of 100,000 rubles ($3,300) or revocation of alcohol license.

Moscow market of illegal vodka is estimated to be 25%. Outside Moscow it is as high as 50%. Experts believe that a significant part of illegal vodka is produced during the so-called “fourth shift,” meaning, by the official manufacturers at night time.

The price of illegal vodka is significantly lower than the price of licensed vodka. The minimum price of legal vodka in Moscow is 75 rubles ($2.6), while outside Moscow it is only 60 rubles (less than $2). Illegal vodka in Moscow can be purchased at the price of 40-50 rubles ($1.7), whereas in other regions it goes for 35-40 rubles ($1.2). Meanwhile, both consumption and manufacturing of legal vodka decreased earlier in 2009.

Within the period from January to September production of vodka and other alcoholic beverages decreased by 8.8% and amounted to 9.7 million decaliters. In September, the volume of cognac production increased by 17.6% to the total of 1 million decaliters, while the production volume of grape wines increased by 1.1%, to the total of 4.2 million decaliters (the volume decreased by 4.9% in the period from January to September).

Russians consumed 13.7 million decaliters of vodka and other alcoholic beverages within 7 months, which is 5.2% less than during the same period of last year. Consumption of wine decreased by 8% to the total of 0.9 million decaliters, Interfax reports.

Historically, any increase in price of alcohol leads to growth in consumption of moonshine and surrogates. This results in growth of mortality rate caused by alcohol poisoning.

Annually 70 to 80 thousand people die from alcohol poisoning in Russia. It is difficult to calculate the percentage of those who die from low-quality vodka, as it is very likely that people die from high-quality vodka as well.

According to the estimations of the World Health Organization, Russia’s annual losses caused by vodka consumption are 1.7 trillion rubles, which greatly exceeds the profits from excise taxes.

Vladimir Shabanov.