You're reading: Vodka price up, but not tax

Experts say alcohol industry has tremendous political clout.

In Ukraine, vodka is traditionally not mixed with anything – apart from politics. With owners of leading vodka producers sitting in parliament and one even having the ear of Prime Minister Mykola Azarov as an adviser, the spirits lobby holds strong policymaking clout.

It appears to have exercised it again this month.

Effective Aug. 6, the Cabinet of Ministers issued changes to an earlier resolution, increasing the minimum retail price of a half-liter bottle of vodka by almost 50 percent to Hr 26.10 ($3.25). The price hike comes despite the fact that taxes on alcohol remain far lower than in the European Union, contributing to the nation’s high alcohol consumption.

The government apparently acted on the price hike in response to an appeal in April by vodka producers.

Experts said it was another victory for the powerful vodka lobby, as it fixes a higher profit margin with no competition. The minimum vodka price has been set by the government for the past 10 years.

“The vodka lobby has always been very strong and not particularly shy,” said Kostyantyn Krasovsky, director of the Ukrainian Information Center for Alcohol and Drugs Problems.

Krasovsky said the recent lobbying efforts could be linked with a drop in vodka production from 195 million liters in the first six months of 2010 to 136 million liters in the same period this year.

Azarov said price changes are needed to protect consumers from counterfeit vodka. His deputy, Vadym Kopylov, issued a statement justifying the price increase as a way to discourage production of moonshine vodka.

A spokesperson for Global Spirits, which produces the Khortytsa brand, said counterfeit vodka currently accounted for up to 25 percent of the market.

The price hike could get that share down to 10 percent, the industry representative said.

The vodka lobby has always been very strong and not particularly shy, – Kostyantyn Krasovsky, director of the Ukrainian Information Center for Alcohol and Drugs Problems.

Oleksandr Glus, president of the supervisory board at Nemiroff, said the increase in price is necessary because components of the production process have risen in price.

The industry-sought price hike was followed up by government with another gift to vodka producers – lighter local regulations.

The Economy Ministry on Aug. 2 posted on its website a draft cabinet resolution that would remove the right of local authorities to regulate the sale of alcohol. It said the step was necessary to eliminate conflicts among legal acts.

However, such a step could eliminate strong local initiatives to ban late-night and early-morning alcohol sales. In Uzhgorod, Lviv and Ivano-Frankivsk, for example, selling spirits at night was an offense punishable by a fine.

In Dnipropetrovsk, local authorities approved a resolution forbidding the sale of spirits within 300 meters of schools and kindergartens.

Kyiv City Council deputies have also taken action against unrestricted alcohol sales, banning such transactions in small kiosks (although later reversed in court) and suggesting that spirits sales be banned completely during the Euro 2012 soccer tournament.

“Local authorities, on the contrary, should have powers in such matters, but their authority is being removed,” said public health advocate Krasovsky. “If representatives of the authorities see anti-social behavior caused by intoxication, why shouldn’t they restrict the sale of alcohol?”

If the rules on vodka sales are decided on a national level, experts said tough restrictions are unlikely because of the industriy’s lobbying strength and high-level connections.
Mykola Petrenko, co-founder of Petrus, which owns almost 20 alcohol brands including Gorilochka, Zlatogor, and Status, is an adviser to Azarov.

Pavlo Klimets, co-owner of Olimp, which produces Prime and 5 Kapel brands, is a deputy from the pro-presidential Party of Regions. The brother of Nemiroff’s Glus, Stepan, is a deputy from the opposition Bloc of Yulia Tymoshenko. Andriy Okhlopov, owner of Soyuz-Viktan, is a parliamentarian with the the Autonomous Republic of Crimea.

These companies account for 30 percent of vodka sales in Ukraine.

“The same people who were in favor of the Cabinet of Ministers raising the minimum price could well be behind the initiative to cancel the ban on sales,” Krasovsky said. “And, in that case, of course, it is more than likely that the resolution restricting the rights of local authorities will be adopted.”

Meanwhile, Krasovsky said that, in contrast to the European Union’s minimum tax of Hr 60 per liter of pure alcohol, Ukraine’s tax is only Hr 42. The new price for a half-liter of vodka is Hr 26, of which Hr 8.4 is tax, or 32 percent of the price.

Kyiv Post staff writer Olga Rudenko can be reached at [email protected]