Russia targets beer, not vodka, to tackle alcoholism...
FRANKFURT (MarketWatch) -- Vodka may be the drink of choice for most Russians, but Moscow is focusing on beer in its attempt to clamp down on rampant alcoholism, a major cause of the country's social ills.
A draft bill under consideration in the Russian parliament proposes a dramatic increase in taxes on beer, provoking an outcry from the mostly foreign-owned brewing industry whose profits are bound to be hurt by the measures.
President Dmitry Medvedev has said alcoholism is "a national disaster" and is leading a campaign against it. On average, every Russian drinks 18 liters of pure alcohol a year, more than twice the level defined as dangerous by the World Health Organization, according to government statistics. Not surprisingly, alcohol is one of main causes of the country's high mortality rate.
"You have the macro environment of Medvedev's anti-alcohol campaign," said Kim Iskyan, an analyst at Eurasia Group. "The other big picture issue is Russia's fiscal situation. They are looking at 6.5%-7% deficit [relative to GDP], so they are trying to raise money any way they can."
The Russian economy has contracted sharply this year, hit hard by the global financial crisis. Against this backdrop, the country's budget deficit is expected to rise to about 7% of gross domestic product.
"It might be politically easier to focus on beer" rather than vodka, Iskyan said, though he added that the Russian beer lobby is "very effective and vocal."
200% tax hike?
A bill proposing to increase excise duty on beer by 200% from next year has been sent to the State Duma, the lower house of parliament. The bill also includes an increase in 2011 of 11% and a 20% increase in 2012.
In the coming weeks, the Duma and the Council of Federation, the upper house of parliament, will discuss and vote on the bill before they send it to President Medvedev for final approval and signing.
The Union of Russian Brewers, the industry's trade group, has been lobbying for a more balanced increase in taxes on beer.
Anton Artemiev, chief executive of St. Petersburg-based Baltika Brewery, says the bill will negatively affect the beer industry as well as Russia's economy, employment, and foreign investment climate.
"I find it very hard to understand the logic behind the disproportionate increase of excise duty on beer compared to strong alcohol, which will inevitably favor the consumption of hard alcohol, including vodka, and is bound to have a negative effect on alcohol abuse in the Russian society," Artemiev said in a recent statement.
The proposed legislation provides for only a 10% increase in the excise duty on strong alcohol like vodka, according to Artemiev. Vodka and other strong alcohol account for close to 70% of total alcohol consumption in Russia compared to 20% and 30% in most markets in the European Union, Artemiev says.
The Russian beer market is the third largest in the world and its growth potential has lured foreign multinationals to buy most of the local brewers in recent years. More recently, however, as the economy deteriorated and unemployment rose, beer consumption in Russia fell 5% in 2008 and 9% in the first half of the year.