Last week, Russia implemented a new set of duties on imported alcohol and wine from what it considers "unfriendly" countries, marking another step in its series of counter-sanction measures.
As explained by the Ministry of Economic Development, these measures are aimed not only at responding to the sanctions imposed by certain nations but also at protecting and fostering the development of Russia’s domestic alcohol production.
Experts believe that these new tariffs will lead to higher prices for imported alcohol from these countries and a significant shift in the structure of alcohol imports.
Overview of the New Duties
According to the recent government decree, the import duties on alcohol from unfriendly countries have seen substantial increases:
- Strong Alcohol: The import duty on beverages like whiskey, rum, gin, and liqueurs has risen to 20% of the customs value, but not less than EUR 3 per liter of 100% alcohol. Previously, the rate was a fixed EUR 1.4–1.5 per liter.
- Wine: The duty on wine has been increased from 20% to 25% of the customs value, with a minimum charge of USD 2 (EUR 1.84) per liter, up from the previous USD 1.5 (EUR 1.38).
These changes are slated to remain in effect until December 31, 2024.
Impact on Wine Prices
The increased duties are expected to lead to higher retail prices for wine from these unfriendly countries, with the impact varying across different price segments. According to Maxim Chernigovsky, CEO of the Alcohol Market Professionals Club, wines priced under 1,000 rubles (EUR 9.78) per bottle could see a 10-15% price increase, while mid-range wines (1,000 to 3,500 rubles, EUR 9.78 to EUR 34.24) might experience a 5-10% hike. For higher-end wines, the price increase is expected to be around 5%.
Industry experts like Alexander Lipilin of Fort Wine Trading Company agree that wines currently priced below 1,000 rubles (EUR 9.78) will likely see the most significant price increases, with some becoming nearly impossible to find at their current prices. He predicts that wines from these unfriendly countries will start at around 1,000 rubles (EUR 9.78) per bottle after the new duties take full effect.
Impact on Strong Alcohol Prices
The new duties on strong alcohol are designed to impact different price segments in various ways. While the minimum duty has increased, the impact on lower-priced strong alcohol (up to 1,500 rubles, EUR 14.67) is expected to be minimal, according to Leonid Rafailov, CEO of AST. In contrast, mid-range and high-end strong alcohol could see price increases of 10-25%, depending on the original price.
This differentiated impact is due to the previous duty structure, which did not scale with the price of the alcohol. The new structure ensures that the minimum duty remains significant even for cheaper products, but the increase in duties will be most felt in the higher price segments.
Market Response and Adjustments
As the new duties take effect, market participants are adjusting their strategies. Many are shifting their focus toward wines and spirits from "friendly" countries like Argentina, Chile, and South Africa, which are not subject to the new duties. These countries are expected to fill the gap left by the reduction in imports from unfriendly nations. Companies like Luding Group and Fort Wine Trading are already restructuring their portfolios to include a larger share of these alternatives.
However, experts are cautious about the overall impact on the market. Veniamin Grabar, President of LADOGA, suggests that while the increase in duties might protect domestic producers, it could also reduce the variety of imported wines available to Russian consumers. This could lead to a narrowing of choices, especially in the lower and mid-price segments, as many European wines may become uncompetitive.
Implications for Russian Winemakers
For Russian winemakers, the new duties present both challenges and opportunities. The Ministry of Agriculture has emphasized that these measures will help redirect demand towards high-quality Russian wines. With domestic wine production on the rise, as evidenced by a 21% increase in production in the first half of 2024, the industry could see a significant boost.
However, there are concerns about whether Russian producers can fully meet the increased demand. According to Maxim Chernigovsky, Russia lacks sufficient domestic wine material to drastically increase production. This limitation could temper the potential benefits of the new duties for Russian winemakers.
A Divided Industry
The industry remains divided over the long-term effects of these new duties. While some, like Alexey Plotnikov of the Russian Winegrowers and Winemakers Association, view the measures as a positive step towards market stability and the promotion of domestic wines, others are more skeptical. Critics argue that the increase in duties could reduce the incentive for Russian producers to improve quality and could also decrease overall government revenue as imports decline.
Some, like Veniamin Grabar, suggest going further by banning the import of brands from companies that have exited Russia due to the current geopolitical situation. This, they argue, would be a more decisive protectionist measure that could safeguard the market for domestic producers.
Conclusion
The new import duties on alcohol from unfriendly countries represent a significant shift in Russia's alcohol market, with far-reaching implications for both consumers and producers. While the measures are intended to protect and promote domestic production, they also introduce new challenges, particularly regarding pricing and the availability of imported products. As the market adjusts, the coming months will reveal whether these counter-sanctions will achieve their intended goals or whether they will lead to unintended consequences for the Russian alcohol industry.
Source: RBK Wine