The legal vodka markets of both Russia and Ukraine are in turmoil due to the economic problems facing both countries and a drop in the populations’ income.
According to data from the Federal Service for State Statistics (Rosstat), in 2014 sales of vodka in Russia dipped 8% from 2013 to 1.3 million nine-litre cases, which is the lowest figure since the time of the fall of the Soviet Union.
From 2010 to 2013 legal sales of vodka in Russia collapsed by 27% – mainly thanks to the government’s decision to raise excise tax several times during this period. This resulted in the average price of vodka in the market jumping by 75% from RUB121 (US$4) per litre to RUB212 (US$6.5, based on the exchange rate of the beginning of 2014). As reported by Rosstat, in 2014 Russian plants decreased production by an unprecedented 22.3% and supplies to the market by 24.8%.
Almost the same pattern was revealed in Ukraine. According to data from the Ukraine analytical agency RTRI, during the first three quarters of 2014 total sales of vodka in the country collapsed by 25%. This is backed-up by data from the country’s national statistics service, Gosstat, which states that during this period Ukraine produced 1.95 million nine-litre cases of vodka – which is 19% lower than during the same period in 2013, when the production of vodka in the country also dropped by 17.3%. The collapse of the Ukraine’s market affected not only that country’s manufacturers, but also Russian companies.
According to official statistics from the Russian Federal Customs Service, export of vodka to Ukraine last year decreased from 27.8 million litres of the total, worth US$38.6 million in 2013, to 13.8 million litres of the total, worth US$12.2 million in 2014.
For the past two decades Ukraine was the main export destination for Russian vodka, but in 2014 it fell to second place in natural volumes and fifth place in monetary volumes.
However, despite the fall in production, current statistics don’t show that Russians and Ukrainians are actually drinking less vodka. Population surveys indicate a decrease of vodka consumption in Russia by 7% during the first two months of the year – but usually such reports cannot be considered accurate. The fact is that both Ukraine and Russia remain at the top of the list of per capita consumption of vodka in the world.
Following the initiatives of both governments to increase the tax burden on legal trade, large parts of production are now moving into the so-called ‘shadow market’ – not only are these products counterfeit, they can also be a danger to consumers.
Today, according to the Russian Business Consulting Agency, illegal vodka accounts for 50%-65% of the total Russian vodka market.
Similarly, in Ukraine, estimates indicate that in 2013 illegal vodka accounted for about 40% of the total market’s size. For obvious reasons it is hard to estimate the actual volume of illegal and counterfeit vodka production, but it is assumed that in both countries the size of this segment grew last year.