Spirits Screwup Has Russia Saying Nyet to New Vodka

ByABC News

M O S C O W, June 7, 2001 -- — If you thought an energy shortage in California was trouble, try running dry on vodka in Russia.

That’s just what Russia’s alcohol industry is warning may happen, despite government assurances to the contrary. And for a nation where the drink is considered an indispensable part of the “Russian diet” — an estimated 1.2 billion liters of vodka was produced last year, not including the bootleg variety — sudden shortages could have dire implications for the current occupants of the Kremlin.

The problems started with stumbles over a new tax code that called for stricter rules on the production and distribution of spirits. Initially adopted last year, the code called for splitting alcohol excise duties between the country’s producers and distributors of alcohol, and allowing for an equal share of profits by the federal and the regional budgets.

Among other things, the changes require that all spirits produced and sold in Russia be marked with a second, regional excise duty stamp, in addition to the existing federal one.

Few have contested the two-tier stamping system itself, since its introduction is ultimately expected to dry up Russia’s huge bootleg and contraband trade, which by some estimates amount to 40 percent to 70 percent of the overall output. The measure will also provide for a direct cash flow to Russia’s regions — another important reason for its introduction.

So where did things go wrong?

Awaiting the ‘Stamp’ of Approval

The problem has been in the execution. After the government realized late last year that little had been done to implement the new marking system, the initial January deadline was postponed until this month.

Even now, however, Russian alcohol industry sources say most distilleries — especially the medium and small ones that are especially strong in the heavily consuming “provinces” — do not have the new regional stamping system in place. They blame the government for not providing the stamp in time.

Shortages, if they do materialize, would then open the way for bootleggers to fill the gap with cheap, often below-standard surrogate spirits, defeating a key part of the code’s purpose in the first place.

Of course, the provinces could simply consume more samogon, or homemade vodka. But potentially what’s at stake is the livelihood of one of the country’s largest industries, not to mention the loss of huge profits for the state from existing excise markings — currently estimated at $4.7 million every day.

No Signs of Panic, Yet

So is a shortage really on the way?

Alexander Timofeyev, general director of key Moscow vodka plant Kristall, told Reuters, “If the government does not act promptly, legal vodka will disappear from the shops and bootleggers will step in.”

But government sources claim that the stores are full, and that there is no threat of shortages of the country’s preferred drink.

A spokesman for the Federal Tax Service maintained this week that current stockpiles of vodka and other strong alcoholic beverages allow for unimpeded trade for about two months. The spokesman added that the new markings will be made available to Moscow distillers "shortly," but remained mum on the status for the rest of the country.

Not many people here believe that Russia will actually seriously face a vodka shortage crisis in the next few weeks. For the time being, in Moscow at least, vodka and other alcohol products still abound in the stores, with no signs of “panic” buying or surging prices. The traditionally favored half-liter bottle of vodka still costs the equivalent of between $1.20 and $2.50 for cheaper brands to good labels, with high-end, export-quality spirits selling at the equivalent of around $5.

Sellers have a fairly hefty supply of all brands with the “old” markings, which they have to get rid of by Sept. 1, after which only the double-marked bottles will be legal.

But there may be a more-than-usual interest in alcohol purchases toward the end of the week, as Russia prepares to celebrate major annual holidays through June 12.

And some small retailers are already taking advantage of shortage rumors, however, pulling most of the popular cheap brands off the shelves and offering more expensive vodkas to customers in order to diminish the risk of being left with the expensive product unsold.

Either way, it seems highly unlikely that Russians will rise in arms against Vladimir Putin, although they may soon be less inclined to raise their glasses to toast their president, as one inevitable result of all the confusion is widely expected to be a hike in prices of this country’s favorite drink.

ABCNEWS' Sergiusz Morenc in Moscow contributed to this report.

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