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Russian Economic Policy To Balance Alcoholism, Illegal Vodka Sales And Surrogate Consumption

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Russian Economic Policy To Balance Alcoholism, Illegal Vodka Sales And Surrogate Consumption
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Russian authorities are gearing up for a fight against a new kind of drinking problem.

President Vladimir Putin has called for tightened alcohol regulations, and investigators have opened a criminal investigation, in response to the growing abuse of “alcohol substitutes.”

In December, at least 77 people died in the Siberian town of Irkutsk after recreationally drinking bath oil. According to a report from Russian media outlet RBC just weeks before the poisonings in Irkutsk, alcohol substitutes, like bath oil, now make up 20 percent of the country’s total market.

This month, the Russian government is taking its first step in addressing the abuse by regulating pharmaceutical alcohol — a commonly used vodka.

What Happened To Plain Old Vodka?

The Center for the Study of Federal and Regional Alcohol Markets estimates that 10 percent of the Russian population consumes alternatives to legal liquor, known as ethyl-alcohol. Russia's Federal Alcohol Regulator acknowledged an annual growth in surrogate alcohol demand by 20 percent.

One company, allegedly eager to capitalize on the growing trend, even began to market vending machines for alcohol-based cosmetics in lower economic communities.

This particular instance exposed a critical factor in the nation’s rising issue with alcohol — one that may require solutions other than tightened market regulations.

“The problem isn't the surrogates themselves, but rather the economic incentives that lead to people using surrogates,” Arseniy Yashkin, a Russian scholar with Duke University, told Benzinga. “Controlling or banning s is a cosmetic ‘feel-good’ measure. As long as the incentives to find cheap sources of alcohol are there, such events will continue to occur episodically.”

Yashkin attributed the present trend in consumption to the country’s economic crisis. With traditional vodka out of budget, many blue collar or rural communities have resorted to consuming perfumes, cleaning supplies, bath oils and medical tinctures.

The economic angle of the issue is challenging Russia to respond with nuanced measures mindful of poverty and surrogate abuse — as well as the nation’s enduring plagues of alcoholism and counterfeit alcohol production that undermine a legitimate and economically significant industry.

A New Twist In An Old Tale

Russia has long struggled with alcoholism among its citizens.

In its “Global Status Report on Alcohol and Health,” the World Health Organization exposed an alcohol-related mortality rate of 20 percent among Russian men and 6 percent among women — the highest rates in the world.

“The pattern of drinking score, reflecting the frequency and circumstances of alcohol consumption and the proportion of people drinking alcohol to intoxication, is among the lowest in western European countries, while it is the highest in the Russian Federation,” according to a 2012 WHO document.

In 2014, the organization reported an annual alcohol consumption of 15.76 liters per capita — about seven liters more than what is considered detrimental.

The Russian government is well aware of the country’s rampant problem. In fact, it recently implemented a “Sober Russia” project and released “national sobriety ratings” comparing alcoholism between geographic regions.

Efforts to deter alcohol abuse have inspired equally undesirable consequences, though, with cost increases prompting drinkers to settle for cheaper — and more dangerous — alcohol alternatives.

A String Of Policy Responses

Russia first established a minimum vodka price in 2009 to combat counterfeit alcohol sales. Although most years saw cost increases, the government instituted a decrease in 2015 to curb the rising consumption of surrogates. The lower cost prompted a doubling of sales for Russian vodka producer Status Group.

In 2010, the government instituted a curfew that restricted the sale of beverages containing more than 15 percent alcohol. Bars were forbidden to sell between 10 p.m. and 10 a.m.

In 2011, the government restricted the availability of retail alcohol and instituted regulations regarding the size of consumer packaging.

A series of measures were then instituted throughout 2016.

The Moscow Times reported February raids of illegal producers by the Federal Security Service and Federal Tax Service, and it highlighted a government tactic to track and label products among alcohol producers. In June, the government raised the minimum vodka price from 185 rubles to 190 rubles to deter counterfeit sales.

Despite these concerted efforts, a September report noted that illegal sales still comprised 30 percent of the alcohol market.

In the same month, a Trade Ministry report recommended a cut of the legal minimum price of vodka 100 rubles per half liter. According to the Moscow Times, the report also proposed greater accessibility of “good quality” wine, maintenance of current beer prices and more severe penalties for illegal alcohol production.

In November, a government agency proposed a ban on the sale of alcohol-based products in vending machines, as well as a tax on alcohol-containing medicines and cosmetics. One expert predicted that successful legislation would eliminate 90 percent of alcohol-based medicines from the market, and illegal alcohol production would exponentially increase.

Most recently, the government has reconsidered a possible increase in the legal drinking age from 18 to 21 — a move supported by about 77 percent of recently polled Russians.

Russia's Declining Market

As the legal vodka industry struggles to maintain its hold on the alcohol market against illegal producers and increased regulations, it’s also combating a culture shift and global economic conditions.

Western economic sanctions sharply cut alcohol exports 40 percent between 2014 and 2015, and the Moscow Times reported a revenue decrease from $187.1 million to $111.9 million. Ukraine, previously the largest importer of Russian alcohol, cut sales from $38.6 million in 2013 to $3.87 million in 2015.

The industry is also battling intra-national shifts away from the traditional liquor. While detrimental to the vodka industry, the trend may serve to improve the country’s surrogate alcohol crisis.

“To an extent, if current patterns of alcohol consumption hold, this problem should go away by itself as younger generations opt out of high-alcohol-content drinks such as vodka and switch to low-alcohol-content drinks such as beer,” Yashkin said.

Western Economic Immunity

Because of the already limited economic activity between Russia and the West, U.S. trade will not likely be affected by potential alcohol-related restrictions.

Yashkin said the economic impact of curbing surrogate consumption would be negligible.

“(Surrogate consumers) do not represent a notable part of the economy in general or even of alcohol products,” Yashkin said. “This is a very small problem affecting a very specific segment of the population.”

But the problem is not isolated in Russia. On Christmas, 31 died in Pakistan after consuming toxic moonshine, bringing the country’s alcohol-related death toll to 89 in 2016. The Pakistani government has not yet reacted with policy changes.

Posted-In: News Emerging Markets Commodities Politics Topics Legal Global Markets Best of Benzinga

 

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