The Uncertain Future Of Cheap Russian Booze

One thing that strikes you, as you wander the shops of any Russian city, is the sheer cheapness of booze and cigs. As little as 3 years ago, one could buy a pint-sized bottle of beer or a pack of cigarettes for just $1, while a 0.5l bottle of vodka cost as little as $3. Prices have since risen, but they remain very low in comparison to incomes.

This happy era was due to come to an end. The Finance Ministry planned to raise excise duties on ethanol products by a factor of 4.3 and by a factor of 15 on tobacco products, in a graduated way through to 2015. The result would have quadrupled the minimum price of lower-range vodkas (105 rules, to 410 rubles) and of the average cigarette pack (24 rubles, to 100 rubles). The practice of selling beer in large, plastic containers is to be forbidden from January 2013. Given that alcohol was found to cause 32% of aggregate mortality amongst middle-aged Russians in 2005, and the high prevalence of smoking among Russian men, these measures are surely long overdue. The plans will help Russia to consolidate the reductions in alcohol-related mortality of recent years.

The main driving force behind this seemed to be Finance Minister Kudrin, if for reasons that have little to do with public health (the taxes are estimated to bring in a further $11 billion in revenues, in addition to the $3 billion garnered through existing ones). Though these sums are very small relative to Russia’s total budget, they will nonetheless help to appreciably narrow the budget deficit.However, these ambitious plans may have received a setback following Putin’s criticism of the plans in late March; namely, that such rapid price rises would encourage more Russians to take to moonshine alternatives. The alcohol and tobacco lobbies also raised objections.

According to a Finance Ministry source who contacted Russian Reuters, the revised plans call for a smaller increase in excise tax on vodka, by a factor of 2.2 instead of the previous 4.3 by 2015. The result will be a mere doubling of lower-end vodka prices (105 rules, to 180 rubles); and, given rising incomes and substantial inflation, only a modest decrease in its relative affordability. Likewise, smokers are in for good news: the former quadrupling is now little more than a doubling by 2014. It is still unclear which plan will ultimately be favored. For instance, the pro-Communist Trud speculates that the revised plan will be adhered to until after the 2012 elections – after which there is a chance that the rate of excise tax increases will be stepped up.

The fear amongst Putin, lobbyists, most Russian regions, and about 50% of Russians as per a VCIOM poll, the main effect of rapid price rises is going to be negative, as many people will supposedly only switch to “dangerous and unregulated homebrews, as well as poisonous surrogates like eau de cologne, shoe polish and even jet fuel”, according to Mark Schrad of the NYT. The Gorbachev experience, in which alcohol laws were made stricter from 1985, is continuously cited as evidence.

I remain to be convinced. First, according to that same VCIOM poll, 30% of Russians say they will continue drinking the same alcohol and another 20% say they will drink less; only 15% say they will start drinking homebrews and 4% will look for bootlegged vodka.

Second, for all that maligned Soviet experience of restricting vodka, life expectancy increased from 67.7 years in 1984 to more than 69 years for the rest of its existence (peaking at 70.0 years in 1986-87); and only fell below the late Soviet-era low in 1993, when the state’s vodka monopoly was dissolved and the country was in the midst of a rapid socio-economic collapse. Now given the differences between the Soviet Union and modern Russia, namely that there are far more alternatives to hard spirits, e.g. beer and wine, increasing prices will probably be even more effective now.

Gorbachev's anti-alcohol campaign: now maligned, but more or less successful while it lasted.

Gorbachev’s anti-alcohol campaign: now maligned, but more or less successful while it lasted.

So while I don’t usually agree with Boris Nemtsov, I can only support him in his condemnation of the regime for reducing the scope of vodka and tobacco excise tax increases.

EDIT 5/18/2011: Synopsis of final FinMin plans from Kommersant. The growth in excise taxes will be minimal until after the 2012 elections. From July 1st, 2012, they will start increasing at a faster rate, reaching 500 rubles per 0.5l of spirits (prev. 901 rubles) and 1040 rubles per 1000 cigarettes (prev. 874 rubles) – with the possibility of going higher if the action is coordinated with neighboring Belarus and Kazakhstan. The result is that the typical price of a lower-range 0.5l vodka bottle will rise from 125 rubles now, to 175 rubles in H2 2012, 220 rubles in 2013, and 260 rubles in 2014. The minimal price of a pack of cigarettes will rise from 16 rubles now, to 22 rubles in 2012, 29 rubles in 2013, and up to 38 rubles rubles in 2014.

As expected, this is a substantially watered down version, under which the price of vodka and tobacco will remain well under Western norms through to 2015. Cynical electoral populism, and the influence of the alcohol and tobacco lobbies, are working to limit the potential public health gains that could have resulted from a more aggressive plan for raising excise taxes on spirits and tobacco.

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