Can vodka markets expose Russian influence?

Can vodka markets expose Russian influence?

The vodka market may be an indicator of economic trends in Russia and the former Soviet bloc countries.

With Russia’s ongoing provocations in the country of Ukraine, questions have arisen as to the scope of the country’s influence. Beyond Russia’s arming of rebels and energy exports, perhaps another traditional export may offer insights into the future of Russian power and influence: vodka. Here are four considerations that may illustrate how vodka reflects the state of Russian power:

Legal vodka production in Russia is dramatically down

The operative word here is legal. In accordance with a policy put in place nearly two years ago, an excise tax was put on all cognac, vodka and other liquors. This tax has resulted in as much as a 30% increase in the cost of vodka since its enacting. It has not only resulted in increased costs, but has also dramatically slowed legal production, which has fallen as much as 40% by some estimates. The Federal State Services Statistics reports a 12% drop-off in 2013 alone.

Legal vodka sales have fallen by as much as 15-20% as bootlegged versions of the drink have grown in popularity. The dramatic increase in illegal production, along with the corresponding loss of revenue, has led Prime Minister Dmitry Medvedev to call for the Finance Ministry to explore a freeze or lowering of the excise tax on spirits with an alcohol content of 9% and above.

Russian vodka not favourite drink in most of the South Caucasus

Much of the people in the South Caucasus region have long preferred to satiate their palettes with something besides vodka. As regional expert Thomas de Waal has noted, Georgians in particular have long preferred wine, the export and production of which has traditionally been a source of cultural pride and a means of differentiating themselves from their larger and more powerful neighbors to the north.

However, since 2012 vodka sales have increased significantly in the former Soviet republic with domestically produced Gomi Vodka leading the way. Ironically, prior to increased tensions in the last decade between the former Commonwealth of Independent States member and Russia, Georgian-made vodka was increasingly being smuggled into Russia, often through North Ossetia.

Armenia, for its part, has traditionally been a reputable producer and avid consumer of cognac. Yet, with the Armenian industry relying heavily on exports to Russia, recent sanctions have hurt the industry with the first quarter of 2014 showing half the amount exported to Russia as in the previous corresponding quarter of 2013. Vodka does, however, remain the drink of choice in Azerbaijan, the South Caucasus country, which has arguably seen the best relations with Moscow in recent years.

Vodka drink of choice for other parts of the former Soviet empire

Even the act of selling alcohol can be dangerous in parts of the North Caucasus, with liquor store bombings having occurred in the Dagestani city of Makhachkala for the sale of spirits during the Islamic holy month of Ramadan. Elsewhere in some areas of the former Soviet empire in Central Asia, alcohol consumption remains similarly discouraged for religious reasons. For example, import duties remain high and restrictive on alcohol in Tajikistan. While WikiLeaks reports of Tajikistani governmental officials indulging in Scotch made some news, vodka remains a staple.

Vodka has long been the spirit of choice in the countries of Poland and Belarus, the former of which has steadily increased exports of its own domestic brands. Incidentally, vodka has traditionally been the dominant drink in Ukraine. However, cognac, brandy and Western-made brands have made steady gains.  Ukrainian vodka brands, similar to their Polish counterparts, have continued to grow in popularity internationally.

The future of vodka is changing

Russian vodka continues to account for a comparatively small fraction of international vodka sales. According to Finam Management analyst Maxim Klyagin, “Russia accounts for about a third of global vodka consumption, however, Russian vodka brands make up only several percent of the world market…..Furthermore, a large section of Russian vodka exports go to former Soviet Union countries.”

This looks to be the future trend with ongoing slowed production in Russia, a rise in popularity of many Eastern European brands from Poland, Ukraine and Finland and continued domination of the market by the United States, France, the UK and the Netherlands.

Even Russian vodka sales in the former Soviet Union seem to be in doubt. Some reports  anticipate that vodka as a spirit will be overtaken by whiskey in international consumption by 2018. In the interim, the United States will likely remain the second largest vodka market for consumption after Russia.

Perhaps the biggest indicator of the future of Russian vodka can be taken from this: following Russia’s invasion of the Ukraine, an Ontario politician called for a ban on sales of Russian vodka. The ban would have only affected one brand, Russian Standard. Perhaps not surprisingly, Ontario is thought to have the second largest population of Ukrainians in Canada.

Categories: Economics, Europe

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.