Vodka prices are rising, but that doesn't necessarily mean fewer people will be drinking. It just might mean that more of them will be drinking from illegal sources, experts say.
On Feb. 25, the minimum price of vodka will rise 30-40 percent, which could spark an increase in the amount of underground vodka on store shelves, according to industry officials.
Under the changes, factories will not be able to sell vodka for less than 56 rubles a liter, excluding the cost of the bottle. For wholesalers, the minimum will be 60 rubles and for retailers 62 rubles, including bottle cost. The price of imported vodka will be no less than 125 rubles a liter, the resolution stated.
Experts believe that underground vodka factories, which are neither licensed nor inspected for quality control, will benefit most from the changes. In 1999, illegally produced vodka made up 40 percent of the market, according to the Ministry of Tax Collection.
Despite the high figure, tax officials claim they are winning the fight against illegally produced vodka. In 1999, a series of raids conducted under the code name Operation Torrent, saw several underground vodka factories closed in highly publicized cases.
"We did not know [what effect] the price rise will have. Nevertheless, we are going to continue Operation Torrent in light of these changes," said Federal Tax Police Officer Vladimir Beketov.
The illegal vodka market, mainly supplied from the North Caucasus, could grow further after the price increases, said Vladimir Baturin, an adviser to the general director of the Association of Elite Spirit and Vodka Producers.
"Today, Moscow is being flooded with Caucasian vodka after new duties were brought in [they went up by 30 percent in January], prices went up, and so the illegal vodka market expanded," Baturin said.
Small, legal vodka producers may also be forced out of business because they have higher production costs than their larger competitors and can't absorb the price rise so easily, Baturin said.
"Factories are not growing, because there are no sales, no profits, and the fiscal services are putting pressure on them," he added.
Many people complained after the increases were announced, and there was large-scale buying of vodka as a pre-emptive measure for the holidays.
"People will drink just as much, or turn to moonshine," said Boris Smirnov, head of Smirnov Vodka. "Actually, prices were also high before this decision after the new duties, they exceeded the minimums. We did not put out vodka for less than 60 rubles per liter."
Acting President Vladimir Putin said last week that the government doesn't regulate vodka prices; the market does.
The Economics Ministry said that now a half-liter bottle of vodka cannot cost less than 31 rubles.
And the media campaign, which began after the ministry's calculations, is explained by Putin as pre-electioneering that the press wants to turn the people against the government and at the same time boost the wholesalers' trade.