Hard drinks in Estonia: legal vs. fraud

"If you get the flu just take a big shot of vodka." This advice is heard by any foreigner who manages to stay in the countries of the former Soviet Union for more than a few days. The Baltic countries are not an exception. The traditional use of hard drinks like scotch and above all vodka - versus softer drinks like wine and beer - is rooted deeply in history. But, if you are going for vodka, it's best to know from where it comes. Kairi Kurm reports from Tallinn.

Three big alcohol distilleries and a number of illegal producers control the Estonian alcohol market. According to the Estonian Vodka Association, 4.9 million liters of hard alcohol were produced legally in the first nine months of 2000. The illegal market is about 40 percent.

There are 12 companies in Estonia with a license to produce hard alcohol. About 30 percent of the legal strong alcohol market is controlled by the oldest Estonian alcohol distillery Liviko. The second largest distillery is Onistar, which together with its subsidiaries controls 26 percent of the market. The third biggest alcohol producer is Ofelia, which belongs to Finnish capital and controls about 18 percent of the market.

On the vodka market the market shares are different. Onistar controls one third, Ofelia 21 percent, and Liviko 19 percent of the vodka market.

The excise duty too high

The managers of the alcohol distilleries are of the opinion that the excise duties on strong alcohol should be decreased from 145 kroons ($7.7) per liter to 115 kroons, like it was before the law on alcohol excise duty came into force on Dec. 1, 1998.

Aleksander Skoblov, chairman of Onistar, said that if the government would decrease the duty to 115 kroons per liter, the budget would receive 100 million kroons less duties from present taxpayers but would recover the shortage from a decrease in the illegal market.

"When excise duties were decreased in Lithuania in January 2000, the size of the legal alcohol market increased dramatically," Skoblov said.

The government is expecting to get 1.145 billion kroons to the budget from alcohol excise duties next year, 680 million kroons of which should come from the hard alcohol market.

Although the amendments to the size of the excise duty are not included in the new law on alcohol excise duty, which comes into force in January 2001, Juri Kao from NG Investeringud believes that the law will improve the state's control over the production, sales and imports of alcohol products.

Alcohol distilleries have also strengthened safety marks for their production, because the producers of fraud alcohol are using their trademarks.

"The law as well as the control over the alcohol market should become more effective," said Udo Themas, chairman of the board at Liviko. "Local police officers are aware of these frauds but they do not want to deal with it. Also the punishments of the criminals should (be harsher). I find it strange that most of the people who were caught in September in producing fake alcohol were discharged," said Themas.

A one-liter bottle of illegal vodka costs 50 kroons, as much as the excise duty for the same amount of beverage on the legal market.

According to Sirje Potisepp from a distillery Remedia, Estonian excise duty on alcohol is 1.7 times higher than European Union averages.

"In 1999 the production of alcohol fell by 37 percent compared to 1998. In the year 2000 the production increased a bit, but was less than in 1998," said Potisepp. "It is naive to think that people are drinking less alcohol now."

Kao said that the excise duty is very high in Estonia compared to the local purchasing power. An average Estonian can buy 45 liters of alcohol a month, while Germans can afford 416 bottles, Austrians 497 and French 264 bottles a month.

Some doctors and social workers argued on national television that vodka should be an expensive drink, which should be consumed on special occasions only. They said that the good availability of vodka, its strong advertisement campaigns and its low price make people consume it more.

"Vodka is a traditional drink, which is taken on sad and merry occasions," said Themas from Liviko, which celebrated its 100th anniversary this year.

Although people started preferring whisky and cognac when it became available at shops after the collapse of the Soviet Union, vodka is still a popular drink in Estonia, said Skoblov. "Vodka is becoming more popular, especially in drinks like cocktails," said Skoblov.

The divided market

NG Investeringud is the biggest shareholder of Estonia's largest distillery Liviko, which once enjoyed a monopolistic status in Estonia but lost its market share due to bad marketing. NG Investeringud improved the company's marketing and development strategies when it acquired the company earlier this year.

Liviko produces drinks with 25 different brand names, the most popular of which are Viru Valge and Vana Tallinn. Liviko's Viru Valge Special Anniversary was named the best alcoholic beverage in the Estonia's Best Foodstuff competition this year.

According to Themas, half of the company's production is liqueur. "We are strong in the liqueur sector. We prefer natural raw materials to chemical aromatic compounds," said Themas. Liviko imports spirits from abroad.

Liviko has 122 employees. The company's turnover in 1999 was 200 million kroons and it received 20 million kroons profit. For the year 2000 the company predicts a 302 million kroon turnover and a 58 million kroon profit, most of which comes from the sale of real estate.

Liviko and Onistar are the only two companies in Estonia, which have an ISO quality certificate. Liviko exports about 20 percent of its production. More than half of the production is exported to tax-free markets, 18 percent to Finland, 6 percent to Lithuania and the United States and other countries.

Onistar's share of exports is even bigger, about 65 percent. The company's biggest export markets are Latvia and Lithuania.

"The Estonian market is too small for us. We have contracts with big Lithuanian and Latvian wholesale companies. We are successful in Lithuania because the market is controlled by a state-owned monopolistic company and the prices are high," said Skoblov.

The company has also established a subsidiary in the United States and is waiting for a license to start its activities there.

Onistar uses only Estonian raw materials. The company buys spirits from Moe and Rakvere Piiritusetehas, which were acquired by the company's owners some months ago.

According to Skoblov, Y2K is Onistar's most popular trademark at present. "This drink absorbs well in the body, because the water has been enriched with minerals in advance," said Skoblov. Onistar has about 30 trademarks altogether.

"At present the company has 50 employees, but the number will soon increase to 250 after all the companies have been united under one big concern," said Skoblov.

Ofelia, the third biggest alcohol distillery in Estonia, has 34 employees. The company belongs to a number of small investors and a Finnish company, Primalco.

Alcohol distilleries Remedia and Liiwi Heliis all control over 10 percent of the market, Moe Piiritusetehas controls about 4 percent, while Almo MS, Vohu Vein, Offex, Lifetime Grupp and Tallinna Karastusjoogid each control less than 1 percent of the Estonian liquor market.