Lithuanian vodka profits soar, consumption sags

VILNIUS - Nearly a year after the Lithuanian government slashed the
excise tax on vodka, Lithuanian distillers are reaping in huge
profits.

Last November, the government reduced the excise tax by almost 50
percent in an effort to stem the flow of illegal vodka into the
country. Now, vodka is cheap and distillers are getting excited.

On June 28 Vilniaus Degtine announced a preliminary net profit for
May that was 250 times higher than last year's May results. It
claimed to have made 250,000 litas ($62,500) in May 2000 compared to
1,000 litas in May 1999.

The country's largest distiller, Kaunas Stumbras, with 70 percent of
the vodka market, also claims that profits are exponentially higher
this year than last.

Raimonda Palioniene, Vilniaus Degtine's chief financier, reported
that the firm's sales and services increased by 51.1 percent, to
2.605 million litas in May, compared to last May.

Pretty amazing, huh?

Not really, says Audrius Vidzys, president of the Lithuanian Brewers
Association.

"It's not such a big profit, simply because last year the profit was
too low," Vidzys said.

Then, Vidzys reports, the excise tax for spirits was almost twice as
large as it is now.

"It was 56 centas per 1 percent of alcohol. Now it decreased to 30 centas. That's why the prices of vodka went down. Consequently, people sta
rted to drink more vodka," he added.

Last year, the price for a bottle of vodka in Lithuania ranged from
17 litas to 20 litas. Now, Vidzys says, vodka prices are from 12
percent to 13 percent cheaper.

However, as Vidzys reports, Lithuanians are increasingly becoming
beer drinkers. While beer consumption in 1995 was 34.5 liters per
person per year, in 1999 it increased to 54.8 liters, he said.
Overall vodka consumption, meanwhile, has decreased about 20 percent
during the last three years.

"But it's hard to compare because they lost illegal production. Some
people calculated that 5 years ago 50 percent of the vodka in the
country was illegal," Vidzys said.

"Beer is the most popular drink in Lithuania. Beer production during
the last 3 years increased 60 percent. People are drinking weaker
drinks. The tendency is towards beer and wine, not strong spirits,"
Vidzys added.

The Lithuanian vodka industry will face another obstacle next year,
when the government lowers import tariffs for wines and spirits - an
effort to assuage European Union officials.

On June 29, the Lithuanian government approved an Agriculture
Ministry's proposal to reduce import fees charged on alcoholic drinks
by 5 percent annually and by 1 percent for vodka and natural ethyl
alcohol. (The European Commission suggested applying a zero import
tariff on beer and other alcoholic drinks and reducing tariffs on
other agricultural products by 10 percent annually on July1.)

Currently there is a 25 percent tariff on alcoholic drinks, while
tariffs for all other imported agricultural products are between 3
percent and 12 percent.

Another major change coming down the EU pike deals with nomenclature.
When Lithuania joins EU, Lithuanian distillers will be required to
print the internationally accepted word "vodka," instead of the
Lithuanian counterpart, "degtine," on bottles.