On July 20, 2023, Russia’s prime minister Mikhail Mishustin signed Resolution 1173, which raised duties on still and sparkling wines and vermouth from so-called ‘unfriendly countries’. The duty hike is from 12.5% of the customs value of these beverages to 20%. To make matters worse for producers, distributors and consumers of cheaper wines, the new duty rate starts at the equivalent of approximately €1/$1 per bottle, irrespective of the ex-cellar price. The decree has already entered into force, and all wine being cleared through customs is now subject to the new rate. Meininger’s has analyzed the consequences for the wine industry outside Russia.
Is Russia still important for the global market?
Before going any further, one has to separate the moral aspects of this question from the purely financial. Wine companies will make their own decisions over whether and how to deal with a nation that has launched the biggest conflict in Europe since World War II. To complicate matters, wines from brands that have pulled out of the market are still finding their way onto Russian shelves – via other countries.
In any case, despite these efforts, Russia still increased its wine imports by 5% in 2022. According to OIV data, in 2021 it imported 3.7m hl; last year, that figure rose to 3.9m hl. Today, Russia still ranks seventh among the world's wine importers by volume. (Neither the OIV nor Russian customs provide value data).
Russia’s complex wine pricing
To understand the impact of the new duty regime, it is necessary to look at the old one. The duty that has gone up up is linked to the so-called ‘customs value’, declared by the importer for customs clearance. This includes the price of the wine itself, transport to the consolidation warehouse at the border and the application of excise stamps.
Under the previous model, a wine selling ex-cellars in Europe at €1.37 ($1.49) would have been subject to RUR84 ($0.90) of duty, excise stamps and VAT. Once the importer’s and retailer’s margins are taken into account, this bottle would have ended up on the shelf at RUR514 or $5.61. (Exchange rates between the rouble and other currencies are very volatile, so any figures presented here may have changed by the time you are reading this).
Now, as the chart below illustrates, the taxes on that same wine would have risen to RUR186 ($1.99). If the distributors maintain their margins this would add RUR212 to the price of a bottle that was selling for RUR514. An increase of over 40%.
Clearly, the impact of the new taxes will be hardest on cheap wines, on sale in the alcohol discount stores that have a significant market share.
To put these figures in context, according to market observers, the Russian market is extremely price-sensitive. New-retail.ru states that the average cost of a bottle of wine sold in 2022 - when the rouble was far stronger - was RUR368 ($3.68).
‘Friendly’ and ‘unfriendly’ countries
The government imposed the new duty on products of countries it considers its political antagonists: the EU, as well as the United States, Australia and New Zealand. Although the last three have imposed an embargo on wine exports to Russia, shipments bypassing sanctions still continue through third countries and as bulk wine bottled in EU.
The increase in customs duties will affect more than two-thirds of the imported wine market, primarily lower-price European wines from Italy, Spain, France, Portugal and Germany. Of Russia’s imports of 405m hl of still, sparkling and fortified wines in 2022, these five ‘unfriendly countries’ accounted for 274.5m hl - 67% of the total.
On the other hand, the new situation will provide a huge opportunity for Russian producers and what the Kremlin considers its ‘friends’ - Chile, Argentina, South Africa, Georgia, Armenia and Moldova - to take market share. Georgia, whose products are subject to zero customs duty, are in a specially fortunate position. This privilege was one of the factors that has made Georgia the top supplier of still wines to Russia in 2023. According to customs data, Georgia exported 241,500 hl of still wines to Russia in January-May 2023, taking first place from Italy.
In case there are consumers who don’t carry lists of favoured and disfavoured nations around in their heads, retailers and the on-trade are simplifying their choice. In the Russian Wine Bar in Moscow, for example, a section of the wine list has been renamed ‘wines from unfriendly countries, while in the SPAR supermarket chain there is now a divider on the shelf to separate ‘Russia and Friends’ from everything else.
Even without this signage, price tags will have their own influence. For the local consumer, an increase of RUR150-200 to the cost of a bottle will move cheaper wines into the premium price segment. The impact on these wines will, in the words of one retailer, be ‘catastrophic’. Wines selling at over €3 at the current rate of exchange will be less severely hit, with some estimates of a drop in sales of around a third.
The price of wine from countries that are not affected by the new taxes is likely to rise too, however, following the 40% fall in the value of the rouble since the beginning of 2023. Russian winemakers who have been affected by the increased cost of a weaker currency on imported dry goods, may try to mitigate this by raise their prices in the face of decreasing competition.
According to statistics published by RBC the Top 10 countries-importers of still, sparkling and fortified wines to Russia in 2022 by volume (in thousands of hl).
1. Italy – 134.1m
2. Spain – 65.9m
3. Georgia – 58.7m
4. France – 39.3m
5. Portugal – 23.1m
6. Chile – 15.8m
7. Abkhazia (part of Georgia occupied by Russia in 2008) – 13.2m
8. Germany – 12.1m
9. South Africa – 8.5m
10. Serbia – 4.5m