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By John Helmer, Moscow

Medovukha, Russia’s fermented honey drink known in English as mead, is at least one thousand years old. If it’s what the Greeks meant by ambrosia, the nectar of the gods, then it is as ancient as wine, Dionysos’s tipple. Whether Rurik the Viking* brought mead with him to ancient Rus, or whether it was there already, is uncertain. What is sure is that after a revival of the Russian taste for medovukha multiplied consumption between 2011 and 2015 by sixteen times, the Finance Ministry in Moscow decided this year to tax it into extinction, destroying its own excise revenue from the drink at the same time.

In April President Vladimir Putin publicly called this “not very fair”, and promised to do something to relieve the mead brewers. He hasn’t.

There’s no Viking, no oligarch to defend mead. Gennady Timchenko, the president’s crony according to the US Treasury sanctions list, is an investor in wine.  So is LUKoil owner, Vagit Alekperov.  Oleg Deripaska’s agricultural business produces tea and cider. Vladimir Yevtushenkov is also a cider man.  Vasily Anisimov sells Putinka; he’s the oligarch for vodka.

The wife of Agriculture Minister Alexander Tkachev owns a vineyard. Boris Titov, the ombudsman for Russian small business, owns Abrau-Durso, the only Russian winemaker listed on the stock exchange. This year, Titov’s company has been setting a share price record so Titov has been growing richer than he’s ever been.  Mead is too small a business for Titov to care for a slice of it.

In January and February of this year, the Russian state statistics agency Rosstat reported that production of mead, cider (brewed from apples) and perry (pear cider) was 481,000 decalitres; 286,000 litres of that were mead. This volume marked a sharp fall from the same period of 2016, when a total of 3 million decalitres was produced. For mead producers, most of whom also produce cider and perry, this was catastrophic; many small producers stopped mead and cider,  and if they didn’t go out of business altogether, changed to other drinks.

The reason was a combination of supply and demand. Alexei Nebolsin (right), head of OPORA (All-Russian Public Organization of Small and Medium Enterprises), explains the cold summer of 2016 cut the output of apples, and also of honey, so raw materials for the production of mead and cider were scarce and more expensive. But he said the cruellest cut was the state-ordered increase in the excise tax from Rb9 to Rb21 per litre. This was introduced by the Finance Ministry from January 1, bringing mead and cider into line with beer, although the volume of mead and cider produced and consumed in Russia is less than 1% of the beer consumption. “Here the state is reaping what it sowed,” Nebolsin comments. “The drop in consumption due to the higher price also means that businesses are stopped, so the volume of drinks on which the tax collection has depended is down sharply.”

The Finance Ministry may have calculated that the increase in excise tax would hit fake labelling of chemical cocktails and low-alcohol drinks which have been selling in the Russian market with labels suggesting they are naturally fermented honey and apple or pear drinks.

“Yes, I am glad the effect is there will be less of cocktails posing as cider and mead,” Nebolsin adds. “However, I would like to ask the Ministry of Finance:  what do we tell the honest producers of cider, perry and mead, who have not violated the law and made their drinks in accordance with the law? They have become hostages of a situation when the state has actually required them to make sacrifices in the fight against fake production, but is driving them to the brink of survival. In fact, they have only one hope — to stand on a par with wine from Russian grapes, the excise tax on which is known to be 5 roubles per liter. How many will survive long enough to see this?”

There are three main producers of Russian mead: Deka (pictured below left), Medovarus (centre), and the Suzdal Medovukha Plant (right). Deka is based in Velikhy Novgorod; Medovarus in St. Petersburg. Suzdal makes medovukha-tasting a tourist attraction in Suzdal town; in addition to traditional mead, it offers a 40% alcohol liqueur, also called medovukha.

On pre-2017 estimates, Deka leads in the mead market with annual production of 10 million litres; Medovarus has about 5 million litres;  Suzdal, about 2 million litres.  

From 2011 until the Finance Ministry struck at the start of this year, according to a study of the mead and cider market by BusinesStat,  Russian sales of mead had jumped to about 30 million litres; that was a gain of 15.7 times. Projecting ahead to 2010, BusinesStat claimed mead consumption would accelerate at 10% per annum.

This growth in mead drinking occurred while sales of beer, still wine, sparkling wine, vodka and cognac were all falling by single-digit percentages. The pickup in mead appeared rapid enough and the volume sufficiently sizeable to attract the much larger domestic beer producers to consider adding mead and cider to their product range; and to encourage retailers to put mead on their shelves.  However, false reporting of ingredients makes it difficult to determine how much genuine mead was being sold compared to the pseudo-mead.

There is a powerful racket ( lobby) behind apples: within two weeks of the new excise tax increase in  January, the Finance Ministry said it would consider  reclassifying cider as a domestic agricultural product, qualifying it for a reduction of the new tax.  No decision was reached, however.

Nebolsin said last week:  “The main reason for raising the excise duty on mead and cider  was haste in the decision by MinFin [Ministry of Finance]. The ministry had noticed the sharp rise in consumption of mead and cider drinks by more than tenfold, and decided to collect more excise revenue from these drinks. The problem is, however, that the statistics of consumption contained not only genuine mead and cider but also drinks that were masked as cider and mead. Nowadays the registered recipe requirements for cider and mead are very precise. They can’t contain any artificial flavourings or [alcohol] additives like gin or rum.”

“MinFin knew about these producers, so the secondary aim in raising the excise duty was to reduce the volume of this improper production. Now the situation in this sector is as follows:  these producers have found a loophole in the law and they mark their cocktail production as ‘beer-based drinks’ containing less than 7% of alcohol. So the excise duty for them is about 7 roubles per litre. Thus, the genuine mead and cider producers have suffered twice over – from the low-price competition by the fake producers and from the new excise duty.”

According to Nebolsin and the mead and cider producers, the resulting excise revenue collection for the first nine months of this year has failed to match the doubling of the excise rate. Instead, the excise revenue has fallen below last year’s level. According to one calculation, at the 9-rouble rate of excise last year, Deka, Medovarus and Suzdal paid Rb153 million in tax on production of 17 million litres. This year, with production likely to be no larger than 5 million litres, at the new 21-rouble rate the excise collection will be Rb105 million. This is 31% less for the federal treasury.

The mead-makers grabbed Putin’s attention in April when he visited Velikhy Novgorod, Deka’s home town.  “I would like to hear what you think about the situation in the economy and your business,” Putin told a meeting of the city’s and regional businessmen and consumer groups. “We will be pleased to take your questions, which you no doubt have, and hear your thoughts with regard to what could be done additionally to improve the situation….It will be my pleasure to listen to what you have to share.” 

Novgorod meeting with the President on April 18, 2017. Source: http://en.kremlin.ru/events/president/news/54327

The Kremlin website does not record the questions asked. Local and agro-industry press reports quote Putin as telling Elena Novikova from Deka who raised the problem of mead and the excise increase, that it was “not very fair”. He promised to do something about it. 

Nebolsin explains what happened next. “He gave an order to MinSelKhoz [Ministry of Agriculture] to clarify the issue. But MinSelKhoz  replied afterwards that at present it is impossible to include mead and cider  on the list of agricultural products allowing excise relief for domestic producers,  because the origin of the raw materials — apples, pears and honey – remains unknown. They could be Russian or Chinese. So resolution of the issue is stuck.”

On May 10, Prime Minister Dmitry Medvedev, who is a keen visitor to apple-growers in Krasnodar and Crimea,  announced a fresh call to the mead and cider producers. They were asked to make new submissions to the government on how they might  qualify for the locally-grown excise benefit. Medvedev gave the mead-makers a deadline of July 1.

The government has announced no decision since then. The Finance Ministry declined last week to say if or when it plans to make an official response to the new submissions.

Stanislav Kurtsenovsky, chief executive of Medovarus (right), has called for excise relief for the entire brewing industry – mead, cider, perry,  and beer. “In terms of pure alcohol, the beer excise tax [including mead and cider] is now more than vodka and wine. The technology of making beer is very cheap,  unlike vodka. But today there is a vodka lobby. What’s needed is to provide additional tax breaks to small and medium breweries, and equalize their chances in the market with the big three foreign beer monsters.” Kurtsenovsky is proposing to reduce excise rates for brewers according to the scale of their production. The mead producers would gain a lower rate because their production is relatively small.

Another of Medovarus’s senior executives, Irina Yakovleva, says the new excise rate discriminates against small business. “Since 2013 the popularity of mead in Russia has grown, but the last increase of excise duty had a negative impact on the further popularization of the drink. The market is still not filled, and many small producers themselves sought out  this niche, when the excise rate was low.  A lot of low-quality products also took advantage, calling their product ‘mead’, and this influenced the popularity of the drink. In December we will have been in this business for 20 years, and from the beginning we aimed to make a quality product according to the traditional Russian recipes.”

“Initially, we focused on the female audience, but then a detailed study of the market revealed that men are also very favourable towards medovukha. The main consumer is on average 35 years old. The younger generation prefers cider and perry. We have written to the regulators that the producers of mead – a Russian national drink – use only domestic raw materials (honey), and it would be logical to support them. Or at least to leave excise duty unchanged. We didn’t receive a response.”

[*] Lead image is the well-known 19th century painting by Victor Vasnetsov, entitled “The Invitation of the Varangians”, showing the Varangian (Viking) Rurik being welcomed to Novgorod by Russian emissaries.


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