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Russia’s ban on Ukrainian alcohol unlikely to trigger price growth

August 14, 2014, 5:30 UTC+3 MOSCOW

The ban in applicable to beverages produced by the Ukrainian companies Obolon, SunInbevUkraine and the Ukrainian Distribution Company

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MOSCOW, August 14, 5:24 /ITAR-TASS/. Russia has suspended imports of alcoholic drinks from Ukraine’s biggest distilleries over violations of Russia’s consumer rights protection laws, Russia’s consumer rights watchdog (Rospotrebnadzor) said in a release on Wednesday.

The ban in applicable to beverages produced by the Ukrainian companies Obolon, SunInbevUkraine (a Ukrainian subsidiary of the beer concern SunInbev) and the Ukrainian Distribution Company (UDC). Experts however say the ban on Ukrainian-made alcohol is unlikely to send alcohol prices rising.

Non-compliance with Russian standards

Obolon beer was found not to comply with Russia’s standards in terms of energy value and organoleptic requirements; SunInbev beer marking was found not to comply with normative requirements, and UDC drinks - with organoleptic requirements and alcohol by volume standards, Rospoterbnadzor said.

Rospotrebnadzor’s ban coincided with the Ukrainian Verkhovna Rada (Parliament) consideration on a bill on sanctions against Russia. The document was postponed till Thursday. The sanction package provides for 26 types of restrictions, including freezing assets, a ban on activities, a ban on state property privatization, a ban on the use of licenses, a ban on financial operations and a complete or partial ban on transit of energy sources.

Ukraine is a biggest exporter of vodkas and beers to Russia, with overall contract sums of hundreds of millions U.S. dollars. In 2013, Ukraine’s alcohol exports to Russia reached 230 million U.S. dollars, of which beers accounted for 52.2 million U.S. dollars and vodkas - 92 milion U.S. dollars. Since the beginning of 2014, Russia has imported 88 miilion U.S. dollar worth of alcoholic drinks from Ukraine. Ukrainian-made vodkas account for 86% of Russia’s vodka imports, according to the official statistics of the Russian Customs Service for the first six months of 2014. In all, Russia imported 1.15 million decalitres of alcohol. Domestic production was 22.6 million decalitres.

The major Ukrainian vodka exporter is the Ukrainian Distribution Company, which is affiliated with Global Spirits. The ban will not adversely impact the company’s business, Ivan Bubnov, marketing director of Global Spirits in Russia, told Itar-Tass. “From 2014, we transferred the production almost all brands sold in Russia to a Russian facility, the Russky Sever distillery in Vologda.” He noted that less than 5% of UDK sales on the Russian market came from Ukraine. In 2013, imports from Ukraine accounted for two thirds of the company’s sales in Russia.

Obolon and SunInbrev Ukraine are major exporters of beer. The former is the owner of the brand of the same name. The latter bottles in Ukraine such global brands as Staropramen, Stella Artois, Bud, Taller, Hoegaarden, Leffe, Lowenbrau, Franziskaner, Spaten, and Beck’s.

No grounds for price growth

According to the Kominfo analytical group, Ukraine accounts for more than 60% of Russian beer imports, and Obolon is the biggest beer exporter to Russia in former Soviet republics. However its exports to Russia are relatively small as compared with domestic production (about 2.5%, according to Nielsen).

SunInbev Ukraine said it had no information about normative acts banning beer exports to Russia. “Marking of Russia-bound products has not changed and complies with Russia’s current laws, which is attested by conformity certificates issued by Rospotrebnadzor and by the absence of claims from regulating authorities and retail networks,” a SunInbev Ukraine representative said, adding that the company had demanded official explanations from Rospotrebnadzor.

“Big companies, which are considered Ukrainian, often bottle their products at Russian facilities. They have production lines here but no information is available how many products they really export,” said Dmitry Dobrov, the chairman of the board of the Union of Alcohol Producers.

Viktor Alexeyev, the director general of the Kristall-Lefortovo trading house, said he was sure the ban on Ukrainian imports would not impact prices. “The absence of several Ukrainian manufacturers cannot impact the market. Vodka has practically no potential for price growth - the market will not cope with high prices,” he said, adding that warehouse reserves of the Ukrainian importers would make it possible to maintain sales for two to three months. “This time may be used to finally localize production in Russia,” he noted.

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