Witold Włodarczyk: Vodka could be our export hit

“We have the potential for vodka, spirits and liquors to become export hits. However, this will not happen on its own. State support is needed,” says Witold Włodarczyk, president of the Association of Employers Polish Spirits Industry.

Publikacja: 06.09.2022 03:00

Witold Włodarczyk: Vodka could be our export hit

Foto: materiały prasowe

Our neighbour is at war and we have to cope with economic and food crisis, and inflation. How is the spirits industry doing?

Similarly to the entire agri-food sector, our industry is currently going through a very difficult period. What is hitting us the hardest is the galloping increase in the prices of raw materials for production, primarily grains and energy. These two elements, in addition to wages, are the main cost drivers in the spirits industry. Furthermore, we cannot forget about the serious problem with glass packaging, either, which has become more expensive and difficult to access after the closure of supply channels from Russia and Ukraine. Thus, we almost have a complete picture of an extremely difficult situation. Why almost complete? Because, in addition, since January of this year, the government has levied a 10% increase in excise tax on spirits and its rolling increase is budgeted for the next five years. All these difficulties mean that currently we can forget about the profitability that provides the industry with solid investment-based growth. We should rather think about what to do to prevent a situation in which the entire Polish spirits industry shares the fate of Polish agricultural distilleries, which, due to misguided government policies, have shrunk from more than 1,000 back in the 1990s to less than 50 today. However, while the collapse of distilleries may have escaped the attention of those in power, the collapse of the spirits industry contributing several billion zlotys to the budget each year, including more than 9 billion zlotys from excise tax, will not go unnoticed. 

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Witold Włodarczyk: Wódka może być hitem eksportu

What are the solutions? 

By and large, the market for spirits in Poland is saturated. We are selling less and less, although by value the market is growing by a few percent each year, mainly due to inflation and excise tax increases. There is no chance to increase revenues through volume growth on a minimum margin basis. However, we should use the opportunity to develop the industry through export. We have great potential, but in order to significantly increase it, rapid systemic changes are necessary. Only those companies that are economically strong at home, and thus competitive in foreign markets, can count on export success. Nevertheless, it is essential to ensure that entrepreneurs producing vodka, liquors and spirits have an equal start with other producers of alcoholic beverages. It is not right that one gram of the same ethyl alcohol in these products is charged three times as much excise tax as in beer. We expect to pay for a half-litre 40% alcohol bottle of vodka eight times the excise tax paid for beer with 5 percent alcohol content. This is fair, logical, and in accordance with the act on upbringing in sobriety. It doesn’t take much to make that happen. It would be enough for the beer industry, like the spirits industry, to have excise taxes calculated based on alcohol content as is the case in most European Union countries. Today, when the beer industry charges excise taxes based on the plato gravity scale (which, de facto, is a “quality tax,” i.e. the higher the extract content, the higher the tax), this difference is not eight times, but more than twenty times. This not only creates tax discrimination against our industry, but also an “excise loophole.” Econometric models show that in the current situation, the Polish budget loses several billion zlotys annually on excise and VAT from the beer industry. In addition, craft breweries producing high-quality products would benefit from the change, and three foreign corporations holding 84% of the Polish beer market would switch from producing strong beers to beers with much lower alcohol content. Everyone would benefit. 

What impact has the sugar act, including the tax on the quarter of a litre bottles, had on the liquor market? 

This law “miraculously” bypassed alcoholic beers, which account for more than 90% of the beer market in Poland and more than 50% of the liquor market in terms of pure alcohol. By subjecting small bottles to the sugar act levy, they ceased to be any competition for cheap beers – today, the 100 g bottle of vodka costs approx. EUR 1.7 (PLN 8), for which you can easily buy three beers with similar alcohol content to the small bottle. More recently, studies have proven that alcoholic beers are also price competitive with carbonated soft drinks covered by this law. The 10% excise tax hike for the entire alcohol industry that started in January 2022 has also benefited breweries. The difference in taxation per gram of alcohol between the spirits and beer industries has widened considerably. In the case of breweries, it was an average increase of ... EUR 0.013 (PLN 0.06); in case of our industry – by a few zlotys. In both cases, there is only one winner – the beer industry. 

Are strong spirits an attractive export product? 

Absolutely yes! In Scotland, whisky is a flagship export hit, accounting for 80% of Scotland’s agri-food exports, with an annual export value of EUR 5.7 billion, when Poland’s vodka exports are only less than EUR 150 million. In Ireland, on the other hand, 89% of whiskey is sent for export; in France, as much as 98% of cognac goes out into the world (in Poland, it’s less than 20% of vodka production). The potential, therefore, is huge for Poland’s world-renowned vodka and other traditional spirits and liqueurs to become our export hits. However, this will not happen on its own. We need the state’s support in promotion, assisting – especially small producers – in their first steps abroad, subsidising participation in fairs or helping them establish business contacts. 

How do you want to take care of the image and promotion of craft spirits producers? 

I would like to organise tourist routes along the trail of Polish distilleries. This summer, I went around all the Association of Employers Polish Spirits Industry member companies that have this potential. My “dream itinerary” is to travel from the Warszawa Chopin airport to the Museum of Polish Vodka in Warszawa to learn about the history of the Polish spirits industry. Also in Warszawa, the Warsaw Rising Museum is absolutely worth a visit. Further along the route, we have a liqueur manufacturer, and after visiting him, one can’t help but visit nearby Żelazowa Wola, where Frederic Chopin was born. Our next stop is at a craft potato vodka producer in Toruń. When speaking about Toruń, then we’ve got Toruń gingerbread, but above all, Nicolaus Copernicus and the Planetarium. Then, there is Pomerania, where we have a producer of eaux-de-vie, and in nearby Gdańsk, the cradle of Solidarity. People would return from such trips with richer knowledge of Poland, our traditional spirits, and perhaps remind foreign tourists that Copernicus or Chopin were Poles. Of course, there may be more routes. Such driving of visitors would also bring activation of rural regions, agro-tourism, regional museums, and sales of organic products would increase. This is where e-commerce can help, so that guests don’t have to buy alcohol on the spot and take it on the plane, but can buy it online with home delivery. As the only country in the EU, Poland’s inability to safely sell alcohol online significantly weakens the competitiveness of our producers. More than 2 million tourists take part in whisky trail tourism in Scotland each year, nearly 2 million in France on cognac trails, and 1.2 million in Ireland on whiskey trails. Gin routes are popular in England, and in Poland, we would promote our local products – vodkas, liqueurs, spirits, eaux-de-vie, and other alcoholic beverages. We want the first such a trail to start in spring 2023.

Prepared in cooperation with the Association of Employers Polish Spirits Industry

Foto: rp.pl

Our neighbour is at war and we have to cope with economic and food crisis, and inflation. How is the spirits industry doing?

Similarly to the entire agri-food sector, our industry is currently going through a very difficult period. What is hitting us the hardest is the galloping increase in the prices of raw materials for production, primarily grains and energy. These two elements, in addition to wages, are the main cost drivers in the spirits industry. Furthermore, we cannot forget about the serious problem with glass packaging, either, which has become more expensive and difficult to access after the closure of supply channels from Russia and Ukraine. Thus, we almost have a complete picture of an extremely difficult situation. Why almost complete? Because, in addition, since January of this year, the government has levied a 10% increase in excise tax on spirits and its rolling increase is budgeted for the next five years. All these difficulties mean that currently we can forget about the profitability that provides the industry with solid investment-based growth. We should rather think about what to do to prevent a situation in which the entire Polish spirits industry shares the fate of Polish agricultural distilleries, which, due to misguided government policies, have shrunk from more than 1,000 back in the 1990s to less than 50 today. However, while the collapse of distilleries may have escaped the attention of those in power, the collapse of the spirits industry contributing several billion zlotys to the budget each year, including more than 9 billion zlotys from excise tax, will not go unnoticed. 

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