Belarus Wants To Become Home Country For Cognac
By Elena Novozhilova
Belorusskie Novosty
The Belarusian State Food Concern (Belgospischeprom) is going to increase the production of cognac by 2.1 times this year. If it carries on like this, Belarusians will be drinking only local-made cognac in the future.
The production of cognac in Belarus is to grow in 2008 by 63% – up to 170 thousand dels, including Belgospischeprom – 159 thousand dels (2.1 times more than in 2007), said Concern's Deputy Chairperson Larisa Plisko to Interfax. There will also be 65 thousand dels of brandy (+20%) produced in the country, including Belgospischeprom – 57 thousand dels (+18%). “Taking into account the expected import of cognac of 48 thousand dels, the total volume will be 283 thousand dels, which will completely cover the consumption needs in the country for this year,” stated Belgospischeprom Deputy Chairperson. She also added that according to the Ministry of Trade’s estimate the national brandy market has a capacity of 250 thousand dels.
Local cognac is expected to come in 8-12 varieties (8 last year). Larisa Plisko also said that “it will be different cognac in terns of maturity: 3-7 years; and the countries of origin”.
According to President’s Decree No 3, only those companies with the capital share of at least 30% belonging to the state will be entitled to produce cognacs and brandy. These companies are the Brest Liquor Factory Belalko, the Gomel Liquor and Vodka Factory, the Minsk Crystal Factory, The Klimovichy Liquor and Vodka Factory, and the Mozheikovo Factory. The Vitebsk Liquor and Vodka Factory is also going to apply for the license.
The decree that entitled only state-owned companies to produce cognac, and that abolished import quotas for liquor (substituted with a sole importer) was reported as another step in making the liquor market more liberal. If a company wants to obtain the import license, it only has to win the open competition, but Valery Karbalevich, an expert from Strategy Analytical Centre, reckons that it will surely be a state-owned company that will win the competition, and will probably be closely affiliated with the President’s Administration as it is trying to monopolise the most profitable markets.
The expert reckons that this is “an imitation of liberalisation”. Once the sole importer is introduced, said Valery Karbalevich, the import of liquor will be carried out thorough selected institutions. It is just a redistributing of the market shares when things get taken from one business and given over to another. However, the expert made a reservation that we need to wait until the competition is finished – then the new liquor market will be quite transparent.
Anyhow, trying to disguise monopolisation, as liberalisation is very distinctive for foreign investors as they increase their awareness of the Belarusian economic policy. Valery Karbalevich said that something similar happened to wine earlier on. He was ironic about Belarus turning into “the home county for the Silicon Valley, Champaign, cognac, and the best wine”.
Seriously speaking, the state monopoly on liquor is highly profitable. However, any monopoly generates vagueness and corruption. This is why state monopolies are being constantly scrutinised today. Many of them in the US were broken up and replaced with more liberal structures.
In his publications, Norwegian scholar Trigve Ugland said that liquor monopolies in the Scandinavian countries are being criticised as well. He said that the state monopoly on liquor could serve several purposes: it can follow the health care guidelines, it can generate the maximum possible profits, and it can also protect domestic manufacturers.
“The research of monopoly-like systems in the North Europe countries proved the health care problems and social issues to be gradually overpowered by economic interests. When health care and social issues are left behind, the main question is whether we need these systems at all. Therefore their presence can hardly be justifiable on local or international levels. It is largely the question of legitimacy,” he wrote.
Decree No 3 was reasoned by having to “protect the national economic interests”.
In fact, Ugland argues said that liquor monopolies should not resort to discrimination “they should not make any differences between the groups of drinks, or between local and international suppliers”. It is particularly relevant as Belarus is engaged in international trade but the country has a bad habit of abandoning the agreements had it ratified.
“Belarus keeps ratifying some treaties, signing international agreements, but there’s not much happening in reality,” said Valery Karbalevich. “The most vivid example is the agreement that was signed with Russia last year about providing favourable conditions for Russian companies. The agreement has not been fulfilled, and Russia is complaining now.”
“Liquor monopolies were abolished in Finland and Sweden in 1995, and in Norway in 1996 because of extreme pressure from the EU,” said Ugland. “They were hardly justifiable for the interests of the social policy. Now, the Northern states have only a certain part of the old monopolies in retail business. It was easier to obtain a retail monopoly licensee from the EU.”
Belarus, now negotiating about the WTO membership, might face the same requirements, as the Norwegian scholar said that the EU and WTO use similar legislation and practice about state monopolies.