Bisso Atanassov sends us this translation of an article he has just published in Russian in Simple Wine News about the chaotic goings-on in Russia.
The new Spirits Circulation Law (SCL) in Russia keeps on strengthening the ‘power vertical’ in the Russian wine market. As June began, the Federal Customs' Service (FCS) was kind enough to prepare a governmental decree imposing new excise banderols (strip-stamps) on wine bottles, imported with old strip-stamps before 31 mar. Previously the new SCL outlawed between 11 and 18 million litres of imported spirits (according various estimates) worth $200 million so that it had either to be sold or thrown away by 01 jul. The Russian Government signed this new wine decree on 29 jun, just one day before the old strip-stamped wine became illegal.
According to government rumours, only the official importers will be permitted to warehouse the ‘old wines’ (wine with the old, outlawed strip-stamps) and perform the strip-stamping. And as in Russia importers are often the distributors of the wines they import, some of them started gathering the old wines from their clients – restaurants, wine-shops, hotels, supermarkets etc – long before the Government signed the decree. Others didn't, basing their decision on the lack of an official decree. But as no one wants to lose clients they had to start accepting the old wines. And that was hectic! Precious grands crus, kept for years in ideal conditions, were hurriedly loaded in trucks with no a/c and transported through Moscow (and from all over Russia to Moscow) getting a new a "transport shock" and a temperature hit (we had nearly tropical weather here those days). A myriad of problems appeared simultaneously: the importers' warehouses have limits (with newly strip-stamped wine arriving from abroad and wine returned by clients they became overstocked. It was up to the importer to decide the extension of the import period: some took back wine imported only in the last 12 months, some – up to four years ago, while some of the importers were no longer existent so the clients had no one to give the wine back to. And what should they do with an opened bottle of Louis XIII for example? You can neither return it to the importer nor keep it at the bar after 01 jul as it's with the old banderol!
What happens next? The importer has the right to prepare a one-off inventory of the warehoused wine as of 30 jun(!!) and to submit it to Customs & Excise in order to receive new strip-stamps. That means that if some wine from Vladivostok (12 days by train) didn't reach Moscow before that date, the importer should rather bury it than bring it to its warehouse (it would be outlawed as it is not in the inventory roll). Customs & Excise have 60 days according to the law to provide the new strip-stamps (the wine undergoes the same procedures as if it is being imported again). Given the August holidays it will apparently be delivered back to the clients not earlier than the end of September.
Imports? They happen sporadically. Only 10 per cent of the existing 2,500 operators (importers and wholesalers) had installed the new Unified State Automated Information System (USAIS) that permits the importation and sale of wines and spirits (it has an on-line connection with Customs and the Fiscal Ministry). If you haven't got the USAIS, you cannot import!
According to the Federal Customs' Service after the borders were ‘opened’ in May (due to lack of new excise banderols and outlawing imports of wine strip-stamped before 01 jan there was a four-month period with no imports) and up t 23 jun about two million units of spirits were imported (12.5% of that came from my company Simple Wine Co that first started new imports). New excise banderols are available. But no one wants them. Because the importers' warehouses are overloaded with old wines, imported before the law enforcement or returned by clients for re-strip-stamping.
According to government rumours, only the official importers will be permitted to warehouse the ‘old wines’ (wine with the old, outlawed strip-stamps) and perform the strip-stamping. And as in Russia importers are often the distributors of the wines they import, some of them started gathering the old wines from their clients – restaurants, wine-shops, hotels, supermarkets etc – long before the Government signed the decree. Others didn't, basing their decision on the lack of an official decree. But as no one wants to lose clients they had to start accepting the old wines. And that was hectic! Precious grands crus, kept for years in ideal conditions, were hurriedly loaded in trucks with no a/c and transported through Moscow (and from all over Russia to Moscow) getting a new a "transport shock" and a temperature hit (we had nearly tropical weather here those days). A myriad of problems appeared simultaneously: the importers' warehouses have limits (with newly strip-stamped wine arriving from abroad and wine returned by clients they became overstocked. It was up to the importer to decide the extension of the import period: some took back wine imported only in the last 12 months, some – up to four years ago, while some of the importers were no longer existent so the clients had no one to give the wine back to. And what should they do with an opened bottle of Louis XIII for example? You can neither return it to the importer nor keep it at the bar after 01 jul as it's with the old banderol!
What happens next? The importer has the right to prepare a one-off inventory of the warehoused wine as of 30 jun(!!) and to submit it to Customs & Excise in order to receive new strip-stamps. That means that if some wine from Vladivostok (12 days by train) didn't reach Moscow before that date, the importer should rather bury it than bring it to its warehouse (it would be outlawed as it is not in the inventory roll). Customs & Excise have 60 days according to the law to provide the new strip-stamps (the wine undergoes the same procedures as if it is being imported again). Given the August holidays it will apparently be delivered back to the clients not earlier than the end of September.
Imports? They happen sporadically. Only 10 per cent of the existing 2,500 operators (importers and wholesalers) had installed the new Unified State Automated Information System (USAIS) that permits the importation and sale of wines and spirits (it has an on-line connection with Customs and the Fiscal Ministry). If you haven't got the USAIS, you cannot import!
According to the Federal Customs' Service after the borders were ‘opened’ in May (due to lack of new excise banderols and outlawing imports of wine strip-stamped before 01 jan there was a four-month period with no imports) and up t 23 jun about two million units of spirits were imported (12.5% of that came from my company Simple Wine Co that first started new imports). New excise banderols are available. But no one wants them. Because the importers' warehouses are overloaded with old wines, imported before the law enforcement or returned by clients for re-strip-stamping.
What happens to the market? You go to a wine-shop or a supermarket and see empty shelves! The wine-buyers have just come out of the old wine return piqued and haven't thought of buying new wines. On the other hand the importers that have new wine are not represented in the supermarkets’ ‘matrix’ (and you have to pay an entry fee – and not a small one! – to be in these large retailers, as in every country). So a collision happens: the wine-buyer desperately wants to fill the empty shelves but wants to get the entry fee too; the importer can sell the wine but due to a sharp drop in cash flow even the most stable companies have no free resources for entry fees. Instead of satisfying the growing demand (people are already panicking, given the ban ofnGeorgian and Moldavian wines earlier this year and seeing completely empty shelves now) and making some money on selling wine, the supermarkets stubbornly wait for entry fees for new wines.
The restaurants? The sommeliers regularly receive information that the wines they have in the wine list have arrived at the importer’s warehouse. But as they try to figure out how much they shall buy in that situation the wine is gone to other – faster – clients. If you plan to reserve a table at a Moscow restaurant right now you have to notify the sommelier if you'd like to have some wine with your dinner and which one. And then you pray to God that he finds it before you arrive.
So why has all this happened? The Government wants to put the ‘grey’ operators [parallel importers] and spirits producers out of the market. So it ‘invented’ one law for everyone: no matter if you distil vodka or import Ch Margaux or the perfumes of Lancome! All in one! In order to increase the excise payments to the Federal Budget as some of the Southern republics were not very willing to pay them with the old law. And why imports then? Here you have 100% excise payment as you can't take the wine out of Customs without paying it for every single imported bottle! You can't gather 200% excise payments, can you? The only alcohol beverage that was exempted from the law was … beer! Beer has a stronger (i.e. much richer) lobby. And so it proved not to be alcohol at all.
Speaking of lobbies. Just before the ‘judgement day’ 01 jul the ex-director of the Federal Customs' Service, now Mr Senator Valery Draganov, appeared on tv irritably declaring the following: "the new Spirits Circulation Law was adopted in June 2005 and everyone had enough time to prepare for the new conditions. And if the Government did not issue the needed Decrees in order to enforce the law in time, this is a problem of the business guys that are not able to lobby their interest on a government level." Smells of corruption, huh? To be correct, the law was adopted in its final version only on 31 dec (imagine that!). The design of the new excise banderols was approved only in the end of January. The first ones to get them in February were the local distilleries and wine producers. The importers got the first strip-stamps only in May. Actually they could get them in March as they were ready, but the Federal programmers had not yet finished the USAIS at that time! Besides one has to pay about 35 000 euros to install it! And – the funniest part – the importer has to obtain himself a Federal certificate for the programme (developed by Federal programmers)!
Diagnosis? The patient – the wine market – is in coma. Many importers and wholesalers are on the brim of bankruptcy. The sommeliers face unemployment. The wine lovers drink mineral water and Valium. The expected price rise after the law enforcement is between 3% and 10% (some mention even up to 20%). And naturally the wine lovers are those that will pay for this. Is it curable? We'll see in two months who of the market operators stays alive and who doesn't.
The restaurants? The sommeliers regularly receive information that the wines they have in the wine list have arrived at the importer’s warehouse. But as they try to figure out how much they shall buy in that situation the wine is gone to other – faster – clients. If you plan to reserve a table at a Moscow restaurant right now you have to notify the sommelier if you'd like to have some wine with your dinner and which one. And then you pray to God that he finds it before you arrive.
So why has all this happened? The Government wants to put the ‘grey’ operators [parallel importers] and spirits producers out of the market. So it ‘invented’ one law for everyone: no matter if you distil vodka or import Ch Margaux or the perfumes of Lancome! All in one! In order to increase the excise payments to the Federal Budget as some of the Southern republics were not very willing to pay them with the old law. And why imports then? Here you have 100% excise payment as you can't take the wine out of Customs without paying it for every single imported bottle! You can't gather 200% excise payments, can you? The only alcohol beverage that was exempted from the law was … beer! Beer has a stronger (i.e. much richer) lobby. And so it proved not to be alcohol at all.
Speaking of lobbies. Just before the ‘judgement day’ 01 jul the ex-director of the Federal Customs' Service, now Mr Senator Valery Draganov, appeared on tv irritably declaring the following: "the new Spirits Circulation Law was adopted in June 2005 and everyone had enough time to prepare for the new conditions. And if the Government did not issue the needed Decrees in order to enforce the law in time, this is a problem of the business guys that are not able to lobby their interest on a government level." Smells of corruption, huh? To be correct, the law was adopted in its final version only on 31 dec (imagine that!). The design of the new excise banderols was approved only in the end of January. The first ones to get them in February were the local distilleries and wine producers. The importers got the first strip-stamps only in May. Actually they could get them in March as they were ready, but the Federal programmers had not yet finished the USAIS at that time! Besides one has to pay about 35 000 euros to install it! And – the funniest part – the importer has to obtain himself a Federal certificate for the programme (developed by Federal programmers)!
Diagnosis? The patient – the wine market – is in coma. Many importers and wholesalers are on the brim of bankruptcy. The sommeliers face unemployment. The wine lovers drink mineral water and Valium. The expected price rise after the law enforcement is between 3% and 10% (some mention even up to 20%). And naturally the wine lovers are those that will pay for this. Is it curable? We'll see in two months who of the market operators stays alive and who doesn't.