Vodkanomics in Mother Russia

Russia is enacting another minimum price for vodka.  It’s not the first time and almost certainly won’t be the last.  The stated aim is to curtail rampant alcoholism.  Apparently 36000 people die every year from alcohol poisoning alone, let alone the other related deaths caused from liquor.  That’s 100 people a day. 

For a country with a population around 2.8 times that of South Africa, pure alcohol poisoning deaths are almost as bad in real terms in Russia as South Africa’s murder rate.  That’s pretty bad. 

Alcoholism also causes a number of other undesirable social problems in Russia and takes it toll most on Russian men.  A study in a British medical journal showed recently that, since the fall of communism, roughly half of all unnatural deaths of adult males in Russia were caused by or related to alcohol.  The comparable figure in other nations is about 3%. 

So our red friends in that great icy expanse north of the Caucuses are certainly faced with a problem.  Alas, price controls will not fix it. 

In fact, previous price controls have already led to a proliferation in underground black market vodkas.  The minimum price pushes the price above market clearing levels for many cheap types of vodka.  A higher disequilibrium price means supply would start to outstrip demand.  Without a legal mechanism for these prices to fall again to clear the market of its unsold vodka, illegal cheaper sales are bound to follow to rid the market of the glut. 

Either that, or unsold vodka will sit on the shelves selling slowly until all the stock is eventually cleared.  Companies either face a strong possibility of liquidation, or they’ll sell their product under the radar.  Easy choice for Russian vodkapreneurs. 

Price controls never work.  Russian alci’s will get their fix regardless.  The more hooked and poorer bunch will look to the black market, the less desperate and more affluent will simply pay more, diverting income away from other goods and services. 

I once heard that Nielsen sales data from Russia shows that vodka is the single biggest selling fast moving consumer good (FMCG) on supermarket shelves.  Along with the overall toxic state of its national demographics, Russia is literally drinking itself to death. 

Regulating higher prices isn’t the solution.