Spirits Dip in Russia as Vodka Distillery Shuts Down for 2 Weeks

Squeezed by high taxes and cheap imports, Russia’s biggest vodka distillery shut down for two weeks and sent 900 workers on unpaid vacation Monday, adding to the country’s recession and choking one of its main sources of revenue.

Officials at the Kristall distillery here said they hope that the temporary closure, the first in its 99-year history not caused by war, will persuade the government to cancel a liquor tax increase. They said the new tax is counterproductive, pricing Russian vodka out of its native market.

Reportedly invented by Russian monks in the 15th Century, vodka is Russia’s leading source of drunkenness and a symbol of its chronic inefficiency and despair. With its production under state control since czarist times, vodka is also the source of about 10% of government income.

That means the stakes in this latest of Russian economic crises are especially high for Prime Minister Viktor S. Chernomyrdin, whose government is under pressure to provide subsidies to boost heavy industry out of a long recession while raising taxes to pay for them.

The near-collapse of the vodka industry in recent weeks indicates how hard it will be for the government to do both. Industry sources predict a $640-million shortfall in anticipated vodka tax revenue, from Kristall and other crippled distilleries, for the first quarter of this year.

Until Dec. 27, the state took 85% of the vodka industry’s profits in taxes, leaving the rest to distillers to maintain aging equipment. That day the tax rose to 90%, cutting the distillers’ cut by a third and creating an industrywide crisis.

“We lost millions in profits during the New Year’s holiday,” Kristall’s general director, Vladimir Yamnikov, complained in an interview with the newspaper Moskovskaya Pravda. “We were saving the government’s good name, as we knew that a sharp increase of prices for alcohol at that time would have provoked a social explosion.”

By mid-January, government support was not forthcoming, so Kristall and other distilleries raised prices by the 40% they said was necessary to offset lost profits. But that priced them out of the domestic market, so they cut production to fulfill export contracts.

One of Kristall’s popular brands, Stolichnaya, sells for 3,500 rubles for a half-liter bottle, or $2.20, up from 2,800 rubles before New Year’s Day.

But in Moscow, which consumes 1 million bottles of vodka daily, Stolichnaya is hard to find. The liquor sections of kiosks are dominated by Finnish, German, Czech, Polish, Ukrainian and Belarussian vodka, which are cheaper than local brands despite Russian import duties of 150%. Some of the imported vodka is smuggled in to avoid the tax.

“Of course Russian vodka is the best,” said a Moscow pedestrian who staggered out of the Tsvetnoi Boulevard subway station. “But if I want to get drunk, I’ll drink anything, even after-shave.”

Russian vodka brewed by unregistered distillers in their apartments is also turning up more often in stores, retailers said.

Distilleries in Tula, St. Petersburg, Kaluga and Irkutsk had shut down temporarily before Kristall did so Monday.

Andrei Ostroukh of The Times’ Moscow Bureau contributed to this report.