Citing high prices for organically grown grain, Estonian Spirit OÜ, the only functioning Estonian alcoholic spirits producer, is set to cut output by as much as half and lay off employees at its Rakvere distillery. The move comes in the wake of a greatly reduced grain harvest in 2018 due to the long, hot and dry summer, and the raising of alcohol excise duties in recent years by the coalition government, as well as a fall in the number of Finnish tourists visiting Estonia.
Whilst there are several brands of vodka made in Estonia including, Viru Valge and Saaremaa, these generally use imported ethanol or other ingredients. Estonian Spirit OÜ is the sole actual producer of organic spirit in Estonia and in October 2017 satisfied a European Commission application together with Remedia AS to register Estonian Vodka as a protected geographical indication. This indication, effectively the trademark for Estonian vodka, is applied to vodka in the production of which ethyl alcohol made only from organic raw materials grown in Estonia as well as Estonian water are used.
"We haven't extended a couple of major contracts with the old prices for spirit and presumably our output will drop by approximately 30-50%,'' Sven Ivanov, manager of Estonian Spirit and the producer of strong alcoholic beverages, Moe Peenviinavabrik, told the Baltic News Service.
''We have decided to invest in automatisation on the fermentation side to reduce labour and resource costs. In addition we are reorganising production, which will result in a reduction in employee numbers. We have had to make quite a lot of people redundant already," he went on.
Surviving a difficult year
Mr. Ivanov said that in the forthcoming season, through the autumn, Estonian Spirit will have to cancel the 800,000 litres of organically produced spirit slated for sale to the Swiss alcohol monopoly Alcosuisse.
The company is also reportedly retaining its stocks of Moe Peenviinavabrik, and in the worst case scenario these stocks must suffice until the 2019 harvest.
"There simply isn't enough organically grown grain, and what we can get is too expensive for us," Ivanov said. He added that even as the price of spirit rose 30% last year, this was of no help as the price of grain has also increased proportionately, by approximately 25-30% and, at €300-350 per tonne, remains completely beyond their reach. In addition, wood chips and electricity, important inputs for the Rakvere plant, have all become more expensive.
Molasses not a good subsitute for making spirits
Mr. Ivanov said that the price of spirit is kept low in Europe by spirit produced from molasses, a by-product of the sugar industry, which doesn't make for good vodka, he said.
"But the lower end producers will have to go for a compromise," he said.
"The price rise has been made for us by the government with its short-sighted excise policy. In any case, production volumes in Estonia have decreased by about 30%, so our rate of loss is the same as in retail on average," he added.
"Moe, for instance, has lost 50% in sales volumes compared with last year. Cross-border trade has given back 25% of that. Fortunately, export has grown and volumes continue to display an upward trend. In 2018 we expect to sell about 40 percent more than in 2017, both in volume and money terms," Mr. Ivanov went on.
Estonian Spirit OU has yet to file its accounts for 2017. The company finished 2016 with a net loss of €1.3 million on sales of €2.4 million.
Owners of the company are Urmas Nimmerfeldt, Sven Ivanov, Toomas Mets and Triin Lastik, former owners of the Sylvester forestry group.
The company made 34 people redundant in the second quarter of this year.
Major alcohol producers such as Saku and A. le Coq have all reported substantially reduced sales in 2018, whereas Latvian border towns such as Valka have seen a boom as both Estonians and Finns have travelled there to take advantage of the cheaper alcohol prices. According to some surveys, a majority of Estonians support a reduction in alcohol excise duties.
The coalition government have backed down on the issue to a certain extent, deciding in February to halve the 2018 excise duty hike that went into effect at the beginning of the month, and is considering cancelling hikes of 10-20% for 2019 and 2020.
The depleted harvest of 2018 has caused controversy too, principally as to whether farmers would be compensated by the state, or simply be able to take loans at a more favourable rate.
Editor: Andrew Whyte