Azerbaijan bolsters control over wine, spirits industry For domestic market security and export surge

Having overcome the pandemic crisis and subsequent economic downturn, the domestic wine industry is dynamically increasing production and exports.

At the same time, within the framework of fiscal reforms in recent years, Azerbaijan has consistently taken steps to ensure transparency of control in the sphere of production and import of alcoholic beverages, suppression of shadow turnover here, increased excise rates on alcohol, strengthened control over fees in this sphere.

The logical continuation of this policy will be amendments to the law "On Food Security", according to which the permit system in the field of import and production of alcoholic beverages will be optimized in the country, control over the quality of these products will be strengthened. These and other changes were recently considered at a meeting of the Milli Majlis (parliament) Committee on Agrarian Policy.

Currently, the total area of vineyards in Azerbaijan is about 17,000 hectares, of which slightly less than two-thirds are table grapes, the rest are technical varieties. According to the State Program for the Development of Viticulture in Azerbaijan for 2018-2025, which is already in its seventh year, a number of measures were envisaged to accelerate the establishment of new plantations, thanks to which their total area was planned to reach more than 23,000 hectares, and the annual harvest was to be increased to 250-300,000 tons. The state program envisaged a one-third increase in grape production by 2025, and it was expected that by increasing processing capacity, exports of wine products would increase fivefold.

Unfortunately, the pandemic crisis and the subsequent economic downturn turned out to be a reduction in domestic demand and exports to the Commonwealth of Independent States (CIS) and neighbouring countries, making negative adjustments to the plans for the implementation of the State Program.

Although the forecasted parameters of production and processing have not been achieved yet, in recent years the efforts of the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) have been directed to the establishment of Azerbaijani wine houses in the CIS countries, Poland, Latvia and China. Active promotion of domestic winemaking at international exhibitions, during trade missions, advertising in network trade allowed to diversify the export geography, bringing products to new markets in Asia-Pacific, Middle East, Eastern Europe, etc.

At the same time, the geopolitical conflicts of the last two years and the sanctions confrontation between the collective West and Russia sharply reduced the supply of European wine and other alcoholic beverages to the Russian market. Under the circumstances, Azerbaijan's wineries were able to increase exports to Russia, filling the vacated niches in the market: in particular, exports of Azerbaijani alcohol increased 3.3 times in monetary terms in 2022.

The trend of increasing external supplies of alcoholic beverages continued in 2023: according to the State Customs Committee of the Republic of Azerbaijan, in the first 10 months of last year, total cumulative exports of alcohol and beverages increased by 2.9 times.

The improved export performance played the role of a driver for the development of the domestic alcoholic beverage industry. In particular, last year vodka production rose to 1.41 million decaliters with an annual growth of 13.4%, beer production increased by 12.4% to 5.26 million decaliters. But the greatest dynamics was achieved in the wine sector: the production of grape wine in 2023 increased by 34.9% to 1.27 million decaliters, and cognac and whiskey - more than three times to 310,460 decaliters.

In turn, according to the Scientific Research Institute of Viticulture and Winemaking under the Ministry of Agriculture of the Republic of Azerbaijan, the expansion of vineyards continued in the country, and in 2023 the area of plantations increased by 7.1%, as well as last year 224,500 tons of grapes were harvested, which is 5.6% more than a year earlier. Thus, today there is a trend in Azerbaijan to increase the production of raw materials and expand the capacity for its processing. Among other things, promising projects for the expansion of vine plantations and construction of processing enterprises in Karabakh and East Zangezur economic regions are being worked out today.

Along with the development of the industry, Azerbaijan is implementing a set of measures to optimize rules and regulations in the country's alcohol market, ensure transparency here, and improve the quality characteristics of the products produced.

Thus, starting from 2019, within the framework of tax reforms in Azerbaijan, many amendments and additions were made to the Tax Code (TC), contributing to the growth of voluntariness in the payment of taxes, including in the wine industry. Mechanisms were launched to bring to "light" the capital that had been in "shadow" circulation for many years, and the activities of underground producers of alcoholic beverages were suppressed.

The fiscal authorities strengthened control over the production and turnover of excisable alcoholic beverages in retail trade and catering facilities, including minimizing unrecorded production at wineries and in the sphere of alcohol imports.

Along with ensuring transparency in production and trade turnover, starting from 2020, the country has consistently increased excise rates on alcohol and tobacco products: these measures, as in all countries of the world, allow replenishing budget revenues, using excise instruments to finance important social tasks.

It is noteworthy that in February last year, new steps were taken to optimize the process of regulation of the alcohol and tobacco markets of the republic. By the order of Azerbaijani President Ilham Aliyev "On strengthening state control in the sphere of import and production of tobacco products and alcoholic beverages", the country is to apply a permit system for the production and import of alcoholic and tobacco products, these industries will be oriented mainly to the use of local raw materials.

The document also provided for tougher measures against violators of the legislation (importation of contraband and counterfeit products), as well as further increase of excise rates. In particular, from January 1 of this year, the excise rate per liter of drinking alcohol, vodka, fortified drinks and fortified materials for liqueurs and liquor products, cognac and cognac materials was increased from AZN 4.0 ($2.35) to AZN 4.8 ($2.82).

In order to implement the order of the head of state, amendments to the law "On Food Security" were recently considered during a meeting of the parliamentary committee on agrarian policy. According to the amendments, objects and subjects of the food industry for registration as a producer or importer of alcoholic beverages must obtain special permits in accordance with the law "On licenses and permits". One of the conditions for registration as an importer and producer of alcoholic beverages is the absence of overdue obligations for taxes and other mandatory payments.

In addition, the listed entities should not be among risky taxpayers. According to the amendments, all vodka production enterprises will be equipped with control and measuring devices to assess the volume of production, which will help to prevent unrecorded turnover, thus allowing to determine the real scale of production and the corresponding volume of tax payments.

In the draft law, the minimum annual production volume of vodka should be at least 100,000 decaliters, but the transition period provides for a gradual increase in the annual minimum production volume until January 1, 2032. Thus, the minimum annual production volume for 2024-2025 is set at 20,000 decaliters and will be gradually increased thereafter.

In turn, within the framework of legislative changes, the efforts of the Food Security Agency of Azerbaijan (FSA) will be aimed at strengthening control over compliance with the quality characteristics of alcoholic beverages, in line with the requirements of the Law on Food Safety. It is also planned to strengthen control in the sphere of production and import of alcoholic beverages, to suppress penetration of blatant falsified and low-quality products into the local market.

"FSA will conduct appropriate inspections at all enterprises producing alcoholic beverages, based on the results of these inspections will be re-registered. If the requirements are not met, the activities of the offending enterprises that do not comply with sanitary norms and rules will be suspended," the agency's chairman Goshgar Tahmazli said recently.