Turkey Food and Drink Report Q2 2008

The Turkish alcoholics drinks industry is currently undergoing a period of significant change and upheaval, as discussed in BMI's recently published Turkey Food & Drink Report for Q208. Unlike many of its Muslim neighbours, Turkey has a thriving alcoholic drinks industry. For years the country's staunchly secular political system had kept religion at bay and fostered a tolerant attitude towards alcohol.

However, since the ruling Justice and Development Party (AK), which has its roots in political Islam, came to power, many wine producers have claimed that their industry is coming under increasing attack.

In the years following AK's 2002 rise to power, taxes on all forms of alcoholic drinks skyrocketed. Tax on wine rose by a massive 400%, which now comes to EUR1.87 per litre, nearly four times the EU average of EUR0.48 per litre. Meanwhile, tax on beer rose by 50% and tax on raki by 26%. This has resulted in a thriving black market industry for illegally produced beverages, which often contain dangerously high levels of alcohol.

This has had a major negative impact on alcoholic drinks sales, with many producers complaining that, with more municipalities run by AKP and their increasingly tight grip on the state structure, it is getting even harder to sell their products domestically. In February 2008, the Turkish government had proposed a cut in tax on wine production, following a series of reports from the wine industry saying that local producers are giving up the industry due to a lack of profitability. According to local media reports, the Finance Minister has sent a proposal to the Cabinet recommending a tax cut from the current YTL3 per litre, down to YTL1.74 per litre. Given the current depressed state of the local wine industry, with many in the industry saying that sales have dropped by as much as 50% due to the increased taxation, such a cut is vital in order to avoid a major drop in production volume.

Meanwhile, in January the newly founded Traditional Alcoholic Drink Producers' Association (GISDER) was arguing that harmonizing with the EU for the taxation of distilled drinks would harm the Turkish raki industry. Instead, GISDER is lobbying for raki to receive the status of a national drink exempt from the harmonized tax on distilled alcoholic drinks, similar to what has been granted to ouzo from Greece.

GISDER has argued that raki is not just any drink, but an important part of Turkish social culture, which is a key point behind the argument for such special exemptions. If the tax increase was to go through, the average price for a bottle of raki, which currently stands at around TRY25 (US$20.9), would double in cost. Despite all of these obstacles, the Turkish alcoholic drinks sector still shows major potential for growth, thanks to a young and growing population, a rise in the number of on-trade outlets selling a variety of alcoholic drinks, increasing incomes and a thriving tourism industry. However, until these issues of tax reform are resolved, this will continue to hold back growth from its full potential.