Countries across the globe grapple with alcohol being produced and sold illegally outside of government regulations leading to untaxed or unrecorded purchases, inconsistent quality, loss of revenue and potentially fatal health consequences.
What drives unregulated, unrecorded and illicit alcohol?
The 2018 report, Alcohol in the Shadow Economy, by the International Alliance for Responsible Drinking, states that unregulated alcohol is more widespread in lower income countries than in more affluent ones. The reasons for this being:
- Affordability – Consumers around the world who purchase illicit alcohol identify its greater affordability and lower relative price among their main considerations. As these beverages are untaxed and outside of regulated production that can increase cost, there is often a significant price difference between illicit and legitimate products, driving demand.
- Availability – Disproportionate regulation of the availability of legal and branded products, such as severe restrictions around licensing hours or on outlets, also drives the consumption of illicit alcohol. For example, in Vietnam, approximately 70% of people who drank homemade alcohol said it was easier to purchase than branded commercial products
- Culture – The production, retailing, and consumption of unregulated and unrecorded alcohol are also strongly driven by culture and tradition in most societies that consume alcohol where artisanal and home-produced drinks can be found in many countries, thus increasing the risk.
Impact of counterfeiting in the Spirits and Wine Sectors
In 2016, the European Union Intellectual Property Office (EUIPO) published a report on The Economic Cost of Intellectual Property Rights Infringement in Spirits and Wines.
Among its findings, it concludes that:
- 3% of sales lost by the sector due to counterfeiting (4.4% of spirit sales and 2.3% of wine sales)
- €1.3 billion of revenue lost annually by the sector
- €1.7 billion of sales lost in related sectors
- 4,800 direct jobs lost
- 23,300 direct and indirect jobs lost in the EU economy of which 8,600 jobs are lost in agriculture and 6,100 jobs are lost in the food industry.
- €1.2 billion of government revenue are lost (taxes, social contributions and excise duties)
European countries that were majorly affected were:
- Spain: An estimated €263 million is lost in the Spanish wine and spirits manufacturing sector annually as a result of counterfeiting, with the Spanish exchequer losing €90 million each year in lost excise duties.
- France: The French spirits and wine manufacturing sectors lose an estimated €136 million in sales each year due to counterfeiting. €100 million is lost each year in excise duties in France due to the presence of counterfeit wines and spirits in the market.
- Italy: Together, the spirits and wine manufacture sectors lose €162 million annually in Italy – 2.7% of the total market. A further €18 million is lost each year in excise duties.
- Germany: Counterfeit spirits and wines cost the German manufacturing sector an estimated €140 million each year. A further €65 million is lost each year in excise duties.
- United Kingdom: Total lost sales in the wine and spirit manufacturing sectors are estimated as €87 million each year (€25 million for spirits and €62 million for wine). The UK loses an estimated €197 million each year in excise duties due to counterfeit wines and spirits.
Wines and spirits sold outside of governmental regulation are not only untaxed but also do not meet quality and health regulations which can be dangerous, if not, deadly for consumers.
- In India, at least 154 people were reported to have died in 2019 while more than 200 others were hospitalised after drinking unregulated moonshine, known locally as “country-made liquor”.
- In Indonesia, 300 people were reported to have died from the consumption of unlicensed liquor between 2008 and 2013. While between 2014 and 2018, the figure reached 500.
- In Iran, around 460 people were reported hospitalised and 42 people died after drinking contaminated bootleg alcohol in 2018. Of those hospitalised, 16 had gone blind and 170 needed to undergo dialysis.
Say ‘cheers!’ without fear
Counterfeiters often imitate legitimate and branded distilled spirits, particularly targeting emerging markets with fraudulent versions of premium global products. The alcohol industry recognises this issue and has been embracing a range of anti-counterfeiting measures. As reported in the Journal of the Institute of Food Science & Technology, Peter Winckley of tonic wine producer Buckfast explains that they employ a combination of anti-counterfeiting technologies, registered and unregistered intellectual property rights to protect their brand and product.
Brand and company owners must remain vigilant and take all precautionary measures available to ensure the integrity and safety of their products through authentication and brand protection.