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Pálinka Market Shrinks as Home Brewing on the Rise

Ábrahám Vass 2020.03.06.

Thanks to the growing popularity of home brewing, the black market, and the implementation of the Public Health Product Tax (NETA), pálinka’s commercial market has decreased by 60% in a year, resulting in certain manufacturers’ struggle to survive.

Grand master of the Pálinka Knights Order, Attila Barabás, revealed that while in 2019, 1.12 million liters of 50% fruit pálinka was sold, this was more than double, 2.8 million liters one year earlier, amounting to a decrease of about 60%. Barabás, who is also the CEO of the Győr Distillery & Refinery Co. Ltd, predominantly blamed the implementation of the health product tax on pálinka. It has had a significant effect: now a 0.5 liter bottle costs 500-1000 forints (Eur 1.5-3) more than a year ago, which has led to a drop in purchases.

In order to maintain the stability of the sector, the Hungarian Pálinka Knights Order, wishes first to bag the support of professional organizations, then to encourage the Finance Ministry (PM) to reduce the value-added tax (áfa) on the product from 27% to 5%.

The reason behind the decline of pálinka’s market, is however, perhaps not only due to NETA.

Home brewing on the rise 

Firstly, home brewing appears to be on the rise, according to Deputy of the Finance Minister, András Tállai. In the past few years, 26,000 people have bought home distillery equipment, and last year, home distillers produced 30% more than in the previous year, totaling around 151,000 liters of distillery. Tállai told pro-govt daily Magyar Nemzet regarding the latest figures, that an initiative could be reopened in the competent forums of the Union to produce certain quantities of concentrated beverages exempt from tax. Such ideas are always supported by the Hungarian government because we must stick to our traditions, he said.

Tállai revealed that as of now, (following an agreement with the EU), two conditions have to be met: equipment reported to the authorities, then the purchase stamp that costs HUF 700 (Eur 2.1) per liter of distilled spirit. Last year, 151,000 of such tax stamps were sold – more than thirty percent more than last year. This generated HUF 105 million (Eur 313 thousand) for the budget.

Many, however, warn that while pálinka manufacturing can be accounted for quality and health standards, the same cannot be guaranteed with homemade ones.

Tax is not the only problem

The black market and illegal distilling is also a problem, the Pálinka National Council (PNT) often reports. In 2019, only until October, ten thousand liters of spirits were confiscated by tax authority NAV, which added to the eight thousand liters of soon-to-be-distilled fruit pulp .

Liberalization of home distillery was among the very first and most symbolic measures after Orbán and his second government took office in 2010. They argued with the upkeep of traditions, “…a freedom fight that ended with the total victory of the revolts,” Orbán had said. But the previous left-liberal governments appeared also favourable with a more beneficial solution for home brewers.

Fact

The basic knowledge of pálinka distillery has made it to the freshly-published, much-debated national curriculum (NAT) as well, liberal 444.hu found. NAT recommends the study of pálinka brewing in order to help teach the process of distillation during chemistry lessons in the 7th and 8th grades, thus for students well under the age of 18.

The EU, however, since it has rigorous laws about alcohol production, launched an infringement procedure that eventually resulted in an agreement and in the current legislation that taxes both the market sale and home distillery, and when an individual makes wine at home, and takes that to the distillery to make pálinka.

The government now aims to reopen the debate -a similar, Slovakian initiative can be helpful in that- and try to reach the decision for home brewing to be tax-exempt.

All this, while many warn about the sky-rocketing data of Hungarians’ alcohol consumption. According to toxicologist Gábor Zacher, the number of people suffering from alcohol addiction is around 800,000 in Hungary, and some 30,000 die annually of alcohol-related illnesses. Others note, that while the government takes a liberal stance toward alcohol, it still has one of the most rigorous and, according to critics, “inhumane” drug laws. Zacher also warns that alcohol is a much greater problem than drugs and lacks a strategy to regulate consumption.

featured image: illustration; via MTI/Attila Balázs