The Illegal Alcoholic Beverages Market in Six Latin American Countries

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THE ILLEGAL ALCOHOLIC BEVERAGES MARKET IN SIX COUNTRIES LATAM 2013A custom report compiled by Euromonitor International

November 2014

INTRODUCTION

METHODOLOGY

ANALYSIS - REGION

ANALYSIS - COUNTRIES

2014 OUTLOOK

APPENDIX

© Euromonitor International Ltd 2013. Applicable terms and conditions of use and the disclaimer at the front of this document apply. 3

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Euromonitor International research methodology



INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX


Category/subcategory Definition

Recorded alcohol

Alcohol products that are subject to government regulation and are

appropriately recorded for taxation, consumption and other commercial

purposes. Recorded alcohol comprises Formal Alcohol production and trade.

Unrecorded alcohol

Alcohol products that are not subject to government regulation and/or

purposefully evade commercial and governmental regulation, including

payment of excise tax. Unrecorded alcohol includes Informal and Illicit

Alcohol production.

Informal alcohol

Informal alcohol is typically produced as part of long-standing traditional

and/or cultural practices. While some governments permit the production and

sale of informal alcohol, it typically is not subject to excise tax payments or

health and safety requirements due to the nature of production and

consumption.

Illicit alcohol

Illicit alcohol products can pose a health risk - including death - to

consumers. By its very nature, illicit alcohol illegally enters the economy

either through production, distribution and/or purchase channels outside of

the formal and recorded market, thereby eluding excise tax payments and/or

industry safety standards. In many instances, illicit alcohol is traded by

criminal organisations involved in other contraband and illegal commercial

enterprises. Illicit alcohol can take many forms, including: counterfeit,

smuggled, adulterated, surrogate and tax-avoidance.

Definitions


Source: Position Statement and Principles regarding Illicit and Informal Alcohol, SABMiller 2014



Category/subcategory Definition

Counterfeit & illegal brands

Substitute/refillIllegal alcohol sold as legal brands or empty bottles of legitimate products

refilled with cheaper alcohol

Industrial manufacturing of

illegal brandsManufacturing of illegal branded or unbranded alcohol

Contraband

Ethanol as raw material Illegal imports of ethanol as a raw material

Finished products Illegal imports of alcoholic beverages

Illegal artisanal

Illegal artisanal alcoholic beverages made for commercial purposes

Surrogate

Alcohol not meant for human consumption (e.g. pharmaceutical alcohol)

diverted to the alcoholic beverages market

Tax leakage

Legal alcoholic beverages (locally produced) on which excise was not paid

Definitions




Alcohol categorisation



INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

888,831 HL LAE

TOTAL ILLEGAL VOLUME

Illegal market volumes

2013

US$2,604 mn

TOTAL VALUE IN ILLEGAL RSP

US$798 mn

TOTAL FISCAL LOSS

US$3,267 mn

TOTAL VALUE IN LEGAL RSP

*RSP: retail selling prices


Key findings in the region


Counterfeit and contraband continue to drive the illegal alcohol market in the region, as the most

profitable opportunities are in those categories

FINDING EFFECT

Closer collaboration between public entities and

industry players to combat illegal alcohol.

Increased consumer awareness about the types of

illegal alcohol and their effects on society.

Customs controls were tightened during 2013 to

reduce contraband and corruption.

Despite these efforts, there is still strong demand for

smuggled alcoholic beverages from consumers

looking for better deals. It is very difficult to control

contraband that enters through blind spots.

Improved law enforcement has put pressure on the

illegal market, although smugglers and

counterfeiters have found new ways to operate.

One example is related to distribution channels.

These days smuggled and counterfeit brands can be

found through social media sites (e.g. Facebook,

Twitter) and e-commerce (e.g. Mercado Libre), which

are harder to track and control.

Excise taxes on legal alcoholic beverages have

increased, pushing up selling prices and making

illegal counterparts that evade taxes more

profitable.

As legal prices increase, so does the demand for less

expensive options, which are usually illegal. Although

the price gap is being reduced, illegal prices remain

about 20% lower.

Lack of control over the residual supply and

commercialization of ethanol.

This continues to drive the counterfeit market, as

illegal producers have access to raw materials.

The legal alcoholic beverages market shrank in

most countries, with lower per capita consumption

(especially of spirits), mostly driven by price

increases.

Overall, beer consumption has not been affected as

the market has grown slightly. Illegal counterparts

have not yet taken advantage of this by increasing

their sales of illegal beer, although they could do so in

future.



-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

HL L

AE

Legal LAE Illegal LAE

Colombia saw a growth of

3.2 points in the illegal

market share during 2011-

2013

Ecuador’s illegal market

share expanded 8.7

points during 2011-2013

Peru witnessed a decline

of 0.4 points in its illegal

market share during 2011-

2013

Total alcoholic beverages market evolution – volume LAE


During 2011-2013, the illegal alcoholic beverages market share increased by 2.7 points in the region

PeruPanamaHondurasEl SalvadorEcuadorColombia2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013

*2011 illegal alcohol figures exclude tax leakage. In 2013 no research was performed in Panama; for analysis purpose it was assumed that the market did

not changed in 2013.



6.0%

-31.6%

-5.6%

-5.5%

-2.2%

-2.9%

-5.6%

2.4%

-12.7%

-12.7%

-8.7%

-2.2%

-1.6%

-2.6%

3.2%

-18.1%

-11.0%

-8.3%

-2.2%

-2.0%

-3.4%

-32.0% -24.0% -16.0% -8.0% 0.0% 8.0%

Per capita consumption - % growth 2012-2013

Per capita total consumption Per Capita legal consumption Per Capita illegal consumption

Aggre

gate

Pe

ruP

anam

aH

ondura

sE

l S

alv

ador

Ecuador

Colo

mb

ia

During 2012-2013, the consumption of

legal alcoholic beverages declined 2.6%

and that of illegal alcoholic beverages

fell 5.6%.

As the chart shows, in all countries

illegal and legal consumption moved in

the same direction, although at different

rates.

Colombia was the only market that

experienced positive growth in per

capita consumption of alcoholic

beverages, with illegal consumption

increasing at a quicker rate.

In 2013 the consumption of legal

alcoholic beverages fell sharply in

Ecuador; this was the result of a large

drop in sales of imported products due

to higher taxes.

Per capita consumption of alcoholic beverages – % growth LAE


During 2012-2013, per capita consumption of total alcoholic beverages decreased by 3.4%

*2011 illegal alcohol figures exclude tax leakage. In 2013 no research was performed in Panama; for analysis purpose it was

assumed that the market did not changed in 2013.



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% Legal Market % Illegal Market

Colombia Ecuador El Salvador Honduras Panama Peru

2011 2012 2013

Composition of the alcoholic beverages market – % share of LAE


During 2011-2013, the share of the illegal market was fairly stable in Peru, Honduras, and Panama,

but more volatile in Ecuador

Aggregate

2011 2012 20132011 2012 20132011 2012 20132011 2012 20132011 2012 2013 2011 2012 2013

*2011 illegal alcohol figures exclude tax leakage. In 2013 no research was performed in Panama; for analysis purpose it was

assumed that the market did not changed in 2013. Illegal share growth

Illegal share decrease



During 2011-2013, the illegal

market grew more quickly than the

legal market, registering CAGRs of

14% in Ecuador, 8.7% in

Colombia, and 7.6% in El

Salvador.

Although Peru has the second

largest illegal alcohol market, over

the last three years it has not

grown at the same pace as

Ecuador or Colombia.

Among the Central American

countries, the illegal market poses

the greatest threat in El Salvador,

where it has a higher share and is

growing faster than in Honduras

and Panama.

Illegal alcohol market evolution – volume LAE


Ecuador and Colombia were the fastest growing illegal markets in 2011-2013 and are among the

countries with the highest illegal market shares

Colombia

Ecuador

El Salvador

Honduras

Panama Peru

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0% 5% 10% 15% 20% 25% 30% 35% 40%

% C

AG

R 2

011-2

013

Market share of illegal alcohol in 2013

Illegal alcohol market - Volume LAE

The size of the bubble

represents the illegal alcohol

market size (HL LAE) in 2013

Ecuador was the

fastest growing market

in 2011-2013

Peru is the second

largest illegal market, but

its growth rate is among

the lowest

Honduras was the only

illegal market that

contracted in 2011-

2013

*In 2013 no research was performed in Panama; for analysis purpose it was assumed that the market did not change in 2013.

CAGR: Compound annual growth rate.



Illegal alcohol market evolution – % share of LAE


2011 2012 20132011-2013

variation*

Colombia 21.1% 23.8% 24.3% 3.2

Ecuador 15.2% 28.6% 23.9% 8.7

El Salvador 20.2% 23.5% 24.9% 4.7

Honduras 13.9% 13.1% 13.5% -0.5

Panama 2.9% 2.4% 2.4% -0.5

Peru 31.0% 30.8% 30.6% -0.4

Aggregate 22.2% 25.6% 24.9% 2.7

Ecuador, El Salvador and Colombia experienced higher growth of the illegal alcoholic beverages

market share during 2011-2013

2011 illegal alcohol figures exclude tax leakage. In 2013 no research was performed in Panama; for analysis purpose it was assumed that the market did not

changed in 2013. *Illegal alcohol market share in basic points.

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013

Illegal alcohol market share (LAE) 2011-2013

Colombia Ecuador El Salvador Honduras

Panama Peru Aggregate



Illegal alcohol market evolution – Volume LAE


2011 2012 2013

Colombia 288,072 346,181 370,253

Ecuador 87,639 186,326 129,939

El Salvador 25,867 33,478 32,238

Honduras 16,407 14,287 13,930

Panama 3,787 3,719 3,719

Peru 331,931 342,381 338,752

Aggregate 753,703 926,371 888,831

Colombia, Peru and Ecuador continue to be the leading markets based on their illegal alcoholic

beverages market size

2011 illegal alcohol figures exclude tax leakage. In 2013 no research was performed in Panama; for analysis purpose it was assumed that the market did not

changed in 2013.

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

2011 2012 2013

Illegal alcohol market (HL LAE) 2011 - 2012

Colombia Ecuador El Salvador Honduras

Panama Peru Aggregate



• Weak legal frameworks governing ethanol production and supply encourage the leakage of legal ethanol (potable and industrial) into the illegal beverages market and illegal imports of ethanol as an ingredient.

• Campaigns to increase consumer awareness have paid off in some countries, helping to reduce the consumption of illegal alcoholic beverages, or slower its growth.

• Increases in excise duties and import tariffs are driving up the final price of legal alcoholic beverages, helping the competitively of the illegal alcohol beverages market.

• The decline in per capita consumption of alcoholic beverages has helped reduce illegal consumption, with consumers cutting back on their intake of alcohol in general (legal and illegal), given the fact that consumers usually cannot identify illegal products from the legal ones.

• Initiatives focused on absorbing residual ethanol volumes, especially through biofuel programs, are helping to reduce the availability of raw material for counterfeiters.

• Weak law enforcement enables illegal activities across the region.

Illegal alcohol drivers in the region


The main drivers in the region are still residual volumes of ethanol, retail prices, the availability of

illegal beverages, consumer awareness, and law enforcement by governments



4.5%

28.4%

6.1%

24.3%

21.4%

23.9%24.9%

13.5%

4.6%

2.4%

30.6%

15.7% 16.0%

23.7%

0%

5%

10%

15%

20%

25%

30%

35%

Argentina Brazil Chile Colombia Costa Rica Ecuador El Salvador Honduras Nicaragua Panama Peru DominicanRepublic

Venezuela Region

Regional comparison of illegal market shares – volume LAE (2013)


Peru, Brazil, El Salvador, Colombia and Ecuador, have illegal shares above the regional average of

23.7%

*Brazil numbers do not include tax leakage

Brazil, Dominican Republic, and Venezuela are 2011 figures. Nicaragua, Costa Rica, and Panama are 2012 figures.

Regio

nal

avera

ge



24.3%

23.9%

24.9%

13.5%

2.4%

30.6%

24.9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate

Illegal LAE % Legal LAE %

Illegal market shares – volume LAE (2013)


Peru, Colombia and Ecuador, continue to drive the illegal consumption of alcoholic beverages in the

region

*Panama figures correspond to 2012.

Regional average



Illegal market size – volume LAE (2013)


Legal market

(HL LAE)

Illegal market

(HL LAE)

Total market

(HL LAE)

Total

population

>15 years (mn)

Illegal alcohol

per capita >15

years (LAE)

Colombia 1,154,884 370,253 1,525,136 32.0 1.2

Ecuador 413,690 129,939 543,630 9.7 1.3

El Salvador 97,353 32,238 129,591 4.0 0.8

Honduras 89,557 13,930 103,487 4.9 0.3

Panama 153,079 3,719 156,797 2.5 0.1

Peru 769,309 338,752 1,108,061 19.4 1.7

Aggregate 2,677,872 888,831 3,566,702 72.5 1.2

Peru has the highest per capita consumption of illegal alcohol

Population aged 15 – 65 years, source Passport.

Panama figures correspond to 2012.



Shape of illegal market – volume LAE (2013)


Counterfeit and contraband together account for 70% of illegal volumes across the region

Counterfeit alcoholic beverages are popular in Honduras. However, since the main ingredient is smuggled ethanol, all the volumes were classified as

contraband to avoid double counting.


46%

14%

46%

9%

59%

45%

36%

15%

6%

100%

56%

16%

25%

5%

19%

4%

29%

23%

14%

10%

39%

6%

3%

51%

5%

6%

9%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate

Counterfeit Contraband Illegal Artisanal Surrogate Tax Leakage



Illegal market variation by category – Share LAE (2012-2013)


Counterfeit Contraband Illegal artisanal Surrogate Tax leakage

Colombia -1 -1.4 -0.2 -0.5 2.7

Ecuador 2.3 2.6 4.7 -0.4 -9.3

El Salvador -0.9 0.7 0.4 -4.9 4.8

Honduras 0.0 0.0 0.0 0.0 0.0

Panama 0.0 0.0 0.0 0.0 0.0

Peru -1.5 -1.2 2.9 -0.2 0.1

Aggregate 1.5 0.5 1.4 -0.1 -3.3

Illegal artisanal experienced the highest variation across the region, driven by Peru, while tax

leakage declined the most, driven by Ecuador

*The illegal volumes of aperitivos (legally produced) were included in the tax leakage estimate for 2013. *Variation is based on the share of each shape of

illegal alcoholic beverage in volume LAE.



Beer market landscape – volume LAE (2013)


Only 0.9% of the beer market in the region is illegal; half of the illegal market is counterfeit (mostly in

Peru) and half is contraband (mostly in Colombia)

99.1

% leg

al b

eer

0.9

% illeg

al b

eer

41%

13%3%

6%

35%

Legal beer LAE

1,945,676

HL LAE

40%

8%6%

46%

Illegal beer LAE


16,864

HL LAE 49.9%50.1%

Counterfeit Contraband

In 2013, the volume of illegal beer

was estimated at 16,864 HL LAE.

The illegal beer market is

comprised of counterfeit (refill or

“retape”) and contraband.

No illegal manufacturing of beer

was found in the region.



Counterfeit Contraband Total

Colombia 1,423 5,289 6,712

Ecuador 2 1,379 1,381

El Salvador 0 0 0

Honduras 0 971 971

Peru 6,988 813 7,800

Aggregate 8,412 8,452 16,864

Illegal beer – volume LAE (2013)


In Peru 90% of illegal beer is counterfeit, whereas in Colombia 79% is contraband; these two

countries are the largest illegal beer markets in the region

In Panama, as no research was performed for 2013; for analysis purpose it was assumed that the market did not changed in 2013.


Illegal market value

2013 888,831 HL LAE


US$2,604 mn


US$798 mn

TOTAL FISCAL LOSS

US$3,267 mn




14%

20%

10%

4%

3%

18%

15%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate

Illegal US$ % Legal US$ %

Illegal market share – value US$ mn (2013)


Ecuador and Peru have illegal market shares above the aggregated average of 15%

The illegal market size in terms of value was estimated using average illegal retail selling prices (RSP).

Panama numbers correspond to 2012

Regional

average



Shape of illegal market – value US$ mn (2013)


Counterfeit and contraband are the main categories of illegal alcoholic beverages across the region

42%

14%

50%

10%

72%

46%

45%

27%

16%

100%

67%

16%

33%

5%

10%

6%

19%

10%

7%

6%

23%

4%

49%

6%

4%

10%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate


*Panama numbers correspond to 2012



Legal market

(US$ mn)

Illegal market

(US$ mn)

Total market

(US$ mn)

Total

population

>15 years (mn)

Illegal alcohol

per capita >15

years (US$)

Colombia 7,849 1,309 9,158 32.0 40.9

Ecuador 1,710 428 2,138 9.7 44.1

El Salvador 479 54 533 4.0 13.5

Honduras 435 18 453 4.9 3.6

Panama 527 15 542 2.5 6.0

Peru 3,551 781 4,332 19.4 40.2

Aggregate 14,551 2,604 17,155 72.5 35.9

Illegal market size – value US$ mn (2013)


The illegal market size in terms of value was estimated using average illegal retail selling prices (RSP).

Ecuador, Colombia, and Peru have the highest per capita consumption of illegal alcohol in value terms

Population aged 15 – 65 years, source Passport.




$10.9 $11.2

$6.2 $6.1

$13.2

$7.5

$9.3 $9.2

$9.9

$5.2

$4.6

$9.9

$5.2

$7.4

$-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Colombia Ecuador El Salvador Honduras Panama Peru Aggregate

US$

Average Legal RSP US$ Average Illegal RSP US$

Average illegal and legal RSPs in the region


The price variation between legal and illegal products was smaller in 2013 (20.3%) than 2012 (30.3%);

Peru has the largest price difference in the region

∆ 25.5%

∆ 11.4%

∆ 30.8%

RSP= Retail selling prices

Average RSP per liter of illegal alcoholic beverages


∆ 20.3%

∆ 24.7%

∆ 15.5%

∆ 15.3%

∆ Variation %

As illegal activities become

more complex due to

stronger regulations, the

price gap between legal and

illegal products narrows,

reducing the

competitiveness of the latter.



20%

15%

7%

58%

Illegal beer US$ mn


50%

11%

3%

29%

Legal beer US$ mn

Beer market landscape – value US$ mn (2013)


Only 0.8% of the beer market in the region is illegal, with counterfeit the main category in value terms

99.2

% leg

al b

eer

0.8

% illeg

al b

eer

US$10,491

mn

US$88 mn

In 2013, the value of illegal beer

was estimated at US$88 mn (in

illegal RSP).

Colombia has the largest legal beer

market in value terms, while Peru

has a much larger share of the

illegal market due to higher prices.

Counterfeit represents 61% of the

illegal beer market in value terms.

61%

39%




Counterfeit (US$ mn) Contraband (US$ mn) Total (US$ mn)

Colombia 9 8 18

Ecuador 0 13 13

El Salvador 0 0 0

Honduras 0 7 7

Peru 44 7 51

Aggregate 54 35 88

Illegal beer – value US$ mn (2013)


High counterfeit prices in Peru make counterfeit the largest category in value terms, despite the

balanced volume split

Panama: no research was performed for 2013; for analysis purpose it was assumed that the market did not changed in 2013.


Fiscal loss 2013

888,831 HL LAE


US$2,604 mn


US$798 mn

TOTAL FISCAL LOSS

US$3,267 mn




70%

14%

2%

14%

Fiscal loss 2013 (US$ mn)


42%

15%

38%

Illegal market (volume)

Fiscal loss – US$ mn (2013)


Colombia has the largest illegal market in terms of fiscal loss, volume, and value; Peru has a similar

share of volume but its fiscal loss is less than a third of that of Colombia due to lower excise for

distilled beverages

Fiscal loss = excise + import duties


50%16%

30%

Illegal market (value)

US$798 mn



Fiscal loss by category – US$ mn (2013)


Counterfeit and contraband together account for more than 80% of the fiscal loss in the region

51%

12%

38%

79%

49%

41%

30%

24%

99%

82%

8%

34%

3%

16%

4%

15%

10%

6%

4%

30%

4%

2%

42%

4%

4%

2%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate




Fiscal loss – US$ mn (2013)


Illegal market

size (US$ mn)*

Excise lost

(US$ mn)

Import duties

lost

(US$ mn)

Excise lost per

LAE (US$)

Total fiscal loss

(US$ mn)

Colombia 1,549 538.5 16.8 14.5 555

Ecuador 483 84.9 24.2 6.5 109

El Salvador 64 16.5 1.3 5.1 18

Honduras 24 1.2 0.6 0.9 2

Panama 20 1.2 1.1 3.2 2

Peru 1,129 110.3 1.6 3.3 112

Aggregate 3,267 752.5 45.7 8.5 798

Colombia suffers the largest fiscal loss in the region; its average excise lost per LAE is US$14.5

compared to US$3.3 in Peru; excise represent 20% of RSP in Colombia, while in Peru is 15% for

distilled beverages

*Illegal market size in terms of value based on legal RSP, including tax leakage.




$14.5

$6.5

$5.1

$0.9

$3.2 $3.3

$-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0


Avera

ge e

xcis

e loss p

er

LA

E (

US

$)

Excise loss per LAE by country (2013)


Although the excise structure is often composed of an ad valorem tax + a specific tax per LAE, Euromonitor International calculated the average excise loss

per LAE by dividing the total excise fiscal loss by the total volume LAE of the illegal market.


For each LAE of illegal alcohol,

US$8.5 of excise is lost

Excise loss depends on tax structure, market composition (% distilled vs. % fermented beverages)

and illegal market size

Ag

gre

ga

ted

ave

rag

e



• In 2013 the illegal market accounted for 24.9% of the total market in terms of volume (LAE) and 15% in terms of value (illegal RSP).

• The illegal market share (LAE) increased from 22.2% in 2011 to 24.9% in 2013.

• On average, the retail prices of illegal products were 20.3% lower than those of their legal counterparts in 2013, implying a narrower gap than in 2012 (the difference used to be 30.3% between illegal and legal prices).

• In 2013 the illegal alcohol market represented a total fiscal loss of US$798 mn, with counterfeit and contraband the main categories responsible. Experienced a growth of 8.5%, from US$736 in 2012.

• Illegal beer accounts for 1.9% of the total illegal market in volume terms (16,864 HL LAE). Peru and Colombia had the highest consumption of illegal beer in 2013.

Conclusions – regional analysis



INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

INTRODUCTION

METHODOLOGY

ANALYSIS - REGION

ANALYSIS – COUNTRIES

2014 OUTLOOK

APPENDIX

►►Colombia


• The strong devaluation of the Bolivar in Venezuela is leading to growth in contraband beer to Colombia’s neighbor, where beer is now considerably more affordable.

• As Colombia still lacks a strong regulatory framework to oversee ethanol imports and trading, counterfeiters find it fairly easy to source raw materials.

• Cooperation between government institutions (Grupo GECLA) and educational programs (Antioquia Legal) in certain regions of the country (Antioquia, Atlántico) has helped bring local levels of illegal alcohol down.

• Tax leakage figures have strongly increased due to the commercialization of aperitivos with a higher alcohol content than permitted by law, as well as greater unrecorded production of spirits.

• Growth in the consumer base has driven growth in both surrogate and illegal artisanal alcoholic beverages.

Key findings – 2013


Colombia was the only alcoholic beverages market to record a positive growth rate in 2013

Colombia


370,253 HL LAE


Illegal market 2013 –

Colombia

US$1,309 mn


US$555 mn

TOTAL FISCAL LOSS

US$1,549 mn




Total alcoholic beverages market – 2013


The illegal market accounted for 24.3% of the total alcoholic beverages market in Colombia in 2013

Colombia

The total alcoholic beverages market in

Colombia reached 1,525,136 HL LAE in volume

terms and US$9,158 mn in value terms in 2013.

Illegal alcoholic beverages account for 24.3% of

the total market in terms of volume and 14.3% in

terms of value, leaving the legal market with the

remaining 75.7% and 85.7%, respectively.

The total alcoholic beverages market registered

4.8% growth in LAE terms in 2013.

Fermented products account for 59% of the total

market in terms of volume. Beer represents 53%

of total alcoholic beverage sales and 96.4% of

all fermented products.

75.7%

24.3%

Colombia alcoholic beverages market 2013 LAE

Legal LAE % Illegal LAE %

85.7%14.3%

Colombia alcoholic beverages market 2013 value

Legal % Illegal %



During 2011-2013, the total

alcoholic beverages market

expanded at a 3.7% CAGR,

driven mostly by the illegal

market.

Over the same period, the illegal

market registered a 8.7%

CAGR, which is the second

highest growth rate among the

researched countries.

From 2012 to 2013, the total

consumption of alcoholic

beverages increased 4.8%.

In 2013 the size of the legal

market was estimated at

1,154,884 HL LAE, of which

fermented products had a 70.8%

share and distilled products

29.2%. Beer represented 98% of

all fermented products.



Colombia

The total consumption of alcoholic beverages exhibits a growing trend in Colombia

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2011 2012 2013

HL L

AE

Alcoholic beverages market size (volume LAE)

Illegal HL LAE Legal HL LAE



Illegal alcoholic beverages market – Main drivers


• Cheap smuggled products from Venezuela have driven the consumption of contraband, especially beer and rum.

• Higher levels of unemployment have also contributed to an increased preference for illegal alcoholic beverages, as consumers have limited resources.

• The illegal alcoholic beverages industry has embedded itself in the country’s culture. For people from some regions it has become an accepted way of life (especially counterfeit and contraband).

• Due to the specialized practices of the counterfeiters of aguardiente, consumers are often unaware that they are buying illegal alcoholic beverages.

• The lack of effective regulation over the trade/importation of ethanol makes it easy for counterfeiters to buy ethanol as a raw material.

A lack of control over ethanol supply continues to enable the illegal manufacture of spirits

Colombia



51%40%

3%

4%

Fiscal loss 2013 (US$)

42%

45%

5%6%

Value 2013 (US$)

The size of the illegal market was 370,253 HL LAE in volume terms and US$1,309 mn in value terms in

2013.

In LAE terms, fermented products have only a 5.7% share of the illegal market, whereas distilled

products have a 94.3% share. Beer accounts for 32.6% of the fermented products.

In terms of fiscal loss, distilled products account for 92.8% and fermented 7.2%. Within distilled, the most

important alcoholic beverages are aguardiente, rum, and whisky.

Tax leakage accounts for 2.9% of the total fiscal loss from the illegal market.

Illegal alcoholic beverages market – 2013



Counterfeit and contraband remain the largest categories in the illegal market in Colombia

370,253

HL LAE

US$555

mn

Colombia

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



21.1%

23.8% 24.3%

0%

10%

20%

30%

% ille

gal share

Evolution of the illegal market – 2011-2013 (HL LAE)

2011 2012 2013

The share of the illegal market grew in Colombia during 2011-2013, mostly driven by the increased

consumption of counterfeit and contraband.

The consumption of illegal alcohol increased by 7%, from 346,181 HL LAE in 2012 to 370,253 HL LAE in

2013, equivalent to a illegal share of 24.3%.

Illegal alcoholic beverages’ market share – 2011-2013


Illegal alcohol’s share of the total market grew from 21.1% to 24.3% in three years

Colombia

*2011 share excluded tax leakage

2.7 0.5



8.9

21.3

1.9

19.8

5.9

8.9

15.2

1.9

19.8

5.9

-

5.0

10.0

15.0

20.0

25.0

Counterfeit Contraband IllegalArtisanal

Surrogate Tax Leakage

US

$ p

er

liter

Colombia average RSP (US$ per liter) - 2013


Counterfeit: All counterfeit beverages are sold at the

same price as the legal brands in order to deceive

consumers and make more profit.

Contraband: The average price variation between

smuggled and legal alcoholic beverages is 28.7%. As an

example, whisky can be found at US$26.4 per liter

whereas the average legal price is US$47.6 per liter.

Artisanal: As all artisanal beverages are illegal, there is no

price variation.

Surrogate: As the surrogate alcohol is prepared with

pharmaceutical alcohol, the prices are legal and thus there

is no variation.

Tax leakage: As in the case of counterfeit, unrecorded

volumes of aguardiente and rum are sold at the legal price.

Average price by category


Only contraband alcoholic beverages are sold at a lower price than legal products

Colombia



21%

79%

Illegal beer, 2013


69%

Legal alcoholic beverages, 2013

RTD Wine Spirits Beer



In volume terms, 0.8% of the beer market in Colombia is illegal

99.2

% leg

al b

eer

0.8

% illeg

al b

eer

In 2013 beer represented 69% of

the legal alcoholic beverages

market, equivalent to 802,045 HL

LAE.

The volume of illegal beer was

estimated at 6,712 HL LAE.

The illegal beer market is

comprised of contraband and

counterfeit (“retape”).


was found in Colombia.

Contraband beer comes from

Venezuela, where prices are lower.

Colombia

6,712 HL

LAE

1,154,884

HL LAE



Counterfeit and illegal brands – Key facts


The counterfeit industry in Colombia is closely related to criminal gangs and money laundering

ColombiaB

evera

ges • Empty bottles of spirits that are still in good shape are bought and refilled with lower quality alcohol (usually

illegally produced aguardiente and cheaper imported whisky).

• The aguardiente brands usually subject to refill are Aguardiente Antioqueño, Nectar, and Blanco, while whisky

brands include Old Parr, Johnnie Walker, Buchanan’s, and Chivas Regal.

• Aguardiente is the most common industrially produced illegal beverage. Counterfeiters use ethanol as the raw

material for illegal aguardiente, while for whisky they mainly use a cheaper legal whisky.

Where • Counterfeit alcoholic beverages can be found in large cities such as Bogota, Medellin, Cali, Bucaramanga, and

Barranquilla, mostly in on-trade establishments such as bars and clubs.

• Refilled products are also available in open street markets and small independent grocers.

Dri

vers • Residual ethanol volumes – originally destined for other industries such as fuels, chemicals, and pharmaceuticals

– are used to produce industrial counterfeit alcoholic beverages.

• The substitution/refill of bottles of aguardiente and other distilled beverages with lower-quality products is highly

profitable as they are sold at the same price as their legal counterparts.

Effects • Fiscal loss.

• Public health problems given the risks inherent in the consumption of counterfeit and illegal alcohol.

• Legal brands lose credibility due to sales of counterfeited versions.



Counterfeit and illegal brands is the largest category in volume terms, accounting for 46% of the illegal market. In

value terms it is the second largest category with a 42% share.

Fermented products account for only 1.3% of the counterfeit and illegal brands category in terms of volume, with

distilled products representing the vast majority (98.7%).

Within counterfeit and illegal brands, refill/substitution represents 18.8% of the category in volume terms and

industrial production 81.2%.

All alcoholic beverages in this category (whether produced or counterfeited) evade excise tax, which for aguardiente

is US$5.64 per liter, for whisky and other spirits is US$12.75 per liter, for wine is US$2.45 per liter, and for beer is

US$0.51 per liter.

The total fiscal loss from counterfeit and illegal brands in 2013 is estimated at US$283 mn.

Counterfeit and illegal brands – Market size


Counterfeit remains the most common type of illegal alcohol in Colombia

Colombia

51%40%

3%

4%

Fiscal Loss 2013 (US$)

42%

45%

5%6%

Value 2013 (US$)


370,253

HL LAE

US$555

mn

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



The counterfeit category grew 5.5% in 2012-2013, driven by the following factors.

Counterfeit and illegal brands – Market changes in 2012-2013

Factors behind 2012-2013 market changes Implications

1No regulation in place for trading of potable

ethanol.

Convenient environment for counterfeiters to

source better raw materials and manufacture better

quality products.

2Greater involvement of money laundering cartels

and criminal mafias.

Improved industrialization processes for the illegal

manufacture of aguardiente, making it more difficult

for consumers to identify illegal products.


Colombia

Based on research findings, substitution/refill grew at a faster rate than illegal manufacturing in 2013



Counterfeit and illegal brands – Methodology


Final market volume, value, and fiscal loss:

168,526 HL LAE

US$551 mn

US$283 mn

Approach 1: Sum of total volume sales of alcoholic

beverages by channel (on/off trade) x estimated

percentage of refill per type of beverage = total refill

market size

Approach 2: Residual ethanol analysis to identify the ethanol supply used as raw material for the illegal manufacturing of spirits

Approach 3: Store checks to ascertain prices of legal

and illegal alcoholic beverages in order to

calculate values in US$

Approach 4: Cross-check of category’s share as a

percentage of the illegal market

Approach 5: Fiscal loss calculated based on illegal volumes/values and excise

taxes

Colombia

Multiple approaches were used to estimate the market size in terms of volume, value, and fiscal loss



Contraband – Key facts


Increased volumes of contraband finished products are coming from Venezuela

ColombiaB

evera

ges

• The most common types of smuggled beverages are whisky, vodka, and rum.

• Smuggled beer is almost entirely manufactured in Venezuela and can be found in regions bordering that country.

• The most common smuggled brands include Old Parr, Johnnie Walker (Black Label), Grant’s, Absolut, and

Bacardi. For beer is Polar.

Where • Contraband ethanol comes from Ecuador.

• The finished products come through Venezuela from Aruba and Curacao, entering at blind entry points or legal

crossings. Colombia has around 100 blind entry points.

Dri

vers • Lack of strong regulatory environment governing the importation and trade of ethanol.

• Poor intergovernmental coordination for border control.

• The strong devaluation of the Bolivar in Venezuela makes products manufactured in that country more attractive

in terms of prices. Consumers, especially those with limited incomes, are always looking for better deals.

Effects

• For some regions of the country, for example Cúcuta, the trading of contraband is the main source of income for

the population.

• The lack of coordination among the authorities creates a very convenient environment to import products illegally.

• Fiscal loss.

• Legally imported products are severely disadvantaged when competing with their illegal counterparts.



The contraband category represents 36% of the illegal market in volume terms. In value terms it is the largest

category with a 45% share. The split by type of beverage is 6.7% fermented vs. 93.3% distilled.

Contraband ethanol as a raw material represents 45.7% of the category, while contraband finished products account

for 54.3%.

Smuggled alcohol evades excise tax, which for whisky and other spirits is US$12.75 per liter, for wine is US$2.45 per

liter, and for beer is US$0.51 per liter. It also evades import duties, which are 18.2% for whisky and other spirits and

15% for rum. As most beer comes from Venezuela it is exempt from import duties.

The total fiscal loss from contraband in 2013 is estimated at US$225 mn.

Contraband – Market size


Contraband is still the second largest category in volume terms

Colombia

51%40%

3%

4%


42%

45%

5%6%

Value 2013 (US$)


370,253

HL LAE

US$555

mn

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



The contraband category grew 3% in 2012-2013, driven by the following factors.

Contraband – Market changes in 2012-2013


1Strong devaluation of the Bolivar in Venezuela, has

led to a big price gap between the two countries.`

Smugglers can find alcoholic beverages

manufactured in Venezuela, such as beer and rum,

at cheaper prices, making them more profitable.

2Elevated unemployment rates in regions bordering

neighboring countries.

In some regions, trading contraband has become

the only source of income available.

3Weak law enforcement to control the flow of

contraband, mostly through blind entry points.

Smugglers find easy ways to transport their

products/raw materials through blind spots, as they

are aware of the limitations of the authorities.


Colombia

Based on research findings, contraband finished products grew at a higher rate than contraband

ethanol in 2013



Contraband – Methodology



132,941 HL LAE

US$594 mn

US$225 mn

Approach 1: Estimate of market size based on

volumes of illegal alcohol seized by the authorities

Approach 2: Market size calculated based on

estimates of the volumes of finished products/ethanol

entering the country illegally







taxes


Colombia



Illegal artisanal – Key facts


The consumption of artisanal alcoholic beverages is embedded in the culture of Colombians

ColombiaB

evera

ges

• The most popular artisanal alcoholic beverages are chicha (fermented), guarapo (fermented), chirrinchi

(fermented), and viche (distilled).

• As there is no legal production of artisanal alcoholic beverages, all volumes are illegal.

Where • Artisanal products are most prominent in small rural areas and each region has a preference for different

artisanal beverages (e.g. viche is mostly consumed on the pacific coast).

• In indigenous areas, artisanal alcoholic beverages are very common for celebrations and other gatherings.

Dri

vers

• Limited supply and availability of legal alcoholic beverages in rural areas.

• Rural areas tend to have the highest percentages of people on low incomes, so the demand for low cost

beverages is higher.

• Consumers prefer artisanal products because of their high levels of alcohol and due to cultural factors.

• Artisanal alcoholic beverages are cheaper than legal spirits.

Effects • As there is no control over the manufacturing process of these alcoholic beverages, their consumption carries

elevated health risks.

• Artisanal is the fourth largest alcoholic beverage category in terms of fiscal loss.



The illegal artisanal category represents 5% of the illegal market in volume and value terms, making it the fourth

largest.

The split between beverage types is 48% fermented and 52% distilled.

As there is no legal production of artisanal alcoholic beverages, there are no legal prices.

Based on the alcohol content of the most common artisanal beverages, the implied excise evasion could be US$5.64

per liter for viche, chirrinchi, guarapo, and chicha.

The total fiscal loss from the illegal artisanal category in 2013 is estimated at US$15 mn.

Illegal artisanal – Market size


Although this category is not the largest, the health risks associated with consumption are higher

due to a lack of control over the preparation process

Colombia

51%40%

3%

4%


42%

45%

5%6%

Value 2013 (US$)


370,253

HL LAE

US$555

mn

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



The illegal artisanal category grew 2.2% in 2012-2013, driven by the following factors.

Illegal artisanal – Market changes in 2012-2013


1Growth in low-income population between 15 and

59 years old, especially in rural areas.

The consumption of illegal artisanal alcoholic

beverages is only expected to grow in line with

population growth, given that these beverages are

the most affordable and the only type available in

remote areas.


Colombia

Organic growth of artisanal alcoholic beverages consumption was observed in 2013



Illegal artisanal – Methodology


Final market volume, value, and

fiscal loss:

19,651 HL LAE

US$63 mn

US$15 mn

Approach 1: Market size estimated based on average

consumption per capita of artisanal beverages and

growth in the consumer base

Approach 2: Store checks to ascertain prices of legal and illegal alcoholic beverages in order to calculate values in

US$




taxes


Colombia



Surrogate – Key facts


Consumers are mixing Meticol with soda as a type of surrogate in Colombia

ColombiaB

evera

ges

• Surrogates are prepared with industrial or pharmaceutical alcohol, usually mixed with water and soda.

• They can also be prepared with lotions such as Meticol.

• The most common surrogate is called chamberlain and is mostly consumed by younger people.

Where

• Surrogate products are consumed by people living in urban areas, mostly in major cities where the rates of

homelessness are higher.

• These products are mostly prepared by the end consumer or inside private houses, usually clandestinely.

• They are also prepared in prisons by inmates.

Dri

vers

• The affordability and availability of raw materials, which are sold without any restrictions.

• Industrial and pharmaceutical alcohol can be found in very single hardware store and pharmacy.

Effects

• There are health risks associated with the consumption of surrogate alcohol.



Surrogate accounts for 10% of the illegal alcoholic beverages market in volume terms and 6% in value terms.

To calculate the fiscal loss stemming from surrogate alcoholic beverages, Euromonitor International used the tax rate

for the product that is being replaced by the surrogate. For example, if consumers who usually drink aguardiente

replace it with any type of surrogate, the tax rate used in the calculation is that applied to aguardiente.

The total fiscal loss from surrogates in 2013 is estimated at US$23 mn.

Surrogate – Market size


Given the growing number of people consuming surrogate in Colombia, this category poses a

serious health risk

Colombia

51%40%

3%

4%


42%

45%

5%6%

Value 2013 (US$)


370,253

HL LAE

US$555

mn

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



The surrogate category grew 1.8% in 2012-2013, driven by the following factors.

Surrogate – Market changes in 2012-2013


1

Even though the total homeless population

decreased in 2013, the percentage of homeless

people living in urban areas grew from 49% to

51%.

Surrogate consumption increased with the

expansion of the consumer base in urban areas,

where surrogate is available.

2 Additional products are being use as surrogate.

Young consumers are mixing lotions such as

Meticol, the main ingredient of which is ethanol,

with soda or juice.


Colombia

The surrogate category recorded the lowest growth rate in 2013



Surrogate – Methodology



fiscal loss:

38,524 HL LAE

US$79 mn

US$23 mn

Approach 1: Market size estimated based on the

number of people living in extreme poverty and the

percentage of them living in urban areas x per capita consumption of surrogate


US$




taxes


Colombia



Tax leakage – Key facts


All tax leakage can be attributed to producers of distilled alcoholic beverages

ColombiaB

evera

ges

• Tax leakage in Colombia stems from the unrecorded production of aguardiente and rum as well as from aperitivos

with higher-than-permitted levels of alcohol.

• No tax leakage was found in fermented alcoholic beverages.

Drivers • Weak law enforcement to control fiscal fraud.

• Lack of government regulations such as for exhaustive laboratory and chemical tests before the approval of

sanitary licenses for alcoholic beverage production.

Effects

• Fiscal loss.

• Unfair competition for the legal manufacturers that pay all taxes.



Tax leakage is the smallest category in Colombia, accounting for 3% of the illegal market in volume terms and 2% in

value terms.

Prices of illegal products are similar to those of their legal counterparts as they are produced by legal manufacturers

and normally sold at the normal price, with the manufacturer intending to profit from the evasion of taxes.

Alcoholic beverages in this category evade the excise taxes on aguardiente and rum, which are US$5.64 and

US$6.98 per liter, respectively.

The resulting fiscal loss was estimated at US$ 10 mn in 2013.

Tax leakage – Market size


Tax leakage comprises unrecorded production and aperitivos with higher-than-permitted levels of

alcohol

Colombia

51%40%

3%

4%


42%

45%

5%6%

Value 2013 (US$)


370,253

HL LAE

US$555

mn

US$1,309

mn

46%

36%

5%

10%3%

Volume 2013 (LAE)



This category more than doubled in size in 2012-2013, driven by the following factors.

Tax leakage – Market changes in 2012-2013


1

Lack of government regulation and enforcement to

verify if manufacturers are really complying with the

technical specifications of products (especially

aperitivos).

Manufacturers selling aperitivos with higher

concentrations of alcohol and paying lower excise.

2Weak law enforcement by the government to deter

fiscal fraud.Increased sales of unrecorded spirits.


Colombia

The tax leakage category recorded the highest growth rate in 2013



Tax leakage – Methodology



10,611 HL LAE

US$22 mn

US$10 mn

Approach 1: Residual analysis identifying

unrecorded production: local production – (exports + local

product sales)

Approach 2: Total sales of aperitivos x percentage of illegal aperitivos (with an

alcohol content above that permitted by law)







taxes


Colombia



2014 outlook – Illegal alcoholic beverages market


2014 market changes Implications

1Implementation of manufacturing control

technologies (SUNIR).

The purchase of this technology will only control

legal manufacturers’ tax evasion.

2Increase in cooperation between governmental

institutions.

Programs that involve different government

institutions such as the DIAN, POLFA, and

Secretaria de Hacienda working together could

lead to more effective controls and mechanisms to

combat illegal production and contraband.

3Weak regulatory environment for ethanol imports

and trading.

Unless the government creates strong regulations

to control the import and trade of ethanol, the main

raw material for the illegal production of alcoholic

beverages, the problem will only continue to grow.

The size and shape of the illegal market is changing in 2014

Colombia


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

►►Ecuador


• Continual increases in import taxes on alcoholic beverages have encouraged contraband from destinations with lower prices.

• A slight reduction in illegal artisanal ethanol production thanks to biofuel programs promoted by the government has helped reduce the volumes redirected to the illegal market.

• The availability of illegal alcohol in open street markets, hypermarkets, and supermarkets has now extended to non-traditional distribution channels such as eCommerce (through Twitter, Facebook, or Mercado Libre), making illegal products easy to obtain.

• The Ministry of Public Health has continued campaigns against the harmful consumption of alcoholic beverages, which has helped increase awareness among young and adult consumers.



Both legal and illegal consumption of alcoholic beverages declined in 2013

Ecuador


129,939 HL LAE



Ecuador

US$428 mn


US$109 mn

TOTAL FISCAL LOSS

US$483 mn




80.0%

20.0%

Ecuador alcoholic beverages market 2013 value

Legal % Illegal %



Illegal products had a 23.9% share of the total alcoholic beverages market in Ecuador in 2013

Ecuador

The size of the total market in 2013 was 543,630

HL LAE in volume terms and US$2,138 mn in

value terms.


the total market in volume LAE terms and 20%

in value terms; the legal market represents the

other 76.1% and 80%, respectively.

The total market contracted by 16.5% from 2012

to 2013 in LAE terms.

Fermented products have a 48.1% share of the

total market and distilled 51.9%. Beer represents

99.2% of all fermented products.

76.1%

23.9%

Ecuador alcoholic beverages market 2013 LAE






contracted at a 1.9% CAGR,

driven mostly by the legal

market.


market expanded at a 14%

CAGR, the highest growth rate

among the researched

countries.



beverages decreased 16.5%,

with lower volumes in both the

illegal and legal markets.

In 2013, the size of the legal

market was estimated at

413,690 HL LAE in volume

terms, of which fermented

products had a 62.4% share and

distilled products 37.6%. Beer

represents 99.9% of all

fermented products.



Ecuador

The total consumption of alcoholic beverages fell sharply between 2012 and 2013

87,639

186,326

129,939

488,559

464,470

413,690

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2011 2012 2013

HL

LA

E

Alcoholic beverages market size (volume LAE)






• Contraband finished products is the only category that grew in 2013. This was mainly the result of an increase in excise duties on imported brands, which makes smuggled products more profitable.

• The government has tightened its controls to reduce tax evasion in the private sector. As a result, tax leakage decreased during 2013.

• Despite stronger customs controls, the lack of sufficient control in open street markets, stores, and online stores continues to enable the sale of illegal alcoholic beverages.

• The increase in prices of legal alcoholic beverages has driven some low-income consumers to buy artisanal alcohol and/or prepare popular beverages such as canelazo for parties or gatherings. Even so, the consumption of artisanal alcoholic beverages declined during the research period.

Lower volumes of residual ethanol and governmental controls have helped reduce the size of the

illegal market

Ecuador



14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)

The size of the illegal market in 2013 was 129,939 HL LAE in volume terms and US$428 mn in value

terms.

In LAE terms, fermented products have a 2.7% share of the illegal market, vs. a 97.3% share for distilled

products. Beer represents 40% of fermented products.

In terms of fiscal loss, distilled products account for 93.3% and fermented 6.7%. Within distilled, the most

important alcoholic beverage is whisky.

Tax leakage accounts for 42% of the total fiscal loss from the illegal market.




Tax leakage remains the most important category in terms of volume, value, and fiscal loss

129,939

HL LAE

US$109

mn

Ecuador

US$ 428

mn

12%

30%

16%0%

42%




15.2%

28.6%

23.9%

0%

5%

10%

15%

20%

25%

30%

35%

% ille

gal share


2011 2012 2013

While the share of illegal products grew in 2011-2013, in absolute volume terms the illegal market

contracted 30.3% from 186,326 HL LAE in 2011 to 129,939 HL LAE in 2013.

The illegal share of the total market fell from 28.6% to 23.9% in 2012-2013.




Ecuador

*2011 share excluded tax leakage, which is the main category of illegal alcohol in Ecuador.

13.44.7



16.3

22.6

8.7 8.5

7.9

13.2

16.9

8.2 7.9 7.9

-

5.0

10.0

15.0

20.0

25.0


US

$ p

er

liter

Ecuador average RSP (US$ per liter) - 2013


Counterfeit: On average, illegal prices are 18.8% lower

than legal prices. As an example, illegal aguardiente can

be found at US$7.9 per liter, which is 7.1% lower than the

legal price.


contraband and legal products is 25.1%. As an example,

contraband whisky can be found at US$36.8 per liter, while

the average legal price is US$50.07 per liter.

Artisanal: Illegal artisanal alcoholic beverages are on

average 5.9% cheaper than legal versions.

Surrogate: The average price variation is 7.1%, with an

average illegal price of US$7.9 per liter for distilled

alcoholic beverages. All surrogate alcoholic beverages are

distilled in Ecuador.

Tax leakage: There is no price variation within tax

leakage, as illegal products are sold at the same price as

their legal counterparts.



Illegal selling prices are 11.4% lower than legal selling prices given the lack of tax payments and

lower production costs

Ecuador



63%





In volume terms, 0.5% of the beer market in Ecuador is illegal

99.5

% leg

al b

eer

0.5

% illeg

al b

eer

In 2013, beer had a 63% share of



LAE.


estimated at 1,381 HL LAE.

Illegal beer is almost all

contraband, as refill is not a

common practice.


was found in Ecuador.

Contraband beer generally comes

from Peru, due to lower prices

there.

Ecuador

0%

100%

Illegal beer, 2013


1,381 HL

LAE

413,690

HL LAE





The consumption of counterfeit alcoholic beverages decreased by 16.6% in 2013

EcuadorB

evera

ges

• Aguardiente is still the most common industrially produced illegal beverage.

• Empty bottles of legal local and imported brands are recycled and refilled with low-quality alcohol.

• Whisky is a popular refill beverage, while local brands such as Cristal, Zhumir, and other types of aguardiente are

also counterfeited and sold at the same price as legal products.

Where

• Illegal manufacturing and refill is common in large and small cities such as Quito, Guayaquil, Cuenca, Loja, and

Ambato.

• Refill generally takes place in bars and clubs.

• Counterfeit beverages are available in open markets located in the main cities and towns.

Dri

vers

• The authorities have no control over residual ethanol volumes, which makes it quite easy for individuals or

organizations to produce counterfeit alcoholic beverages and illegal brands.

• Artisanal ethanol is widely available and affordable in Ecuador.

• There are no regular controls to check if sanitary licenses are legal and correspond to the product. The lack of

controls allows companies to produce alcoholic beverages using sanitary licenses for other products, such as

yogurt or soda.


• Negative effect on a legal brand’s image and loss of sales of legal products.

• Possible health risks.



The counterfeit and illegal brands category accounts for 14.3% of the total illegal market in volume terms, making

it the fourth largest category in Ecuador.

Within the category, 81.5% is industrial manufacturing and 18.5% substitution/refill.

In value terms, it accounts for 14.4% of the total illegal market. On average, the prices of illegal products are

18.8% lower than those of their legal counterparts.

Alcoholic beverages in this category, whether produced or counterfeited, evade the excise tax (ICE) on spirits and

fermented beverages, which is US$6.93 per liter LAE.

The fiscal loss from counterfeit and illegal brands in 2013 is estimated at US$12.8 mn, or 12% of the total fiscal

loss.



Counterfeit accounts for 14.3% of the illegal market in volume terms and 14.4% in value terms

Ecuador

14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)


129,939

HL LAE

US$109

mn

US$428

mn

12%

30%

16%0%

42%




The counterfeit and illegal brands category declined 16.6% in 2012-2013, driven by the following factors.




1

More of the ethanol produced on farms is now

intended for biofuel programs and legal artisanal

beverages.

This has led to a small reduction in the

manufacture of counterfeit brands, particularly

within the national production of aguardiente.

2

The MSP (Ministerio de Salud Publica) has used

media campaigns to increase consumer awareness

of the dangers of drinking illegal alcohol.

More consumers are aware of the potential health

risks associated with drinking illegal alcohol.

3Contraband alcohol is more profitable than

counterfeit.

This has led to a market shift towards contraband

and away from counterfeit.

Based on research findings, Biofuel programs are reducing residual ethanol supply and had an

impact on counterfeit consumption in 2013

Ecuador




18,540 HL LAE

US$61.4 mn

US$12.8 mn

Approach 1: Based on legal consumption of alcoholic

beverages by channel (on/off trade) x estimated

percentage of refill per type of beverage

Approach 2: Residual analysis of ethanol to

estimate volumes potentially diverted to the illegal alcohol

market







taxes




Ecuador





Rising taxes on the imports of alcoholic beverages continue to drive consumption of smuggled

brands

EcuadorB

evera

ges

• Within contraband finished products, the most common type of beverage is whisky.

• Johnnie Walker (Red and Black Label) is one of the brands most affected.

• Contraband ethanol is used for the elaboration of illegal brands such as Cana la Cubana.

Where • Most contraband, especially whisky, enters the country at the Peruvian border.

• The most problematic borders for contraband are Tulcan, Guaquillas, and Loja.

• Some contraband finished products come by sea from Panama.

Dri

vers • High taxes and duties encourage contraband.

• Lower taxes in neighboring countries such as Peru encourage the smuggling of products into Ecuador.

• Although the authorities have checkpoints and controls on the roads on the borders with Peru and Colombia,

there are still uncontrolled areas where contraband is present.

Effects • The government loses income taxes, value added tax (IVA), and special consumption taxes (ICE).

• Companies that import products legally and pay taxes are not able to compete, leading to lower sales of legal

alcoholic beverages and higher demand for contraband.



The contraband category represents 15.2% of the illegal market in volume terms and 26.5% in value terms.

Within the category, 38.2% is contraband ethanol as a raw material and 61.8% is contraband finished

products (in volume terms).

In terms of types of beverage, the contraband category is 11.3% fermented and 88.7% distilled. Beer

accounts for 7% of all contraband.

Prices of smuggled alcoholic beverages are 25.1% lower than those of their legal counterparts. This is

because the products come from countries such as Peru, where taxes are lower than in Ecuador.

Smuggled alcoholic beverages and ethanol evade import duties of 10.5%, excise taxes of US$6.93 per liter

for all alcoholic beverages, and an ad valorem tax of 75%.

The total fiscal loss from contraband in 2013 is estimated at US$32.7 mn.



Contraband is the only category that expanded in 2013

Ecuador

14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)


129,939

HL LAE

US$109

mn

US$428

mn

12%

30%

16%0%

42%




The contraband category contracted 15.9% in 2012-2013, driven by the following factors.




1 Steep tax increase for imported alcoholic beverages.

Higher volumes of contraband finished products, as

profits are higher for smugglers and consumers

demand lower-priced brands.

2Contraband ethanol volumes have been decreasing

due to authorities’ stronger controls.

Lower volumes of ethanol to be used for the

production and commercialization of counterfeit

alcoholic beverages.

Increase in Special Consumption Tax (ICE) and import duties have driven contraband volumes

Ecuador






19,722 HL LAE

US$113 mn

US$33 mn

Approach 1: Total imports of ethanol x

estimated percentage that is contraband = market size of illegal

ethanol imports

Approach 2: Residual analysis of imported alcoholic

beverages to estimate volume of illegal

imports

Approach 3: Based on illegal sales of

spirits and its variation from 2012-2013 x

estimated growth in % of contraband

Approach 4: Store checks to ascertain prices of legal and

illegal alcoholic beverages in order to


Approach 5: Cross-check of category’s

share as a percentage of the

illegal market

Approach 6: Fiscal loss calculated based

on illegal volumes/values and

excise taxes


Ecuador





Strong consumption of artisanal alcoholic beverages

EcuadorB

evera

ges

• The most popular artisanal alcoholic beverage is aguardiente, which is a distilled product.

• Puntas, which are illegal, are prepared using blackberries, araza fruit, and even uncooked chicken.

• Chicha is a fermented beverage commonly consumed by indigenous people.

Where • Artisanal products are most prominent in rural areas.

• Some of the most popular places for producing artisanal alcohol are Guaranda, Tandapi, Alluriqui, Cotopaxi, and

the outskirts of Guayaquil and Cuenca.

Dri

vers

• For some parts of the population, artisanal alcoholic beverage consumption is part of their culture and is

considered a normal practice. Artisanal alcohol is usually consumed during celebrations such as Inti Raimi and

weddings, and on national days and weekends.

• Artisanal alcohol is sometimes five times cheaper than legal aguardiente, so it is perceived as good value for

money.


• Artisanal alcohol is sometimes made with raw chicken to accelerate the distillation process and consumption can

lead to a wide range of diseases.



Illegal artisanal alcoholic beverages account for 19.3% of the total illegal market in volume terms (second

largest category) and 9.8% in value terms (fourth largest category).

In terms of types of beverage, 8.3% are fermented and 91.7% distilled.

Illegal artisanal alcoholic beverages are 5.9% cheaper than their legal counterparts. Prices are low

because producers have limited manufacturing costs, pay no taxes, have no registration licenses, do not

undertake marketing, and do not use labels or special bottles.

Illegal artisanal products evade excise tax (ICE) of US$6.93 per liter.

The total fiscal loss from the illegal artisanal category in 2013 is estimated at US$17.4 mn.



The consumption of artisanal alcoholic beverages is common given the availability of such products

in rural and remote areas

Ecuador

14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)


129,939

HL LAE

US$109

mn

US$428

mn

12%

30%

16%0%

42%




The illegal artisanal category shrank 7.6% in 2012-2013, driven by the following factors.




1The Ecopais biofuel program has continued to

incorporate artisanal volumes in its schemes.

This initiative helps families sell alcohol at higher

prices than in the illegal market, hence reducing

illegal artisanal consumption.

2

Organizations such as CADO are now producing

high quality organic alcohol and manufacturing

artisanal alcohol creams for exportation.

This private initiative, which involves 68

communities, intends to produce high quality

artisanal alcohol creams that can be exported and

eventually commercialized in the legal Ecuadorian

market.

3Public entities such as MSP are raising consumer

awareness of toxic alcohol.

Consumers are better informed about the health

risks associated with consuming illegal alcohol

without sanitary registrations and are less willing

to buy this type of alcohol.

Biofuel programs are helping to reduce the production of illegal artisanal alcoholic beverages

Ecuador






25,063 HL LAE

US$44 mn

US$17 mn

Approach 1: Impact of biofuel programs on artisanal production of alcoholic

beverages based on 2012 production estimates


US$




taxes


Ecuador





Surrogate consumption in Ecuador remains less than 1% of the total illegal market

EcuadorB

evera

ges

• Surrogates are prepared by mixing poor quality ethanol containing toxic levels of methanol with water, soda, and

artificial flavors and colorants.

Where

• Surrogate alcohol is normally sold in low-income areas of Ecuador, particularly around markets located outside of

the main cities.

Dri

vers

• Demand for surrogate alcohol is driven by people with alcohol abuse issues who look for alcoholic beverages with

high alcohol content at low prices.

Effects

• High risks to consumer health due to toxic ingredients such as methanol, which can lead to blindness and death.

• Public disorder issues related to harmful consumption of alcohol.



In terms of volume, value, and fiscal loss, surrogate represents less than 1% of the illegal market in

Ecuador.

Compared to legal aguardiente, which is the most affordable alcoholic beverage, the prices of surrogate

are 7.1% lower, as the ethanol used is mostly artisanal and low quality.

To calculate the tax evasion stemming from surrogate alcoholic beverages, Euromonitor International used

the tax rate for the product that is being replaced by the surrogate. The applicable taxes are therefore those

for aguardiente (ICE of US$6.93 per liter LAE).

The total fiscal loss from surrogate in 2013 is estimated at US$0.4 mn.



Surrogate is the smallest illegal alcoholic beverages category in Ecuador

Ecuador

14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)


129,939

HL LAE

US$109

mn

US$428

mn

12%

30%

16%0%

42%




The surrogate category declined 62.2% in 2012-2013, driven by the following factors.




1 Decreased availability of artisanal ethanol.Lower volumes available for surrogate, leading to a

decrease in intoxication cases last year.

2

The Ministerio de Salud Publica (MSP) has

strengthened its awareness programs targeting

illegal alcohol consumption.

Consumers are more aware of the health risks

associated with drinking surrogate alcohol.

3Government entities such as MSP are closely

following cases of methanol intoxication.

Reduced number of cases of methanol intoxication

resulting from surrogate consumption.

Strong decline in surrogate consumption during 2012-2013 due to lower availability of artisanal

ethanol

Ecuador






541 HL LAE

US$0.9 mn

US$0.4 mn

Approach 1: Artisanal volumes containing methanol

for 2013, to calculate total surrogate market size


US$




taxes


Ecuador





All tax leakage comes from producers of distilled alcoholic beverages

EcuadorB

evera

ges

• Most tax leakage is related to aguardiente, mainly because there is substantial production of it in the country.

• Due to a lack of sufficient control by the authorities, producers of aguardiente and other spirits sometimes do not

pay excise tax in order to achieve higher sales and profits.

Drivers

• High profit margins resulting from tax evasion.

• Weak law enforcement to prevent tax evasion.

Effects

• Fiscal loss.

• Unfair competition for brands that pay their taxes.



Tax leakage represents 51% of the illegal market in volume terms and 49% in value terms, making it the

largest category. Most tax leakage stems from distilled alcoholic beverages.

There is no difference in the legal and illegal retail prices of fruit wine, aguardiente, and rum, as the

products are sold through the same channels.

Alcoholic beverages in this category evade the excise tax of US$6.93 per liter LAE.

The total fiscal loss from this category in 2013 is estimated at US$45.8 mn.



Ecuador

14%

27%

10%

49%

Value 2013 (US$)

14%

15%

19%1%

51%

Volume 2013 (LAE)


129,939

HL LAE

US$109

mn

US$428

mn

Tax leakage is still the main issue facing the alcoholic beverages industry in Ecuador

12%

30%

16%0%

42%




The tax leakage category shrank 41.1% in 2012-2013, driven by the following factors.




1General decline in consumption of alcoholic

beverages in Ecuador.

As consumption per capita of alcoholic beverages

fell last year, tax leakage volumes from unrecorded

production also declined.

2Stronger governmental controls to restrict fiscal

fraud.

More pressure on companies to deliver financial

information has helped reduce the fiscal loss.

Although tax leakage is still the largest category, it decreased in size last year

Ecuador






fiscal loss:

66,073 HL LAE

US$207 mn

US$46 mn

Approach 1: Volume of national production of

alcoholic beverages x ICE per liter LAE = estimated tax

collection; this is then compared to actual tax

collection

Approach 2: Total unrecorded volumes based on locally produced brands

and its consumption







taxes


Ecuador






1Continual price increases for imported products

such as whisky, rum, tequila, and vodka.

This will drive the demand for contraband. Also,

consumers who are more price conscious will

probably prefer to buy locally produced brands

(legal or illegal).

2A fiscal stamp on the top of the bottle will be a new

requirement for imported alcoholic beverages.

This new fiscal stamp will help customs brokers

easily identify whether alcohol entering the country

is legal or illegal. However, it might create an

incentive for corruption as well.

3

The SENAE is expected to conduct several visits to

commercial stores, liquor stores, bars, pubs, and

discotheques that sell alcohol.

The increase in checks in cities and towns will help

verify the relevant documents provided by

companies that import alcoholic beverages legally.

It will also help identify alcohol without sanitary

registration, which can pose a health risk to

consumers.


Ecuador


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

►►El Salvador


• Stronger supervision by the police and municipalities to control the sale of low-price aguardiente and pharmaceutical alcohol has helped reduce surrogate and refill volumes.

• The approved ethanol quota for the alcoholic beverages industry increased 5.9% in 2013 but recorded sales show a decline in the consumption of legal locally produced spirits, hence tax leakage volumes were found.

• Ethanol quotas continue to be approved without any further control over final usage, allowing manufacturers to divert volumes from their originally declared purposes to the illegal market.

• The economic crisis has pushed consumers to look for less expensive or illegal alcoholic beverage options, driving demand for contraband.



Both the legal and illegal consumption of alcoholic beverages declined in 2013

El Salvador


32,238 HL LAE



El Salvador

US$54 mn


US$18 mn

TOTAL FISCAL LOSS

US$64 mn






The illegal market accounted for 24.9% of the total alcoholic beverages market in El Salvador in 2013

El Salvador


HL LAE in volume terms and US$533.20 mn in

value terms.


the total market in volume LAE terms and 10.1%

in value terms; the legal market represents the

other 75.1% and 89.9%, respectively.

The total market shrank 9.2% in LAE terms from

2012 to 2013.




75.1%

24.9%

El Salvador alcoholic beverages market 2013 LAE


89.9%

10.1%

El Salvador alcoholic beverages market 2013 value

Legal % Illegal %





expanded at a limited 0.4% CAGR,

driven mostly by the illegal market.


market grew at a 7.6% CAGR,

which is one of the highest growth

rates among the researched

countries.

In 2012-2013, the total


beverages decreased by 9.2%.

The size of the legal market was

estimated at 97,352.7 HL LAE in

2013. Fermented products have a

44.7% share and beer represents




El Salvador

The total consumption of alcoholic beverages decreased by almost 10% between 2012 and 2013

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2011 2012 2013

HL L

AE

Alcoholic beverages market, volume 2013






• While expendios are now strictly controlled by municipal authorities, pharmacies still sell alcohol as a surrogate.

• Quotas for purchasing ethanol are easily approved. This has allowed counterfeiters to purchase ethanol more freely as an input for their production.

• According to executives of legal manufacturers and trade associations, higher taxes on the production of alcoholic beverages are pushing producers to declare that their ethanol is for medicinal use.

• Ethanol is freely available and is not subject to government controls, giving producers freedom to manufacture illegal beverages.

Lower volumes of residual ethanol, combined with government controls, have helped reduce the size

of the illegal market

El Salvador



38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%

Illegal market (US$)

46%

6%4%

39%

5%

Illegal market (LAE)

The size of the illegal market in 2013 was 32,238 HL LAE in volume terms and US$54 mn in value terms.

The illegal market represents 24.9% of the total market in volume LAE terms and 10.1% in value terms.

All illegal products are distilled; there are no illegal fermented beverages.

The most important distilled alcoholic beverages are vodka popular and aguardiente.





Counterfeit and surrogate remain the most relevant categories in the illegal market

32,238

HL LAE

US$18

mn

El Salvador

US$54

mn



20.2%

23.5%24.9%

0%

5%

10%

15%

20%

25%

30%

% ille

gal share


2011 2012 2013

In volume terms, the illegal market grew 7.6% from 25,867 HL LAE in 2011 to 32,238 HL LAE in 2013.

However, between 2012 and 2013 the illegal market shrank 3.7%, mostly due to a contraction in counterfeit

and surrogate volumes as a result of stronger law enforcement.

Despite the decline in illegal volumes, the illegal market share grew as the size of the legal market fell

10.9%.




El Salvador


3.31.4



4.8

34.5

9.1

4.0 4.6

16.8

0

5

10

15

20

25

30

35

40

Counterfeit Contraband Illegal Artisanal Surrogate

US

$ p

er

liter

El Salvador average RSP (US$ per liter) - 2013


Counterfeit: On average, illegal prices are 3.3% lower

than legal prices. As an example, vodka popular can be

found at US$9 per liter, which is 3% lower than the legal

price.


contraband products (mostly premium spirits) and their

legal counterparts is 51.3%. As an example, whisky can be

found at US$26.1 per liter whereas the average legal price

is US$58.6 per liter.

Artisanal: Artisanal alcoholic beverages are sold at the

same price whether legal or illegal, as volumes of legal

chaparro (the main artisanal beverage) are limited.

Surrogate: As all surrogate is prepared with alcohol sold

through pharmacies or clandestine expendios, the prices

are the same as those for legal alcohol.

Tax leakage: There is no variation within tax leakage, as

illegal alcoholic beverages are sold at the same price as

their legal counterparts.



Illegal selling prices are 15.3% lower than legal prices given the lack of tax payments and lower

production costs

El Salvador



43%





All beer brands available in El Salvador are legal

100%

leg

al b

eer

In 2013, beer represented 43% of the legal alcoholic beverages market,

equivalent to 41,711 HL LAE.

No illegal beer was found in El Salvador.

El Salvador

97,353 HL

LAE





The consumption of counterfeit alcoholic beverages decreased by 5.6% in 2013

El SalvadorB

evera

ges

• Refill is produced by mixing authentic aguardiente or vodka popular with water or ethanol.

• Local brands such as Canita Rica, Tres Cheros, El Muñeco, and Tic Tac aguardientes and Troika and Petrov

vodkas are those subject to refill as they enjoy higher demand.

Where • Refill mostly happens in on-premises channels such as expendios and bars.

• Some counterfeit aguardiente and vodka can be found in off-premises channels but this is not a common practice

in El Salvador.

Dri

vers • A lack of regulation over the end uses of ethanol once the quota for a specific industry has been approved.

• Growing consumption of aguardiente and vodka popular among Salvadorans due to the economic crisis, as these

are more affordable alcoholic beverages (with a higher alcohol content).

Effects • Tax evasion.

• Damage to a brand’s image.

• Potential health risk if the refill is with poor quality ethanol.



The counterfeit and illegal brands category represents 46% of the illegal market in volume terms and 50% in value

terms, in both cases the largest category.

In terms of beverage types, the counterfeit and illegal brands category is composed of distilled beverages only.

Refill/substitution represents 100% of the category as there is no illegal industrial manufacturing in El Salvador.

Counterfeit alcoholic beverages evade the excise tax based on alcohol content (US$0.033 per liter LAE for

aguardiente and US$0.05 for vodka popular) and the ad valorem tax for all alcoholic beverages (8% of the retail

price).

The total fiscal loss from counterfeit and illegal brands in 2013 is estimated at US$6.7 mn.



Counterfeit is the largest category in the illegal market

El Salvador


38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%


46%

6%4%

39%

5%


32,238

HL LAE

US$18

mn

US$54

mn



The counterfeit and illegal brands category contracted 5.6% in 2012-2013, driven by the following factors.




1

Police controls to eradicate counterfeit products

have been effective in El Salvador. Legal producers

have cooperated with the authorities, sharing

information that has led to successful raids.

Sales now take place through only a few channels,

resulting in a decline in sales.

2Local authorities are focused on closing illegal

expendios selling counterfeit alcohol.

Since refill mostly happens in on-premises

channels such as expendios, sales have fallen

thanks to the reduced number of expendios.

Improved law enforcement helped squeeze the counterfeit market in 2013

El Salvador






El Salvador


14,860 HL LAE

US$27 mn

US$7 mn

Approach 1: Total consumption of vodka

popular and aguardiente x percentage of refill for each

alcoholic beverage according to the main local

manufacturers

Approach 2: Interviews with manufacturers and

distributors to gauge the percentage of refill

throughout the distribution process







taxes





No contraband fermented alcoholic beverages were found in El Salvador

El SalvadorB

evera

ges

• Only distilled alcoholic beverages are smuggled into the market, with whisky, vodka, and rum the most common.

• Johnnie Walker, Chivas Regal, Flor de Caña, Absolut, and Finlandia are the most common smuggled brands.

Where

• Most contraband enters the country across the borders with Guatemala and Honduras, especially through blind

entry points where there are no government controls.

Dri

vers • The main driver is the high retail prices of premium brands of whisky, vodka, and rum.

• Consumers are looking for more affordable prices, feeding demand for smuggled alcoholic beverages.

• Rising legal retail selling prices combined with the country’s worsening economic situation drive demand for

cheaper illegal alternatives.

Effects

• The government is losing taxes as a result of illegal imports.

• Legal importers and distributors are losing market share to their illegal counterparts.



Contraband accounts for 6% of the illegal market in volume terms and 16% in value terms, making it the

third largest category.

All illegal imports are of finished products; there is a surplus of ethanol in the country so there is no

attractive market for contraband ethanol.

Smuggled finished products evade import duties of 30% for whisky and vodka and 35% for rum. They also

evade excise taxes based on alcohol content (per liter LAE) of US$0.16 for whisky, US$0.09 for vodka of

LAE >37%, and US$0.05 for rum of LAE<37%, as well as an ad valorem tax for all alcoholic beverages of

8% of the retail price.

The total fiscal loss from the contraband category in 2013 is estimated at US$4.3 mn.



Contraband was the fastest growing category in 2013

El Salvador


38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%


46%

6%4%

39%

5%


32,238

HL LAE

US$18

mn

US$54

mn



The contraband category grew 8.3% in 2012-2013, driven by the following factors.




1Higher retail prices encourage individuals to buy

cheaper contraband alcoholic beverages.

Local importers/distributors are seeing their sales

decrease due to the increase in contraband.

2Blind entry points on the border with Guatemala and

Honduras facilitate the entry of contraband.

Even though duty free stores where closed,

smugglers have found a way to enter products

illegally, through blind points.

Consumers keep looking for more affordable spirits, driving demand for smuggled brands

El Salvador






El Salvador


1,984 HL LAE

US$8 mn

US$4 mn

Approach 1: Total consumption of whisky,

vodka, and rum x percentage of contraband for each type of alcoholic

beverage

Approach 2: Total consumption of distilled alcoholic beverages x

percentage of contraband






Approach 5: Estimation of fiscal loss considering the

import taxes and excise for whisky, vodka, and rum





Chaparro is still the main illegal artisanal alcoholic beverage in El Salvador

El SalvadorB

evera

ges

• The main illegal artisanal beverage is chaparro, made from the distillation of corn and sugar cane.

• Chaparro is sold in reused plastic bottles or in plastic bags.

Where • Chaparro is usually consumed on-premises in small expendios.

• The consumption of chaparro is concentrated in low-income neighborhoods in the main cities and smaller rural

towns.

Dri

vers • Consumers in rural areas drink artisanal alcoholic beverages as part of their culture, making it a normal practice

for most of them.

• Consumers prefer artisanal products because of their high levels of alcohol and lower prices compared to legal

spirits.

Effects

• Health risks given the lack of proper supervision of the preparation methods.

• Tax evasion by producers.



The illegal artisanal category represents 4% of the illegal market in volume terms and 6% in value terms.

Illegal artisanal alcoholic beverages evade the excise tax on vodka popular, which is the alcoholic

beverage most similar to chaparro. The tax based on alcohol content for vodka popular is US$0.05 per liter

LAE and the ad valorem tax for all alcoholic beverages is 8% of the retail price (US$6.16 per liter of vodka

popular).

The total fiscal loss from the illegal artisanal category in 2013 is estimated at US$0.7 mn.



Consumption of chaparro is strongly related to cultural factors in El Salvador

El Salvador


38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%


46%

6%4%

39%

5%


32,238

HL LAE

US$18

mn

US$54

mn



The illegal artisanal category grew 6% in 2012-2013, driven by the following factors.




1Per capita consumption of chaparro is increasing

due to the higher retail prices of legal aguardiente.

Larger volumes of chaparro were produced to

satisfy low income consumers’ demand for


2 Larger population within drinking age.Production of chaparro has increased to satisfy

demand.

Growing demand for chaparro as local spirits are becoming more expensive for low income

consumers

El Salvador






El Salvador


1,349 HL LAE

US$3 mn

US$0.7 mn

Approach 1: Per capita consumption of chaparrobased on La Constancia

study x estimated number of consumers

Approach 2: Interviews with artisanal and aguardiente consumers to understand

consumption patterns

Approach 3: Total population x % men x rural population x % alcoholic x per capita consumption =

total consumption of chaparro




Approach 5: Estimation of tax evasion based on excise

tax on vodka popular





Pharmacies have become the main supply channel for surrogate in El Salvador

El SalvadorB

evera

ges

• Surrogates are prepared with poor quality alcohol mixed with water, soda, or juices.

Where

• The main distribution channel for surrogate is pharmacies as the government has better control over the

expendios.

Dri

vers • Low-income consumers suffering from alcohol addiction demand strong alcoholic beverages at cheap prices.

• A lack of controls over the supply of ethanol available in the country makes it easy for pharmacies to sell alcohol

as a surrogate.

Effects

• High risk to consumer health (consumption can lead to blindness and death).

• Fiscal loss.



Surrogate represents 39% of the illegal market in volume terms and 23% in value terms, making it the

second largest category.

To calculate the tax evasion stemming from surrogate alcoholic beverages, Euromonitor International used

the tax rate for the product that is being replaced by the surrogate. For example, for consumers who usually

drink aguardiente but replace it with pharmacy alcohol or any other surrogate, the tax rate used in the

calculation is that applied to aguardiente.

The total fiscal loss from surrogates in 2013 is estimated at US$5.4 mn.



Surrogate is the second largest category in the illegal market

El Salvador


38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%


46%

6%4%

39%

5%


32,238

HL LAE

US$18

mn

US$54

mn



The surrogate category shrank 14.5% in 2012-2013, driven by the following factors.




1

Government control over the ethanol supply chain

and distributors has increased, in cooperation with

the National Civil Police and other agencies.

Decreased supply of alcohol sold through

Pharmacies due to law enforcement.

2

Legal action taken by distilleries against illegal

distribution and supply has been effective in terms

of controlling the supply chain.

Illegal chains of distributors are reducing their offer

due to fear of legal action.

Strong decline in surrogate consumption during 2012-2013 due to improved law enforcement by the

government

El Salvador






El Salvador


fiscal loss:

12,511 HL LAE

US$13 mn

US$5 mn

Approach 1: Based on interviews with key players in the industry, surrogate volume

was estimated as a percentage of the legal

consumption of aguardiente

Approach 2: Based on the supply of ethanol outside the

approved quota for the alcoholic beverages industry and the percentage used for

surrogate consumption


US$

Approach 4: Fiscal loss calculated by applying the

excise on vodka popular and aguardiente





Unrecorded volumes of spirits were found in El Salvador in 2013

El SalvadorB

evera

ges

• All tax leakage volumes are distilled beverages.

• Tax leakage is most common for aguardiente.

Drivers • Weak law enforcement.

• High profit margins due to tax evasion.

• Undeclared products are sold at the same price as their legal counterparts and the difference in costs is

pocketed.

Effects

• Fiscal loss.

• Unfair competition for brands that pay their production taxes.



The tax leakage category represents 5% of the illegal market in volume and value terms.

All tax leakage comes from distilled alcoholic beverages.

Alcoholic beverages in this category evade the excise tax for aguardiente (US$0.033 per liter LAE).

The total fiscal loss from this category in 2013 is estimated at US$0.7 mn.



El Salvador


Unrecorded volumes were found in 2013, in contrast to in previous years

38%

24%

4%

30%

4%

Fiscal loss (US$)

50%

16%

6%

23%

5%


46%

6%4%

39%

5%


32,238

HL LAE

US$18

mn

US$54

mn



The following are the main factors behind the estimates of tax leakage during 2013.




1

A lack of strict controls over the production and

distribution process has created an opportunity for

manufacturers to produce alcoholic beverages

without declaring them.

Some products are being offered at the same retail

price but are evading excise taxes.

2Local production of ethanol increased by 190% at

Ingenio La Cabaña.

The availability of residual ethanol has increased,

making it easier to turn ethanol into alcoholic

beverages without paying taxes.

Since no volumes of tax leakage were found in previous years, no growth rate is available

El Salvador






El Salvador


fiscal loss:

1,534 HL LAE

US$3 mn

US$0.7 mn

Approach 1: Comparing the total legal supply of ethanol based on approved quotas with the local production of

vodka popular and aguardiente, a surplus of

ethanol was identified

Approach 2: To avoid double counting, counterfeit and illegal

brand volumes are included under that category


US$


taxes



2014 outlook - Illegal alcoholic beverages market



1

Local legal producers have donated equipment and

provided training to government offices to control

approved quotas usage. This program should be

operating by the second semester of 2014.

Illegal production should decline thanks to better

government controls along the supply chain of ethanol as

a raw ingredient, production, distribution, and retail sales,

with on-the-spot checks.

2The “Ventanilla Unica” system functions only in January

and its effectiveness is being monitored and evaluated by

a Ministerio de Hacienda specialist.

Strict controls and conditions for importers, manufacturers

and distributors could arise from this evaluation, giving the

authorities a better chance to track the ethanol supply

chain.

3The growth of contraband via blind entry points on the

borders with Guatemala and Honduras poses a threat to

the counterfeit market.

It is easier and more profitable to sell contraband than

counterfeit products. Consumers are tempted by less

expensive options usually sold in public markets.


El Salvador


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

►►Honduras


• Contraband remains the main category of illegal alcohol. It is growing in rural areas and also expanding into supermarkets and formal warehouses.

• Smuggled ethanol is the raw material for all counterfeit beverages produced locally.

• Contraband beer grew in 2013 in terms of variety of brands and points of sale.

• Surrogate does not exist in Honduras due to ample local production of low-priced aguardiente (both legal and illegal).

• As a result of the elections in 2013, public agencies’ attention was somewhat diverted from administrative matters.



Contraband continues to grow in rural areas and has now reached major cities

Honduras


13,930 HL LAE



Honduras

US$18 mn


US$2 mn

TOTAL FISCAL LOSS

US$22 mn






The total market contracted in 2013, with lower volumes in both the legal and illegal markets

Honduras


HL LAE, which corresponds to a value of

US$453 mn.


the total market in LAE volume and 3.9% in

value terms.

The total market volume declined by 5.4% in

2012-2013.



99% of all fermented products.

86.5%13.5%

Honduras alcoholic beverages market 2013 LAE


96.1%

3.9%

Honduras alcoholic beverages market 2013 value

Legal % Illegal %





contracted at a 4.2% CAGR,


market.


market declined at a 5.3%

CAGR, making Honduras the

only researched country where

the illegal market is shrinking.



beverages fell by 5.4%.

In 2013 the size of the legal

market was estimated at 89,557

HL LAE, of which fermented

products have a 60.6% share

and distilled products the

remaining 29.4%. Beer

represents 99% of all fermented

products.



Honduras

The market decline trend continued through 2013, driven by the poor state of the economy

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2011 2012 2013

HL L

AE







• The underperforming Honduran economy combined with increasing taxes has led consumers to seriously consider prices when making a purchase.

• There is abundant supply of illegal aguardiente and contraband products in rural areas, where consumers tend to be most price-sensitive.

• A lack of government surveillance in an election year contributed to higher levels of contraband.

• The strict quota on ethanol imports continues to encourage contraband, since there is no local production and imports are insufficient to meet the demand.

• The devaluation of the local currency has taken its toll on the overall market because it has made imports more expensive.

Price and supply/availability have the largest impacts on the illegal alcoholic beverages market

Honduras



0.1%

99.9%


0.1%

99.9%

Value 2013 (US$)

0.2%

99.8%

Volume 2013 (LAE)

The size of the illegal market in 2013 was 13,930 HL LAE volume, which corresponds to US$18 mn.

The illegal market represents 14% of the total market in LAE volume and 4% in value terms.

In volume terms, fermented products have a 7% share of the illegal market and distilled products a 93%

share. Beer represents 100% of fermented products.

In terms of fiscal loss, distilled products account for 76% and fermented 24%. Within distilled, the most

important alcoholic beverages are whisky, vodka, and tequila.

Nearly all of the illegal market is contraband.




The most popular type of alcoholic beverage in the illegal market is distilled

Honduras

13,930

HL LAE

US$18

mn

US$2

mn



13.9%13.1%

13.5%

0%

5%

10%

15%

% ille

gal share

Evolution of the illegal market - 2011 - 2013 (HL LAE)

2011 2012 2013

During 2011-2013 the share of the illegal market has been fairly stable, fluctuating between 13.9% and

13.1%. Both the legal and illegal markets contracted during that period.

In 2012-2013 the consumption of illegal alcohol decreased (albeit at a slower pace than the consumption

of legal alcohol), from 14,287 HL LAE in 2012 to 13,930 HL LAE in 2013.



For the past three years, the share of illegal alcohol has fluctuated within a narrow range

Honduras


0.8 0.4



Counterfeit: On average, illegal prices are 24% lower than

legal prices. As an example, legal guaro sells for $3.5 per

liter, which is substantially higher than illegal guaro which

sells for US$2.7 per liter.

Contraband: The average price gap between legal and

illegal prices is 25%. Some examples of the price gaps that

exist among finished products are the following: illegal

whisky is US$28.9 vs. US$39 for legal and illegal tequila is

US$12.5 vs. US$22.8 for legal.

Artisanal: The average price variation is 20%, with an

average of US$ 4.7 per liter for gifiti.



Illegal prices are 25% lower than comparable legal prices

Honduras

3.5

6.1 5.9

2.7

4.6 4.7

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Counterfeit Contraband Illegal Artisanal

US

$ p

er

liter

Honduras average RSP (US$ per liter) -2013




63%



0%

100%

Illegal beer




In volume terms, 1.7% of the beer market in Honduras is illegal

98.3

% leg

al b

eer

1.7

% illeg

al b

eer

In 2013 beer represented 63% of



LAE.


estimated at 971 HL LAE.

The illegal beer market is entirely

contraband.


was found in Honduras.

Honduras

971 HL

LAE

89,557 HL

LAE





Second most important category in Honduran market

HondurasB

evera

ges

• All illegal production is of aguardiente.

• The most commonly counterfeited products are locally produced aguardiente brands such as Catrachito, Golazo,

and Bambu.

• There is no counterfeit or illegal production of fermented beverages in Honduras.

Where

• Illegal production takes place mostly in rural areas, close to sugar cane crops. The products are usually

consumed near the areas of production.

• Large cities such as Tegucigalpa and San Pedro Sula are the main sources of bottles used for counterfeit

products. The final product is sold mostly in rural areas or smaller cities where there is very little government

control.

Drivers • Since aguardiente is the most common alcoholic beverage in the country, it is the most counterfeited product.

• Aguardiente bottles and labels are easy to obtain because they are locally produced and aguardiente is highly

consumed by Hondurans.


• Illegally produced aguardiente is cheaper than the legal versions, affecting the sales of legal products.

• Due to the price difference between legal and illegal aguardiente, legal producers cannot increase their prices

every year in line with inflation or to pass on increases in production costs.



1%

99%

Fiscal Loss (US$)

0.1%

99.9%

Value 2013 (US$)

US$18

mn

0.2%

99.8%

Volume 2013 (LAE)



Ethanol and panela are the raw materials used in the manufacturing of counterfeit and illegal brands

Honduras


US$2 mn 13,930

HL LAE

The counterfeit and illegal brands category represents 0.2% of the illegal market in volume terms and 0.12% in

value terms, making it the second largest category.

Counterfeit alcoholic beverages that are produced by mixing ethanol with water and flavors are classified as

contraband because the ethanol used is smuggled into the country.

Panela-based industrially manufactured illegal brands are classified within this category. Their volume in 2013 was

32 HL LAE, all distilled.

All counterfeit and illegal brands are from industrial production; there is no refill/substitution.



The counterfeit and illegal brands category grew in part given by an ample supply of panela.



1

Decline in global coffee prices due to a strong

harvest in Brazil and production issues as a result

of an outburst of coffee rust in Honduras.

Small farmers switched to producing sugar cane

instead of coffee, providing more raw material for

the illegal alcohol industry.

2 Increase in panela production. Wider availability of raw material used for illegal

production of unbranded aguardiente.

3The economic crisis has led to lower purchasing

power and a larger gap between social classes.

Increase in demand for cheaper alternatives to

legal alcoholic beverages.


Honduras

Wider availability of raw materials facilitates illegal distillation






32.4 HL LAE

US$0.02 mn

US$0.01 mn

Approach 1: Refilledaguardiente into bottles of Other Brands (excludes

Licorera Los Angeles and El Buen Gusto).

Approach 2: Refilledaguardiente into bottles of

Licorera Los Angeles' aguardientes

Approach 3: Add Approach 1 and 2.

Approach 4: Local production of panela x the % of panela used for illegal

alcohol production


taxes

Honduras






Contraband is the largest category of illegal beverages and pricing is one of its most important

drivers

HondurasB

evera

ges

• The most common types of contraband alcoholic beverages are beer, whisky, vodka, and tequila.

• The most affected distilled beverage brands are Johnnie Walker (Black Label), Chivas, José Cuervo, and Absolut,

while the most affected fermented brands are Corona, Carta Blanca, Royal Dutch, Tecate, Old Milwaukee,

Schlitz, Burgemeester, and Hollandia.

Where

• The majority of contraband ethanol enters the country at the border with Guatemala.

• Contraband finished products enter the country via land and sea, through ports such as Puerto Cortes and the

Bay Islands. Land entry is usually via blind points with neighboring countries and often involves corrupt customs

officials.

Dri

vers • The difference between legal and illegal prices is the most important driver of contraband.

• Legally imported ethanol pays a higher tax rate than methanol. This fuels the illegal importation of contraband

ethanol by reporting it as methanol.

• The consumption of contraband finished products continues to be driven by the country’s worsening economy.

Effects

• Government controls and new taxes on legal sales are boosting the illegal sector.

• The ease with which smugglers operate acts as an incentive to newcomers.



1%

99%

Fiscal Loss (US$)

100%

0%

Value 2013 (US$)

0%

100%

Volume 2013 (LAE)

Contraband accounts for nearly all of the illegal market in volume and value terms.

In volume LAE terms, 82% of contraband is smuggled ethanol (11,364 HL LAE). The remaining 18% is contraband

finished products.

Within finished goods, distilled beverages represent 62% in volume LAE terms and fermented 38% (all beer).

Illegal products are cheaper because they evade tax and government controls, in contrast to legal imports of

beverages.



Almost the entire illegal market is contraband

Honduras


US$2

mn

13,930

HL LAEUS$18

mn



The contraband category grew 1.89% in 2012-2013, driven by the following factors.



1

A worsening economic situation and the

population’s reduced purchasing power due to

increasing unemployment.

Demand shift from legal to cheaper illegal alcoholic

beverages.

2Consumers have developed a preference for

smuggled brands.

Distributors have an incentive to work with

smuggled products given existing demand for

foreign brands at illegal prices.

3Elections in 2013 led to weaker government

controls.It was easier to smuggle goods into the country.


Honduras

Weak economy makes Hondurans even more receptive to contraband






13,896 HL LAE

US$17.5 mn

US$1.8 mn

Approach 1: Residual analysis: legal imports of

ethanol + local production –legal industry consumption

= potential volume of contraband to satisfy industry consumption

Approach 2: Interviews with leading importers of

finished products to ascertain % of premium

finished products that are contraband

Approach 3: A segment of imports of distilled alcoholic

beverages are subject to contraband according to several interviews and

importers

Approach 4: Difference between legal imports of

beer and sales of imported beer = contraband beer


taxes


Honduras





NGOs are helping artisanal producers of alcoholic beverages to operate legally, resulting in lower

volumes of illegally produced gifiti available for consumption

HondurasB

evera

ges

• There are no brands of gifiti because it is typically produced in homes and on a small scale.

• There have been attempts to commercialize gifiti within the formal industry, but consumers of gifiti are either the

garifunas who produce it themselves at home or tourists looking to experience the local culture.

Where

• Gifiti production mainly takes place on the Caribbean coast, typically in Tela, Trujillo, La Ceiba, Saba, Rio

Paulaya, and as far west as Puerto Cortes.

Dri

vers

• Gifiti is part of the cultural identity of the northern coast of Honduras and its main consumers are local people and

tourists seeking to explore the region’s culture.


• These beverages are potentially a public health risk. Although there have been no reported incidents, the lack of

sanitary checks in the production process increases the risk of problems occurring in the future.



1%

99%

Fiscal Loss (US$)

0.1%

99.9%

Value 2013 (US$)

US$18

mn

0.2%

99.8%

Volume 2013 (LAE)



Illegal artisanal is a very small category with almost no participation in the illegal market

Honduras


US$2

mn

The illegal artisanal category represents only 0.01% of the illegal market in volume and value terms.

There is some price variation between legal and illegal products due to tax payments and the cost of illegal

raw materials.

All illegal artisanal alcoholic beverages are distilled.

13,930

HL LAE



Illegal artisanal beverage consumption declined 14.3% in 2012-2013, driven by the following factors.



1Lower demand due to reduced tourism on the

northern coast.

Lower production of gifiti and reduced demand for

smuggled ethanol.

2 Gifiti is disappearing as a garifuna tradition.

New generations of garifunas are switching to

aguardiente or other alcoholic beverages, reducing

the demand for artisanal beverages.


Honduras

Lower demand led to a contraction in the illegal artisanal category






fiscal loss:

1.7 HL LAE

US$2,000

US$800

Approach 1: Interviews with legal gifiti producers who know

the legal and illegal markets


US$



Approach 4: Tax evasion calculated by applying

production and relevant taxes to illegal artisanal market size


Honduras






1

The new import tax and sales tax (up from 15% to

18%), which came into effect in January 2014, are

already affecting the economy.

Higher financial incentives for contraband.

2Unemployment rates are affecting the economy

and most low-medium income consumers.

Shift towards cheaper options given an increasingly

limited budget for premium alcohol consumption.

3Change of government, with the new president

promising to tackle corruption and drugs.

More government control over imports and locally

produced goods.

The change of government in 2014 has led to an increase in taxes that could affect the market

Honduras


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

►►Peru


• While the legal market grew slightly in 2013, the illegal market shrank. Increasing disposable incomes contributed to this divergence.

• Counterfeit and illegal brands is the most important category of illegal alcohol; however, it decreased in size in 2013 due to lower availability of residual ethanol and an increase in seizures of adulterated alcoholic beverages.

• Illegal artisanal alcoholic beverages remain the second largest category in volume terms and grew significantly in 2013 due to higher artisanal distillation in provinces without formal sugar or ethanol industries.

• Contraband is the third largest category by volume (although second in value terms). Consumption of contraband declined in 2013 as a result of better customs controls and the more competitive prices of legally imported brands in supermarkets.

• Surrogate is the smallest category and shrank significantly in 2013 as a result of increased consumer awareness stemming from news coverage of how unsafe the practice is.



Counterfeit beverages produced from residual ethanol drive the illegal market

Peru


338,752 HL LAE



Peru

US$781 mn


US$112 mn

TOTAL FISCAL LOSS

US$1,129 mn






Total consumption of alcoholic beverages fell by 0.2% between 2012 and 2013

Peru

The size of the total market in 2013 was

1,108,060 HL LAE in volume terms, which

corresponds to a value of US$4,331 mn.

Illegal alcoholic beverages have a 30.6% share

of the total market in volume LAE terms and

18% in value terms; the legal market accounts

for the other 69.4% and 82%, respectively.

The total market shrank by 0.2% in 2012-2013

(in LAE volume terms).

Fermented products have a 65% share of the

total market and distilled the remaining 35%.

Beer represents 95% of all fermented products.

69.4%

30.6%

Peru alcoholic beverages market 2013 LAE


82.0% 18.0%

Peru alcoholic beverages market 2013 value

Legal % Illegal %





expanded at a 1.1% CAGR,


market.


market grew at a 0.7% CAGR,

which is the lowest rate of

positive growth among the

researched countries (the illegal

market shrank in Honduras and

Panama).

In 2012-2013, the total


beverages fell by 0.2%.

In 2013 the legal market was

estimated at 769,309 HL LAE

volume, of which fermented

products had a 91.5% share and

distilled products 8.5%. Beer

represented 96.1% of fermented

products.



Peru

Total consumption of alcoholic beverages has steadily increased during the last three years

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2011 2012 2013

HL L

AE







• Unrestricted ethanol sales continued in 2013 because Law 29632, aimed at controlling ethanol trading, did not take effect until 2014.

• The price increase stemming from the higher Selective Consumption Tax that came into effect in May 2013 may have pushed up sales of illegal alcoholic beverages (mainly illegal artisanal). This effect was likely strongest during the three months immediately following the tax increase.

• Smugglers continue to take advantage of the Zofratacna duty-free system and insufficient controls at borders and on roads. Although SUNAT has improved its customs controls, organized crime is innovative at finding new ways to evade the controls.

• An ineffective judicial system reduces the risk for illegal market players.

• Increasing disposable incomes have driven demand for both legal and illegal products. Additionally, the increasing presence of illegal products in formal channels has made it easier to purchase them.

• A widespread culture of informality in Peru, where people prioritize low prices, contributes to the demand for illegal products.

Unrestricted ethanol sales and a lack of state control drive the illegal alcohol market in Peru

Peru



79%

8%

10%2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%

2%

Volume 2013 (LAE)

The size of the illegal market in 2013 was 338,752 HL LAE in volume terms and US$781 mn in value

terms.

The illegal market represents 30.6% of the total market in volume LAE terms and 18% in value terms.

In terms of LAE, fermented products have a 4.7% share of the illegal market, vs. a 95.3% share for

distilled products. Beer represents 49.1% of the fermented products.

In terms of fiscal loss, distilled products account for 82.7% and fermented 17.3%. Within distilled, the

most important alcoholic beverages are rum, pisco, and wine adulterated with alcohol.





In contrast to the legal market, the most popular types of illegal alcoholic beverages are distilled

Peru

338,752

HL LAE

US$781

mn

US$112

mn



31.0% 30.8% 30.6%

0%

10%

20%

30%

% ille

gal share


2011 2012 2013

During 2011-2013, the share of the illegal market declined, driven by lower volumes in counterfeit and

illegal brands and contraband.

The consumption of illegal alcohol fell by 1.1% from 342,380 HL LAE in 2012 to 338,752 HL LAE in

2013, equivalent to 30.6% illegal share.



The share of illegal alcohol in the total market has been declining steadily, albeit at a slow pace

Peru


0.2 0.2



8.2

18.1

2.6

7.7

11.1

5.5

12.6

2.1

0.7

7.9

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Counterfeit Contraband IllegalArtisanal

Surrogate Tax Leakage

US

$ p

er

liter

Peru average RSP (US$ per liter) - 2013


Counterfeit: The average price of illegal distilled alcoholic

beverages (wines and rum adulterated with ethanol,

unregistered pisco) is US$5.9 per liter, while the average

price of counterfeit beer is US$1.7 per liter.

Contraband: The average price of illegal distilled

products (whisky, vodka, rum) is US$26.1 per liter. The

average price of illegal fermented products (wine, beer) is

US$13.7 per liter.

Artisanal: The average price of illegal distilled beverages

(cañazo, alcohol mixed with water, artisanal pisco) is

US$2.0 per liter, while that of illegal fermented beverages

(artisanal wines, chicha de jora, masato) is US$3.4 per

liter.

Surrogate: Illegal distilled alcoholic beverages (low

quality alcohol mixed with liquid) have an average price of

US$0.7 per liter.

Tax Leakage: the price of beverages that do not pay all

appropriate production taxes is 29.4% lower than

comparable beverages.



In general, illegal RSPs are 38.1% lower than legal RSPs given the lack of tax payments and lower

production costs

Peru



88%



90%

10%

Illegal beer




In volume terms, 1.1% of the beer market in Peru is illegal

98.9

% leg

al b

eer

1.1

% illeg

al b

eer

In 2013, beer represented 88% of



LAE.


estimated at 7,800 HL LAE, the

highest of all the countries

researched.

The illegal beer market includes

both counterfeit and contraband

products.

Peru

7,800 HL

LAE

769,309

HL LAE





Counterfeit is the largest category in Peru, dominated by refills / substitution of distilled beverages

PeruB

evera

ge

s

• Ethanol produced from sugar cane is the main raw material, which is in turn mixed with artificial flavorings to

simulate taste. As a result, distilled beverages are the most important in the category.

• Commercialization of ethanol continued without any control over volume or final use in 2013.

• The most popular beverages are wine, pisco, rum, anisado, and whisky. The most affected brands are Queirolo,

Tabernero, Ocucaje, Cartavio, Johnnie Walker, Chivas, and Ballantine’s.

• Whiskies are often counterfeited by refilling empty bottles of well-known brands with lower-quality, cheaper

imported whiskies.

• There are isolated cases of counterfeit beer, where cheaper beer is used as a refill.

Where

• Counterfeit alcoholic beverages are introduced into formal channels by both formal and informal wholesalers.

• Formal wholesalers involved in the illegal trade sell both legal and illegal alcoholic beverages (often mixing

genuine bottles with counterfeits). Informal wholesalers sell illegal beverages to small retailers in low-income

zones and important informal markets in large cities.

• Illegal manufacturers are mainly located on the periphery of large cities like Lima, Puno (Juliaca), Arequipa, and

Trujillo, as well as the prestigious manufacturing cities of wine and pisco such as Ica and Chincha.

Drivers

• Low price, high availability, and uncontrolled trade of ethanol.

• Attractive margins due to the low cost of raw materials and the evasion of taxes.

• Insufficient government controls to fight counterfeit manufacturing.

• Increasing disposable incomes and unscrupulous sellers who scam consumers looking for the best market

prices.


• Legal brands lose sales and their image is damaged as consumers associate them with lower-quality products.

• Potential health risks due to the low quality of ingredients and poor sanitary conditions.



79%

8%

10%1%

2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%0%

2%

Volume 2013 (LAE)



Counterfeit accounts for almost 60% of the illegal market in volume terms

Peru


US$112.0

mn

The counterfeit and illegal brands category is the largest in Peru, accounting for 59.2% of the illegal market in

volume LAE terms and 71.8% in value terms.

Illegal products are cheaper than their legal counterparts due to the low cost of raw materials and tax evasion.

In terms of beverage types, fermented products represent 3.5% of the category and distilled 96.5%.

Refill/substitution accounts for 64% of the counterfeit and illegal brands category, while industrial production

accounts for 36%.

338,752

HL LAE

US$781

mn



Counterfeit and illegal brands consumption fell 3.4% in LAE terms in 2012-2013, driven by the following

factors.



1

While sugar cane production increased 6% in regions

that manufacture sugar, there was also an increase in

the formal use of its sub-products (molasses and

ethanol). Molasses exports rose 31% (with no imports),

while ethanol exports increased 7%. Moreover, ethanol

consumption rose 5% in the formal alcoholic beverages

industry and 11% in perfumes and other industries.

Reduced ethanol purchases by counterfeit producers.

2Ethanol smuggling from Peru to Ecuador was detected

and reflected in estimates.

Less ethanol available for producers of counterfeit

alcoholic beverages in Peru.

3

Ethanol was detected in other illegal industries (besides

alcoholic beverages) and this was considered in

estimates.



4Ethanol seizures increased significantly from 2012,

which again was reflected in estimates.



5

Ethanol trading continued with no controls or restrictions

on purchases or final use. Law 29632, approved in

December 2010 and regulated in August 2013, was

only implemented in March 2014.

Illegal activities continued with impunity: counterfeiters

worked without legal consequences.


Peru

A lack of control over ethanol sales and residual volumes drives counterfeit production






fiscal loss:

200,685 HL LAE

US$560 mn

US$88 mn

Approach 1: Residual analysis: domestic ethanol

production + imports –exports – industry

consumption (legal and illegal) – contraband to

other countries – ethanol seizures = potential

volume diverted to illegal alcoholic beverages

market

Approach 2: Interviews with beer producers to

ascertain the percentage of beer adulterated using water or by refilling with

low-priced beer

Approach 3: Interviews with pisco producers to

gauge the percentage of pisco produced outside

Peruvian technical norms



calculate values in US$.

Approach 5: Cross-check of the category’s share of

the illegal market

Approach 6: Fiscal loss calculated based on illegal volumes, legal prices, and

excise taxes

Peru






Insufficient border controls and low prices drive demand for contraband

PeruB

evera

ges

• Whisky, vodka, rum, and wine are the most common smuggled beverages.

• Affected brands include Johnnie Walker, Chivas, Old Parr, Ballantine’s, Swing, Appleton, Bacardi, Barcelo,

Absolut, Casillero del Diablo, and Navarro Correas.

• There are low volumes of smuggled beer, although these include Paceña and Heineken.

Where

• Mainly Lima, Arequipa, Cusco, and Puno (from Zofratacna and southern borders).

• Contraband products are introduced into formal channels by wholesalers who sell both legal and illegal alcoholic

beverages (they sometimes mix legally imported bottles with contraband).

• Informal distributors sell illegal alcoholic beverages to small retailers and on-premises establishments, and at

informal markets in large cities.

Drivers

• Attractive margins due to tax evasion (18% VAT plus 20% Selective Consumption Tax).

• Although border controls have been improved, they remain insufficient as smugglers continue their illegal

activities.

• Increasing disposable incomes are driving the consumption of all products (especially imported alcoholic

beverages), both legal and illegal.

Effects

• Fiscal loss.

• Legally imported brands lose sales and market share.

• Smuggled ethanol is usually used by counterfeiters.

• Contraband wine affects the sales of domestic wines, which aim to compete at a lower price point than legally

imported wines.



79%

8%

10%1%2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%

0%2%

Volume 2013 (LAE)

Contraband represents 15.9% of the illegal market in volume LAE terms, the third largest category, and 15.8% in

value terms, the second largest category.

There is some price variation between illegal products and their legal counterparts due to tax evasion.

The split by type of beverage in the contraband category is 3.6% fermented vs. 96.4% distilled.

Contraband ethanol as a raw material represents 74% of the category and contraband finished products 26%.




Contraband remains the second largest category in volume terms

Peru

338,752

HL LAE

US$781

mn

US$112

mn



Contraband decreased 8.2% in LAE terms in 2012-2013, driven by the following factors.



1

The amount of contraband ethanol declined due to better

customs controls at the border with Bolivia, which made

illegal transport difficult. However, there is still significant

demand for this raw material for adulterated beverages in

southern cities in Peru.

Reduced availability of illegal ethanol as a raw material for

counterfeit alcoholic beverages.

2

Contraband of final products declined because SUNAT

has improved customs controls and there were more

seizures of contraband (63% more operations in the first

half of 2013 vs. 2012).

Lower volumes of contraband final products in Peru’s main

cities. Gangs have to change their practices, sometimes

affecting their costs and reducing their margins.

3

Large modern retailers such as supermarkets continue to

offer alcoholic beverages at promotional prices that can

compete against contraband, especially over the main

holidays such as Christmas, patriotic festivities, Mother’s

Day, Father’s Day, etc. Also, supermarket stores continue

to proliferate across the country, especially outside of

Lima, so the promotions reach more people.

Lower prices of legal final products are driving formal

channel sales.

4

Higher incomes encourage the consumption of high-status

alcoholic beverages such as whisky, with consumers often

ignoring the illegality of a product and focusing solely on

its authenticity.

Consumers look for authentic imported products at the

cheapest price possible, which leads them to shop at

informal markets.


Peru

Stronger controls by the authorities have led to a decrease in contraband






53,807 HL LAE

US$123 mn

US$9 mn

Approach 1: Interviews with alcohol distributors and

sugar industry experts to ascertain the volume of

contraband ethanol

Approach 2: Interviews with importers and domestic producers to gauge the volume of contraband

whisky, vodka, wine, and rum




Approach 4: Cross-check of the category’s share of the

illegal market

Approach 5: Fiscal loss calculated based on illegal

volumes, legal prices, excise taxes, and import taxes


Peru





Low prices and local traditions drive the consumption of illegal artisanal beverages

PeruB

evera

ges

• Aguardiente, cañazo, and yonque are distilled alcoholic beverages made from sugar cane.

• Artisanal pisco is produced through the distillation of grapes.

• Artisanal wine is produced through the fermentation of grapes.

• The most popular exotic beverages from the jungle region, which include a mixture of distilled sugar cane and

fruits, roots, and herbs, are chuchuhuasi, siete raices (seven roots), uvashado, RC rompe calzón, and para para.

• Chicha and masato are both produced using fermentation; the former is made from grain and the latter from

yucca root.

Where

• Aguardiente, cañazo, and yonque are usually produced in the mountain and jungle regions.

• Artisanal pisco and wine is common in the traditional grape producing areas along the coast, especially in Ica,

Tacna, Moquegua, and Arequipa.

• Exotic macerated beverages and masato are from the jungle region.

• Chicha is common in most regions of Peru except the jungle.

Dri

vers • Local and regional identity and tradition.

• Availability of local raw materials.

• Low prices make them attractive to the local population.

• Consumers do not perceive artisanal alcoholic beverages as being illegal.

Effects

• Fiscal loss.

• Potentially a health risk given the low quality ingredients and poor sanitary conditions.



79%

8%

10%1%

2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%

0%2%

Volume 2013 (LAE)

The illegal artisanal category represents 22.6% of the illegal market in volume terms, the second largest

category and 9.9% in value terms, the third largest category.

Prices are different to the legal counterparts due to lower cost of raw material and transport (because it is

consumed locally) and tax evasion.

In terms of LAE beverage types, the illegal artisanal category is composed of 6.9% fermented vs 93.1%

distilled




The illegal artisanal loses importance when analyzing it in value terms, due to lower prices compared

to other brands

Peru

338,752

HL LAE

US$781

mn

US$112

mn



The illegal artisanal category grew 13.3% in 2012-2013, driven by the following factors.



1

Greater availability of artisanal alcohol due to

increased sugar cane production (up 21%) in

regions that do not manufacture sugar.

Higher consumption of cañazo, yonque, and exotic

beverages made from artisanal sugar cane alcohol.

2Increasing disposable income drove consumption

in both the legal and illegal markets.

Consumers are able to buy larger volumes of

artisanal beverages, which are readily available in

smaller towns.

3

The increase in excise taxes in May 2013 may

have encouraged illegal artisanal sales, especially

during the first three months until the market

adjusted to the new price level.

Consumers shifted some of their consumption to

illegal products due to the price incentive.


Peru

The illegal artisanal market has increased due to the availability of raw materials






fiscal loss:

76,717 HL LAE

US$77 mn

US$11 mn

Approach 1: Residual analysis of artisanal ethanol made from

sugar cane in regions that do not manufacture

sugar = potential volume used to produce

artisanal beverages

Approach 2: Interviews with domestic legal and

illegal producers to ascertain the % of

ethanol from the sugar industry used to

produce artisanal beverages by adding

water or juice

Approach 3: Interviews with domestic producers

of wine and pisco to gauge the % of artisanal wine, pisco, and other fermented beverages

(chicha, masato) produced illegally

Approach 4: Store checks to ascertain prices of legal and

illegal alcoholic beverages in order to


Approach 5: Cross-check of the category’s

share of the illegal market

Approach 6: Fiscal loss calculated based on illegal volumes, legal

prices, and excise taxes


Peru





The smallest category, with consumption driven by abuse issues and low prices

PeruB

evera

ges

• Surrogates are prepared with poor quality ethanol containing toxic levels of methanol, mixed with water, soda, or

juice.

• These alcoholic beverages have various street names such as Racumin (a brand of rat poison) or Salta pa' tras.

Where • Surrogate products are sold in small grocery stores located in low-income areas, especially around markets in

large cities (La Victoria in Lima and Hermelinda in Trujillo). These places are known as "Gas Chambers“.

• These kinds of products are also sold inside private houses, usually clandestinely.

Dri

vers • Prices and availability: people with alcohol abuse issues look for strong alcoholic beverages at low prices.

• Authorities have been unable to close down these businesses permanently: traders are very aggressive in

avoiding controls.

Effects

• High risk to consumer health (consumption can lead to blindness and death).

• Public disorder issues such as violence and delinquency.



79%

8%

10%1%2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%

0%2%

Volume 2013 (LAE)

Surrogate represents 0.5% of the illegal market in volume LAE terms and 0.1% in value terms, making it

the smallest category.

Surrogate prices are lower than legal counterparts’ due to the low cost of raw materials and tax evasion.

All surrogate alcoholic beverages are distilled.




Surrogate accounts for less than 1% of the illegal market in volume terms

Peru

338,752

HL LAE

US$781

mn

US$112

mn



The surrogate category shrank 30.8% in 2012-2013, driven by the following factors.



1

News about dangerous health consequences has

discouraged new consumers from buying surrogate

beverages; instead, they prefer other low-price

options such as counterfeit or artisanal beverages.

The user population (and consumed volume) is

shrinking over time as long-term consumers die

from health complications and new potential

consumers seek less harmful alternatives.


Peru

Higher awareness of the danger associated with surrogate consumption has led this category to fall






1,748 HL LAE

US$0.4 mn

US$0.5 mn

Approach 1: Interviews with legal ethanol and alcohol

producers to gauge the % of toxic ethanol consumed in

the market

Approach 2: Interviews with experts in alcohol abuse

(health specialists, NGOs, and government

organizations) to understand consumption characteristics

and frequency





illegal market


excise taxes


Peru





A lack of supervision of small companies allows them to evade tax on part of their production

PeruB

evera

ges

• Wine, pisco, and other distilled beverages manufactured by small legal producers.

Drivers • Although SUNAT is increasing its checks of tax declarations, small companies are less supervised, which makes

it easier for them to underreport production.

• These alcoholic beverages are introduced into formal channels through illegal practices such as sales without

invoices or receipts and unregistered purchases of raw materials.

Effects

• Fiscal loss.

• Unfair competition for manufacturers that fully pay the production taxes.



79%

8%

10%1%

2%

Fiscal Loss (US$)

72%

16%

10%

2%

Value 2013 (US$)

59%16%

23%

0% 2%

Volume 2013 (LAE)

Tax leakage represents 1.7% of the illegal market in volume LAE terms and 2.5% in value terms.

There is some price variation between legal and illegal products due to tax evasion.

Fermented beverages account for 28.6% of the tax leakage category and distilled 71.4%.




Tax leakage accounts for less than 2% of illegal volumes

Peru

338,752

HL LAE

US$781

mn

US$112

mn



Tax leakage increased 2% in 2012-2013, driven by the following factors.



1Increasing disposable incomes drove consumption

in both the legal and illegal markets.

Consumers looking for the best market prices are

often persuaded by offers of illegal genuine

products.

2

The increase in excise taxes in May 2013 may

have encouraged illegal product sales, especially

during the first three months until the market

adjusted to the new price level.

Consumers shifted some of their consumption to



Peru

The category increased in tandem with the overall market






fiscal loss:

5,792 HL LAE

US$19 mn

US$3 mn

Approach 1: Interviews with domestic producers of legal

alcoholic beverages to gauge the % of tax leakage from

national production


US$


illegal market


excise taxes


Peru






1

Law 29632, which aims to reduce the flow of

ethanol into the illegal market, came into effect in

March 2014. Companies that manufacture or trade

ethanol are mandated to register and report their

activities. This control system is still in its

implementation stage.

While the impact is unlikely to be large in 2014,

there should be some decrease in ethanol volumes

used for illegal activities. The controls should lead

to significantly less raw material for counterfeit

beverages in the coming years.

2

Stronger control over ethanol trading will make it

more difficult to conduct illegal activities. Informal

companies must comply with the regulation or exit

the market.

If the regulation is effective, the supply of ethanol in

the illegal alcohol market should decline. However,

if the controls are poor then the law could have the

opposite effect of promoting the black market.

3

Excise tax increased in 2013. This had a larger

effect on cheaper beverages. Consumers of low-

price alcoholic beverages will look for cheaper

alternatives in the illegal market.

Consumers will shift some of their consumption to


4

SUNAT plans to increase customs controls to

tackle contraband and improve its supervision to

reduce tax evasion by all types of companies.

This should boost fiscal receipts and reduce

contraband.

Effects of Law 29632 will start being felt by the market in 2014

Peru


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX


Illegal alcoholic beverages market – 2014 outlook


Improved law enforcement and consumer

awareness throughout the region.

A smaller price gap between legal and

illegal products is threatening the main

advantage of the illegal brands.

Stronger regulation of ethanol supply in

Peru should help reduce the flow to the

illegal market.

A new packaging system (TetraPak)

implemented in El Salvador for locally

produced vodka popular is expected to

reduce refill volumes.

The implementation of manufacturing

control technologies by SUNIR in

Colombia could help reduce the fiscal

loss from local producers.

A fiscal stamp on the top of bottles will be

a new requirement for imported alcoholic

beverages in Ecuador by the end of

2014.

Increased import and sales taxes in

Honduras, which came into effect in

January 2014, will make illegal

beverages that evade those taxes more

profitable.

Uncertainty over public policy and

strategies to control illegal alcohol

consumption in Honduras and El

Salvador due to new governments.

Growing demand for contraband in

Ecuador driven by the increasing prices

of imported alcoholic beverages,

especially premium spirits.

Low-income consumers across the

region continue to look for cheap


Based on 2013 research, Euromonitor International has identified the following issues that could

affect the size of the illegal market in the near future

Positiv

e e

ffe

ct

Negativ

e e

ffect


INTRODUCTION

METHODOLOGY

ANALYSIS - REGION


2014 OUTLOOK

APPENDIX

APPENDIX

• ILLEGAL MARKET SIZE IN TERMS OF

VALUE (LEGAL RSP)

• METHODOLOGY NOTES – 2013

• PICTURES


16%

22%

12%

5%

4%

24%

18%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate

Illegal US$ % Legal US$ %

Illegal market share – value US$ mn (legal RSP, 2013)


Peru and Ecuador have illegal market shares above the aggregated average of 19.0%

The illegal market size in terms of value was estimated using average legal retail selling prices (RSP).




Shape of illegal market – value US$ mn (legal RSP, 2013)


Counterfeit and contraband are the main categories of illegal alcoholic beverages across the region

36%

16%

44%

8%

73%

45%

54%

31%

27%

100%

74%

16%

37%

4%

10%

5%

15%

8%

7%

5%

0%

20%

3%

1%

43%

5%

3%

2%

8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Colombia

Ecuador

El Salvador

Honduras

Panama

Peru

Aggregate


The illegal market size in terms of value was estimated using average legal retail selling prices (RSP).



APPENDIX


VALUE (LEGAL RSP)


• PICTURES

323INTERVIEWS AND STORE

VISITS

14WEEKS OF RESEARCH

Field research

1.3xMORE STORE VISITS THAN

IN PREVIOUS STUDY

(158 THIS TIME VS. 121

PREVIOUSLY)


Methodology notes – 2013


• Figures for smuggled beer were based on Bavaria estimates. Last year EMI used statistics from Yanhaas, but those numbers are no longer available.

•The total production of spirits (aguardiente, rum, and aperitivos) was estimated based on DANE statistics. In previous studies, the information came from ACODIL.

•The illegal volumes of aperitivos (legally produced) were included in the tax leakage estimate.

Colombia

•Estimate of illegal inflow from Peru was incorporated into the model.Ecuador

•Tax leakage and surrogate consumption were estimated based on approved quotas of ethanol from Ministerio de Salud statistics. The final approved quotas from Ministerio de Hacienda were not available. According to sources, the quota statistics might be subject to approximately 5% variation.

El Salvador

•The fiscal loss from contraband finished products excluded the volumes entering from Guatemala and El Salvador, as they have preferential duty treatment.Honduras

•No research was performed in Panama for 2013.Panama

•Additional information was included in the residual analysis of ethanol, including illegal outflows of ethanol to Ecuador and more detail on molasses consumption by the seasonings industry.

Peru


APPENDIX


VALUE (LEGAL RSP)


• PICTURES


Pictures


Aguardiente Agave Trancahuaico

Category: Counterfeit

Cana la cubana, aguardiente especialAstillero Ecuador, aguardiente de

cana Pepe, aguardiente de cana

Category: Counterfeit

Cana Linda and Cana Montubia, aguardiente

Licor Sabor a Coco Pedirto, Aguardiente Pepe, and El Pirata,

aguardienteLos Novios de Mallorca, aguardiente Baileys, coffee liquor cream

Category: Contraband

Category: Refill Category: Counterfeit

Category: Counterfeit Category: CounterfeitCategory: Counterfeit

Ecuador



Pictures


V. P. Troika, Petrov TetraPak vodka popular Chaparro Chicha

An expendio An expendio Pharmaceutical alcohol Aguardiente

El Salvador



Pictures


Probable contraband with legal products






Honduras



Pictures


Probable illegal artisanal and counterfeit with legal products

Liquor store – Surco - Lima

Probable contraband and counterfeit with legal products

Liquor stand in Polvos Azules -Lima


Liquor stand in Polvos Azules -Lima

Probable contraband, artisanal, and counterfeit with legal

products

Liquor stand in IndependenciaMarket - Lima


Grocery store – Cercado - Lima

Artisanal and probable counterfeit with legal products

Liquor store – Cercado - Lima


Formal wholesaler – Cercado -Lima


Liquor store – Cercado - Lima

Peru



Pictures


Probable illegal artisanal and counterfeit with legal products

Liquor stand in Modelo Market -Chiclayo


Grocery stand in Modelo Market - Chiclayo

Ethanol (raw material)

Ethanol store - Chiclayo

Ethanol (raw material)

Ethanol store - Chiclayo


Liquor store – Chiclayo

Probable counterfeit with legal products

Grocery stand in MoshequequeMarket - Chiclayo


Liquor stand in MoshequequeMarket - Chiclayo

Illegal artisanal: chicha and wine

Liquor stand in MoshequequeMarket - Chiclayo

Peru


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The Illegal Alcoholic Beverages Market in Six Latin American Countries