Overtaxed Turks Brew Up a Homemade Inflation Remedy: Moonshine

(Bloomberg) -- Visitors to Turkey may find the famously potent, aniseed-flavored drink nicknamed “lion’s milk” to be an acquired taste. Locals are starting to find it too expensive to acquire.

Skyrocketing costs, punitive taxes and restrictions on alcohol sales are hurting business for producers including Diageo Plc’s Mey Icki, while driving some Turks to craft illegal, homemade brews. Sales of the liquor ordinarily known as raki have dropped 27 percent from their 2011 peak, according to data from the alcohol and tobacco regulator.

The economic impact goes beyond wistful foreign entrants to a shrinking market. With the price of a bottle increasing 2.5 times since 2010, it’s also contributing to Turkey’s inflation problem. Alcohol and tobacco prices surged an annual 22 percent in the most recent data. They formed the highest of the components pushing February’s headline figure to 10.1 percent -- more than twice the central bank’s target.

“It’s now a luxury product. Even my own friends have stopped buying from me and are producing their beer and raki at home," said Atakan Nug, who runs a liquor store in the Aegean coastal city of Izmir. He said his sales are down 30 percent since the start of the year, and that he fears having to close up shop.

In the Mediterranean town of Datca, a chemist named Kaan said high prices compelled him to start studying the composition of raki so he could make it at home. He declined to give his last name because the practice is illegal. Home production has become so popular that his local grocery store, Migros, frequently runs out of ethyl alcohol stock, he said.

Using home distillery techniques, he spends about 20 liras ($5.50) to produce an amount that would cost 5 times that at the market, he says.

The price increase is also narrowing profit margins in the restaurant industry, according to Verda Kuntay, a 38-year-old tavern owner in western Izmir. She says she’s given up on earnings from alcoholic beverages and started to let patrons bring their own.

“It’s not worth the hassle," she said. “I make more money from appetizers and salads."

Low Spirits

Diageo cited the fact that raki is “central to Turkish culture” among a list of positive omens for their acquisition, in a 2011 presentation announcing they’d bought the country’s biggest producer.

It’s true that quaffing the aromatic spirit is a popular pastime. The first president of the country, Mustafa Kemal Ataturk, was known to to be fond of the stuff, and among today’s generation, Diageo executive Andrew Morgan explained to investors, raki forms a "way to maintain historic roots at a time of rapid economic change."

Yet, since the world’s largest distiller branded Turkey a “high-growth market,” it’s seen shrinking sales of the beverage that originally made up three-quarters of its business here. Even though hiking prices helped their revenue to increase over the most recent six-month reporting period, sales have been constrained by a 2013 advertising ban and a slew of special taxes on alcohol. Last year alone there were two, each in the region of 13 percent.

Meanwhile, President Recep Tayyip Erdogan has taken aim at raki’s claims to be the national drink. A year after Diageo’s $2.1 billion investment, he told an alcohol policy symposium that a salty yogurt brew called ayran occupies that status, rather than its cloudy-white alcoholic counterpart.

All of this means that Turks are spending more on each bottle of raki -- and buying less of the drink overall. Yet for those travelers who have acquired the taste, there’s a silver lining. In Sacramento, California, 6,630 miles from Istanbul, a bottle of the Turkish-made spirit costs just $19.99, $3 less it would on the shores of the Bosphorus.

--With assistance from Thomas Buckley

To contact the reporters on this story: Fercan Yalinkilic in Istanbul at fyalinkilic@bloomberg.net, Cagan Koc in Istanbul at ckoc2@bloomberg.net, Isobel Finkel in Istanbul at ifinkel1@bloomberg.net.

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Benjamin Harvey, Cecile Gutscher