The illicit trade in spirits increased by 9.7% in Latin America during the pandemic, and by the end of 2020, an estimated 750 million liters (quarts) will have been marketed outside the law, according to a study by Euromonitor International, a leader in strategic market research.
The study was the first to gauge the impact of COVID-19 on the illicit trade in alcoholic spirits in Latin America and the Caribbean.
It noted that restrictions on access to formal sales channels imposed by governments to try to stop the pandemic were taken advantage of by those who produce and sell illegal beverages.
They also made use of the proliferation of new distribution channels fueled by the pandemic, such as small businesses, e-commerce and delivery apps.
All the countries evaluated - Panama, Mexico, Colombia, Brazil, Peru and the Dominican Republic - showed consistent growth in illicit activity and, according to Euromonitor International, if economic recovery is slow in the region, the chances that these criminal activities will proliferate will increase.
Colombia has the highest percentage of illicit activity growth with 10.6% compared to 2019 levels, followed by Brazil (+ 10.1%), Mexico (+9.8%), Dominican Republic (+ 9.4%), Peru (+ 6.5%) and Panama (+ 6.4%).
"With this study we seek to contribute towards a greater understanding of the problem of illicit trade, specifically in alcoholic beverages, due to the negative impact it has been shown to have," said Lilian Krohn, Euromonitor International Consultant.
The study identified the main drivers of illicit activity in Latin America and the Caribbean, ranging from the closure of non-essential businesses as a preventive measure for COVID-19 to instability due to income inequality and loss of employment due to the pandemic.
The latter affected both purchasing power and purchasing aspirations and pushed consumers to seek lower-cost products.
Suppliers of illicit alcohol have taken advantage of the situation to deceive consumers who seek to maintain their lifestyle at a lower cost with products that look like the originals.
Authorities have been limited in their ability to monitor the application of the law in the industry, and the increase in the import of raw materials such as ethanol fueled informal practices throughout the supply chain.
Criminal gangs have stepped in to supply the counterfeiting chains. Free zones, where there exist gray areas and unclear rules, played a key role in smuggling.
Historically, studies have shown that illicit sales have a negative impact on society, governments and businesses, and the study considers cooperation between producers, merchants, digital platforms and the government to be key to counteract the problem.
One of the first necessary measures is to ensure that the consumer is informed of the health risks associated with the consumption of alternative products, as well as the strategies adopted by suppliers of illicit spirits to deceive them.
New sales channels such as e-commerce represent an opportunity and a challenge and that is why control mechanisms must be strengthened to prevent the spread of the illicit market in this area as well.
It is necessary to establish permanent monitoring to guarantee that the products are legal, that they have paid the corresponding taxes and passed the health controls established by the country.
At the same time, work should be done in coordination between industry, governments and online companies to report illegal vendors and places of sale.
Public servants must have permanent access to training that helps them effectively and constantly identify new criminal strategies and thus stop the expansion of the illicit market.
The study model was based on predetermined factors including projected macroeconomic data in 2020 together with historical information from studies related to illicit alcohol and the impact generated by specific measures around COVID-19.
The base of the projection assumes a larger wave of COVID-19 between the first quarter and the third quarter of 2020, followed by lower and better controlled waves in the second half of the year. EFE-EPA