Examining the Possible Development of Subcontract Destilleries

Harcsa, Imre Milán

Keywords: palinka, net present value, investment efficiency, one step distillation, scenario analysis, Q00

Palinka production has centuries-old traditions in Hungary. Preparation can be according to the traditional - pot-still - or more modern and also more economic - one-step - technology. The vast majority of plants in the Kisvarda area still use the old equipment, which today is less cost-effective. This article examines the economic feasibility of a modern technology investment using investment efficiency ratios (net present value, internal rate of return, profitability index and the discounted payback period). I observed several scenarios (optimistic, realistic and pessimistic) in my calculations. The turnover of plants – and thus revenue - is greatly influenced by changes in the legal environment, which have been very frequent since the 2010 reintroduction of excise duty on distillation. An additional problem is the dependence on the production of agricultural raw materials (fruit crop) and the presence of private (untaxed) distilling. To conclude, only a favourable economic environment would allow the implementation of the planned project.