Study on the potential of subcontract palinka distillation

Abstract

Hungary has a centuries-long palinka distilling tradition. Palinka is prepared by the traditional method of 'Kisusti' or the more economical single-step technology. Methods for the improvement of the quality and cost-efficiency of palinka preparation will include investments into an up-to-date technology, the focal point of my investigation in the present paper in terms of economic indicators (net present value), internal rate of return, profitability index and discount rate time. The calculations assessed several (optimistic, realistic and pessimistic) scenarios. Legislative changes have exerted a considerable impact on the turnover of palinka distilleries, and the re-introduction of the excise tax for subcontract distilling has resulted in frequent changes since 2010 and indicated an unpromising tendency. A further problem concerns dependence on agricultural source material production (fruit production) and the existence of home distilling. In conclusion, beneficial economic conditions will be the key elements in the implementation of the investment mentioned above.

Keywords

• palinka
• investment economic benefits
• net present value
• single-step distillation
• scenario analysis