Ailing industry taxed to the limit
"The forecasts for the market this year are not very encouraging" Brewers expect to pay higher taxes on beer this year despite declining sales growth and government promises of a tax freeze. Analysts warn that the industry faces another year of disappointing growth as Poland's economic climate and price-sensitive beer drinkers leave little room for price increases. Despite the excise tax freeze announced by Finance Minister Marek Belka in December, a 16.5% tax introduced last year will apply to all beer sales for the first time in 2002.
"Although effectively the taxes will not change, the budget will receive 4.5% more tax revenue from brewers this year," said beer industry spokesman Andrzej Długosz. Brewers blame tax increases and Poland's economic decline in 2001 for shrinking sales growth. With 2001 beer sales of 24.1 million hectoliters, the market increased only 0.3% from 2000. Analysts who predict a similar performance in 2002 point to growing taxes, the government's 1% economic growth forecast and growing unemployment as sources of a further decline in demand for beer.
"The forecasts for the market this year are not very encouraging," said Bogna Sikorska, an analyst at CDM Pekao. "The substantial fiscal burden on Polish beer has led to price increases and a drop in consumption. This slow market growth may be repeated this year because our society is becoming poorer. Consumers are increasingly buying cheaper brands, alcohol smuggled from abroad or holding off on purchases altogether."
A growing propensity for Poles to buy alcohol in bulk in neighboring countries is making brewers wary of price increases, Sikorska added. Research by the Institute of Economic Studies shows that 37% of the alcohol consumed in Poland entered the country illegally in 2001. This year's tax levels raised the price of a hectoliter of beer in Poland to around "17 compared to an average of "8 in the European Union, increasing the temptation for Poles to buy abroad.
The economic downturn puts brewers into a double bind on how to deal with this year's increased tax burden. The reduced spending power of Poland's consumers means that breweries can either absorb the increased cost at the expense of profits or stem demand through further price hikes. "Polish consumers are very price sensitive when buying alcohol," said Melania Stochnij, spokeswoman for Danish-Polish brewery Carlsberg-Okocim. "Because of the current economic climate we were unable to raise prices, so we took on the majority of the cost of the price of the tax increases."
According to Stochnij only an excise tax reduction on beer to European levels can promote growth on the Polish beer market. "There is an upward trend in beer consumption, however small, and we believe sales will increase further when excise tax on beer is reduced to EU levels."
