Brewers struggle to make a living

Poland's breweries are looking to the forthcoming budget to soften the blow dealt by this year's increases in excise duty on beer. But market observers warn that small and medium-sized beer makers will find it increasingly difficult to survive on a tightening market.

"The effects of a tax increase will be drastic," said Anna Mączka, beer analyst at Beskidski Dom Maklerski. "Large breweries are consolidating and they'll survive, but things look very bad for smaller brewers. A decline in their results in the next quarter would be inevitable."

The outgoing Solidarity Election Action government compounded brewers' concerns by proposing an increase in excise tax on beer of 4.3% starting in January. This is after a difficult year, which saw increases in February and June totaling 16.5%. With economists forecasting year-end inflation below 5%, the increase could exceed 13% in real terms, including 22% VAT.

"These increases were intended solely to plug the budget gap," said Andrzej Długosz, beer industry spokesman with public relations firm Cross Media. He added that while previous years have seen increases largely in line with inflation, this year brewers face the prospect of negative growth. "For the first time since 1993 we are threatened with a fall in production and sales."

Small and medium-sized breweries, which cannot rely on the scale of their production for savings, will face the greatest challenge if the new government raises excise duty on beer in its forthcoming budget.

One company that has seen its profits plunge as a result of this year's tax increases in excise duty is Pepees of Łomża, owner of the Łomża brewery. In the second quarter, the firm's sales dropped by 37% and profits fell by 67%. According to Tomasz Dudziński, Pepees' sales and marketing director, the company's profits have fallen as it has struggled to keep down prices to maintain market share. "The northeast is one of the poorer regions of Poland, while our consumers are mostly farmers," Dudziński said. "Our high production costs do not allow us to keep reducing our profits to accommodate tax increases."

Government spokesman Michał Tober declined to comment, while work on a new budget proposal was underway.

Greg Goodale