Beer and price hike
16 September, 2010
Beer and price hike

Prices on beer that increased in August of 2010 due to doubling excise tax may go higher, some Georgian breweries warn. The reason is price hike on hop and malt at international market caused by crop failure across the globe this year.
Having pondered how to reduce taxation burden for small business so as not to affect the state budget, Georgian government decided to enlarge the taxation area via excise. It doubled excise on scrap, vodka and spirit drinks except

wines starting August of 2010, and even introduced excise for cell talks that are not excised anywhere else.

 


“One thing is that we suggest a completely new approach to entrepreneurs, but on the other hand it is too significant that our budgetary deficit stands at more than 6% and our goal is to make 3% in 2013 or less - this is normal…naturally we cannot admit decrease of revenue incomes this year,” Kakha Baindureshvili, Minister of Finances of Georgia, told Georgian Journal in June of 2010 while working on amendments over the tax code. “…Reducing tax pressure we compensate it. On this purpose we selected those parts that cannot hamper business activity. The biggest incomes we expect is excise of spirit drinks, the excise rate in Georgia is one of the lowest globe over and it will remain very low among 60 countries irrespective the upcoming increase… It will compensate the revenues part [in the state budget] and creates no threats to economy. The 5 tetri difference in price of the 15 GEL worth vodka cannot impact any business.”
So the excise on beer increased from 20 tetri per liter to 40 tetri.
However business is never at loss due to increased expenditure burden, it is consumer who receives the blow in fact. To compensate extra outlays business increases prices on produced product and services and consumer pays for that.  Commensurately local beer brewery companies and importers increased prices by 10-15% depending on product quality and segment. And as far as the increased excise entered into effect in hot summertime when beer demand is in peak and its sales increase by one-third generally beer companies and importers did not suffer from reduced sales. Very likely government calculated the novelty accurately: its introduction coincided with the demand peak of excised product, and as the beer market increased significantly compared to past year, the state budget enjoyed more than doubled profit.

However, Kazbegi Company, one of the leading Georgian beer breweries, predicts more price hike on beer soon due to increased prices on hop and malt that are significant and indispensable ingredients of beer production.  According to Tea Skhiereli, PR Manager of Kazbegi, prices at international market increased by 10% on hop and malt past week due to crop failure this year caused by inauspicious climate conditions worldwide and very likely Georgian breweries will be forced to increase prices if this trend is be kept.
“This 10% increase of prices on hop and malt did not reflect on our beer prices as of yet because we had reserves of malt and hop but it will jack prices up in future for sure,” Skhiereli explained to Georgian Journal.
However other local beer breweries as well as importer companies do not share Kazbegi pessimism. According to Nino Surmava, PR Manager at Natakhtari, one of the leading local beer company covering 65% of market share, Natakhtari does not considers any more price hike opportunities at the moment, and that 10% growth in prices of hop and malt does not mean that  prices on beer will increase similarly.

“It is excise that increased prices by 10-15% in August actually and no price hike on hop and malt,” Davit Nizharadze, Head of Distribution at Castel-Georgia, one of the biggest Georgian beer companies, told Georgian Journal. He just worries that the state taxes local and imported beer by excise equally and local product cannot compete with imported product that fixes prices similar to local beer.
Irina Japaridze, Director of Beer Land, beer importer company, counters that local product is sold for lower prices than the imported one. Beer Land imports Czech, Danish, Belgium, Irish and German beer including brands like Krombacher, VELTINS, Paulaner and HBHB, and claims that if for example a liter of Krombacher costs GEL 6, a liter of Kazbegi costs GEL-3-4.  On the other hand she has no more price hike fears as yet.
“We increased prices due to doubled excise starting August, but our suppliers do not speak of any upcoming price hike fears. Let’s wait and see. If prices increase indeed we will also increase commensurately,” Japaridze said.
Skhiereli asserts that other companies do not feel the price hike fear because they also have reserves of corn, and they will increase prices after reserves expire and procure product for higher price.

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