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. Last Updated: 07/27/2016

Baltika Says Beer Tax Will Raise Prices 30%

A tripling of excise taxes on Russian beer will hike prices by up to 30 percent for drinkers and speed up the market’s decline, Baltika chief Anton Artemyev said.

Baltika is owned by Danish brewer Carlsberg, whose shares have tumbled on the plans to raise the duty next year to 9 rubles (30 cents) per liter from 3 rubles now.

The State Duma on Friday gave final approval to the bill, which also raises the tax on cigarettes by 30 percent. The bill passed 313 to 131, with two abstentions, and only United Russia deputies backed the changes. It will now be submitted to the Federation Council, where it is likely to be passed and sent to President Dmitry Medvedev for his signature.

“A simple calculation shows that if 100 percent of the tax is passed on to the retail price, given current price markups on the wholesale and retail levels and [value-added tax], the [retail] price may rise 20 percent to 30 percent,” Artemyev said Wednesday.

He said the beer market was particularly vulnerable in a country where vodka is a far more popular alcoholic drink. “The beer market in Russia is sensitive to prices. An increase will have negative consequences,” he said. “Just because of a decline in disposable incomes, without any tax increases, the market fell by 10 percent over the past 10 months.”

Vyacheslav Mamontov, chairman of the Union of Russian Brewers, slammed the bill in a statement Friday, calling it “illogical and inconsistent.” The union says it will drive smaller brewers out of business within three years and lead to a surge in black market distilleries.

The government hopes to fetch 65 billion rubles ($2.2 billion) through the tax increase to plug its budget deficits, but Artemyev said the industry could incur losses of about the same amount.

He said, however, that brewers could avoid shutting production facilities by boosting efficiency and making alternative products.

In September, Baltika halted beer production at one of its plants in St. Petersburg, which is now producing only nonbeer drinks. It has also this year started the production of kvas.

“We acquired 6 percent of the Russian kvas market in September. We have the potential to build up this share going forward. As kvas is a product of fermentation, we can use some facilities we used in beer brewing,” Artemyev said.

Beer sales at Baltika fell 8 percent in the first nine months of 2009, but its full-year results will outpace the market, which is forecast to fall 10 percent this year, Artemyev said.

“We have been doing better than the market, have reached a 41 percent share — this is our historical maximum.”

(Reuters, MT)