Igor Tovkach, beer market expert: Ukrainian brewing industry is on the edge of the next excise duties double increase. Who is going to pay for it?

Instead of reforming the tax system, it was decided to raise the excise tax again: for beer – by 100%, for vodka – by 50%. This approach is not clear for the Ukrainian business. According to the State Statistics Service, the production of alcoholic beverages has been falling for three years in a row.

Therefore, within 10 months of 2015, beer production has reduced by 20.6%, vodka – by 16.7%. The law of energy conservation can be partly applied to the total quantity of the alcohol consumed. People did not start drinking less in terms of absolute alcohol, but many of them began buying cheaper drinks. From time to time, we can notice news in the media about the arrests of illegal vodka consignments. However, these measures do not solve the black market problem.

To produce beer in makeshift conditions and to sell it illegally is impossible. Some special equipment and technology are required. All 40% of production, the brewing industry has lost compared to the record numbers in 2008, flowed to the unaccounted spirits market. Although, 56-liter consumption of alcohol beverages per capita was far from the European average 79 liters.

The consumer will pay for the excise tax doubling. Alcohol is not the bread, for which we are ready to give the last money. Therefore, increase in the cost of beer by around 2.5 hryvnias per liter will negatively influence its sales. Off-season months are very vivid for the forecast – the weather factor becomes not important. Now it is difficult to give accurate predictions, but the decline in production in October 2015 by 5.6% compared with the same period last year, is significant. The new excise tax will exacerbate the decrease in beer consumption up to 20% or even more.

Lobbyists of the rapidly increasing excise tax are trying to prove its necessity by the fact that Ukraine is obliged to equal the taxes with the EU’s level within 5 years. This could be possible if the government, in their turn, raise the Ukrainian wages to the European minimum. When the purchasing power in our country is slightly higher than in Moldova, the excise duties equal with the EU are not worth speaking about. In case Ukraine wants to preserve the industry.

The brewers have one more issue. The Parliament wants to ban the glass bottles reuse in the alcohol drinks manufacture. The main argument is that Ukraine does not have a transparent bottles collection system and previously used bottles are not guaranteed to be perfectly cleaned.

Despite the fact, that collection system is semi-legal, it exists. From 50% to 70% of the bottles are back to the manufacturer for reuse. Moreover, the breweries have been using the modern washing and quality control systems for a long time already. On the other hand, why is it difficult to create a transparent containers collection system? For example, there is the Baltic countries experience of the similar project implementation, the buyer can bring empty bottles and PET packages to the supermarket and receives money for them. However, if the reuse of glass is simply prohibited, the mountains of unnecessary bottles will be comparable to Everest in size.

The consumer does not have to overpay for the container, which he is forced to buy along with a drink. Beer manufacturers get bottles from the companies that collect them for one hryvnia, but they pay two hryvnias for new bottles from the plant. This makes beer cost less. If the bottle cannot be reused, the 9 hryvnias price for a 0.5-liter bottle will include 3.5-4 hryvnias container cost.

At this stage, it is necessary to focus on the development of ways to overcome the brewery industry crisis. Beer manufacturers, farmers and representatives of 10 different businesses need immediate help. While the brewing industry production continues to fall, the companies’ management is looking for the optimization ways. They can be different, from firing the employees to closing down the factories.