Microbreweries enjoy a break

  • 2004-07-08
  • By Aleksei Gunter
TALLINN - The small breweries that managed to sail through the turbulent waters of the mid-1990s economy and dodge acquisition attempts by local business sharks are finally enjoying a period of pleasant calm, though the industry's large players can still kick up quite a windstorm.

Ivo Kikas, head of Karme Ltd., the company behind the Karksi beer and wine factory that produces beer, cider and raw materials for these products, says the market has not changed much since EU accession and that the company was able to get its foot inside the Latvian and Lithuanian markets even before enlargement.
Kikas refuses to reveal Karme's annual production volume, but he admits that the share of Karksi in the Estonian beer market is very small. While Estonia retains its position as the leading market for Karksi factory products, Latvia holds the second place and Lithuania third.
"We have certain plans for going to other markets, but it is too early to talk about that," Kikas says.
Karksi beer and cider is sold in Latvia and Lithuania under its original trademark. The brewery specialized in beer production until 2002, when the company shifted its focus to cider production in a business correction strategy, Kikas explains.
In Estonia, the cider market has been growing rapidly over the last several years. In 2003 alone the market grew by about 30 percent, reaching 4.5 million liters by the end of the year. Major producers such as Saku and Tartu develop new cider flavors regularly. In fact, for Saku Brewery, cider has become the most lucrative product in its line.
Taako OU, another microbrewery, has been producing its so-called farm beer on Saaremaa Island since 1990. In fact, it was the only brewery to produce the traditionally light and nonpasteurized Estonian brew uniquely known for its juniper taste. During the peak of its fame, the production of Taako even reached the mainland.
Arved Vali, head of Taako, says he is currently busy restoring the company's production, which has been temporarily stopped due to adjustments in paperwork.
According to him, there are over a hundred people on Saaremaa Island who occasionally brew their own beer and sell it to friends - and friends of friends - without a license.
In an effort to restore annual production volumes that at one point reached 20 tons, Vali says Taako will try to break that record. Considering that Pihtla beer, Taako's only brand, for the longest time was only available from a tap at the brewery, that shouldn't be difficult.
After relaunching operations, Vali says he will try to market his beer to bars and pubs by the barrel.
"I cannot say anything about cider, but the strong beers of large producers, sold in big plastic bottles, have become our main competitor - you know, the real drunkard's beer with unnaturally high alcohol content," he complains.
Andrei Popovich, CEO of the brewery Nigula, says the EU's less complicated border procedures have made work easier for his company, as the raw material for beer, cider and soft-drink production is imported from Latvia, Lithuania and Finland. Apart from the domestic market, Nigula sells its products to Latvia and Lithuania, with a more or less equal cash flow coming from beer, cider and soft-drink sales, Popovich says.
"In order to sell a product abroad one does not need to be [a company from] an EU member state. Those who were not capable of selling their products before May 1 will unlikely succeed at it now," the CEO explains, adding that before enlargement EU member states didn't have exceptionally high tolls for foreign brews.
In Popovich's opinion, the Estonian government's excise tax policy is aimed at supporting larger manufacturers.
"In other European countries excise tax rates are different for big and small companies. In Estonia and in many post-Soviet countries the tax rate is the same for everybody. That's not fair," he says.
Popovich adds, however, that legislation was recently amended to meet the interests of microbreweries, such as beer parlors, that make their own beer.
A small brewery starts from an annual production of at least 1 million liters, he says. Nigula makes 2.5 million liters of beer per year. In comparison, Saku Brewery, the largest beer producer in Estonia with a 42 percent market share, sold 11.3 million liters of beer, cider and soft drinks in the first quarter of 2004 alone.
According to the Estonian Beer Producers' Union, the market has grown 16 percent in the first quarter of 2004. Experts have noted that intensive competition in the sector of cheap, strong beers has hampered further potential growth.