Nordic booze markets facing major changes

  • 2003-08-28
  • Baltic Business News
TALLINN - The alcohol standoff between Estonia and Finland continued last week, with
Finland preparing to impose new restrictions on alcohol brought into the
country by tourists and Finnish brewers pressuring the government for
increased cuts in taxes on alcoholic products.
The Finnish government approved reductions of the tax on alcoholic beverages
on Aug. 20. Tax on strong spirits will be cut 44 percent while tax on beer
will fall by 32 percent.
The cuts were triggered by Estonia's anticipated entry into the European
Union next year, a development that would allow Finns to bring in cheaper
alcohol from the Baltic country than present quotas allow.
But the tax cuts will not be enough, said local producers. The Federation of
the Finnish Brewing and Soft Drinks Industry claimed that only a very large
cut would significantly reduce the incentive to travel to Estonia to get
beer, where prices are 20 percent ­ 25 percent cheaper than in Finland.
Finnish breweries have asked the government to cut the beer excise tax by 70
percent. Otherwise, they claim, brewers will not be able to compete with
imports of cheap Baltic beer.
After a meeting of Scandinavian breweries in Helsinki, Markko Ronkko,
managing director of Olvi, said that if price differences between Finland
and Estonia remained large and Finns kept importing huge volumes of beer,
Finnish breweries would have to expand where there was demand and launch
production lines in the Baltics.
Peter Mattson, head of the Swedish Association of Brew-eries, said that when
Poland and Baltic countries join the EU Swedish breweries would face a
disaster. Carlsberg has already announced that it will cease brewing
operations in Bromma near Stockholm and cut 400 jobs.
Estonian alcohol producers agree that the Finnish tax cuts are insufficient.
Sirje Potisepp, member of the Estonian Vodka Association and commercial
manager of the Estonian distillery Remedia, said that Finns would have to
cut excise duties on alcohol significantly more before Estonian distilleries
would be affected.
"Only if Finland were to cut the tax so that the price of vodka in Finland
and Estonia was the same would we be worried," said Potisepp.
Estonian breweries such as Saku and Tartu are also confident that Finnish
consumers will not disappear in spite of the cuts. Tarmo Lehtmets, finance
director of Saku Brewery, said that also after this cut the price of beer in
Finland would remain higher than in Estonia.
"We forecast that the sale of canned beer will increase next year,
especially for special export beer packages, and we believe that tourist
demand for beer will increase, not fall," said Lehtmets.
Apparently Finnish officials are also cognizant of this. In fact, Helsinki
might impose new restrictions on Finns who haul in large quantities of cheap
alcohol. According to one plan, anyone returning to Finland carrying more
than 10 liters of strong alcohol, 90 liters of wine and 110 liters of beer
would have to declare goods, reported the paper Helsingin Sanomat.
Finns currently import a total of 40 million liters of beer from abroad each
year, much of which is comprised of Finnish brands that are reimported by
travelers, according to one report.
Reductions in alcohol taxes will be reflected in the duty-free prices on
ships sailing between southern Finland and Stockholm. In the past, the ships
were able to maintain their lucrative duty-free sales by making a port call
in the semiautonomous Aland Islands.
Now shipping lines carrying thousands of passengers every day between the
two countries will have to lower their on-board prices for alcoholic
beverages in order to remain competitive with prices on land.
The shipping lines will probably have to compensate for the decreased profit
margins by raising passenger ticket prices, according to industry insiders.
Estonia's entry into the EU will also deprive vessels sailing between
Finland and Estonia of their duty-free concession.
"After that we will sell alcohol with Estonian taxes," says Keijo Mehtonen,
CEO of the Tallink shipping line.
He said that the change would reduce the company's profit margin by about 20
percent, which would inevitably lead to higher ticket prices on the
Helsinki-Tallinn route.