Fruit wine industry faces taxing changes

  • 2004-03-11
  • By Ilko Stoilov
TALLINN - Though many have hailed the coming enlargement of the European Union to include the Baltic states as a positive development, for Estonian fruit and berry wine producers it may be a case of sour grapes.

. The tradition of drinking these distinct wines remains strong as nearly 2 million liters of fruit and berry wine were produced in Estonia during the first nine months of last year, according to the Estonian Institute of Economic Research. But the country's fruit wine industry now faces two major challenges in the context of EU accession: the rise of sugar prices and the equalization of the excise tax on Estonian fruit wines and imported grape wines.
Last December, a heavily debated amendment to the Alcohol, Tobacco and Fuel Excise Act was enacted by the Riigikogu (Estonia's parliament) despite negative votes from the People's Union party. As a result, the equalization of the excise tax will come into effect on May 1, raising the present tax rate for fruit wines from 6.5 kroons (0.41 euros) per liter to 10.4 kroons per liter.
Broadly speaking, the amendment has been perceived as part of the government's efforts to tighten tax loopholes.
According to the explanatory note to the amendment, the previous difference in excise rates created an unjustified competitive advantage. The note also says that the rise in the excise tax will not be so significant as to influence consumer preference.
In the opinion of Jaak Uba, director of leading producer AS Linda Nektar, the Estonian fruit wine industry will certainly suffer after these changes because local fruit wines will become as expensive as grape wines.
Market analysts point to the fact that most of the fruit wines are sold in rural areas where consumers are very sensitive to even minor price increases. When faced with similar prices of fruit and grape wines, these shoppers might choose the latter.
Uba added that the rise of sugar prices - a consequence of changes that come with EU accession - would further increase the prices of fruit wines. According to estimates made by the Estonian Ministry of Agriculture, the price of sugar after accession may double or even triple.
Jaak Turro, director of fruit and berry winemaker Tarco Vein, admitted that his business was experiencing tough times and that the future did not look too bright.
"The industry cannot actively develop now that there are all these new requirements coming in connection with EU accession," he said.
Turro added that it was also difficult to compete with the powder wine producers, whose production cycle takes only one month thanks to the use of juice concentrate, spirit and water. The traditional wine production cycle involves a one-year long fermenting and aging process. Tarco Vein, for example, makes four-year-old rowanberry wine and three-year-old apple wine.
Vello Tafenau, MP and head of the Estonian Wine Producers' Association, said the excise tax on the fruit and berry wine made from concentrate and that made of the natural berries and fruits is the same.
"It takes less time to make wine from the concentrate, and it is a little cheaper, too. Manufacturers using natural raw material encounter extra trouble buying up the necessary stock of berries and fruits, and their production cycle is also longer. Their money is stuck in the purchased raw material for a longer period of time," he said.
According to Tafenau, a 0.75 litre bottle of fruit or berry wine made in Estonia costs 30 kroons to 40 kroons in Tallinn shops regardless of the manufacturing method.
According to Turro, the most popular wines sold by his company are the red and black currant wine followed by cranberry wine. But even getting hold of the berries necessary for production has proved more difficult as of late. Tarco Vein has experienced problems with the purchase of berries as Finnish yogurt producers can make better offers to local berry farmers.
The combination of these changes could make the glass seem half empty rather than half full to these winemakers. Tarco Vein produced 161,000 liters of fruit and berry wines last year, which was 27,000 liters less than in 2002.
Four years ago, when the debate on the EU-mandated equalization of the excise tax rates began, Vello Tafenau, then chairman of the board of Vohu Vein, drew an apocalyptic picture of the end of the local wine production. Whereas it is true that as a consequence of the EU accession the Estonian fruit wine industry faces new challenges, consumers will ultimately decide whether the makers of these unique local flavors and traditional tastes will survive in the market.