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E-Malt.com News article: Estonia: Price increases could reach beer this fall
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Food prices in Estonia have risen rapidly in recent months, but low-alcohol beverages have thus far been spared from a more rapid increase. Energy and cereal price increases will nonetheless reach beer prices this fall, potentially increasing them by up to half, ERR reported on June 14.

Since the reduction of the alcohol excise duty rate in summer 2019, the average price of a half-litre bottle of beer has remained below €1.50. According to Estonian Institute of Economic Research (EKI) data, low-alcohol beer prices fell by 0.7 last year, while the price of strong beer went up 0.6 percent. The average price of a bottle of beer together with bottle deposit and VAT stood at €1.43 in 2020 and €1.44 last year.

According to EKI director Marje Josing, there have been no major changes in trends thus far this year, and prices currently remain stable.

"It's still not worth going to Latvia, as the difference in excise duty rates is minimal and it doesn't pay off economically," Josing explained, referring to the widespread practice from previous years of driving to Latvia to stock up on cheaper alcohol there. "Tourists have not begun arriving yet and they aren't yet taking alcohol with them either. One might say that we're seeing normal market development right now."

According to Josing, one reason why low-alcohol beverage prices have remained low is major competition between domestic and foreign producers.

"They may slowly start to rise; beer is also made from grains," she acknowledged. "But there is incredible competition in alcohol in Estonia. There is domestic production and a great deal of import production, but import production has not started getting more expensive either."

A. Le Coq CEO Tarmo Noop, meanwhile, does not see the current situation in such a positive light. "It's really bad," he said.

Noop noted that both cereal and sugar prices have doubled, and that the cost of raw materials for juice has spiked by at least a third. "For us, this means an increase in the prices of all raw materials, and not in terms of percent, but exponentially," he said.

"It's all tied to grains, and a great deal of sugar is made from grains," he continued. A very large deficit is stemming precisely from the sugar market.

Prices in stores have yet to increase significantly; the price increase will largely reach consumers this fall. Until then, A. Le Coq is continuing to purchase raw materials under older contracts, the prices of which are significantly cheaper.

"The increase in energy prices has reached there in part already; the price of beer has gone up some 10-15 percent right now," Noop said. "But I'm predicting it will increase by more than 50 percent this fall."

Talis Raak, head of purchasing at supermarket chain Rimi Estonia, likewise said that a bigger increase in prices can be expected this fall, but added that the first wave of summer increases has hit store shelves already as well.

"Producers increased their prices at the end of last year, which in part was reflected on shelves at the end of 2021, and in part at the beginning of this year," Raak said.

"Now, in May, June, the next price increase on producers' part has reached us," he continued. "Some bigger, some smaller — it's likely they're erring on the side of caution prior to the high season, and it can be expected that new and more significant changes in price are coming this fall."

According to Raak, it's difficult to say whether these price changes have impacted consumption as well, as the past few years have been very different due to the COVID-19 pandemic.

Josing noted that in terms of grocery bills, the decline in real wages needs to be taken into consideration as well.

"People are going to be faced with other very high bills this fall," she highlighted. "This will certainly start to curb regular alcohol purchases. This is a category one can save on — skip buying a six pack, buy food, pay the power bill. It's going to be difficult for people this fall. Thinking ahead to where a family can save a little, and alcohol is a category where one can."

According to Saku Õlletehas board member and sales director Jaan Härms, the year began on a positive note for the beverage producer, coming out of the last wave of COVID and with tourism beginning to recover.

"Over the past two months, however, we've been seeing somewhat of a drop in consumption, which is most likely due both to the war [in Ukraine] and to rapid inflation," Härms said.

In light of increased costs, suppliers are currently increasing their own prices nearly every month. On top of raw materials needed to produce beverages, the beverage industry is also concerned by a shortage of glass bottles.

"Depending on the type of bottle and production site, the purchase price of glass bottles has increased in the range of 20-80 percent," he said.

According to the Saku sales director, as some glass bottles were previously supplied from Russia, once Russia launched its full-scale invasion of Ukraine in late February, beverage producers immediately had to start seeking alternative suppliers from elsewhere in the world, as all business cooperation with Russian and Belarusian companies was halted.

"The lack of European suppliers and the high season have made it very difficult to find new glass bottles, however," Härms explained. "Existing suppliers generally lack the capacity to accept new clients, and the development of molds for the bottles used by Saku at a new supplier takes a minimum of approximately six months."

As a result, Saku has opted to bottle beverages previously planned for glass in cans instead, and canceled the launch of some new products altogether.

According to Harms, Saku increased its selling price 4-5 percent in May, but will likely have to do so again. "That will certainly impact prices in stores to some extent as well," he added.

14 June, 2022

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