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Poland: The position of the big three breweries in Poland has been strengthened by EU membership, while some of the industry's smallest players have paid the ultimate price, according to the Warsaw Business Journal.

There are about 70 brewers in Poland at the moment. The three international brewing giants-SABMiller (Lech, Tyskie and Dojlidy), Heineken (EB, Warka and Żywiec) and Carlsberg (Bosman, Okocim and Piast)-own 30 businesses between them. Forty other small and medium-sized firms together produce less than 20 million liters per year.

But beer production has risen solidly over the last decade and now represents the fastest-growing industry in the food sector. According to the Polish Brewery Organization, production has more than doubled in the past 14 years, from 1.14 billion liters in 1990 to 2.73 billion liters last year. The first quarter of 2004 saw brewery sales rise by 6.15 percent year-on-year. Beer consumption in Poland has increased from 30 liters per person annually in 1990 to 69 liters in 2003, but it is still below the levels found in most western European countries.

When the old iron gates of the Stanley Brewery shut for the last time, a chapter in Poland's history ended. So did the last vestige of hope for dozens of workers and their families, the Warsaw Business Journal posted on September 6. Nestled in the rural backwater town of Chojnów, in the Dolnoœlšskie region, the institution had been producing the much-prized golden, creamy brews since 1871, when this part of Poland was still under Prussian rule. During the company's 133-year existence, the business survived two world wars and 50 years of communist rule. It could not, however, survive the pressures of European integration and finally folded in May of this year.

It is a similar story at the Romus Brewery, in Dšbrowa. "We couldn't afford to produce beer any more after the first of May. Our only chance would have been to decrease prices, but you can't afford to go on doing that forever," a spokesman told Gazeta Wyborcza.

EU membership sounded the death knell for three other small independent breweries in Poland and increased the financial pressure on several others to the point where their future plans are now in jeopardy.

The president of the Association of Polish Regional Breweries, Andrzej Olkowski, says: "Beginning in May, brewers had to start providing warehouses for stock so that it could be assessed for excise tax, and this was the major change for us. Many could not afford it." "We are talking about between five and ten breweries that were in this situation," says Olkowski. "The Romus Brewery and Chojnów certainly closed after we joined the European Union, and there were some more. We counted five breweries that have closed in total."

While membership has spelled devastation for a handful of small brewers, resulting reduction in competition has played into the hands of the three bigger corporations, strengthening their already staggering 85 % market share. But Poland's major players are also quite wary about the 'EU effect' as they anticipate new competition from cheap imports they fear may be flooding in across the German and Czech borders.

Both small and large players in the industry are critical of Polish excise tax levels, saying that these place them at an unfair disadvantage to European competitors, particularly the neighbors from Germany and the Czech Republic, where tax levels are roughly half of those in Poland.

Danuta Gut from the Union of Brewing Industry Employers in Poland says that taxes are the industry's biggest concern: "Our beers have a high quality taste, traditional formulas, good extract content and they regularly win prizes abroad." "But the real threat for us is the price competition we face," she says. "Our prices are higher in comparison to those in the neighboring countries due to the higher excise taxes imposed on beer and the VAT rates."

SABMiller owns Kompania Piwowarska, which currently occupies second place in the production league, and recently promoted the Polish Olympic team. Their spokesman in Poland, Paweł Kwiatkowski, says EU membership brought with it a number of major challenges.

"In the short term we are very much afraid of the private input," he explains. "One of our chief concerns is the differing levels of duties. While the tax in Germany and the Czech Republic is about E9.5 per 100 liters, in Poland this rate is more than double, at EUR20. "EU citizens may bring in 110 liters of beer, which is more by one third than the annual consumption per head in Poland. The problem for us is that you can buy cheap beer in Germany or the Czech Republic and bring it duty free to Poland."

Industry representatives have tackled the Finance Ministry over the matter in a series of meetings. Kwiatkowski continues: "The industry presented our point of view long before accession. Until the end of April the answer was 'if something wrong happens then we will help you.' This is nothing more than a loose promise to examine the situation. However, finding proof of that private input effect is almost impossible."

"The tricky thing is that nobody has an instrument to monitor this private input because this is a free country and anybody can bring in anything they want that is duty-free in their trunk without any control," he says. "We still don't know how great this factor is. Do people bring beer in from the Czech Republic or not? We are unable to measure this."

Kwiatkowski says that EU accession coincided with the beginning of the trade's peak season, making it very difficult to decipher the effect of competition against a background of the typical incremental growth brought on by the warmer summer weather.

"During the hot months we sell twice as much beer as in the cold months. So we experienced growth, which is a natural thing in May, June and July. But would it have been bigger if the excise had been cut by half? If we had joined the Union on, say, January 1, we would be able to pick out these trends more easily, but since these two things happened simultaneously it is very difficult to judge."

Kwiatkowski outlines another major threat from the German canned beer market. The German authorities have introduced a deposit system on their steel-and-aluminum cans to reduce the amount being thrown away, but the effect has been that they virtually killed the market in that sector. Big brewers are concerned that the massive overcapacity across the border will result in German beer barons dumping their cheap canned overstock here. "We have not experienced any visible attack, so the only possibility is that some of this is being brought in through the private input, but we have no way of measuring this," he says. The small firms represented by the Association of Polish Regional Breweries say the tax excise system is their major obstacle.

Olkowski, who is part-owner of the Kormoran Brewery in Olsztyn, wants to see Polish brewers given terms on par with those in Germany, where small firms are given tax breaks on a sliding scale proportionate to levels of production. "The tax reduction system which exits in Germany is the best in Europe and it makes the competition that exists between big and small breweries more flexible and provides some relief, and we are trying to achieve that here.

"With the tax level set at half the Polish rate, a small German brewer can end up paying approximately one-third of the tax than a counterpart in Poland. This can be dangerous for Polish brewers that are positioned near the border." The association is battling hard in Brussels for tax equality and Olkowski believes they have a 50 percent chance of success. As to the future, Olkowski says accession may benefit a number of his members. "At the moment we don't know the exact extent of the difficulties that EU membership has brought us. I think that for small breweries in the western part of Poland trade will be even easier."


08 September, 2004