Our neighbour is at war and we have to cope with economic and food crisis, and inflation. How is the spirits industry doing?
Similarly to the entire agri-food sector, our industry is currently going through a very difficult period. What is hitting us the hardest is the galloping increase in the prices of raw materials for production, primarily grains and energy. These two elements, in addition to wages, are the main cost drivers in the spirits industry. Furthermore, we cannot forget about the serious problem with glass packaging, either, which has become more expensive and difficult to access after the closure of supply channels from Russia and Ukraine. Thus, we almost have a complete picture of an extremely difficult situation. Why almost complete? Because, in addition, since January of this year, the government has levied a 10% increase in excise tax on spirits and its rolling increase is budgeted for the next five years. All these difficulties mean that currently we can forget about the profitability that provides the industry with solid investment-based growth. We should rather think about what to do to prevent a situation in which the entire Polish spirits industry shares the fate of Polish agricultural distilleries, which, due to misguided government policies, have shrunk from more than 1,000 back in the 1990s to less than 50 today. However, while the collapse of distilleries may have escaped the attention of those in power, the collapse of the spirits industry contributing several billion zlotys to the budget each year, including more than 9 billion zlotys from excise tax, will not go unnoticed.
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Mamy potencjał, aby wódka oraz okowity i nalewki stały się eksportowymi hitami. To się jednak samo nie wydarzy, potrzebne jest wsparcie państwa – mówi Witold Włodarczyk, prezes Związku Pracodawców Polski Przemysł Spirytusowy.
What are the solutions?
By and large, the market for spirits in Poland is saturated. We are selling less and less, although by value the market is growing by a few percent each year, mainly due to inflation and excise tax increases. There is no chance to increase revenues through volume growth on a minimum margin basis. However, we should use the opportunity to develop the industry through export. We have great potential, but in order to significantly increase it, rapid systemic changes are necessary. Only those companies that are economically strong at home, and thus competitive in foreign markets, can count on export success. Nevertheless, it is essential to ensure that entrepreneurs producing vodka, liquors and spirits have an equal start with other producers of alcoholic beverages. It is not right that one gram of the same ethyl alcohol in these products is charged three times as much excise tax as in beer. We expect to pay for a half-litre 40% alcohol bottle of vodka eight times the excise tax paid for beer with 5 percent alcohol content. This is fair, logical, and in accordance with the act on upbringing in sobriety. It doesn’t take much to make that happen. It would be enough for the beer industry, like the spirits industry, to have excise taxes calculated based on alcohol content as is the case in most European Union countries. Today, when the beer industry charges excise taxes based on the plato gravity scale (which, de facto, is a “quality tax,” i.e. the higher the extract content, the higher the tax), this difference is not eight times, but more than twenty times. This not only creates tax discrimination against our industry, but also an “excise loophole.” Econometric models show that in the current situation, the Polish budget loses several billion zlotys annually on excise and VAT from the beer industry. In addition, craft breweries producing high-quality products would benefit from the change, and three foreign corporations holding 84% of the Polish beer market would switch from producing strong beers to beers with much lower alcohol content. Everyone would benefit.
