Alcohol and tobacco manufacturers will focus on foreign markets

According to the National Statistics Committee, the highest increases in prices in January-April 2013 were prices on local cigarette brands without filter.

In the framework of harmonization of excise policy within the EEA from 1st January 2013, Belarus increased excise taxes on tobacco and alcohol. As a natural result, the sales of alcohol and tobacco products decreased. Belarusian manufacturers of these products, given the reduced domestic market opportunities are forced to look for export options to maintain their production volumes.

From 1 January 2013 excise rate on alcohol in Belarus was increased by 11.8-61.6%, depending on the type of alcoholic beverage. Excise taxes on tobacco products from January 1st, 2013 increased by 1.5-3.5 times. In Q3 and Q4 further increases are envisaged. Belarusian government introduced these measures to meet its commitments within the EurAsEC Anti-Crisis Fund and to harmonize the excise policy within the CES. It is planned to continue gradual increases of excise duties on alcohol and tobacco to level with Russia.

As a result of the excise growth, prices on alcohol and tobacco products have increased significantly. Prices on domestic non-filter cigarettes increased by 67.5% in January –April 2013, vodka by 17.4%. Such a significant rise in prices has resulted in reduced sales of alcohol and tobacco products in the domestic market. In Q1 2013 sales of vodka in real terms fell by 9%, and tobacco products – by 1.4% over the same period in 2012. Stocks of alcohol started growing due to existing production plans approved earlier for 2013.

The situation has also deteriorated due to growth of incomes. Beer imports in Q1 2013 increased by 38% over the same period in 2012, spirits by more than 30%. The population increased demands for better quality alcohol. Therefore, alcohol and tobacco producers are forced to pay attention to foreign markets, since the current excise policy reduces the domestic market’s profitability. The main tobacco producer, Grodno Tobacco Factory, expects to double exports in 2013, since domestic market is limited and will not expand.

Thus, excuse duties growth on the one hand forded citizens to reduce alcohol and tobacco consumption and increases budget revenues, but on the other hand reorients local producers towards international markets. Further increase in excise duties may be able to reduce alcohol and tobacco consumption and complement efforts targeting fight against alcoholization of the population – due to increased costs.