Beer, the widely preferred drink for fighting the summer's onslaught, is no longer as cool. The latest dose of state excise has lifted the prices of the golden brew by close to 25 per cent.
The tax increase, proposed by Jayant Patil, state finance minister, in his budget for 2006-07, was implemented from April 15 and is now being passed on by the breweries to the customers as older stocks are over.
Popular mild beer brands, such as Kingfisher, Foster's and Royal Challenge, have become costlier by 25 per cent reaching the price levels of Rs 65 upwards at liquor shops.
Few brands, such as London Pilsner or Golden Eagle, have yet to cross Rs 60 though they too have become more expensive from their earlier price marks.
The state government increased the excise duty on mild beers by Rs 3 per litre in this year's budget. The logic offered was there is a marked shift in the consumption of beer as the consumers are increasingly preferring strong over mild beers. Thus the duty on strong beer has been left untouched as it was fetching higher revenues.
Commenting on the situation in the market, Sundeep Kumar, director, corporate affairs and communication, SAB Miller India, which recently took over the beer business of Shaw Wallace, said, "The price of mild beer has increased in Maharashtra due to the decision of the state excise department to increase the levy on mild beer by Rs 3 per litre. The anomalous duty structure has a multiplier effect and will cascade the price increase to around Rs 13 when the bottle reaches the shop shelf.
Kumar said in India nearly 50 per cent of the price of a bottle of beer is government levies as against the global average of 33 per cent and the 35 per cent recommended by the model excise policy formulated by the ministry of food processing. As a result any change in duties has a direct impact on already high consumer prices.
"It is an ironic situation where manufacturers have little or no control over final prices in most states, despite the fact that they are the ones who make investments in manufacturing and brand creation. The prices are often determined by the government or the trade. For example, in MP there is a selling price and the retailer is free to charge the consumer whatever price he likes," Kumar said.
Opinions are, however, divided over whether the rise in prices will have a negative impact on the beer sales in the state.
Yatin Sawant, superintendent of state excise, Pune, said the sale of beer as well as Indian made foreign liquor had been rising steadily despite the additional taxation levied each year.
Beer sales had increased by around 20 per cent in Pune district in 2005-06 as sales rose from 1,45,00,000 litre in 2004-05 to 1,72,93,000 in 2005-06, Sawant said.
According to Sawant, the sales have shown a rising trend even this year as in April 2006, 24,25,000 litres of beer was sold compared with 18,97,000 in April 2005. "The sales figure for this April is an all-time high," Sawant said.
Kumar, however, said the rise in prices was sure to have a dampening effect on sales. He said, "Price elasticity for beer in Maharashtra is estimated at around 1.58, i.e. 1 per cent increase in price leads to 1.58 per cent drop in volumes. As a result, there is bound to be an impact on sales.
"Moreover, increase in beer prices also leads to migration to hard liquor, which is not necessarily a desirable outcome from a social viewpoint. The same is evident from the time when last year the prices of strong beer increased in Maharashtra -- the market stagnated. Maharashtra is primarily a mild beer market; hence any price hike will have an impact on sales."
Sawant said there is an all-round increase in sales in Pune district which he oversees.
According to him, the IMFL segment, too, has shown 20 per cent increase in consumption in Pune as the number went up to 108 lakh litres in 2005-06 from 89 lakh in 2004-05. Wine consumption is growing in the city as 1,75,000 litres of wine was sold in 2005-06 as against 130,000 litres last year.
"The number may look small, but the percentage rise is significant here," he pointed out. Sawant felt the younger generation especially those working in the IT and BPO sector, are fun loving and they have been driving the sales of wine and mild beers.
Beer prices have increased in other states as well, Kumar said. The state of Andhra Pradesh, for example, has increased the corporation margin by 1 per cent, thereby increasing the final price of beer in the state.
Similarly, a increase of Rs 4 per litre in Orissa's excise duty has led to a subsequent rise in beer prices. In Karnataka too, duty increases have resulted in price increases, he pointed out.
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