By Patricia Pillay
After a tough few years for the beer industry, with the Covid-19 national lockdown and four alcohol bans proving insurmountable for many businesses, including 30% of craft breweries who shut their doors permanently, the sector now faces a number of new challenges that threaten their survival and the desperately needed jobs they support.
One of the biggest threats is ongoing power outages – which has impacted the entire beer value chain, with craft brewers who barely managed to keep their doors open during the Covid-19 pandemic most acutely affected.
Brewers need at least nine hours of uninterrupted electricity supply in order to brew a batch of beer, which means load shedding above stage 3 makes it impossible to complete this process.
Power outages have also disrupted the delivery of raw materials to produce beer as well as the packaging and delivery of beer to customers. Some craft brewers have invested in alternative energy supplies in order to keep their businesses operational including generators, inverters and batteries, however, this has added major financial strain on these businesses who were still trying to recover from the Covid-19 lockdown.
On average, production volume across the craft beer sector is down by 25 to 40% while operational costs have increased by 15%. This loss of brewery income has forced some businesses to lay off workers with many of the still remaining craft brewers indicating that they will not be able to continue operating if load shedding continues at current levels.
With many businesses on the verge of collapse, the Beer Association of South Africa (Basa) has continued to call on the national government to introduce policies that will help to foster a better economic environment for the sector and that will aid it to recovery.
In this regard, Basa welcomed the announcement by Finance Minister Enoch Godongwana in his Budget speech last month that the excise increase on beer for 2023/2024 would largely be in line with inflation.
This announcement clearly demonstrates the National Treasury is signalling to struggling business that it has considered their plight and refrained from the kind of above inflation rate increases that have been enforced in previous years.
While this is a positive step, Basa believes that national government could go even further by committing to an excise adjustment approach that is fixed, in line with (forecast) inflation, which would create much needed tax certainty moving forward.
Furthermore, the government could also take steps to address the current disparities in the application of excise duties within the alcohol industry, which has historically negatively impacted low alcohol beverage producers such as the beer industry. This could be achieved through the application of an ABV Excise Duty System within all Excisable Alcohol Products, which means products with a lower ABV are taxed proportionally lower than products with a higher ABV.
One of the main functions of excise duties is to discourage the consumption of harmful illicit alcohol products, which can be harmful. Basa has, therefore, argued in its submissions to National Treasury and Parliament that there needs to be a distinction between beer as an alcohol beverage with a low ABV of 2.8% to <6% alcohol versus other alcohol products with higher ABVs.
The beer industry has also demonstrated meaningful intent to further reduce the alcohol content in its products through the introduction of alcohol free and low-alcohol beers. It is also common practice in many other countries to regulate alcohol beverages based on the beverage type and alcohol strength.
In particular, the application of an ABV-based excise duty system has been recognised by the World Health Organization as the best model for improving public health outcomes as it encourages consumers to purchase lower alcohol strength products. This taxation model has also been adopted by a number of countries including Australia, Canada, Denmark, Finland, France, Iceland, Ireland, Israel, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland and the UK.
Any increase in excise places enormous pressure on an industry that is a major contributor to the South African economy, with one in every 66 jobs in the country sustained by the sector. Furthermore, R1 for every R79 of the country’s gross domestic product (GDP) is attributable to beer-related economic activity, which means the beer industry makes up roughly 1.3% of the country’s GDP.
Another impact of an “above inflation” increase is consumers finding legal products too expensive, thereby forcing them to purchase cheaper illicit products which are not only harmful to their health but also to the fiscus. The illicit market already accounts for 22% of all alcohol sales and has been boosted further by the four alcohol bans since the lockdown started in March 2020, resulting in a R11.3 billion fiscal loss.
It is clear that there are a number of steps the government can take in the excise space, that can help ensure the long-term survival of the beer industry, which supports more than 450 000 livelihoods in South Africa and more than 200 craft breweries.
We plan to continue engaging with the government on these important policy considerations with the view of creating a predictable, differentiated and realistic excise regime that benefits the entire alcohol industry, continues to bring in government revenue and encourages moderate drinking.
Patricia Pillay is the CEO of Beer Association of South Africa.
BUSINESS REPORT