The cost of beer

The baseline price of a beer is determined by the cost of ingredients, production (labour & hardware), storage, transportation and taxation.

Of these, by far the largest contributor to the baseline cost is taxation in its various forms.

The differences in the tax on beer across Europe are enormous.  Direct comparison is made difficult by the different types of duty, excise and general taxation imposed on beer and the different points in its production at which the various payments must be made.

Examples include surcharges on basic ingredients, regular sales taxes such as Value Added Tax (VAT), the so-called ‘sin taxes’ that are applied directly to the alcohol content, and taxes applied to importation from other countries.

In the north of Europe – Scandinavia, Finland, the UK and Ireland – the total tax on a litre of 5% alcohol by volume (ABV) beer can be as high as € 1,30, excluding VAT, while in some countries in southern Europe the same beer attracts as little as € 0,08 before a similar percentage of VAT.

EBCU’s principles on alcohol taxation

EBCU is not opposed to the taxation of alcoholic beverages in principle.  Rather we seek to pursue fair taxation for every alcoholic beverage.

We are opposed to systems that disadvantage beer in comparison to other alcoholic beverages, either directly or indirectly.

We are opposed to the justification of punitive taxation on the grounds of gaining control over health concerns, in part because these concerns are increasingly supported only by arguments based on bad science, and in part because of the poor track record of such interventions in reducing alcohol-related harm.

Beer – the drink without subsidies

For many years, under its Common Agricultural Policy the EU has subsidised drinks such as wine and cider by counting these as agricultural products, while treating beer as an industrial product, even when the brewery is part of a farming business, as is still the case in parts of Belgium and France.

It has also been promoting exports of wine and spirits at the expense of beer, due to more favourable rules.

Another example of subtle fiscal discrimination against beer is the swathe of additional licensing, legislative and taxation rules often applied to pubs, taverns, estaminets and other businesses where historically beer is a staple item of sale, in contrast to restaurants, auberges and other businesses where historically wine has been the staple alcoholic beverage.

Does high taxation help to control alcohol-related problems?

Historically, government efforts to limit the impact of alcohol-related problems on the health and social welfare of the nation involved Prohibition.  The early 20th century saw the criminalisation of alcohol production and sale in Iceland, Norway, Finland, Russia, the United States and Canada, in varying degrees.

None of these experiments worked to achieve their primary aim and in most cases there were unintended consequences.

In the USA, Sweden and Russia the Prohibition era is blamed for the creation of organised crime networks that have continued to the present day.  Their initial funding came from the organised supply of beer and spirits, mostly to ordinarily law-abiding citizens who wanted to drink normally.  These organised crime networks have long outlived Prohibition itself.

At a time of relative austerity and economic nervousness in much of Europe we understand the argument that taxing alcohol more heavily could be defended as a means of protecting the health and wellbeing of the general population.  In practice however, we believe that this is more likely to cause a rise in illegal production, a massive increase in cross-border movement of alcoholic beverages from countries with a lower tax regime and a shift, particularly among young people, to less well regulated, often illegal recreational drugs.

Restricting the sale of beer

The downside will tend to occur with the imposition of unwarranted licensing restrictions such as placing tighter restrictions on the public sale of beer, limiting its maximum alcoholic strength, or restricting the opening hours of well-managed sales points.

While imposing insufficient restrictions on alcohol sales is often linked to a rise in problematic drinking, the imposition of draconian restrictions does not appear to reduce social harm.

For example, in Finland the tax on alcohol is among the highest in the world, the direct sale of beers above 4.7% ABV and other alcoholic drinks is limited and the regulations imposed on pubs are considerable.  As a direct result, Finns import a massive amount of alcohol by ferry from Estonia and a practice called ottaa pohjat has evolved, referring to the habit of getting intoxicated cheaply at home before going out in the late evening to get seriously drunk.

This is a prime example of “the law of unintended consequences”.

Other cost issues

EBCU has significant concerns about the rising price of key ingredients such as hops.  A huge rise in the demand for prestige hop varieties has yet to be matched by increases in cultivation.  We will do our best to monitor and expose any forward purchasing of crops that are to have been made with a few to speculation.

Currently the difference in price between cheap ingredients and the best is marginal compared to the overall cost of a beer at its point of purchase.  However, it makes a differentially larger impact on the producer’s costs, which for smaller producers in particular is important.

The burden of paperwork on smaller producers can be disproportionate too.  In the Czech Republic, some of the smallest and largest brewers in Europe must currently supply the same 27 regular returns to the licensing authorities.

Helping to create better brewers

EBCU supports the provision of tax breaks and other incentives for smaller brewers because it is these concerns that create the most jobs, bring pride to local communities and are more likely to pay their taxes locally, thus giving back to their communities in ways that global corporations cannot hope to do.

Additionally, good beer takes time.  Slower fermentation and longer conditioning times and some other parts of the production process all involve more space and more equipment being available, which for small or new producers can add significant cost pressures.

EBCU will continue to encourage, monitor and comment on the tax breaks that are on offer from the EU and from all European governments.

EBCU understands that better beers will in most cases cost more than industrial beers.  However, where the prices charged to the consumer are significantly higher than can be justified by the costs of production we will be critical of this.