Beer drinkers in Brazil face prices increases of up to 10% when two sets of new taxes on alcohol are imposed in October.
There are also concerns that the new taxes will result in less investment in the industry. Already Heineken, the world’s third largest brewer, announced it is to delay investments in Brazil because of the tax rises.
Overall beer taxes on brewers are set to rise from 17% to 20.8% in October and federal taxes on beer will rise by 27% on beer and 10% on soft drinks.
Both taxes are set to result in consumers paying more as companies that brew beer in Brazil face soaring prices. Brewers are already suffering from rising costs due to a decline in the value of Brazil’s currency against the dollar.
About 60% of Brazilian brewers’ costs are in dollars because they must import raw materials, according to Paulo Macedo, vice president for corporate relations for Heineken Brasil, which is currently the fourth largest brewer in Brazil. He declined to say how much Heineken planned to invest in Brazil this year.
Last year Brazilian brewers’ sales fell 2% from 2010 and they continued their decline early this year, falling 1.6% between January and the end of May 2012 compared with the same period in 2011.
Popular beers such as Brahma, Antartica and Skol will cost at least 2.85% more a bottle as brewers are expected to pass on part of the increase, but they could rise by as much as 10%.
Beer industry associations, CervBrasil, the Brazilian Association of Beverages (ABRABE) and the National Union of Brewing Industry (Sindicerv), said they expect prices could rise as much as 10% and some brewers could put up prices well in advance of the October tax increases.
They also said in a joint statement that it will lead to other companies, not just Heineken, investing less in the industry.
‘The readjustment of federal taxes will lead directly to price increases for beer and soft drinks, which should further erode the sales volume, forcing companies to review their planned investments,’ it said.
Analyst Mark Swartzberg, of Stifel Nicolaus, said in a note that brewers were likely to implement price increases next month in response to the increase in taxes.
Analysts at Barclays Bank said that prices are an important driver for the volume of beer, along with the climate and the increased revenue. Thus, the volumes will be under strain.
On top of this the Brazilian government has said it will increases taxes on beer between now and 2015 and that has raised further uncertainties about prices and investment.