A $628m brew-haa: Frances taxes beer leaving wine untouched

Stephane Bogaert, the head of French microbrewery Brasserie Saint-Germain, is crying foul.

The French government this week passed a law that adds 480 million euros ($628 million) in new taxes on beer, while leaving wine unscathed.

"The government doesn't want to touch wine and Champagne producers because they are much too powerful," Bogaert said in an interview at his small brewery in Aix-Noulette in northern France, which employs eight people and has 1.5 million euros of revenue.

With beer levies rising 160 percent to bring in the extra receipts, the 2 billion-euro industry is bracing for shrinking sales, investments and jobs. Danish brewer Carlsberg, which owns France's biggest beer brand Kronenbourg, says it may have to cut jobs in the country. The French Brewers' Association says it is encouraging lawmakers to take the bill voted Dec. 3 to France's highest court to protest against the unequal treatment.

"There's a breach of equality tax-wise," Pascal Chevremont, the Paris-based general secretary of the association, said in a phone interview, adding that the burden should be shared by wine and Champagne makers.

The beer tax is part of the 24.4 billion euros in additional revenue French President Francois Hollande's government is trying to raise to meet a pledge to cut the budget deficit to 3 percent of gross domestic product in 2013 from 4.5 percent forecast for this year. The government also cited health considerations when it announced the beer-tax increase.

Taxes from wine and Champagne makers amount to about 120 million euros, while for brewers it's being raised to more than 800 million euros, Chevremont says.

That's even though beer accounts for only 16 percent of the booze consumed in France, a quarter of the 59 percent for wine, and has lower alcohol content, he said.

The wine industry — from grape growers and wine makers to distributors — employs 250,000 people in France. That compares with about 75,000 for beer — from barley growers to sellers of the brew.

Breweries based in France produced 16.5 million hectoliters of beers in 2011, according to the Brewers' association. In contrast, France produced 51.1 million hectoliters of wine in 2011, according to Insee, France's national statistics office, making the country the world's biggest producer.

Over the last 30 years, beer consumption in France has fallen by 30 percent, according to the association. For wine, the average consumption fell by more than half from 1975 to 2010, a report at the Vinitech wine and spirits trade show in Bordeaux said this month, according to Decanter.com.

Still, the new taxes come just as beer sales were picking up for microbreweries like Bogaert's.

"One of the few rays of light for the French beer sector during the economic crisis was the growth in microbreweries," said Pierre-Olivier Bergeron, secretary general of the Brussels- based Federation of Brewers of Europe.

The 22 percent sales growth at Bogaert's brewery prompted it to invest a lot of money, Bogaert said.

"But we're not so confident for the future because of the taxes, and we think the growth won't be the same next year," he said. "We will probably not invest as much money over the next few years and maybe not hire as many people as we wanted to."

While last year the brewer paid taxes of 46,000 euros, for the same output it will next year pay 140,000 euros, he said.

The new tax may boost beer prices by 20 percent, curb consumption and investment and lead to job losses and possible bankruptcies, the Brewers' Association estimates.

Some expect worse.

"With the tax expected to lead to a 25 to 40 cent increase in the price of a small beer, this will further accelerate the existing trend from café to home consumption, which has already contributed to the closure of 12,000 establishments since 2007," Bergeron said.

The market "will probably decline by 15 percent" in the first three months next year, when the tax kicks in, Gerard Laloi, the association's president, said in an interview in Paris. "This is not acceptable."

Carlsberg will have to cut jobs in France because of the tax, Danish newspaper Borsen reported on Nov. 14, citing an interview with Chief Executive Officer Joergen Buhl Rasmussen.

"We are very disappointed with this decision," said Ben Morton, a spokesman for Carlsberg, in an e-mailed response to questions Wednesday. "We do not yet know how this proposed tax increase will affect the brewing industry in France. Once we know more, we will adapt accordingly."

The tax may have an impact on earnings of Carlsberg and Heineken NV, David Belaunde and Patrick Wood, analysts at Morgan Stanley, wrote in an Oct. 2 report.

"At the group level, the downside on earnings would likely range from 1 percent to 5 percent for Carlsberg, and 1 percent to 3 percent for Heineken NV, depending on demand elasticity," they said. "We believe events such as this highlight the risks that continue to exist in Europe."

The new tax is also creating a diplomatic row as Belgium, which exports beer to France, may challenge the law before European Courts, claiming market distortion, Chevremont said.

"This is a matter of concern as 32 percent of Belgian beer exports go to France," Belgian Prime Minister Elio di Rupo said at a Nov. 27 press conference in Paris, following a meeting with Hollande.

The French president shrugged off concerns, saying France's tax rate is far from the highest in Europe.

"Despite this increase in the beer excise," France ranks 10th among European Union countries, he said. "French consumption will remain at a good level."

The government may fall short of its target for taxes from beer as sales fall on higher prices, the brewers' association said. Beer makers say they are aware that the French government needs to reduce its budget deficit.

"It's just that we're taxed in a disproportionate way relative to wine and Champagne," Chevremont said.