SCPEC against local beer production
Recently RA State Commission for the Protection of Economic Competition (SCPEC)-local brewers conflict is being actively discussed.
On November 16 the Commission issued the results of beer market survey. In particular, decision was made to charge AMD 110 million from “Yerevan Beer” company, due to 30 drams price increase per liter. Linked to “Gyumri Beer” SCPEC stated that the company has decreased tax liabilities and sent the case to the State Revenue Committee (SRC). What’s the situation like in beer market? What changes have been recorded? To what prevents or contributes this step by SCPEC.
Armenian beer market
About two dozens of enterprises are functioning in beer market. 4 of them are local producers: “Yerevan Beer” (Kilikia), “Gyumri Beer” (Gyumri, Aleksandrapol, Erebuni and etc.), “Kotayk” Brewery and “Lihnitis” LLC (the same Sevan Brewery, which produces Kellers beer).
Besides local producers more than 10 companies import beer to Armenia (“Catherine Group,” “Adamium,” “Sargis Karolina” and etc.). Price for Armenian beer is approximately on the same dimension: 0.5l bottle of “Yerevan Beer,” “Gyumri Beer” and “Kotayk” is sold on average by AMD 370-410 retail price.
Kellers of Sevan Brewery is a bit more expensive—0.33l Kellers Rich Premium costs AMD 490.
Prices for imported beer vary from AMD 500 to 1500. Georgian Natakhtari beer costs AMD 430-440.
In short, the consumer has a large choice of beer in different price segments.
Which one is more influential in the market?
It’s necessary to launch a survey to answer this question. Of course, companies functioning in the market regularly hold surveys for internal use, however, they aren’t published.
The only source is SCPEC. The only fresh document found on the internet and SCPEC official website was the following: “On the survey results of the structure of “Beer” product market” (March 2012).
Market’s influential actor is “Yerevan Beer” company, which shares 47% of beer consumed in Armenian market (Kilikia). Specific gravity of “Gyumri Beer” company comprises 18.3%, of “Kotayk” Brewery—13.8%. Separate specific gravities for Sevan Brewery and importing companies weren’t included. Altogether their share comprised 21.1%.
These data have been issued in 2012, based on research conducted in 2011. However, judging from the beer production and import data, as well as SCPEC formulations, about half is shared by “Yerevan Beer,” it may be concluded that this snapshot didn’t undergo considerable changes.
Local beer concedes its positions
As official indices show, hard times have been launched for local brewing. Volume of beer production comprised 20 million 686.5 thousand liters, it’s less by 3 million liters or 12.8% from the volume of 2014.
Decline tendency continues this year as well. 16 million liters of beer have been produced in the period of January-September 2016, as compared to 17.9 million liters for the same period of the previous year. Production volumes have decreased by 1.9 million liters or 10.7%.
If the decline proceeds that way in the last quarter of ongoing year, then the volume of beer production won’t exceed 18.5 million liters. The contrary phenomenon is observed in case of import—they increase. Upon the data issued by RA SRC customs service 2 million 346.4 thousand liters of beer have been imported in 2013, 2 million 837.5 thousand liters—in 2014, 3 million 379.6 thousand liters—in 2015.
The growth tendency of 2016 is maintained. In the first semester of ongoing year 2 million 219.7 thousand liters of beer have been imported to Armenia. As compared to the first semester of the previous year beer import has increased by 36%. If this growth temp is maintained, by the end of the year volume of beer imported to Armenia will exceed 4.5 million liters. It should be stated that export volumes concede import volumes, and as compared to the previous year, we have decline in this direction as well.
Another interesting circumstance should be singled out as well. As it’s observed from the RA SRC customs service’s comparison of customs value of imported beer and physical volume, price for imported beer is being reduced in recent years. In 2014 customs value per 1 liter beer comprised on average 98 cents, in 2015—73 cents, in the first semester 2016—58 cents. Thus, imported beer has cheapened. Smells like damping. However, SCPEC would hardly consider this issue, as imported beer doesn’t have a leading position (with the same reasoning it refused to consider “Yandex”).
Even if one of importing companies had a leading position, the maximum SCPEC could do, would have been analysis of purchase and transport expenditures. And when SCPEC requires explanation from foreign producers to study pricing process, this department will be sent far away, i.e. SCPEC may mainly influence on local producer.
SCPEC against local brewers
Drop of beer production volumes and import growth. What should the state do in such cases? Support local producer/exporter or at least not create issues for them? You’re right.
However, SCPEC does just the contrary—it creates issues for “Gyumri Beer” and “Yerevan Beer,” which are already in hard condition. In particular, “Yerevan Beer” has been fined by AMD 110 million for the price increase by 30 drams.
The abovementioned two companies have responded rather toughly to the decision by SCPEC. “Yerevan Beer” considers the occurrence a conspiracy and is going to arraign SCPEC. The latter doesn’t accept accusations and referring to the legislation states that everything has been implemented pursuant the law.
We can’t say whether this step by SCPEC contradicts the law or not, however, the logic surely contradicts. In particular, “Yerevan Beer” isn’t a monopolist, the beer isn’t a product of first need, and there is heaty competition in the market. And if under these conditions the company raises the price for the product and doesn’t lose the market, it does everything properly.
SCPEC interference would be justified if “Yerevan Beer” defined ungrounded low price and initiated damping, ousting local producers and importers in the same price segment. However, punishing for price raising isn’t clear.
Moreover, the company could raise the price for beer not by 30 but by 300 drams. The only reason, preventing the company from doing it, is the demand: in that case consumers will drink Heineken or Carlsberg instead of Kilikia.
A tendency?
The most ridiculous is that SCPEC spices its decision with beautiful expressions on competitive environment and consumers’ interest. In fact, such actions only distort the competitive environment, as it doesn’t allow the private company having income and developing. Maybe it’s in legislation, pursuant which the company leading in local market, however, small by international standards, is more vulnerable towards the activities of the manager, than for instance Efes or Miller. And statements on consumers’ interests sound ridiculous, when memorizing weak approaches by SCPEC, for instance, in reply to complaints in sugar and oil markets.
There is an impression from manifested unprecedented determination and severity, that this department does its best that local beer production conceded its positions to import. For the time being it’s difficult to say whether it’s deliberate or not, however, the result of these steps leads to that.
It should be noted that in one of the recent sessions Armenian PM Karen Karapetyan reflected to that decision by SCPEC, stating that although the Commission is an independent body established pursuant the law, and the Government doesn’t have levers of influence here, it doesn’t deprive them of the possibility to express an opinion. “Thus, we urge Mr. Shaboyan and SCPEC to, first and foremost, focus their efforts on the market of primary commodities, on which concerns are more from the public,” the PM said, adding that it’s a more crucial issue, than the field of beer production, where there are numerous brewers and importers, and serious competition is observed. “I have met with those businessmen, they ground that the dividend wasn’t much. That’s why I ask you to be maximally attentive to these issues.”
By Babken Tunyan
