EU accession was a big shock to the domestic drinks industries of the new EU members, opening up their markets to greater competition, but it also provided a potential boon to exports. Three years on, Mark Rowe assesses the impact accession has had on drinks producers in the new EU member states.

Following the 'big bang' of European Union (EU) expansion in May 2004, when ten countries acceded to the union, followed by Romania and Bulgaria this year, analysts were curious to see how those new members with well-established drinks industries would cope in the new pan-European family.

The key issue was that import duties on alcoholic drinks from within the EU were banned, and as a consequence, unit prices of imported alcoholic drinks fell. Furthermore, the new entrants were faced with strict EU regulation on vineyard expansion and agricultural subsidy.

In the brewing sector, EU enlargement has had a huge impact. "There are far more pluses than minuses," says Rodolphe de Looz-Corswarem, president of Brewers of Europe. "National brewers in the new countries have faced stiff competition from the multinationals but that is a fact of life. Multinationals are clever but they are not flexible, so the niche market exists for smaller brewers in the new countries if they are clever and innovative."

Brewers of Europe is in the process of collating data on sales post-EU enlargement, but de Looz-Corswarem is "absolutely certain" that the brewing sector has benefited from the expansion. "We have gained a number of excellent brewers, good agricultural land and countries with strong beer traditions. That's good for both their internal and external markets."

The Czechs, however, have an ambivalent view of the greater integration that EU membership has brought. Last year, the Czech Beer and Malt Association (CBMA) led opposition to raising minimum EU-wide excise duties and advertising restrictions for beer. Such a move would have affected the Czech brewing industry, which has some of the lowest excise taxes on beer in Europe.

On the other hand, access to the wider EU market has boosted the Czech industry. According to the CBMA, Czech beer exports increased from 2.6m hectolitres in 2004 to more than 3m hectolitres in 2005. Nearly 40% of Czech beer exports go to Germany, followed by Slovakia. Exports to Ukraine, Belgium and Russia are also up.

The picture is less encouraging in neighbouring Slovakia. According to the country's Beer and Malt Producers' Association, 2006 saw a further decline in the industry that was already contracting. Some 118,400 hectolitres were exported from Slovakia in 2005, with the figure falling to just 36,200 hectolitres in 2006. Roman Sustak, managing director of the association, attributed the fall to EU membership making it more favourable to license the most popular beer brands for production outside of the domestic market. In September last year, market leader Heineken Slovensko, which holds a 45% share of the market, reduced its production in Slovakia to a single plant.

Looking at spirits, Edwin Atkinson, director general of the UK Gin and Vodka Association, said that EU enlargement had benefited his industries of concern. "Before Poland joined the EU, its tariffs on imported vodka were around 120% on a set quota and 200% on anything above that," he said. "The tariff on imported gin was 85%. Not surprisingly imports of gin and vodka to Poland were very low. That's changed hugely. We're great advocates of the common market - the volume and range of brands of Polish vodka entering the UK has increased significantly too."

In the wine sector the picture is similar. Malta's small wine industry has just about held its own despite having to abolish import duties - in this case MTL1.5 (US$4.6) on a litre of imported wine - equivalent to 75% of the typical price of an Italian or French bottle. Foreign market share rose from 18% in 2003 to 37% in 2004, but fell back again to 27% in 2005.

"I think things are settling down now," said Jeremy Cassar, marketing manager of the Maltese company Marsovin wines. "Because foreign wines were expensive, people thought they must be good, so when their price dropped consumers flocked to them. But we have had more positives than negatives. We're extremely happy with the DOC quality certification - it's crucial to us as it gives a quality guarantee for our wine to tell people who may not know about us. We will get funding for DOC promotion which is welcome."

According to a report by Euromonitor on the Hungarian drinks industry, in the wake of EU accession, Hungarian breweries saw a fall-off in sales due to the arrival of cheap imported canned beer, while local wine has faced increased competition from cheap New World wines. Nevertheless, the market is still dominated by Hungarian wines, with French and Italian products providing the stiffest competition.

"The Hungarian alcoholic drinks industry is coping well with the threat from cheaper foreign goods but local players need to display stronger marketing activity in the future, while price competition is also very strong," says Euromonitor.

EU membership has brought a boon to two well known Hungarian alcoholic drinks products. Tokay wine and Pálinka brandy have gained the right to be called 'Hungaricums' - products particular to Hungary - and as such are protected as denominations under EU law.