Russia's fall from grace on the international beer circuit poses problems for multinational brewers in 2010.

Russia's Goverment has driven through its plan to triple duty tax on beer, effective as of 1 January, at a time when a weakened national economy has already led to falling beer sales.

Not so long ago, Russia was the darling of multinational brewers, who competed fiercely for a slice of the country's fast-growing market. Rising disposable incomes saw the country become the fifth largest beer market in the world by 2003.

In 2008, Russian beer consumption was around 78 litres per capita, with a size of more than 110m hectolitres making it the third largest in the world by volume.

But, economic problems saw market volume shrink in mid to high single digits in 2009. Carlsberg, which owns market-leading Baltika Breweries, has forecast a further 10% market decline in 2010, after taking into account the new tax rate.

Analyst group Sanford C Bernstein has estimated that the higher tax could see retail beer prices rise by up to 26%. It has predicted that the tax hike could significantly damage Carlsberg's earnings before interest and tax over the short and medium term.

However, Baltika's premium focus is likely to offer some shelter, Bernstein believes.

There is no doubt that the tax is designed to hit lower priced beers the hardest, with around 48% of the Russian market believed to consist of 'discount' brands. 

Of the other multinational brewers active in Russia, a slant towards the premium end of the market may similarly insulate SABMiller, although the brewer warned late in 2009 that consumers were trading down from its brands.

Sun InBev, the subsidiary of Anheuser-Busch InBev, has shown signs of struggling more than its peers. Russia volume sales fell by 20% in the third quarter of 2009 and by 15% for the first nine months of the year, compared to the same period a year earlier.

There have been persistent rumours that A-B InBev may look to sell the Sun InBev business. It is no longer under financial pressure to ditch assets, but it is possible that the tax hike in Russia will force its hand.

What we can expect from all brewers is stringent cost cutting in Russia in 2010. The party is well and truly over.