• Five-fold tax rise in SABMiller's largest Lat Am market
  • Brewer expects "modest" volume drop
  • Prices will rise
SABMiller expects "modest" volume decline

SABMiller expects "modest" volume decline

A near five-fold rise in beer sales tax threatens to damage SABMiller's lager volumes in Colombia, the brewer's biggest market in Latin America.

Colombia's Government intends to raise value added tax on beer from 3% to 14% from 1 February, as part of its plan to secure emergency funds for the country's healthcare system.

The hike is likely to put the stoppers on resurgent volume sales for SABMiller in Colombia and could damage the brewer's near-term growth prospects in Latin America.

SABMiller has a 98% beer market share in Colombia, via its Bavaria subsidiary, and the brewer sells 18,500 litres of beer there every year - roughly equal to combined volume sales in its other key markets across Latin America.

"We expect a modest impact on sales volumes," said Barry Smith, SABMiller's president for Latin America, in a conference call today (26 January).

An 8% beer price rise on 1 February will be "unavoidable" if the the tax hike goes ahead, said Smith, adding that the brewer is "reviewing a further price rise for later in the year". Cost cuts will also be used to offset the tax rise.

Smith cited an independent study showing that Government tax rises generally have a lower effect on consumer demand than price rises implemented by companies.

However, after questioning from analysts, Smith conceded that "personally, I'm not optimistic about it".

SABMiller last week reported lager volume sales up 6% in Colombia for the three months to the end of December.

Good weather and higher disposable incomes helped the firm to erase the memory of a 6% drop in Colombia volume sales for its most recent fiscal year, to the end of March 2009. Volumes also fell 2% in the first half of the current fiscal year.

It is still not certain that the beer tax hike will go ahead or, if it does, whether it will remain. Colombia will hold parliamentary elections in March and a presidential election in November and Smith expects a new administration to consider tax reforms.

"We will obviously be heavily involved to ensure that reform addresses the treatment of beer," he said.

SABMiller's third quarter lager volumes rose by 4% in Latin America as a whole.