Government finances pose a threat to alcoholic drinks sector

The global recession has left governments with mounting debt burdens that are reaching critical levels in some countries.

In this context, governments turn to tax, and alcohol is a popular target because of public health concerns. Thailand and Russia have already introduced big excise duty hikes affecting the industry and more increases could be brewing in other countries as governments seek to balance their books.

Moody’s warned that hikes in excise duty on alcoholic beverages could dampen a recovery in volumes this year.

Additional burden ​

The rating agency said that duty increases and a tightening regulatory environment will “create an additional burden for the industry”​ as it looks to recover from the economic struggles of the past couple of years.

In addition, companies may struggle to pass on tax hikes to consumers, as they would have been able to in rosier economic environments or when duty increases were more contained.

Beverage manufacturers may be forced to absorb some tax increases for fear of losing custom. This is likely to put pressure on margins, and ensure that manufacturers continue to be financially prudent.

As in 2009, Moody’s said companies will be focusing on reducing costs and keeping capital investments in new equipment and facilities under tight control.

Improved volume trends​

On the upside, Moody’s said it believed volume trends have reached their trough. Overall the outlook is for some volume improvements, or at least, stability.

“Moody’s does not anticipate a marked pick-up in demand for the global beverages industry in 2010, although volume performance should improve after a very challenging 2009,”​ said Yasmina Serghini-Douvin, a Moody’s analyst.