Transnational brewing business or “Not tractors, they produce, Alexander Nikolayevich, not tractors…”. (2014-04-24)

«A transnational company –

a corporation performing some operations beyond the country where it is registered, the most frequently in several countries where it possesses a chain of offices, subsidiaries and enterprises”.

Encyclopedic dictionary for Economics and Law

Who are transnational brewing companies, what did they come to Russia for? Are they friends or enemies for the Russian national brewing business? Is there any use for the Government to support transnational brewing business?

V.V. Zubkov (the First Deputy Chairman of the Government 2008-2012): “Not tractors, they produce, Alexander Nikolayevich, not tractors. Why do You, Agrarian Union, help them?”

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A terrible beer shelf? But there was even worse…

We published a question in our website: “What brewers – national or transnational shall the Government support?” And results were surprising. In spite of the fact that the solid majority 68% (1749 votes) voted for national brewing companies, 32% of respondents (813 votes) voted for the supporting of transnational companies…

We thank representatives of transnational companies for such a keen response and in spite of protection measures against “twisting” of counters when from one IP-address you can vote only one time per day, we are observing a burst of votes from IP addresses belonging to the same respectful company in St-Petersburg. Comment is superfluous.

In 2013 the Russian magazine “Expert” published a list of 400 largest Russian companies. Among production and wholesale companies – 60 branch offices of the global corporations. And only 4 companies from this list have production capacities in Belarus (“Coca-Cola”, “Carlsberg”, “Heineken”, a construction company “Henkel”). 2 tobacco enterprises (“J.T.I” and “Imperial Tobacco”) produce goods in Belarus under license.

So, what Russian companies created together with world corporations are in the Top?

The first place is Volkswagen; certainly, they don’t produce tractors but quite good cars. Then, second and fifth places – transnational tobacco companies. Places 7, 22, 30 and 49 – transnational brewing companies – Carlsberg, Inbev, Heineken and Efes.

What is the basic problem connected with operating of transnational companies in any country all over the world?

The main reason for objections is that transnational companies monopolize a national market and destroy national sovereignty. Actions of transnational companies directed to the market capture are often called economic war against citizens. Almost in every country there are laws limiting activities of the largest national producers as well as transnational companies (anti-monopoly regulation). There are a lot of examples but is it right to fault them for their wish “to rule” the world?

They were created for this purpose: to destroy, divide and conquer. There is no point to condemn but we can stand against. And the lifesaver for the Russian independent brewing business became the Federal Service for Alcohol Market Regulation. All prohibitions and limits introducing by this Service were directed against the interests of transnational companies.

Let us give you some background:

The President of the Union A.N. Mordovin, 2004: “Under this-case scenario (merging of transnational companies) small and medium brewing companies will suffer. Those companies coming in sight of monsters will be merged. The rest will either be closed or cut back production. For examples, 50 years ago in Germany there were over two thousand breweries but after merging Holsten and Binding there was only one thousand. In the USA there were three thousand beer productions and now – only one thousand and 90% of the market belongs to three companies. In Venezuela 90% of the market share belongs to one producer, in Columbia – two, in Argentina and Brazil – three.”

The reasons of the transnational company merger are not hard to plumb. Consolidation of productions is continuing to dictate terms to the brewing industry because it allows to reduce operating costs that is very important in the background of beer and alcohol consumption lowering (and corporate earnings correspondingly) all over the world. The larger you the cheaper credit funds, raw materials, equipment. Transnational companies put their best foot forward profit saving, at times breaking the law. Let’s remember the phrase of the famous English publisher Dunning:

“Capital is said … to fly turbulence and strife, and to be timid, which is very true; but this is very incompletely stating the question. Capital eschews no profit, or very small profit, just as Nature was formerly said to abhor a vacuum. With adequate profit, capital is very bold. A certain 10 per cent will ensure its employment anywhere; 20 per cent certain will produce eagerness; 50 per cent., positive audacity; 100 per cent will make it ready to trample on all human laws; 300 per cent, and there is not a crime at which it will scruple, nor a risk it will not run, even to the chance of its owner being hanged. If turbulence and strife will bring a profit, it will freely encourage both. Smuggling and the slave-trade have amply proved all that is here stated.”

What has changed since XIX century? The current example concerning the activity of the company ABINBEV in 2013 – $18 billion dollars of the profit with company’s turnover 45 billion… What goods shall be produced for getting surplus profit? For example, one of the most successful internationally known companies – Daimler AG (Mercedes Benz) with turnover – 115 billion has profit – only 8 billion.

There were many scandals connected with anti-monopoly law violence over the last 10 years:

– European Union’s Commission accused Interbrew of selfish use of their monopoly position in Belgium;
– In Belgium companies Kronenburg Alken Maes and Belgian Brewers Association CVV were accused of collusion;
– Cartel agreement between Kronenburg and Holland Heineken;
– Cartel agreement of transnational brewing companies in the territory of Germany;
– etc.

Russia was the next victim…

In Russia as well as in the Republic of Belarus and Kazakhstan transnational companies are creating complex structures in order to understate a profit, reduce tax base, transfer profit under questioned agreements, practice offshore schemes. We have already told about it:
http://barley-malt.ru/?p=9492&lang=en
http://barley-malt.ru/?p=9522&lang=en

Expansion of the western beer monsters in our country is not surprisingly. Russian beer market is not only the largest in the world (inside the top five) but very prospective. From 1995 till 2008, when production beer volumes were only 17,5 million hectoliters, we observed an explosion of production and consumption – more than six fold.

Let’s remember the phrase of the representatives of the European Bank for Reconstruction and Development: “Russia was the hugest thin market and the local brewing plants were backward, nowadays the situation changed”. What has changed?

From the mid of 90-s four western giants – BBH, Sun-Interbrew, SAB and Efes bought the best plants and partially destroyed some of them in order to fight off a competition(near 30 companies).

The rest 310 brewing companies operating at the beginning of 2000-s, either stopped developing or closed completely. So, the friendship between transnational companies and Russian independent brewers is similar to the famous joke “wolf was sorry for the mare and ate her up with love and care”.

And the major Russian brewer, a former executive secretariat of the “Russian” Union of transnational beer producers, Vyacheslav Mamontov, exclaimed in the mid of 2000-s: “Small and medium breweries are already on the verge of bankruptcy and soon they will withdraw from the market, not meeting the competition with the most prospective colleagues investing money in production.”

Vyacheslav Ivanovich, that is horrible to laugh in face of the Russian brewers. They believed you!

So what’s to be done? Company merger surely leads to manufacturing standardization and to falling costs of the products. So, there are two components that will change the fate of independent brewing business radically.

The first – the government regulation directed to supporting of small and medium brewing business. Let’s remember – the whole industry turned against our Union and personally the President A. Mordovin who supported a ban on beer advertising. Today, independent brewing companies thank the Union because the consumers have got an opportunity to choose beer brands without pressure of huge mass media. Independent brewing business needs to win back lost positions. For example, In Germany the share of transnational companies and independent business is equal.

The second – changing of tastes and attitudes of the final consumer in the production chain “malting barley – beer”. He became more exacting and began to study information on labels. This trend is typical not only for Russia but all over the world. We observe great growth of independent brewers. For example, in Denmark, in Carlsberg’s home country ten years ago there were few companies and now over 140 breweries. According to the Federal State Statistics Service there are over 800 independent brewing companies in Russia.

As far as our Union unites and defends interests of the Russian independent brewing business it is necessary to continue activities in this direction: hold out for differentiated excise taxes, exempt companies with annual output up to 300.000 dL. from licensing procedure, follow to 3”K” Rules: Culture of consumption, Product quality and Government control.

Dear colleagues, we support new tendency. We hope that the wind will always fill the sail of the handsome and proud ship of the Russian independent brewing business.

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