From time to time Mass Media and the Russian Government at different levels of power discuss the question about necessity of introducing the lowest retail price for brewing products. So, what is the minimum product price? Economic and Law Encyclopedic Dictionary gives the following explanation:
“The minimum price for a product is the lowest price level set in the market”.
We’ll try to understand what price level is fixed today? It may be logically assumed that this level shall not be lower than production costs plus margin, though, sometimes a producer sells the product below cost in order to promote production, sweet new markets and to clear storage from overstock due to the small demand and expiration date.
Nevertheless, we’ll try to calculate the beer price using the example of one of the most popular beer brands: 1.5 l. in PET-container, light beer containing 4-5% of alcohol.
According to the calculation model for the company with high productive capacity and for the purpose to make orienting points for setting a minimum price, we observe the following:
1. Raw and other materials expenses (PET-containers, malt, hops etc.) = 12 rub. inc. VAT
2. Other direct costs = 3 rub.
3. General production expenses = 10 rub.
4. Non-production expenses = 5%
5. Minimal production profitability = 10%
* 1 EUR = 48,5 RUB (as on 19.02.2014)
Full costs per unit:
25 rubles
Wholesale price:
27,5 rubles
Ex-works price has the following structure:
Ex-works price = Wholesale price + Excise tax amount + VAT
Excise tax amount for excisable goods (27 rub/1,5 l.);
Ex-works price = 27,5 rub + excise tax +(wholesale price + excise tax) х 0,18 = 27,5 + 27 + 9,81 = 64,31 rub. with VAT
* It is important to note that in the calculation points 1-5, brewing products made of inexpensive raw materials (high maltose syrup, unmalted grain materials) and produced in the large factories differ in production costs from the mentioned. The lower production costs in view of raw materials purchased quantity (containers etc) shall also be taken into account.
So, the producer shall pay for 1,5 l. of beer in PET-container
60-65 rub. inc. VAT
For 1 l. in PET-container (with re-calculation):
40-45 rub. inc. VAT
For a glass bottle of 0,5 l. ((with re-calculation):
25-30 rub. inc. VAT
These calculations were made according to the limits of admissible profitability excluding distributors’ margin and retail outlets.
And what prices can we observe in the shop? Test stage of the contest “Russia Beer Star” gives us the following retail prices for brewing products in the Russian shops: http://barley-malt.ru/?p=5731&lang=en. Prices fit with our calculations. Even more, surfing the Net and sites of the brewing companies and wholesalers we’ll not discover any criminal cases.
Where does the trouble lie? What is the minimum price for?
It is clear that we’ll not find beer with a price ticket showing disparity of the calculated price and the sale price. But price lists of some beer producers (being at Union’s disposal) contain unrealistic prices for wholesalers. So, some brewers operate at a loss? They don’t simply pay excise taxes or pay it partially. We have been talking about Russian shadow market several times: http://barley-malt.ru/?p=5742&lang=en.
As a result we don’t agree with some beer producers being afraid of introducing minimum prices. Besides, an honest brewer – tax payer has nothing to fear but careless producers and wholesalers being caught red-handed will have to pay a fine and the Government has already been discussing its amount.
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