Ministry: Border trade continues despite Latvian excise hike
Looming changes to the alcohol excise duty rate in Latvia will render trips to the south to buy strong alcohol meaningless, while beer will remain noticeably cheaper. The Ministry of Finance does not perceive border trade ending just yet.
If in 2018, 3.3 million liters of alcohol produced in Estonia was sold on the border, the figure fell to 2.3 million liters last year.
Executive manager of the Estonian Alcohol Producers and Importers Association Triin Kutberg said that if the difference in excise duty between a liter of strong alcohol in Estonia and Latvia is €1.27, it will drop to 63 cents in two years' time, after Latvia concludes it's excise duty hike plan.
"There is little reason to drive to Latvia today as border trade has largely been created out of the price difference for strong alcohol. Closing that gap will seriously slow down border trade," Kutberg said.
If Latvia initially planned to hike the duty by 30 percent, Estonia's decision from last summer to cut its duty saw the Latvians opt for a 5 percent hike instead.
There is still a notable difference when it comes to light alcoholic beverages. The excise duty per 100 liters calculated based on ethanol content will be €12.7 in Estonia and €7.8 in Latvia starting March 1. Put in simpler terms, Estonia will be charging an extra 12 cents per a half-liter beer even after Latvia hikes its duty.
Purchasing director for the Coop chain of supermarkets Oliver Rist said that while the price of strong alcohol hardly motivates consumers to drive to the border now, there is still enough of that motivation left in the price of beer.
Coop's sales figures seem to corroborate this as the excise duty cut has seen strong alcohol sales grow by around 25 percent, while the sale of beer is only up by a fifth.
One of the owners of the Alko 1000 chain of alcohol shops on the Latvian border Einar Visnapuu said sales are down 30 percent even though prices are still cheaper in Latvia.
"For a time, people fell for this propaganda that the 25 percent duty slash in Estonia has made alcohol cheap, but it hasn't," Visnapuu said.
The businessman said traders will swallow the minor excise duty hike in Latvia when it comes to beer so as not to hike prices.
The Ministry of Finance described Latvia's much more modest excise duty hike as predictable.
"We did not forecast any great changes in border trade volumes, and the outlook today also does not spell any significant change because of the lower than expected hike," said Kadri Klaos, analyst for the ministry's fiscal policy department.
The Ministry of Finance promises to have a more accurate analysis in its economic forecast toward the end of March.
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Editor: Marcus Turovski