New research shows that tax increases on alcohol on both sides of the Baltic Sea won’t be enough to stop Finns going to Estonia to buy cheap booze.
The Grocery Trade Association wants the government to give a green light to legislative reforms that would allow stronger beer, cider and long drinks to be sold in Finnish supermarkets. This would cut by half the amount of such alcohol being brought back from Estonia, their research says.
Beer Prices Compared
On the 1st of January 2017, a 24 pack of Karhu beer 5.3% strength bought in Estonia cost just €14.
The same pack of strong beer in Finland – which can currently only be purchased in the state monopoly alcohol shops ALKO – cost €49.60.
So the price difference of more than €35 is a strong incentive for people to go on the ferry from Helsinki to Tallinn, and stock up on cheaper alcohol. It’s possible to purchase round trip tickets to Estonia for less than €14.
Tax Increases Planned
However, the Estonian government plans to increase beer tax by more than 160% by 2020. The biggest hike already took place on 1st July, and by 1st January 2018 that same 24 pack of 5.3% Karhu beer will cost €19 in Estonia.
The Finnish government however will also increase taxes on alcohol, in a bid to generate more revenues. So the 24 pack of Karhu will soon cost €51 on this side of the Baltic.
The result? The price difference will be slightly less after 1st January 2018 than one year earlier, but it’s still €32 cheaper to go to Estonia and buy the beer there, instead of in Finland. The research found this price point is still enough of an incentive for people to make the trip.
“There are alcohol tax increases in Estonia, but at the same time the Finnish government has decided to raise our alcohol tax levels as well” Kari Luoto, Managing Director of the Finnish Grocery Trade Association tells News Now Finland.
“The net impact is not that big, unless we change how strong is the beer and long drinks we can sell in the grocery stores” he says.
At present, only beer cider and long drinks with an alcohol content of 4.7% or less can be sold in supermarkets. But the new research indicates that if the legislation passed in parliament, and shops were allowed to sell alcohol up to 5.5%, then the prices would fall dramatically to around €32 for that 24 pack of Karhu beer.
“The new law will change the price level between Estonia and Finland so much that afterwards, we will see how much private alcohol imports will decrease” says Luoto.
“The price level will go down in Finland, because there is not that much reward for normal consumers to bring alcohol to Finland. But also, what kind of impact will it have? Alko will lose sales of strong beers and long drinks” he adds.
Pasi Holm, the researcher who carried out the study, also says Alko will be the big losers of alcohol policy liberalization.
“I think that how Alko pricing policy is, they try to keep the strong beer and lonkero price quite high” he tells News Now Finland.
“We have estimated that strong beer and lonkero prices will go down about 40% if we allow it in supermarkets” he explains.
In parliament, PTY reckons that broadly they can count on the National Coalition Party, Finns Party and Blue Group for support in liberalising alcohol sales. The other parties, says Luoto, are divided and he describes the situation as “quite tight”.
Other Alcohol Prices
So how do other alcohol prices compare between Finland and Estonia? Could there be a case for further liberalisation in Finland to allow wine sales in supermarkets, for example?
Researcher Pasi Holm says that beer is where the biggest price difference can be found.
“If we compare the prices of wine, and take away all the tax, the price levels of wine are almost the same in Finland as Estonia for table wines”.
“But if we go to the category of €10 to €20 Alko prices, Alko has the buying power on the world market, and can take advantage of their size” to make its premium wines more competitive in price compared with Estonia, when taxes are stripped away, says Holm.
The Bottom Line
Groups like the Grocery Trade Association who are lobbying Finnish politicians hard to liberalize alcohol sales laws, know that a decision might come down to cold hard cash calculations. They’re counting on the government’s need to rake in more revenues by encouraging people to buy alcohol in Finland, at more reasonable market rates after liberalization, than in Estonia.
“If consumers are buying alcohol from abroad we are losing our tax income abroad” says Kari Luoto.
And he hopes that one simple argument will sway the votes in his direction. Even if Alko won’t be pleased.