The South African Breweries (SAB) has urged the government to consider an excise adjustment that is in line with, or below inflation in the upcoming Medium-Term Budget Policy Statement in October.
This comes as beer production volumes have declined significantly in the first seven months of 2023 due to depressed consumer spending on the back of weak economic growth.
This was said at the SAB’s annual State of the Economy (SOBE) event held at one of SAB’s biggest breweries in Alrode, Johannesburg.
SAB CEO Richard Rivett-Carnac said the two excise adjustments that were in line with projected inflation over the past two budgets had allowed SAB to invest and continue contributing to the beer economy, investing in almost R12 billion in the past two years.
However, Rivett-Carnac said, “Given demand-side pressures emanating from constraints on consumer disposable income, and supply-side pressures from rising input costs, the alcohol industry has declined in volume in the seven months leading up to July 2023.
“It is now more important than ever for the government to adhere to policy and for excise increases to be linked to CPI,” he said.
In his February 2023 Budget Speech, Finance Minister Enoch Godongwana announced an increase of 4.9% in the excise duties on alcohol, in line with expected inflation, raising a 340 millilitre can of beer by 10 cents.
According to the latest data, headline consumer inflation has eased to 4.7% but the risks to inflation are still assessed to be on the upside and the SA Reserve Bank expects an annual average of 5.0% in 2024 and 4.5% in 2025.
The SAB event was attended by key industry and government stakeholders including the MMC of City Planning and Economic Development in Ekurhuleni Nomadlozi Nkosi, as well as the National Liquor Traders Association, the South African Chamber of Commerce and Industry, the Consumer Goods Council of South Africa, and the Restaurant Association of South Africa.
A study presented by The Bureau of Economic Research (BER) showed that the South African consumer was under real pressure in 2023.
The study forecast that real consumer spending in food, beverages and tobacco will decline by 0.5% in 2023, with a muted recovery in 2024 and 2025, not returning to pre-pandemic growth levels in either year.
BER consulting economist Linette Ellis said South African consumers were under pressure as the report saw a record 6% plunge in consumer spending in 2020.
In the two years following the Covid pandemic, interest rate cuts and the roll-out of social relief of distress grants initially supported consumer spending, but soaring inflation and subsequent interest rate hikes started to weigh on the consumer from mid-2022.
Ellis said that data from the BER showed that beer price data from market measurement firm, AC Nielsen, suggested that beer prices increased by far more than the CPI inflation rate between 2013 and 2019, and that beer prices also rose more than the prices of any of the other broad liquor categories.
“The updated BER Elasticities Study has shown that consumer demand from changes in income growth and beer price hikes has increased,” Elis said.
“This means that changes to income and prices impact the volume that is sold in the market more than what has been seen in the past.”
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