Karnataka Breweries Face Rising Costs as Beer Prices Go Up

Karnataka's beer industry is currently experiencing significant transformation due to a new set of government regulations that are altering its dynamics for both consumers and breweries. Starting January 8, 2025, breweries must reduce sugar content in their beers to no more than 25% by weight, along with this price hike.

Rising Beer Prices in Karnataka

The new beer pricing revisions include a categorization of excise duty (ED) based on alcohol content:

• Mild beers (≤5% alcohol): ED increased to ₹12 per bulk litre (pbl), up from ₹10 pbl.
• Strong beers (5-8% alcohol): ED increased to ₹20 pbl.
  As a result, the price of strong beers, which account for a large portion of the market, has increased substantially. For example, the popular 650ml bottle of Legend beer, previously priced at ₹100, will now cost ₹145. However, premium beer brands are expected to see less of an impact on their prices.

Brewery Challenges: Sugar Content Regulation

Karnataka breweries now face additional production hurdles. The state government has mandated that they reduce sugar content in their beers to no more than 25% by weight, effective February 1, 2025. This regulation targets beers that previously relied heavily on sugar for fermentation instead of malt (considered more healthy) instead. Brewers will need to adapt their production techniques in order to meet this new standard while managing additional excise duty costs.

Why the Price Hike and Sugar Regulations?

Several factors have led to the government’s decision to increase beer prices and regulate sugar content:

• Discouraging Youth Consumption: The government aims to make beer less accessible to younger consumers by raising prices.
• Health Considerations: With many strong beers relying on high sugar content for fermentation, the state is imposing stricter regulations to promote healthier brewing practices.
• Revenue Generation: The government hopes that by raising prices and redirecting consumption towards Indian-made liquor (IML), it can boost excise revenue, which has been lower than expected.

Looking Back: Previous Price Revisions

This price increase marks the third revision since July 2023, following:

• A 10% hike in Additional Excise Duty (AED) on beer and a 20% AED hike on all IML in July 2023.
• A further AED increase from 185% to 195% of the declared price in January 2024.
  These consistent increases underscore the government’s drive to boost revenue while also addressing health concerns related to alcohol consumption.

What’s Next for Breweries?

Karnataka's breweries face two daunting challenges at once: adapting to higher production costs while fulfilling newly mandated regulations on sugar content and labeling requirements. Strong beer, which represents 75% of market share, will likely be most affected by these changes, so they must adapt their practices in order to reduce sugar content while still meeting demand for affordable high-alcohol beers.

The Future of Beer in Karnataka

As breweries adjust to these new regulations, consumers in Karnataka will likely see higher beer prices and possibly change in purchasing behavior. Government efforts to curb harmful drinking habits and encourage responsible consumption could have an enormously positive effect both on the brewing industry and consumer decisions.

Conclusion

Karnataka's excise duty hikes and sugar content regulations mark a monumental change to its beer industry. While these moves by the government aim to curb unhealthy consumption while increasing revenue streams, breweries now face adapting to these new requirements, potentially altering their landscape over time.