As a Tiny Brewery Comes to Life...All Brewers Struggle to Survive

Ota Dvorsky has brewed beer for 45 years. Last June, he brought his expertise to the sleepy southwestern Polish town of Bojanowo, where he resurrected a 112-year-old tradition at the local brewery, which was heading toward bankruptcy. Grabbing a fistful of dusty malt imported from his Czech homeland and tossing it into the hand grinder, Dvorsky says proudly: "This is the way beer should be made, just like the old days--no chemicals, no additives, just the classic stuff."

He should know. Dvorsky comes from the country that gave the world pilsner, and this brew is the first Czech beer in Poland. So far, his dark-gold concoction, christened Szwejk after the tubby Bohemian hero of Jaroslav Hasek's Czech masterpiece The Good Soldier Schweik, has defied the long odds against small breweries. But whether it will survive Poland's fast-consolidating beer market and the tax obstacles placed before it by Warsaw remains to be seen.

Once upon a time, the state-owned local brewery made Bojanowo beer, which was highly regarded throughout Poland. That was before the collapse of the Iron Curtain forced a sale to Poznan's Lech Breweries and Bojanowo's eventual brush with extinction. Then, last year, Dvorsky and his partner, Marek Jedrzejewski, arrived, on the hunt for secondhand barrels for a Czech brewery. They found Bojanowo under liquidation but still producing--and instead of taking its aging kegs home, they decided to rent the brewhouse from the bankruptcy administrators. It cost them $380,000 to launch the new beer, and they plan to double production, to 4,500 hectoliters a month, for summer drinkers. Bank loans permitting, they also hope to build a bottling plant. If they can corral the funds, Jedrzejewski aims for an annual output of 80,000 hectoliters in two years.

What's more, the brewery employs 30 people, not bad in a town of 3,000 with a jobless rate of 18% and rising. "Every job there is worth its weight in gold," stresses Kazimierz Maciaszek, head of the employment office in nearby Rawicz. "It's vital that the brewery develop." Town authorities, doing their part, have offered relief from tenancy and lease taxes. Says Deputy Mayor Ryszard Drozdowski: "The history of the town and the brewery are intertwined. We must preserve it."

MORE SWILLING. Yet trouble is brewing. In February, the Polish government raised excise duty on beer by 8%, and June 1 brought an additional 10% increase. The Finance Ministry expects the extra taxes to generate $500 million for an already overstretched budget. It means brewers will have to pay around 40% in excise duties, making the alcohol in beer twice as expensive as that in vodka. "It's ridiculous," fumes Andrzej Dlugosz of the Polish Brewers' Assn. "The next increase could really kill the market." In fact, beer consumption has already started declining since the first tax hike, and he argues that state coffers would glean more if lower prices encouraged more swilling.

In the past decade, annual beer consumption has more than doubled, to 68 liters per capita--close to the 80 liters that industry experts say is the "saturation point." Yet faced with intense competition, breweries are wary of passing on more costs to customers. While heavyweights like Denmark's Carlsberg, which owns Okocim, and South African Breweries, which produces Tyskie, Poland's top beer, are able to absorb the higher taxes, Dlugosz believes midsize brewers will go under. "The smallest breweries, however, with lower marketing and transportation costs and better client loyalty, will survive. They'll find a niche," he predicts. Everyone in Bojanowo is praying for that forecast to hold.

While Szwejk attempts the tough climb to success, Perla Lublin, one of about 10 midsize breweries, is trying to avoid the slippery slope. The excise tax increases are forcing Lublin-based Perla Lublin, which produces 500,000 hectoliters annually, into drastic measures that include paring its 360-strong workforce to 250 by yearend and shutting two of its three breweries. "There are two scenarios: We either become a small brewery, or investors like Carlsberg or [Austria's] Brau Union take us over," Perla President Czeslaw Szczepaniak concedes.

In addition, its five brews may have to be reduced to two if Perla is to cope with a draconian new advertising law. Starting in September, Poles won't see ads for alcohol on billboards or in theaters or magazines, and ads on television will only be allowed from 11 p.m. to 6 a.m. For small brands like Szwejk, which can't afford many ads anyway, it's one less thing to worry about.

By Mark Andress in Bojanowo

Edited by Harry Maurer

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