Beer prices to rise as brewers like Heineken and Carlsberg feel the strain of summer heatwave

The cost of a pint of beer is set to rise over the rest of the year, after the summer’s heatwave damaged barley crops and drove production costs higher.

According to a report by investment bank Berenberg the increased production costs for beer will force big brewers to raise their prices above inflation.

Thanks to this summer’s global heatwave, harvests of the winter barley crop have been forecast to drop in Germany by 7.3 million tonnes, down 18.8 percent on 2017, according to the country’s farming association.

As a result, barley costs have rocketed by almost 40% in price year-on-year.

“After several years of low (or even negative) input cost inflation, beer companies will face a more difficult environment in 2019,” the report said.

The cost of aluminium used to make beer cans is also up 8% this year – on top of a 20% rise in 2017.

It said that big brewers like AB InBev and Heineken could see a rise in production costs of about 16%, going into next year.

It also noted that the companies will face increasing pressure in markets such as Nigeria and Brazil, as raising beer prices would alienate consumers and fail to recover profit margins.

“In Nigeria, the margins of Heineken’s and Diageo’s beer businesses declined by at least 500bp despite their high market shares. In Brazil ABInBev’s margins contracted by as much as 700bp also despite its high market share of more than 60%.”

“Even in the US and Europe, we believe brewers are unlikely to have the necessary pricing power to pass on the price increases needed to protect margins.”

AB InBev already confirmed that it would raise the cost of its beer above inflation in January as a result of “ongoing pressure in the beer industry and the UK economy.”