Fear for beer as costs continue to grow

Fears are growing in the beer industry that poor barley harvests in Eastern Europe, rising duty and VAT, along with export controls imposed by Russia, will push the price of a pint in the UK beyond the £4 barrier.

The price of a pint in the pub has doubled in the last 19 years from £1.40 in 1991 to £2.81 last year, according to the Office for National Statistics – rising 68% above inflation.

Pressure put on retailers through the government’s 2% above inflation duty escalator on alcohol will be exacerbated by the 2.5% VAT rise which comes into effect in January 2011.

But it’s not just at home that the industry is coming under fire. A hefty rise in the cost of barley, which has seen prices of animal-fed quality barley more than double in price in just two months to £175 a tonne, is leaving brewers to face a sizeable bill, which will eventually filter down to consumers.

About half the 16.9 million-tonne global market for feed barley in a normal year comes from the former Soviet bloc.

Russian Prime Minister Vladimir Putin has warned that this year’s grain harvest in the country is expected to generate about 65m tonnes, down from previous estimates of between 70m and 75m tonnes.

In light of this situation, Putin has already imposed an export ban which has put further pressure on global prices after months of unusually hot weather.

In 2008, pressure from rising costs forced many brewers to push through unpopular price rises at a time when drinkers were already starting to feel the impact of the credit crunch. This, combined with tax increases and the smoking ban, led to a steady decline in the number of drinkers, which in turn led to a plethora of pub closures across the UK.

Stuart MacFarlane, the head of AB InBev’s UK business, said: "We face an increase of 6.5% before we contemplate our own production costs. It is no secret that we also face pressure on brewing ingredients and fuel."

With many London bars already charging over £3.60 for a pint, the chances are that we could see the £4 pint become the norm before the end of next year if the current situation continues.

Alan Lodge, 11.08.2010