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Biofuels give German brewers a hangover

Published: 03 Dec 2010 14:20 GMT+01:00

Times are tough for the German beer industry.

For decades, average beer consumption in Germany has been in decline. At the same time, the cost of the raw ingredients rose sharply this year as domestic supplies of barley and wheat dried up – or drowned out in the case of this year's harvest, which was marked by heavy rainfall.

There are several factors contributing to the current shortage of malting grains, but German brewers are placing much of the blame on biofuel crops. These government-subsidized acres are increasingly crowding out conventional grains such as barley, a key ingredient for making malt and, ultimately, Germany's world-famous beer.

"With more and more farmers switching to energy crops such as corn and canola, the price hike is inescapable," says Werner Gloßner, Managing Director of the Association of Private Brewers in Bavaria.

In a market where profit margins are paper-thin, Gloßner argues that brewers have little choice but to raise their prices: "The market is shrinking, and the big national brands already sell 58 percent of their beer at discounted rates to compete with low-cost brands."

He estimates that the average case of German beer will cost up to €0.50 more in the first half of next year. Even then, "breweries will only get to keep about 10 cents of that after taxes," he says. "It's barely enough to cover their costs, but it's necessary for them to remain competitive."

The situation isn't easy for farmers, either. Malting barley provides relatively low returns on a high-risk crop, according to Astrid Rewerts, head of the grains division at the German Farmer's Association DBV. "Malting barley is harvested in the summer when yields are low," she says, "and it has to germinate properly, otherwise the brewing process won't work."

With an unusually dry summer topped by heavy rainfall during the August harvesting season, this year's barley crop is a brewer's nightmare. The rain caused the grains to over-germinate, and farmers had to sell much of it as feed for livestock at a 15 percent discount. They sold what was left of the good stuff to malt houses, brewers and bakeries at a higher price to make up for the loss.

The national average price for malt-grade barley was almost €200 per tonne in mid-November, according to the DBV, compared to roughly €140 last year. Once the barley is turned into malt, it becomes even more expensive – especially for local brewers buying in small quantities.

Martin Eschenbrenner runs the one-man brewery Eschenbräu in northern Berlin. He says he pays upwards of €500 for a tonne of processed barley malt these days. Just one and a half years ago, he was paying around €350.

But Eschenbrenner is philosophical about the higher costs. "Malt prices were very, very low for a long time, so it's only fair that they went up this year," he says. "Farmers don't earn very much but they certainly work hard and carry a lot of risk, and I respect that."

"What I find unpleasant are the subsidies," he says. "They say a farmer would pave his field if he got money for it, and there's probably some truth in that."

Brussels and Berlin are pushing hard to meet their 2020 targets for the reduction of greenhouse gas emissions, and biofuels are seen as one way to meet that goal. Thanks to generous subsidies from Germany and the EU, farmers can sell corn, canola and other energy crops to fuel blenders and biogas facilities for a guaranteed price under contracts lasting as long as ten years.

"In the long term the cost of malting barley will probably continue to rise," says Frank-Jürgen Methner, professor of brewing studies at Berlin Technical University's Institute for Biotechnology. "More and more farmers are abandoning barley, and brewers today cover about 50 percent of their demand through domestic supplies."

The rest is imported mostly from France and Denmark, subject to market fluctuations and commodity speculation.

But Eschenbrenner’s outlays for malt are not his greatest expense. His business spends most of its money on the five employees who service the inn up front. "There's a huge difference between a local brewery where one man brews 20 hectolitres of beer and a factory where three men churn out 2,000 hectolitres," he explains.

The bulk of production expenses at industrial breweries stems from malt, electricity and water. At the same time, companies such as Anheuser-Busch InBev, the world's largest beer conglomerate, wield significant bargaining power because they buy in such large quantities. Regional German barley farmers play only a minor role in the supply chains of these giants.

For Germany's smaller breweries, the farmer's association DBV wants to return to a system of multi-year contracts that would tame the inherent risks of barley crops. But Methner thinks this is an unlikely scenario.

“I'm afraid that in an age of globalization that is not possible unless politicians get involved,” he says. “To take the speculative element out of the business, the trading partners will have to duke it out amongst themselves.”

The Local (news@thelocal.de)

Your comments about this article

19:11 December 3, 2010 by Landmine
OMG, beer prices are going up? This is a calamity!!!!!
04:58 December 4, 2010 by rfwilson
And all of this for what?.... to produce ethanol that has 40% worse mileage (l/100km) than good old gasoline, and when you factor in production of the stuff, it generates nearly as much CO2 as if you just used gasoline! Ah, but being Politically Correct is much more important!
19:17 December 4, 2010 by lizettew
I don't think rising prices are going to separate the man in the photo from his beer. just a hunch.
20:22 December 5, 2010 by DOZ
Food for Fuel must be stopped at all costs.
18:06 December 7, 2010 by vandeg
Brew your own, save more money, and drink better beer! Natural carbonation FTW!!!
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