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Surge in prices creates headache for Germany’s brewers

The Veltins brewery in Germany was already wrestling with pandemic-spurred hikes in ingredient and transport costs over the last year, but a surge in energy prices sparked by Russia's invasion of Ukraine threatens to be a bitter pill for the business.

Krombach beer factory
Bottles of beer are transported on a conveyer belt at the Krombach factory. Photo: pa/obs/Krombacher Brauerei GmbH & Co. | Krombacher Brauerei GmbH & Co.

“Energy is the biggest factor for the German beer industry and gas plays a significant role in that,” says Ulrich Biene, Veltins’ head of public relations.

One of Germany’s best-selling beer brands, Veltins has had to put prices up by a euro a crate — its first rise in three years. And further increases could be on the cards, if costs continue their upwards course.

The new price point is based on “values from autumn last year”, but further rises due to the war have not yet been included, Biene says.

“We’ve seen a cost explosion over the last 15 months” unlike anything seen in decades, he added.

The privately-owned brewery based in the cosy town of Grevenstein is not the only one forced to put up prices.

Several of its competitors, including Radeberger, Krombacher and Bitburger, are passing their higher costs on to consumers.

“There is hardly an area where suppliers aren’t raising prices or aren’t fighting rising costs,” Biene says, estimating a four-fold increase in prices since the start of 2020.

READ ALSO: The products getting more expensive and harder to find in Germany

Fifth ingredient

Up to 20,000 hectolitres of beer are brewed, bottled and shipped each day from the bulky grey factory, tucked away in a verdant valley in western Germany.

The cost of malt bought by Veltins — one of the four legally permitted ingredients for beer brewing in Germany, along with water, hops and yeast — has risen by around 70 percent in just over a year.

Not only are ingredients dearer. Logistics costs have gone up as drivers for beer deliveries have become scarcer, as have the pallets to pack them on, the nails for which were often supplied from Ukraine.

Above all, energy is the hidden fifth ingredient in Veltins’ beer, used to warm the brewing tanks and propel the filling machines.

The brewer reckons on a more than 400 percent increase in the cost of gas since the beginning of 2021, as renewed demand with the pandemic easing coupled with tensions with Russia have pushed up prices.

An end to deliveries of Russian gas, on which Germany relies to meet much of its energy needs, would likely mean “significant limits to production”, Biene says.

READ ALSO: What you should know about Austria and Germany’s ‘Stammtisch’ tradition

‘Justifiable’

Instead of abating around the turn of the year as policymakers expected, high inflation has moved up a gear with the Russian invasion of Ukraine, sending the price of energy soaring and further compounding supply issues.

In March, prices rose at their fastest pace since German reunification in 1990, rising 7.3 percent year-on-year.

New figures for April are set to be published on Thursday, with the expectation that the rate could be even higher, heaping more pressure on consumers and businesses.

The increase in the cost of beer has not gone unnoticed by Bernhard Jung, 57, resident in the traditional brewing town of Krombach, 36 kilometres (23 miles) to the southwest of Grevenstein.

The price of the local brand has also gone up in the past month, an increase he says is “justifiable”.

“I’m surprised the breweries didn’t raise the cost sooner, given the enormous energy costs,” he tells AFP outside a drinks market.

Veltins brewery Germany

The Veltins brewery in Meschede, North-Rhine Westphalia. Photo: picture alliance/dpa | Bernd Thissen

The “cost of every item is a little bit more” says 81-year-old Karin Mueller, who has just finished her weekly shopping with her husband Willibald, 83.

At their home in the next town over, they have noticed the increase in the cost of heating oil, with Karin adding that she “wears a coat” inside and keeps the thermostat low.

The rising cost of energy has been the strongest driver of Germany’s decades-high inflation.

Prices for petrol and diesel have sprung up, too, a phenomenon noted by university administrator Hanna Siebel, 35.

She claims to have noticed “people not driving as fast anymore” on her way to work to save on fuel.

The government recently responded to the mounting price pressure by agreeing a €5 billion support packet for businesses to help tackle rising energy costs.

Households will also receive assistance to help match the increase in their bills.

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TOURISM

German airline Lufthansa optimistic for 2022 as tourist demand bounces back

German national carrier Lufthansa on Thursday reported it slashed its losses in the first quarter and set its sights on a record summer for tourist traffic as demand recovers from the pandemic.

German airline Lufthansa optimistic for 2022 as tourist demand bounces back

The airline group’s net loss over the first three months of 2022 came to €584 million ($620 million), down from one billion euros in the same quarter last year.

The improved result owed in part to the pick up in air traffic as coronavirus-related restrictions were rolled back in many countries and fears over the Omicron variant ebbed.

READ ALSO: Omicron wave forces German airline Lufthansa to axe 33,000 flights

The number of passengers on Lufthansa flights “more than quadrupled” in the first quarter to 13 million, from three million in 2021, when travel restrictions in many markets were more severe.

“New bookings are increasing from week to week,” Lufthansa CEO Carsten Spohr said in a statement, with demand rising particularly strongly among leisure travellers.

“More people are expected to fly on holiday” with the group than ever before this summer, Lufthansa said in a statement.

For business travel, the recovery was slower, with the group expecting traffic to reach “around 70 percent” of its pre-coronavirus level by the end of the year.

In all, Lufthansa expected to offer “around 75 percent” of its pre-crisis capacity over the year.

The group’s cargo division had a “record result” in the first quarter, Lufthansa said, as demand for freight remain high amid turmoil in global supply chains.

The segment recorded an operating profit of €495 million, up from €315 million in the first quarter of 2021.

Europe’s largest airline group – which includes Eurowings, Austrian, Swiss and Brussels Airlines – struggled at the outbreak of the pandemic and was saved from bankruptcy by a government bailout.

In response to the pandemic, Lufthansa bosses embarked on a major job-cutting programme which has seen over 30,000 positions shed since 2020, out of 140,000 jobs globally. The company said late last year it still had plans to get rid of 3,000 more jobs.

Lufthansa expected its financial performance “further improve in the coming quarters”, chief financial officer Remco Steenbergen said.

But people flying with the airline will face higher prices for tickets. 

The group said it would have to “pass through rising costs to customers”, Steenbergen said.

“Extreme changes in the price of kerosene” as energy costs surge in the wake of the Russian invasion of Ukraine could have an unpredictable effect on the end of year result, Lufthansa said.

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