Big EU harvest cheers brewers, not drinkers

“ This price reduction provides a certain amount of relief on brewers’ costs… but a beer retail price cut is not to be expected.”

– German beverage industry analyst Reiner Klinz

Europe’s big barley crop has caused a sharp fall in prices for brewing malt, but while breweries may benefit, beer drinkers will have little to cheer, analysts said Oct. 29.

The European Union harvest of spring barley – used to make malt – shot up by two million tonnes this summer after poor weather cut the 2007 crop.

Malting barley prices have tumbled, cutting costs for beer makers. In Germany, malting barley is currently quoted around 160 euros (C$253) a tonne compared to around 300 euros before this summer’s harvest.

“This price reduction provides a certain amount of relief on brewers’ costs and could be positive for earnings but a beer retail price cut is not to be expected,” said Reiner Klinz, a German beverage industry specialist at consultants KPMG.

Cost pressures

Brewers have faced price rises of raw materials, energy, glass and logistics which could not be passed on to consumers in recent times, he said, and the commodity price reduction will reduce the pressure on the sector.

Brewing giant SABMiller in October warned of an uncertain year ahead despite the group raising prices to offset higher commodity and other input costs.

Although prices for barley, aluminum and glass had fallen, due to the company’s forward hedging policy, it would not see a big impact in the current year to March 2009, it said.

Marc-Oliver Huhnholz, spokesman for the German beer brewers’ association, said producers had been hit by a huge rise in costs. “Unfortunately, a fall in retail prices is not likely.”

But better times are coming for Europe’s beer industry after this year’s larger barley crop, with higher quality and cheaper malting barley supplies likely in coming months, traders said.

The 2007 crop was cut by poor weather, raising prices and forcing brewers in some countries to accept lower-quality malt made from feed-quality barley.

Malting barley prices in France have fallen sharply since summer under pressure from a record barley crop.

“There is the weight of this crop which has tended towards a surplus in malting barley,” a French agribusiness analyst said.

Malting barley prices in France have dropped by about 45 per cent from 246 euros a tonne in mid-July to 136 euros.

Prices have been depressed partly by this year’s record French barley crop of 12 million tonnes, up 27 per cent on 2007 including a 31 per cent jump in spring barley, used for malting.

But French malting companies and brewers may be reluctant to lower their prices after absorbing higher input costs last year.

Gerard Laloi, president of the association of French brewers, said French producers were only able to pass on a quarter of higher malt costs to retail customers last year, when malt’s contribution to the total cost price of beer doubled from seven per cent to 14 per cent.

Britain’s Farm Ministry estimates U. K. barley production rose 23 per cent this year. “Initial industry results show… that the quality of the barley crop has been generally excellent, with plenty of quality malting grains available,” the ministry said.

The outlook in Germany is also good and the association of German malt producers estimates this year’s German spring barley crop at 1.5 million tonnes, up from 1.1 million tonnes in 2007.

“The malt market is now returning to normal levels after the tightness following the poor crop in 2007,” said association president Michael Lerch. “Overall we are satisfied with the harvest and the picture is looking considerably better…”

Long-term contracts

He estimated German brewers buy between 20 and 50 per cent of malt on long-term contracts, so substantial numbers would not be able to benefit from the current price fall.

In Spain, the picture is positive, with a malting barley crop this year of about 750,000 tonnes, more than enough to cover domestic demand of about 650,000, the Farm Ministry said.

“We have a small surplus, but I doubt we will be exporting this year as quality is good in northern Europe, so there has been nothing to arrest the fall in malting barley along with other grains,” a Spanish trader said.

– Additional reporting for Reuters by Gus Trompiz and Valerie Parent in Paris, Nigel Hunt in London and Martin Roberts in Madrid

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