German biofuel thirst pours out higher beer prices

Corvallis Gazette Times ^ | November 26, 2007 | Tom Hundley - The Chicago Tribune

[NRG1973]

BERLIN — Beer and oil may not mix, but in Germany there’s a direct link between hefty increases in the cost of a barrel of each.

Just as the price of oil approaches the milestone $100-per-barrel mark, the beer industry in Germany is bracing for a 10 to 15 percent price increase early next year and as much as 40 percent over the next five years. The reason for price boost at the beer taps: biofuels.

To reduce Europe’s dependency on oil, the European Union is paying generous subsidies to farmers who grow crops used in the production of biofuels. As a result, many farmers have switched from growing barley — used to make malt, the main ingredient in beer — to crops such as rapeseed and corn. This has driven up the cost of barley to more than $410 from $190 a ton last year.

Germans have deep feelings for their national beverage. Consumers keep close watch on the price of beer much the way Americans are acutely sensitive to fluctuations in the price of gasoline.

“Of course I’m not happy about a price increase, but it won’t stop me from drinking my daily after-work beer. Or two,’’ said Stefan Haase, 44, an advertising executive in Berlin.

“But there are many unemployed in Germany, and for them the evening beer in the neighborhood pub is their only social contact. A price increase would be traumatic for these people,’’ he said.

Beer drinking may be deeply ingrained in German culture, but the biofuel juggernaut appears to be unstoppable. Of Germany’s 30 million acres of agricultural land, 5 million are now dedicated to growing biofuel crops. Barley production fell 5.5 percent in 2007.

The trend is similar across Europe, and the result was a million-ton shortfall in this year’s malting barley crop.

“It’s not only the price. Availability is also a problem. We have to do something to make sure that our brewers have enough barley,’’ said Peter Hahn, director of the German Brewers Association. “Basically, we oppose subsidies (for biofuel crops). We think subsidies always produce bad results for any industry,’’ he said.

Germans are not alone in seeing the quest for clean energy increase the cost of kitchen staples. Mexicans are paying significantly more for tortillas these days as the demand for ethanol in the United States drives up the global price of corn, from which tortillas are made.

For the German beer industry, the expected price increases come at a crucial time. Germans still drink a lot of beer — about 30.6 gallons per capita, an amount second only to the Czechs — but beer consumption has been declining since 1995.

“The traditional German beer drinkers, they’ve gotten old and they don’t drink as much these days. And young Germans have a different attitude (toward beer); they have a lot of other choices — wine, the energy drinks, the alcopops,’’ Hahn said.

Germany ranks third in beer production, behind China and the U.S., but the German beer market is highly segmented. Unlike the United States, where the market is dominated by a handful of large national brewers, Germany has more than 5,000 beers produced by 1,284 brewers.

The variety reflects pronounced regional preferences in taste. Beer drinkers in northern Germany, for example, like a sharper, bitter beer, while in the south the preference is for a milder brew.

“Brand loyalty is very strong. It’s almost unthinkable that a middle-age beer drinker would change beers. But again, with younger people, we are seeing a change,’’ Hahn said.

The segmented structure of the beer market Germany and the fierce competition among brewers have kept prices low.

[NRG1973]

In Germany, its ALL about the beer.

[snoringbear]

“In Germany, its ALL about the beer.”

Probably so. But then again, we have the same problem here in the U.S. just a different set of products being affected. Our government is subsidizing ethanol to the tune of about $0.50 per gallon. Consequently, prices of beef and poultry are at historic highs. Cereals and other grain based products are through the roof as well. Lesson to be learned, but probably not by our congress who are busy buying Midwest votes, let free markets do their work.