This article titled “£4 a pint looms amid soaring barley prices and VAT rise” was written by Simon Bowers and Callum Holmes-Williams, for The Guardian on Monday 9th August 2010 19.25 UTC
The pub price of a pint of beer, which has doubled in the last 19 years, looks set to climb further next year as poor barley harvests in Eastern Europe and export controls imposed by Russia threaten to hit brewers while they are forced to push through VAT and duty rises.
The average cost of a pint of draught lager was £1.40 in 1991 but rose to £2.81 last year, according to the Office for National Statistics figures analysed by the British Beer & Pub Assocation – an increase of 68% ahead of inflation.
The latest pressure on beer prices follows a dramatic rise in the cost of barley which has seen animal-feed quality barley more than double in price in two months, reaching €210 (£175) a tonne. Most brewers buy barley between a year and 18 months ahead of time, so high prices would have to persist before they fed through to the drinkers at the bar.
Nevertheless, fears of a squeeze on supply have hit shares in some of the largest multinational beer groups. Carlsberg, which has a strong presence in Russia and Eastern Europe, saw shares slide 6% in the last two trading sessions of last week.
Shares in Anheuser-Busch InBev, the world’s largest brewer with brands including Budweiser and Stella Artois, slipped 5% over the same period. London-listed SABMiller, the world’s number two, and Heineken, the UK’s largest brewer, dropped 3% and 5% respectively, regaining some ground today.
The former Soviet states are estimated to satisfy about half the 16.9m-tonne global market for feed barley in a normal year, though low-nitrogen barley, preferred by brewers, is largely sourced from northern Europe, Canada, Argentina and Australia. Nevertheless, brewing insiders acknowledged that sharp price increases across a spread of grain commodities, if sustained, was likely to push up malted barley costs by next year.
Vladimir Putin today warned that this year’s Russian grain harvest was expected to generate about 65m tonnes, down from previous estimates of between 70m and 75m tonnes. He has already imposed an export ban which has put further pressure on global prices after months of unusually hot, dry weather.
Two years ago pressure from surging input costs forced many brewers to push through unpopular price rises at a time when drinkers were already feeling pressure on their spending power. This, combined with tax increases and a smoking ban, saw the steady decline in the number of drinkers fall sharply, triggering a wave of pub closures.
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,” he said.
VAT will increase in January by 2.5%, and duty is scheduled to rise at 2% plus inflation under the beer duty escalator, suggesting another 4% duty increase.
Many ordinary publicans are also braced for price increases. Rex Neville, who runs the Sheaf of Arrows in Cranborne, Dorset, said: “I predict a £4 pint by this time next year. Over the last year I’ve had to increase prices by about 20p per pint.”
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