Bitter beer for inflation-hit German breweries

Posted on Thursday, April 28, 2022 at 09:13

Germany’s Veltins brewery was already struggling with rising barley and transportation costs in the wake of the coronavirus pandemic, but high energy prices, exacerbated by the war in Ukraine, are creating a new brain teaser.

“There is hardly an area where our suppliers do not raise prices or fight rising costs,” says Ulrich Biene, director of communications for the company based in Grevenstein, in the west of the country.

For the family brewery, whose origins go back to 1824, the recent decision to increase a can of 24 beer to one euro was not taken lightly.

“We’ve seen a rise in cost over the past 15 months,” Biene says, which we haven’t seen in decades.

This is the first increase in Veltins in three years but others must follow.

Because the new price of beer is based on “last year’s fall prices.” Translated: the inflationary impact of the war in Ukraine has not yet been taken into account.

Many breweries, including Radeberger, Krombacher and Bitburger, have also had to move higher costs to their selling prices.

This increase in the main product of the German household basket is very symbolic in a country where inflation is currently high on the agenda.

In March, consumer prices rose 7.3% year-on-year, a record high since the country’s reunification in 1990.

Figures for April will be released on Thursday, and further acceleration is expected.

– Fifth element –

For German brewers, the effects of the war in Ukraine and the supply shock following the COVID-19 pandemic have created the “perfect storm”.

The cost of barley purchased by Veltins – one of the four ingredients allowed by law in Germany, along with water, hops and yeast – rose by about 70%.

Companies are struggling to hire drivers to deliver beer, and even pallets to package produce are becoming a scarce commodity, as the pins that go into their making are often sourced from Ukraine.

But above all energy, the “fifth component”, is what weighs down the charges. “Energy is the most important factor in German beer making, and gas plays an important role,” says Biene.

You have to heat the mash jars and operate the bottling machines.

About 20,000 hecliters of beer is brewed, bottled and shipped daily from the Veltins Factory, an imposing building located in a leafy village of less than a thousand inhabitants.

The brewer has to deal with a more than 400% increase in the cost of gas since the start of 2021, as a recovery in demand after the pandemic and tensions with Russia drive prices up.

A halt to deliveries of Russian gas, on which Germany relies for much of its energy needs, would likely mean “significant production constraints,” says Ulrich Bienny.

– Heating and transportation –

The increase in beer prices is “understandable” Judge Bernhard Jung, 57, a resident of Krumbach, another stronghold of the brewing industry located 36 kilometers from Grevenstein.

“I am surprised that breweries have not raised their prices so soon given the high energy costs,” he told AFP outside a supermarket for drinks.

Karen Muller, 81, who just finished her weekly shopping spree with husband Willibald, 83, found that “the cost of each item is a little bit higher.”

The couple especially noted the increase in the price of heating oil. Karen admits she turned off the heating in their house and “wears a jacket” inside.

“People don’t drive so fast anymore” on their way to work to save fuel, says Hannah Seibel, 35, a university worker.

The German government recently responded to mounting price pressures by adopting a multibillion-euro support package to ease the bill for households and businesses.

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