They often say that in good times, people
drink. And in bad times? I guess people drink. At its simplest, it really is just barley,
hops, yeast, and just water. But those four ingredients and, a whole lot more,
have increased quite a lot of late, meaning that that is a little more expensive. Beer is the most popular alcoholic beverage
in the world, a standing that has been boosted by the drink’s relative affordability compared
to cocktails or wine at a bar. But everyone from multinational brewers to
small craft beer companies to pub chains has been warning about the beverage’s
inevitable price increase. In the United Kingdom, for instance, the average
cost of a pint of beer has soared by 70 percent since the global financial crisis. The mean price for 568 milliliters of brew
has gone from £2.30 in 2008 to £3.95 in 2022. The cheapest pint was found in a pub in Lancashire,
in the northwest of England, at £1.79. The most expensive? London, of course, where one
unnamed pub was charging a whopping £8.06 on average. But London is far from the priciest place
to buy a beer. It’s the seventh most expensive capital,
according to one beer index, which analyzed the price of brew from local supermarkets and hotel lobbies. Tokyo, Bern, Paris, Beijing, Amman and Doha
top the list of most expensive places to buy beer, with a pint costing nearly $20 in Qatar’s capital. Why? The short answer is inflation. The long answer extends from the cost of raw materials
to the wages of the bar staff pouring your pint. Just look at these charts released by Heineken,
the second-largest brewer in the world. The costs of barley, aluminum, natural gas
and paper are all going up, and Heineken told investors it’s protecting its bottom line
by passing on those costs to consumers. Prices are increasing all across the value
chain. Francois Sonneville keeps a close eye on the industry
for Dutch financial services company, Rabobank. If we start with how beer is made, it's
made from barley. The barley price has gone up and has doubled
since 2021. There's two reasons for that. One is that the harvest in North America was
really poor, driven by a poor climate. So, there was not much inventory to start with. A drought in parts of Canada and the United States
resulted in a dismal crop for the grain-producing nations. Canada saw a 35 percent decrease in its barley
production from 2020 to 2021. The U.S. saw a 31 percent decrease. And while the two countries usually get on
just fine trading barley with each other, they had to import from countries like Argentina
and Australia in 2022 to keep brewing going. At the same time, Ukraine, the fourth largest producer
of barley, is embroiled in a war with Russia. This has limited supply but has also ensured
that the price of barley by around 70%. The war has made it difficult for farmers to
harvest crops and sow seeds for the next harvest. Russia also imposed months of blockades
at Ukrainian ports in the Black Sea. 98 percent of Ukrainian grain exports are
normally shipped through its ports, which meant a lot of barley was left idling in its
storage silos. Russia, the world’s second-largest barley
producer after the European Union, also temporarily banned exporting grains to former Soviet countries. In the past, when grain prices went up, farmers
would usually just plant more the following year. But this may not be possible this time around. I visited a farm in Norfolk, on the east coast
of England, which grows barley for a local brewer. The farm’s owner Richard Hurst talked me
through why the barley he grows is selling for a higher price. The biggest challenge we've had recently is
really the ag inflation where our normal inflation is running at 8-9%, ag inflation for our businesses
is running somewhere over 22-23%. And that's a function of obviously oil prices, fuel. And Richard’s paying more for other essential
ingredients in the growing process. This time last year, we were buying fertilizer
at £280, maybe £300 a tonne. I've bought some over £900 a tonne this year, and the rest
will average £650, £700 by the time we're done. This means charging a higher price to the brewery
so that Richard’s business stays in the black. We're sitting behind a pile of barley here. We've got wheat next door that we will be
sold over the next 12 months. And I know what our growing costs are going to be. And I just hope that the selling price will
be at a level that is now. If not, we'll be losing a lot of money. While the grain shortage means buyers are
paying higher prices, barley costs only make up 5 percent of the total cost of beer. It's important to realize that barley
is not the main cost element for a brewer. If you look at the brewing process itself,
it uses a lot of energy, and the energy price has gone up. A few miles down the coast from
Richard’s farm, I got an up-close look at the nutty grain’s transformation into brew. That apparently requires a lot of heat. Brewing beer or distilling spirits involves
a lot of boiling water. So that involves lots of energy to get to
that state, although we've put quite a number of innovations in over the years to limit
the impact of that. The global price of energy has soared to levels
unseen for more than a decade, as demand rebounded to pre-pandemic levels. Russia’s invasion of Ukraine only made matters worse,
as Europe and other buyers of Russian gas and oil moved to wean themselves off the imports. There are some things that are so big that
are hitting our business that we have no choice but to pass those price increases through. So, we're working that out now. And you know, I've just come along to chat to you
following a meeting about those very things. Once the ale or lager has been brewed, it still
needs to get to your local pub or grocery store, which means packaging and transporting
the booze, both of which have been hit as well. Packaging makes up about 25 to 30% of the
cost price of beer, and glass packaging, glass bottles, use about 25% of their cost in energy. So, with gas prices going 10 times higher
now than they were like two years ago, that has a massive impact on the cost of a brewer. In addition to rising energy costs, glass
and aluminum have been harder to source, driven by supply chain issues and the
increased demand for canned and bottled beer as more people drank at home during the pandemic. Printed aluminum cans are even more difficult
to source, which means some breweries will have to pay more for shrink-wrapped labels instead. Craft brewers are expected to be hit the hardest
by these hikes because they don’t have the advantage of being able to negotiate bulk prices. And some smaller brewers may struggle with
getting supplies at all. And finally, at the very end of the chain,
is the person pouring your pint. The biggest cost that we have is our payroll
because the hospitality part of that business is a people-driven business. And the story was no different when I visited
a London pub chain. There is a shortage of staff, a lot of people
left the industry during Covid because of job security, a lot of Europeans went back
to Europe to lockdown with their families and haven't come back. We have to pay our
staff a decent pay rise because they’re also facing inflationary costs. Pub owners will certainly be a whole lot more keen
to get these kegs to your favorite watering holes, but they're also having to take on more of the costs,
and inevitably pass that onto you and I, which means every toast is going to weigh
a little more heavy on the pocket. It’s really challenging for pubs because
we’ve been through two years of Covid, we want to encourage people to come back,
but this inflationary spiral that’s across the country, is very, very challenging and
we have to consider putting up our prices to cover at least some of these costs. The number of times one goes out to pubs may even change. If you begin to track consumer sentiment,
people are all feeling some anxiety about what's going on in the world,
and that influences behavior. We're certainly seeing people come out
earlier in the evening, having their drinks, having their dinner, and then
they're going back home. So, is there an end in sight? I guess inflation is always a good barometer. If inflation starts to come down, and maybe
we will see a drop-off, but I think for the moment, it's going to be tough. There's going to be price rises.
