The Hindu Business Line : Rising hop prices worry beer cos

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Bangalore Feb. 25 The making of beer is turning out to be costlier as the domestic industry grapples with steep increases in the prices of raw materials like hops and malt.

But beer majors like United Breweries, which imports hops, have absorbed the cost instead of passing them on to the customers, according to UB Vice-President (Manufacturing), Mr Cedric Vaz.

To overcome the shortage of malt, UB has tied up with Pepsi's agro division as well as the Punjab Government for sourcing barley.

Mr Vaz said that a major fire at a hops storage facility in the US late last year and poor crop in the Czech Republic, one of the biggest producers, had more than doubled the price of hops at its peak.

The price has, over the last one year, increased from 16-22 euros a kg from a low of 9 euros.

Hops are added to beer to give it a bitter taste, aroma and flavour. Most of the beer is made from hops, malted barley, water and yeast.

The shortage of malt has also lead to increase in prices to around Rs 17,000 a tonne from Rs 9,000, said Mr Sundeep Kumar, Director of SAB Miller.

The shortage is also because of increase in beer consumption, which grew 30 per cent last year.

"While the malt capacity has not grown, the beer consumption has grown 30 per cent," Mr Vaz said. Beer sales, especially in Punjab and Haryana, where the respective Governments have replaced the auction system with licensing system, has grown by 300-500 per cent.

UB expects that availability and quality will no longer be an issue in future, now that the contract arrangement with Pepsi and the Punjab Government is in place.

It has also globally sourced hops at lower prices through its joint venture partner, Scottish & Newcastle, Mr Vaz said.

As far as UB is concerned, during the first nine months of the current fiscal, cost of production has grown by 55 per cent to Rs 283 crore.

But because of improved efficiencies, the beer major has been able to offset it against increase in raw material costs.