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German beer drinkers face higher prices at the bottom of the glass

German brewers have long been wary of rising prices.

When King Ludwig 1 increased the beer tax by 8 percent in 1844, riots broke out in Munich between workers and the army that lasted three days. But Johannes Faust and his 1,500 colleagues across the country may soon have little choice.

Faust has been brewing beer for 30 years on the banks of the River Main in northern Bavaria, nestled among the half-timbered houses in the historic center of the small town of Miltenberg. The CEO has never seen his costs rise as high as now.

The family brewery of the malt Faust has bought from local German producers since it began making beer in 1654 will soon double in price. The Russian invasion of Ukraine has affected grain supplies from the two countries, which together produce more than a third of the global barley market.

The brewery will also have to pay at least a third more for its glass bottles, along with more than 50 percent higher prices for plastic cases and three-quarters more for its metal caps. Energy, transport and personnel costs are also rising. “I’ve never seen inflation like this,” Faust said.

This brewery, like many in the country, could have protected customers from increased costs thanks to long-term supply contracts. The doubling of the malt price he recently agreed is for next year’s delivery, while the two-year energy contract means electricity prices won’t rise until 2024.

Line chart of showing The increase in operating costs has exceeded that of their customers

But unless costs fall rapidly in the coming months, higher prices for the country’s beer drinkers will follow. Holger Eichele, head of the German brewing association, said: “For many companies, this is becoming an existential threat.”

Across the eurozone, manufacturers are under pressure from rising costs – producer prices rose by a record high of 37.2 percent in the year to April.

But the sudden rise in costs is just the latest shock to hit German breweries. Only a few countries drank more beer than the 83.8 liters that every German consumed on average last year. But as more health-conscious consumers choose other drinks, this figure has steadily declined since the 1970s, when they drank 150 liters per person.

If inflation means that Germans have to pay a lot more for their beer mugs, that could put even more pressure on demand for the national drink.

Rising costs were the last straw for some, such as the 558-year-old Frankenwälder brewery in northeastern Bavaria, which filed for bankruptcy this year after many local beer festivals were closed for two years during the pandemic. “I fear that some breweries in our range will have problems with higher costs because they don’t have market power,” Faust says.

For now, the average German beer drinker will hardly have noticed the price increase, which accelerated only slightly to 2.9 percent in the year to April, according to the German statistical office. That is well below general consumer price inflation of 8.7 percent in the period to May. This moderation, like a pledge of austerity at the Munich Oktoberfest, seems to be overtaken by circumstances.

This month, Faust raised its price by 10 cents per liter of beer, equal to a higher-than-usual increase of 6.5 percent, bringing the price for a case of 20 bottles of its best-selling lager to €16.49. “But that was decided last October, long before Ukraine, and it’s not even close to compensating for our increased costs,” Faust said.

Johannes Faust, CEO of Faust breweries: ‘I’ve never seen inflation like this’ © Ben Kilb/FT

Rhineland-Palatinate’s Bitburger said its own “moderate” price hike, decided last year, would also do little to cover its “exploding energy and commodity prices”.

The Berlin Brandenburg Brewery Association, a regional trade group, said prices for beer drinkers could soar by up to 30 percent this year. Radeberger, the largest German brewer based in Frankfurt, said it was also concerned about “the increasing scarcity of raw materials and consequent further price increases”.

Economists agree that the ability of factories to handle high input costs without raising prices for consumers would not last long. “Only the delays built into pricing policy mean that there is still a lot of inflationary pressures in the pipeline in the coming months,” said Carsten Brzeski, head of macro research in Frankfurt at ING.

Oliver Rakau, chief German economist at Oxford Economics, said what started as a shock to oil and gas prices was escalating to fuel inflation in many other products and services. “It’s undeniable that higher energy and commodity prices will feed through to other products, such as food and drink prices, and could lead to higher restaurant prices, pushing up services inflation,” he said.

Improving market conditions could also help German brewers pass more of their high costs on to consumers, who are currently paying much lower prices than their counterparts in places like the UK.

Brewery Faust has to pay more for glass bottles, plastic boxes and metal bottle caps. Energy, transport and personnel costs are also rising © Ben Kilb/FT

Beer sales in Germany have recently risen again – by 5.1 percent in the first four months of this year compared to a year ago, according to the German statistical office – and the reopening of many beer festivals, including Oktoberfest after two years of Covid- closures, is likely to boost demand. Beer prices at this year’s Oktoberfest will be on average 15 percent higher than the previous three years ago, at €13.37 per foaming liter.

Still, those who know their history want to avoid alienating the country’s drinkers. When asked whether he will raise prices for his customers even higher next year, Faust looked haunted. “We have to be very careful,” he said. “We have to think about it, but maybe we can avoid it if things change in Ukraine.”

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