Russia-Ukraine War: What’s Wrong With Beer!

With the ongoing Ukraine-Russia war, the crisis has a major impact and disruption on barley supplies, in turn, affecting the price of beer. Ukraine is among the top five producers of barley, a crucial ingredient in the making of beer. If there is a disruption in supplies, it summarizes pretty clearly that the Indian brewers largely source barley locally and prices in the country could move in tandem with the global trend.

Moreover, after two years of beer troubles due to lockdowns in the summer months, supply chain disruptions due to the Ukraine crisis is an unexpected jolt. The demand for the beverage is at peak in the summer season, starting from April. And unlike other agri-commodities, barley prices have been rising for the better part of the last 10 months.

Prices have shot up 62.5 per cent from a year ago in the present quarter. In this peak season, the Ukraine crisis would leave companies such as United Breweries witnessing significant raw material inflation. “Even if beer companies have a blockbuster first quarter 2022-23 — something that they missed out in both the first quarter of 2020-21 and the first quarter of 2021-22 due to disruptions to mobility from the first and second Covid waves — they could lose their sheen if margins get significantly affected due to substantial raw material cost inflation’’, the brokerage said.

To note, the first quarter gives 40 per cent to the full-year earnings before interest, tax, depreciation and amortisation.“If the prices go up internationally, there would definitely be an impact on microbreweries. Because in microbreweries, the quantity of base malt is procured locally. But in case of ale or stout, the specialty malt has to be imported. In India base malt is available in adequate quantities.

Ankur Jain, chief executive of premium beer brand Bira 91, said the development would put further margin pressure on the sector. “Barley prices have escalated quite significantly and Ukraine will definitely impact global barley pricing in the short to medium term. Whether beer companies will be able to react quickly and increase prices quickly is yet to be seen, and in some cases, is determined by the government,” Jain said.

Talking about the large beer makers, they source most of their produce from the domestic market and barley prices have increased. Rajasthan, Haryana, UP and MP are the major growers of barley. France, Denmark, Argentina and Ukraine are among the leading exporters. Meanwhile, the dispute between Russia and Ukraine could lead to supply disruptions and shortages of other commodities such as crude as well. To note, Ukraine is one of the biggest exporters of sunflower oil to India and Russia is one of the biggest producers of crude oil.