SABMiller India

Rising barley prices to hit beer makers, 3-Jun-2008
Bangalore: India’s beer makers may be hit hard by a jump in the prices of barley due to increased domestic consumption and export demand.

Barley accounts for one-sixth of the cost of making beer, and its prices are currently hovering around Rs1,300 for 100kg, against just Rs750 a year ago, which analysts say is an all-time high.

“The price jump has been substantial this year,” said Sundeep Kumar, director (corporate affairs and communication) at SABMiller India Ltd, the Indian arm of the UK-based SABMiller Plc. “This (price hike) is leading to a 10% increase in cost of beer from barley alone,” he said by email.

Beer and malt firms consume nearly 25% of India’s barley crop of 1.33 million tonnes (mt); the rest is fed to animals.

SABMiller consumes around 75,000 tonnes of barley a year. United Breweries Ltd, India’s biggest beer firm by sales, uses about 100,000 tonnes.

Kalyan Ganguly, president of United Breweries, said, “The increase in barley prices will have a huge impact on profitability of beer companies. We can’t do substantial imports, because if we import it attracts duty.”

In 2007, India exported the cereal as animal feed for the first time to West Asia because of a slump in exports from Ukraine, a large barley exporting nation. Although Ukraine has resumed its exports this year, continuing demand for Indian barley helped push up prices soon after the crop began arriving in markets in March. The barley season lasts till August, and most of the barley for malting comes from Rajasthan, Punjab and Haryana.

“This is the peak arrival season in Jaipur and the demand is mostly from beer and malt companies,” said Rajalaxmi Amand, a research analyst with Hyderabad-based Karvy Comtrade Ltd. While barley prices have been following the trend of high wheat and corn prices, Rajalaxmi said there is also speculation over demand for barley that can substitute corn to produce ethanol.

“Exporters are keen to export because international demand is increasing,” said Mohit Sethi, who runs Prem Industries, a Jaipur-based barley trader and exporter of guar gum, an animal feed.

The relatively unchanged size of the crop this year, lower than expectations, may also have led to the high prices. “The crop is not much more than last year’s,” said R.P.S. Verma, principal scientist at the Directorate of Wheat Research in Karnal, Haryana.

SABMiller’s Kumar, citing official data, said it is marginally lower at 1.22mt nationally, against 1.33mt last year.

Vikas Jain, director of Gurgaon-based The Malt Co. India Ltd, said barley malt costs twice as much as the cereal. He added that maltsters have been appealing for a restriction on barley exports.