Beer prices to rocket as cost hikes hit industry

The price of a pint of beer could rise by as much as 10%, or 30p, experts are predicting, as the soaring cost of barley adds to the above-inflation increases in duty and VAT.

As Whitehall announced plans to ban "below-cost" sales of alcohol this week, the cost is likely to increase by 4.25%-6.5% this year due to the duty escalator, which increases by the rate of inflation plus 2%.

But other "costs" are ignored by the government in its calculations, including ingredients, packaging and distribution. Diesel is up 35% y-o-y, cardboard costs have risen 35% while major ingredients associated with brewing, such as barley and wheat, have almost doubled in price.

And experts are predicting that British barley prices in particular already up 90% in 2010 will rise even higher, as global barley production is set to fall by 43% on last year's volumes [Mintec] to a four-year low, as farmers switch to more lucrative crops such as wheat.

Mintec analyst Robert Miles estimated that the cost of the ingredients in a pint of beer had risen from 3% to 10% in the last year.

And he predicted that, as the government attempts to reduce binge-drinking by setting a higher price on alcohol, "commodity price rises might get there first, and force prices higher for all concerned".

Brewers and pub chains also fear that while these hikes are certain to hit the on-trade where the average pint has risen by 2% and now exceeds £3 for the first time there is additional concern that supermarkets will continue to subsidise alcohol where prices have risen by just 1% in the last year, according to price tracking website BrandView.co.uk thanks to the government's partial definition of below cost.

Mark Hunter, CEO of Molson Coors, said "a ban on below-cost selling, where cost is defined as a nominal cost of production [was the only effective way] to tackle problem prices".

"It is scandalous that the government has failed to account for production costs [in its proposed definition of below-cost]," the sales director of a leading lager supplier added. "It's another case of the mults running rings around the government."

And AB InBev president Stuart MacFarlane also voiced fears that suppliers would have to shoulder the higher cost inputs. "You've got to take into account the inability of suppliers to push those costs on to retailers, and the retailers' strategy and approach to absorbing them," he said.

BBPA director of brewing Andy Tighe added: "Margins on beer are a penny of profit per pint and production costs are ­wiping that out.