Brewing companies face “unhappy hour” of Russia-Ukraine crisis
On the eve of the crucial summer season, brewing companies are on edge as there could be a sharp rise in barley prices and a disruption in supplies due to the crisis between Russia and Ukraine.
Ukraine is among the world’s top five barley producers, and any major geopolitical crisis in the country could affect global supplies, said industry executives and analysts who follow the sector.
Ankur Jain, CEO of high-end beer brand Bira 91, said the development would put further pressure on industry margins. “Barley prices have risen sharply and Ukraine will certainly affect global barley prices in the short to medium term. It remains to be seen whether brewing companies will be able to react quickly and raise prices quickly, and in some cases, it is determined by the government,” Jain said.
The March to July period accounts for 40-45% of annual beer sales, and is hardly the main ingredient used in beer.
“After two years of beer drought due to shutdowns in the summer months, the disruptions in the supply chain due to the Ukraine crisis is an unexpected jolt,” said Rahul Singh, co-founder of Beer Cafe, which operates more than 31 cafes and bars across India.
Beer companies had forecast that the sector could grow 40% year-on-year in FY23, after two consecutive summers in which Covid-induced restrictions, restaurants, bars and clubs were closed or operating with limited restrictions.
“We are closely assessing the situation as it develops, and the impact of brewers in India. If the current situation escalates, it could be a cause for concern,” says Vinod Giri, director general of the Confederation of Indian Alcoholic Beverages Businesses (CIABC).
Even for brewers sourcing barley locally, prices in India could rise with rising global prices and supply disruptions. “Even if brewing companies have a successful June quarter, something they failed to achieve in the last two consecutive summers due to Covid’s first and second wave mobility disruptions, they could lose their luster, if margins are significantly impacted due to substantial raw material cost inflation. The escalation of the Ukraine crisis could increase commodity cost risks, especially for barley,” Motilal Oswal wrote in a report on Tuesday.
United Breweries, majority owned by Dutch multinational Heineken NV, which sells Kingfisher under the Blue, Ultra and Ice Beer brands, and Simba beer had said they were optimistic about the June quarter and were working to maximize supplies in the face of expectations of higher demand after two dismal summers.
“We have already been operating in a high inflation environment,” a United Breweries spokesman said. “With the current downturn, we foresee inflation and supply chain pressures and shortages in other commodities such as crude oil as well,” analysts said. For example, Ukraine is one of the largest exporters of sunflower oil to India and Russia is one of the largest producers of crude oil.
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