Wednesday, August 8, 2007

Don't Drink and Drive: You Can't Afford Either

Recently there has been a number of articles written about the rising prices of beer, most of which has attributed to the increase to the rising prices of grain. In the past year the price of beer has increased 3% on the shelves and 3.8% at bars and restaurants. At the same time barley prices have risen by 17% to the highest level in 11 years, and malted barley, which is the main ingredient in beer, has risen by 9%.

One reason for the increased price of barley is that with the increased demand for fuel, not just in this country but worldwide, ethanol production has increased rapidly. Consequently, the demand for the corn used for ethanol production has risen sharply, thereby sending the price of corn soaring. The high corn prices cause farmers to plant more corn so as to take advantage of the higher price. What happens when more and more acres are devoted to growing corn? Less acres are available for other crops, hence barley production has fallen, shortening supply and driving the price up.

I began researching for this post ready to find that the increased ethanol production was responsible for the rising beer price. But then I realized that the increased cost of barley malt only adds about 5 cents to the cost to produce a barrel (31 gallons) of beer. Where the real cost increase is coming from is the rising price of fuel, and energy in general. The price of shipping malt to our brewery has increased much more than the price of a bag of barley malt. Add in other fuel costs that get passed down to the brewery and on to you the customer such as farm equipment, transporting grain to and from malting houses and the energy used during the brewing process itself. Let alone the costs of a packaging brewery, with increases in glass bottle, cardboard, carriers and distribution. You can make a better case that rising energy costs have a much more profound effect on beer prices than rising barley prices. The jury is still out on the feasibility of ethanol as an alternative energy source, but if energy costs can be brought down by the increased ethanol production, it would be more effective in lowering the cost of producing beer than if barley prices tumbled.

I did leave out the largest cost component of beer. Taxes. Both federal and state taxes make up almost half of what it costs us to produce beer. Unfortunately, it's more likely that gas prices will drop to a dime a gallon, or I'll start growing barley malt on my bald spot than the tax on beer will be reduced.

never trust The Sober Brewer
Jerry Gnagy