Russian brewers in the era of sanctions: pour or merge?

Russian brewers in the era of sanctions: pour or merge?
Russian brewers in the era of sanctions: pour or merge?
13 May, 15:38
Brewers issued a distress signal in March.

Domestic producers of the foamy drink unanimously argued that due to the geopolitical situation they would be left without hops, which simply do not exist in Russia (the share of Russian raw materials is only 2% of the needs). The shock reaction has passed - we tell what is happening with the industry now.

Yekaterina Ivanova

In the first quarter of 2022, according to Rosstat, beer production in Russia increased by 3.7% (compared to the same period last year) to 177 million deciliters.

Intoxicating logistics

Beer Resource Development Manager (one of the largest distributors of brewing raw materials - ed.) Sergey Andreyev confirmed that the purchase of imported hops and malt has not stopped, but the process of paying for it and delivering it to Russia is now more like a quest.

“Difficulty in sending money to suppliers in Europe and America, as well as disruption of supply chains - these are the two most difficult moments now”, - Sergey Andreyev noted.

Not all banks have been sanctioned, but the authorities of many countries are forcibly restricting businesses in receiving payments from the Russian side, including the increase in the time for transferring transfers, and currency conversion rates are still quite high.

There are also many difficulties with logistics. “Of course, we use different methods, but… For example, the sea for the Russian Federation is now practically closed - most of the lines sabotage the delivery of goods to Russia (they postpone the deadlines, for no apparent reason they pickle containers in EU ports, where idle time is quite expensive). Automobile transportation by transport of the Russian Federation and Belarus across the territory of the European Union is now practically banned, but there are still opportunities to use the transport of friendly countries. Also, a serious rise in energy prices in Europe leads to an increase in the cost of transportation. All this significantly affected the cost of logistics, and, consequently, of the imported goods themselves. As a result, the cost of each batch of raw materials imported into Russia, despite the fact that selling prices have not changed, is now impossible to calculate in advance”, - Sergey Andreyev commented.

Representative Beer Resource notes that in February and March, some hop varieties nearly doubled in price amid the panic, but the situation has now stabilized. Despite logistical difficulties, imported hop prices have not risen as much as many feared, says a Beer Resource spokesperson. Sergey Andreyev also assured that both they and other distributors have stocks of imported malt and hops. “And we will continue to meet the needs of our customers,” Andreyev concluded.

There will be beer, the question is the price

But among the brewers, an anxious mood still reigns. The head brewer of Gubakhinskaya Brewery (Perm) Aleksey Usatykh claims that manufacturers will no longer be able to hold back prices for the final product.

Yes, hops are the most expensive product in the beverage industry, but prices have changed on everything. “Prices for Russian malt have risen even more than for imported ones. Plus other components, containers, energy resources... A bottle of beer should double in price, but producers cannot afford such a markup, because demand will fall and we will be left without income. But the rise in prices for the final product cannot be avoided. The entire industry is surviving”, - comments Alexey Usatih.

Director of Volkovskaya Brewery (Moscow) Alexey Aksel agrees with his colleague. He predicts that stocks of malt and hops, whose selling prices have increased by a combined 20-40%, will last until October 2022. “But beer prices will continue to rise,” the brewery manager summed up.

Most of the market participants surveyed by us now find it difficult to make predictions about how much the final product will rise in price in the coming months. Opinions differ: in order to keep demand, the margin should not exceed 5-10%, but, based on the situation in the industry, it can reach 30-40%. In any case, producers will suffer more than the end consumer.

Experts showed unanimity in only one thing: the most difficult will be not beer giants (they can switch to Chinese hops), but craft breweries that use special expensive hops. For example, the Citra variety cannot be replaced by anything, and the cost of a kilogram reaches 4 thousand rubles. Reducing the consumption of expensive beer is a firmly emerging trend.

Find 20 billion - solve the problem

Representatives of the Beer Producers Association (APP) insist that in 2022 the brewing industry in Russia is facing unprecedented challenges and the industry needs help. The organization once again reminded that the Russian brewing industry is completely dependent on imported hops, the main supplies of which come from Europe and the USA.

“APP member companies are making every effort to smooth out the rise in prices for final products. Under these conditions, state support and other regulatory measures play a central role, which will help reduce pressure on the brewing market”, - commented the APP press service.

Among the possible measures are the introduction of temporary zero customs rates (this will provide the brewing industry in Russia with critical raw materials in the short term), tax holidays, as well as available liquidity to support operations.

Plus, a systematic solution to the problem is to restore hop-growing in Russia. “Now it is necessary to start creating suitable conditions for the formation of a hop-growing market that will be able to satisfy the annual demand of Russian brewers in full - 7.5-8 thousand tons of hops. The process of recovery of the industry can take from 7 to 10 years and will require a significant amount of investment. The existing state support programs for hop-growing, unfortunately, have not shown sufficient efficiency", - the AMS concluded.

Representatives of another specialized organization - the Union of Russian Brewers - also talk about systemic changes. Our publication was informed in the Union that proposals for the revival of hop-growing in the Russian Federation have already been sent to the Ministry of Agriculture.

“According to the Union, the revival of Russian hop-growing will require an increase in the area of hop-growers by 50 times, and the amount of required investment in the industry will exceed 20 billion rubles”, - the Union of Russian Brewers commented.

Experts predict that due to the specifics of hop cultivation, the possible period for the implementation of the task is at least 5 years.

“It will take about 5 years to reach the target indicators of hop production, if the necessary measures to support the industry begin to be taken now. But for this period, brewing companies will still have to buy hops abroad, so another important support measure will be the zeroing of the import customs duty on this product”, - summed up Daniil Briman, chairman of the Council of the Union of Russian Brewers.

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