Sat, Jun 02, 2007 page9

• Trouble brewing as German switch to biofuel raises beer prices

  As farmers switch to corn and rapeseed to produce biofuels, the price of barley malt, the key ingredient in beer, has soared by more than 40 percent in two years

  • BY KIRSTEN GRIESHABER / AP
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  AP, AYING, Germany

  Like most Germans, brewer Helmut Erdmann is all for the fight against global warming. Unless, that is, it drives up the price of his beer.

  And that is exactly what is happening to Erdmann and other German brewers as farmers abandon barley -- the raw material for the national beverage -- to plant other, subsidized crops for sale as environmentally friendly biofuels.

  "Beer prices are a very emotional issue in Germany -- people expect it to be as inexpensive as other basic staples like eggs, bread and milk," said Erdmann, director of the family-owned Ayinger brewery in Aying, an idyllic village nestled between Bavaria's rolling hills and dark forests with the towering Alps on the far horizon.

  "With the current spike in barley prices, we won't be able to avoid a price increase of our beer any longer," Erdmann said, stopping to sample his freshly brewed, golden product right from the steel fermentation kettle.

  In the last two years, the price of barley has doubled to 200 euros (US$271) from 102 euros per tonne as farmers plant more crops such as rapeseed and corn that can be turned into ethanol or bio-diesel, a fuel made from vegetable oil.

  As a result, the price for the key ingredient in beer -- barley malt, or barley that has been allowed to germinate -- has soared by more than 40 percent, to around 385 euros per tonne from around 270 euros a tonne two years ago, according to the Bavarian Brewers' Association.

  scary news

  For Germany's beer drinkers that is scary news: Their beloved beverage -- often dubbed "liquid bread" because it is a basic ingredient of many Germans' daily diet -- is getting more expensive. While some breweries have already raised prices, many others will follow later this year, brewers say.

  Talk about higher beer prices has not gone unnoticed by consumers. Sitting at a long wooden table under leafy chestnut trees at the Prater, one of Berlin's biggest beer gardens, Volker Glutsch, 37, complained bitterly.

  "It's absolutely outrageous that beer is getting even more expensive," Glutsch said, gulping down the last swig of his half-liter dark beer at lunch. "But there's nothing we can do about it -- except drinking less and that's not going to happen."

  A meager barley harvest last year in Germany and barley-exporting countries such as France, Australia and Canada has compounded the problem. The price rise is squeezing breweries -- many of them smaller, family-owned enterprises that can ill afford it.

  The Ayinger Brewery, which has 65 employees and has been family owned since its founding in 1878, produces 7.5 million liters of beer each year and purchases most of the ingredients from farmers nearby.

  Eventually, Erdmann and other brewers say, it is drinkers who will bear the brunt of the higher costs for raw materials.

  Already, at the annual brewery festival in Aying this week, prices for Erdmann's Ayinger beer were up at 6.40 euros from last year's 6.10 euros for a one-liter mug. That's no small matter for Bavarians, who are among the world's heaviest beer drinkers. They put away about 160l of beer a year -- well above the already high German average of 115l per person.

  And organizers of the world-famous Oktoberfest in Munich have announced a 5.5 percent price increase: A one-liter mug will cost up to 7.90 euros at this year's autumn beer festival -- the highest price ever.

  Brewers predict that higher barley prices will add about 1 euro to each 10l case of beer, but the German Farmers Association disputes that, saying the figure is about 0.33 euros. Other factors like higher salaries and energy prices are also jacking up prices.

  "The financial pressure on Germany's small and medium-sized breweries is immense," brewers association head Walter Koenig said. "The increasing costs of raw materials may become a serious threat for many breweries."

  "Beer drinkers across the country will get upset when beer prices will rise even further in the fall," Koenig said. "We are therefore demanding that government stop its subsidies for biofuels immediately."

  food price hikes

  However, in its first major report on bioenergy, the UN tried to temper enthusiasm over biofuels last week, warning that the diversion of land to grow crops for fuel will increase prices for basic food commodities.

  That is what happened in Mexico, when increased demand for corn to make ethanol in the US pushed up the price of tortillas.

  The German government subsidizes biofuel crops at the rate of 45 euros per hectare, according to the Agency for Renewable Energies, part of the Agriculture Ministry.

  Barley production in Germany went down by 5.5 percent -- from 542,000 hectares last year to 514,000 hectares this year, according to the Bavarian Farmers Association. On the other hand, the production of corn for biofuel more than doubled last year and the production of rapeseed for biofuel grew by 3.4 percent.

  Biofuels, which reduce the emission of greenhouse gases believed to cause global warming, have been seen by many as a cleaner and cheaper way to meet the world's soaring energy needs than with greenhouse-gas emitting fossil fuels. European leaders have decided that at least 10 percent of fuels will come from biofuels by 2020.

  Germany leads in the consumption of bioenergy in Europe with an annual usage of 4.3 percent of overall fuel consumption, figures by the Agency of Renewable Energies showed. Germany also is among the leaders in producing wind energy and recycling garbage.

  Beer prices are serious business in Bavaria, which has some 615 breweries and gave Germany its famed beer purity law, which dates back to 1516 and in its current form permits only four ingredients: malted grain, hops, yeast and water.

  Farmers say the brewers share some of the blame.

  "For years there was an oversupply and we couldn't make any profits with barley and that's why we switched to biofuel crops," said Anton Stuerzer, 43, who grows barley and rapeseed at his farm in the neighboring village of Hoehenkirchen. "It serves the brewers right that they have to pay those high prices now -- they should have paid us fair prices even when there was too much barley available."
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