IUF logo.

Beerworkers Archive


Post date: 01/25/2011 - 18:21

Southern Hemisphere Brewers look better able to cope with Commodity Costs

Brewers with big business in the southern hemisphere look better able to cope with commodity cost inflation due to their proximity to good barley harvests and strong pricing power in key beer markets.

Anheuser-Busch InBev (ABI.BR) and SABMiller (SAB.L) have big breweries in the south and so use a large proportion of their barley needs from countries such as Argentina, where harvests have been less affected by adverse weather than those in Europe.

Brewers with big business in the southern hemisphere look better able to cope with commodity cost inflation due to their proximity to good barley harvests and strong pricing power in key beer markets.

Anheuser-Busch InBev (ABI.BR) and SABMiller (SAB.L) have big breweries in the south and so use a large proportion of their barley needs from countries such as Argentina, where harvests have been less affected by adverse weather than those in Europe.

In addition, the two firms have a strong following among beer drinkers in some of their top markets Brazil and South Africa, giving them more clout to push through price rises.

By comparison rivals Heineken (HEIN.AS) and Carlsberg (CARLb.CO) source most of their barley from Europe, where crop prices have soared following droughts, and have a smaller piece of their key markets Mexico and Russia.

"Looking ahead we see AB-InBev and SABMiller as the best placed due to their exposure to growing emerging markets, better southern hemisphere harvests and their strong individual market shares," said an analyst at a U.S. brokerage who declined to be named in line with company policy.

INPUT COSTS

Analysts say because barley prices are up 84 percent, aluminum 12 percent and crude oil up 20 percent versus a year ago, the world's four biggest brewers all face higher input costs, which make up a quarter of the price of a glass of beer.

But with barley prices the most pressing concern, AB-InBev and SABMiller look relatively cushioned. Early signs for the Argentine and Australian crops, which they use for their big Latin American and China operations, are encouraging.

"The Argentine barley harvest looks like being a bumper crop while the Australian barley harvest has been largely unaffected by flooding there," a SABMiller spokesman said.

By contrast Heineken and Carlsberg use more barley from Europe, where prices have spiked the most in the wake of last year's drought in Russia and Eastern Europe.

UBS analyst Melissa Earlam calculated malted barley makes up 14 percent of brewers' Cost of Goods and Services (COGS), and at current prices this points to underlying COGS inflation of 7.1 percent in 2011 compared to 7.8 percent in 2010.

"We see AB-InBev and SABMiller as more able to deal with current input cost inflation," she said.

AB-InBev says it is fully covered for its barley needs in 2011 and should not see a material impact in input inflation while SABMiller expects a rise by a low single digit percentage.

Heineken estimates a 3 percent rise in input costs, while Carlsberg has not given any guidance for 2011.

Earlam said she believed the "eye of the storm" regarding barley and malt price inflation was in Eastern Europe which will particularly impact Carlsberg.