Beer Makers Feel the Heat as Europe Braces for Barley Shortages

(Bloomberg) -- Even beer is being affected by Europe's sweltering heat.

Barley crops in northern Europe have fried under the hot and dry weather, raising potential problems for brewers that need to buy malt. Yields in key producers in Scandinavia, northern Germany and the Baltic countries could be 30 to 40 percent below normal, according to trader Evergrain Germany.

Barley prices are already surging and costs will need to be passed down the supply chain. Some German brewers are starting to increase beer prices, said Stefan Vollmar, a trader at Hamburg-based merchant GrainCom GmbH.

“We have a big supply problem,” said Jonathan Arnold, the director of barley and oats at Robin Appel Ltd., a U.K. trading company. “Malt is not a lot of cost in a pint of beer, but collectively over a lot of pints of beer, it is a big cost.”

In Scandinavia, extremely hot weather, which caused wildfires to spread across Sweden, has also meant that harvests are three to four weeks earlier than usual. The weather that has hurt crops means the European Union will face a spring malting barley shortage of 490,000 metric tons this season the first deficit in eight years, according to RMI Analytics, which advises brewers.

Prices for French malting barley have spiked more than 35 percent since April, reaching the highest since 2013, according to data from Commodity3. Heineken NV, the world's second-largest brewer, cited higher commodity costs in the second quarter. While the company said the poor European harvest wouldn't hurt its 2018 results, it declined to comment on the impact going forward.

"It is a significant price increase," said Andries de Groen, a managing director at Evergrain, a unit of Germany's BayWa. "Brewers will at the end have to absorb the barley price increase" if they haven't locked in their future purchases, he said.

The dryness and heat caused a dramatic shift in the market. Less than two months ago, Robin Appel Ltd.'s Arnold was expecting a surplus of over a million tons of European malting barley, but now the market will likely see a deficit. The hot weather is also lowering the quality of barley, meaning there will likely be a surplus of grain that's only usable for livestock feed.

Maltsters, which extract malt from barley, will have to pay up for high-quality grain or change their formulation processes, according to RMI. Still, it's unlikely that beer drinkers will be paying more for a pint because barley is a tiny part of the overall cost of a drink.

EU spring barley production could be 10 percent below the five-year average, de Groen said. The poor production in northern Europe may be offset by France, which had an excellent harvest and may be able to ensure supplies, he said.

“The further north you go, the more difficult it gets,” Vollmar said. “It is hard to be sure about the final outcome of the crop, which we had just started to harvest now. But we expect the volume to be pretty low and there will be a few quality problems.”

To contact the reporters on this story: Manisha Jha in London at mjha13@bloomberg.net;Lucca de Paoli in London at gdepaoli1@bloomberg.net;Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Liezel Hill

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