Barley price increase adds to brewing costs Beer vendors who deliberately short-change their customers at the annual Oktoberfest festival in Munich are the normal targets for the Association Against Fraudulent Pouring (VGBE). But VGBE president Jan-Ulrich Bittlinger, says this year 30,000 people have signed an online petition about rising beer prices at the festival, which, at an average of about €9.40 a litre, have risen 4 per cent in a year and a whopping 43 per cent in a decade. Agricultural commodities traders attending the largest beer festival in the world might take a more sympathetic view of the plight of the brewing industry, which has been one of the casualties of the recent rise in global grain prices. The beer industry is the leading user of malting barley, an essential component of the brewing process, and often an overlooked agricultural commodity. Since the start of June, malting barley prices have jumped 25 per cent, according to RMI Analytics, the Swiss-based brewing consultancy. While not all brewers are crying into their pints because they are insulated to the price rise thanks to hedging and forward buying, those in eastern Europe and Russia, where it is more difficult to fully cover exposure and brewers have less access to price-risk management, are facing a jump in costs. The leading four international brewers - Anheuser-Busch InBev, Carlsberg, Heineken, and SABMiller - use about 12.5m tonnes of malting barley in total, and the recent price rise would translate into a cost increase as high $700m if they were unhedged or have not bought forward, says Matthias Wree of RMI. Malting barley is trading in Europe at about €239 a tonne, up from a low of €93 a tonne two years ago. But the real issue is the narrowing price difference between malting barley and feed barley. Malting barley normally trades at a premium of about €50 to €65 a tonne compared with feed barley as the seeds and fertilisers tend to be more expensive and the yields lower. But this year the worst US drought in half a century has cut feedmeal grains and oilseed production there, prompting a big rally in feed barley prices around the world. The feed-to-malting barley spread has fallen to €5-€10 a tonne. In some parts of Europe, feed barley has been at a premium to malting barley, a very unusual situation. The brewing industry is now worried that farmers could cut their planting of malting barley this fall and turn into produce feed barley, which is cheaper to produce, pushing up prices in 2013. "The risk premium is not big enough for farmers to plant malting barley for next year," says Francois Sonneville, beverages analyst at Rabobank. Meanwhile, hops prices have also risen, affecting beer makers, especially craft brewers which rely on niche varieties whose production has been falling in recent years. Rabobank says hops suppliers recently announced increases ranging from 20 per cent to 100 per cent, depending on the variety, driven by a global shortage of the crop and poor output in Europe this year. The bank says global acreage dedicated for hops growing has halved in the past 12 years and craft brewers are finding scarcity of hops supply their greatest concern. Agricultural analysts expect the effect of higher grains prices on barley and hops costs to be felt for some time to come. The VGBE might find themselves protesting again at next year's Oktoberfest because of another rise in beer prices.