Global hop marketA local alternative to mass beer suggested by independent brewers has been successful and is now altering the global market. Beer is becoming more diversified, so transnational companies have to accept the new game rules and to switch focus to young and fast growing markets. All these processes increased the demand for aroma and bitter hop as well as their acreage expansion on two continents. However now there appeared a downward trend of alcohol consumption in the world, so even special sorts can soon turn to be sufficient. In this connection the dynamic American hop market is already facing some problems. EU hop producers have become more cautious, they are not racing to exceed the demand and look forward with more confidence, judging by the contract terms.
Hop Market in RussiaGermany still dominates the Russian market, yet over the recent two years one has been able observe a continuous success of Czech hop suppliers. Their expansion and growing popularity of hops from the United States became the drivers of supplies growth in 2016 despite the preceding modest harvest crop in the EU, as well as the factor of relative stability in 2017. In this connection, in 2017, the ratio of the varieties continued to shift towards the aroma ones, and the supplies of Magnum hop and other alpha varieties were reduced. However, the import of bitter hop pellets is partially replaced by extracts, especially from the major beer manufacturers. Total volumes of alpha acid supplies, according to our estimation, decreased by approximately 5% and returned to the level of 2015. Barth Haas Group continues dominating the hop products market; HVG also increased its weight. At the same time, Morris Hanbury significantly reduced the supplies in 2017.
10+1 trends of Russian beer market 2015-2017Despite of the moderately negative prognoses for 2017, the beer market can be stabilized soon. Yet the years of the negative dynamics have resulted in marketing being limited just to “optimization” and the art of balancing between price and volumes. Bigger supermarkets share means stronger trade marketing. These processes are connected to the majority of the described trends. At the same time, the federal brands inflation leads to searching for new tastes, sales channels and contact formats that expand the product range and diversify the beer market, but do not imply a substantial volume increase. Let us enumerate and further discuss the ten trends of the beer market we can see in 2015-2017 as well as the major event of 2017.
Beer market of Ukraine 2017In the first half of 2017, the Ukrainian beer market goes on decreasing slowly. Yet, the companies manage to compensate their lost volumes by raising prices and improving the sales structures. This results in the mid price market segment reduction while the sales of premium brands are rising. These processes are connected to position strengthening of companies Carlsberg Group and Oasis and the market share reduction of Obolon. Most of the novelties by the market leaders belong to craft or hard lemon categories.
Beer market of Russia 2016: PET goes to draftThe beer market of Russia was warmed up by the hot summer, but the preparation for large volume PET prohibition has already impacted it negatively. The year was successful for Efes, MBC and regional producers; Carlsberg’s positions were virtually stable but AB InBev and Heineken lost a part of market share having focused on the sales profitability. The dynamics of big brands was determined by how much the companies were willing to keep the prices down or by their promotional activity. In this context the economy segment of the beer market and sales of inexpensive draft beer were increasing. The premium segment started shrinking due to license brands migrating to the mainstream segment.
Russia. Barley and malt
Malt: still at the bottom
Records of Federal Service of State Statistics show that in 2010 malt production decreased by 4% and comprised 1 011 thousand tons. Despite the decrease, this trend could be considered positive for malt manufacturers, as it denotes stabilization after a prolonged setback in production which was persisting since 2007. Taking into consideration poor harvest which resulted in malting barley deficiency and, at the same time, a perceptible increase in tradable malt output in autumn 2010, it is possible to suggest that there developed a balance between supply and demand.
In 2010 beer production decreased to the extent, comparable with malt output, by 5%, but its slight growth is expected in 2011. At the time of writing, beer production was already showing signs of recovery, although the dynamics of the first quarter does not yet indicate any trends. The fact is that from September to December 2009 brewing enterprises required additional volume of malt, and at the beginning of 2010, due to the drop in production and negative expectations, large volume of malt was not necessary any more. It is obvious that this slight movement was connected with the fact that distributors stocked up on additional beer volume prior to the excise tax increase. It had a non-recurrent negative influence on malt purchase amount in 2010 and, considering low base effect, had a positive influence on the dynamics in the beginning of 2011. Besides, if we transfer excess volume of malt production from 2009 to 2010, slight negative dynamics will be replaced with slight positive.
We should note that regional statistics data demonstrate an omission from Federal Service of State Statistics to mention some manufacturers ("Solodovnya Mutena" owned by Efes, enterprises of the company "Nevskiy Bereg" and some small manufacturers), that is why real malt production volume is higher than the official one and, probably, slightly exceeds 1 100 thousand tons. Their performance, to our opinion, could influence the general dynamics of malt production.
If we premise on the process time, then malt buying plans should reflect the prospected beer production rate, at least one month ahead. Consequently, malt production can be in two months advance of the expected beer production dynamics. This explains the two waves of malt production increase.
The first wave is caused by the seasonal beer market growth and by the fact that brewing companies when purchasing malt entered predominately into short-term contracts. The second wave was registered in September-December 2010, when malthouses already received new crop. In the second half of 2010, due to abnormally hot weather and customer demand resumption, brewing companies suddenly increased the volume of output and required additional volume of raw material.
As well as in 2007, there was a situation, when a hot summer satisfied brewing companies but had a negative influence on harvested crop of malting barley.
Financial performance of malt manufacturers following the results of 2010 went into a perceptible decline. Their total revenue decreased by ...% to ... mln roubles* or by ...% to $... mln. Cost of production decreased slowly, by % ...to ... mln roubles or by ...% to $... mln. Correspondingly, total gross margin from sales by malthouses practically came to nothing, having decreased by ...% to ... mln roubles or by ...% to $... mln.
* This number includes total receipts by the companies "Russkiy Solod", "Malteurop Russia", "Souflett" and "Vostok-Solod".
However, despite such negative financial results, in 2010 shipment from the enterprises under review decreased only by ...% to ... mln roubles and remained at the level of $... mln in terms of dollars. At that, negative dynamics of the totals were predetermined by the first quarter of 2010, which certainly was connected with additional supply rate at the end of 2009, when brewing companies sharply increased the production. In the second year half of 2010 the shipment exceeded the rate of 2009 by ...%. The beginning of 2011 confirms the positive trend.
Import of malt in 2010 increased by ...% to ... thousand tons. Finland and Ukraine stayed on as the main importers in 2010. Finland accounts for about a half of export supply, nevertheless it is the only country which reduced shipment by ...% to ... thousand tons. Ukraine, on the contrary, increased the shipment by ...% to ... thousand tons. Many European countries, which also ship relatively small amount of raw material, also perceptibly increased their share. Average customs price for malt reached its bottom in the middle of summer and from September began to grow gradually. Price rise is observed in all areas of import deliveries.
Russian malt export in 2010 reduced ... to ... thousand tons. Two main reasons for the reduction of foreign sales are too high price for Russian malt and diversion of some exporters to domestic demand.
Barley: waiting for new harvest
In 2010 sales of malting and high quality barley sharply decreased on Russian market. In comparison with 2009 it decreased by ...% to ... thousand tons, according to the Federal Service of State Statistics data. The decline was caused by a significant decrease in sales of six leading regions, namely Kursk, ..., ..., ..., ... and ... oblasts. Due to the summer drought there was a substantial decline in spring barley harvesting capacity of different sorts in these regions. Although we can point out that the decline in sales in the ... Region was not as considerable as yield decrease, which can be explained by the dispose of stocks. The decline in sales in ... Region, on the contrary, outran the yield decrease significantly. In this case the difference can be explained by the fact that local large-scale farmers take less of an interest in malting barley or by stocking up.
In 2010 there were devastated by the drought regions where, nevertheless, sales of malting barley increased. At that, positive dynamics was registered exactly in the regions which carry out agricultural projects within the frame of contracts with brewing companies, these are ... oblast in the Central Region, and ..., ... oblasts and ... Territory in the Siberia. Though, their share in total raw material sales for brewing companies is very small.
In the period of overproduction in 2008-2009, the price of freely tradable malting barley reduced sharply and was close to the price for feeding barley, that is why many independent farmers gave up this crop growing. For instance, the largest supplier, holding company "Avangard-Agro" planned to receive more than 50% of income at the cost of other crops in 2010, although before this malting barley accounted for 90% of sales.
Growth in demand for malting barley resulted in resumption of import deliveries from far-abroad countries*. Large volume of barley was already introduced into Russia in 2007-2008. Particularly in 2008, considering acute shortage of raw material on the world market, the average price for import barley shot up and exceeded $... per ton in the season of beer production in 2008. However, even at such high price, salesmen sold residual raw material of average quality unwillingly. By the end of this period the supply decreased abruptly and in 2009 import kept on reducing and fell down practically to zero. But this time the reduction of deliveries was caused by completely different reasons, due to oversupply of Russian high-quality barley import products became noncompetitive.
* Ukraine and Kazakhstan account for the largest volume of barley import but, perhaps, main deliveries from these countries fall on feed grain, that is why we don't consider them in the assessment.
In 2010 the situation changed suddenly again, import from far-abroad countries did not reach great volume of the year 2007 but, still, it exceeded 2008 by ...% having increased to ... thousand tons. Though, this volume can also be considered quite considerable, taking into account that import was practically equal to zero till September, and all deliveries fell on the end of 2010.
Average customs cost for import barley from September to December comprised $... or ... roubles* per ton. The bulk of raw material was delivered from Scandinavia. Denmark accounts for ...% of import, at average customs price of $... per ton (or ... roubles/ton), and Sweden accounts for ...% of import at the price of $... per ton (or ... roubles/ton). France provided ...% of barley import deliveries at the price of $... per ton (or ... roubles/ton).
* Conversion according to the Central Bank of Russia average weight rate
Increase of malting barley imports, as explained by market analysts, is conditioned by its relatively low price on foreign change. The price, after an attempt to raise it, reduced again under a pressure of large volume of grain harvested in 2009.
World market price for harvest of 2010 and futures for 2011 were declining during several months due to the unwillingness of major beer producers to buy the harvest at the current price. However, market analysts say that such strategy can be a false one, as European farmers will not expand the seed fields if they don't receive the expected reward.
Although by the end of 2010 the price for Russian malting barley did not reach the maximum of 2008 but, still, it increased more than threefold from the moment of reaching its bottom in the beginning of 2010. Then the price for barley reduced abruptly due to a decline in beer production in 2009, general fall of prices for grain crops and arrival of large volume of new crop grain at the market.
However, in Russia post-effects of drought of 2010 were much more serious, that is why as distinguished from European brewing companies, Russian brewers purchase grain harvested in 2010 more willingly, which stimulates price increase.
At this stage beer consumption has stabilized, we even expect a slight growth, consequently the demand for malt can increase. Besides, current situation is compounded by the development of price-related competition on beer market, which means that brewing companies should hold down the price for their products and therefore hold down the production expenses. That is why today beer manufacturers purchase malting barley of inferior quality and also large volume of feeding barley harvested in 2010 (although its value is twofold higher than malting barley value in 2009). But the fact that leading brewing companies actively employ production technologies using unmalted raw material and enzymes will probably enable them to make a partial compensation for cost development in 2011.
Availability of rather large carry-over stocks of barley and malt, which were built up owing to the harvest of 2009, gives many purchasers of malting barley a possibility to hold hand, hoping for replenishment of their demands by means of further yield. Today any news about malting barley potential, quantity and quality can cause significant price fluctuation.
The Leading Producers
Nowadays there are two main groups of malt producers in Russia. The first one includes brewing enterprises, which produce raw materials to satisfy their own needs, besides malthouses almost fully controlled by breweries can be referred to this group too. The second group is composed of independent producers, who output commercial malt for brewing companies.
Until 2010 there was a trend towards a growth of brewing industry share in the total malt production. Two lean years and high price for raw material encouraged brewing companies to expand the capacity of their own malthouses. In this connection, and also due to the employment of non-malted raw material, the volume of tradable malt was quickly decreasing for a number of years. However, according to the results of 2010, the share of malt production by trading companies remained approximately at the level of ...%, although as early as in the first half of 2010 it was possible to expect a substantial decrease in their significance on the basis of actual trends. In total consumption the share of Russian malt salesmen and importers slightly increased and exceeded ...%, according to our rough estimate.
In 2009 "Baltika" became the biggest malt producer in Russia. The company will probably retain its leadership in the foreseeable future, though its total capacity is less than that of "Russkiy Solod" or AB InBev.
Two malthouses of "Baltika" with the capacity of 110 thousand tons, located in cities Tula and Yaroslavl, by market players' estimation, satisfy the company's needs in malt practically to the full extent. To fulfill this task they have to work in full-load conditions the year round and even exceed their potential.
For example, Tula malthouse in 2009 produced ... thousand tons of malt. We do not have the exact data on 2010, but judging by the regional statistics, they ... Yaroslavl malthouse in 2009 reached its projected level of production and by our estimation even exceeded it, having increased the output by ...% to ... thousand tons.
Thus, the malt output of "Baltika" by our rough estimation, grew by several percent averaged ... thousand tons. Accordingly, the share of "Baltika" in the total production volume grew by ... p.p. to ...% by our assessment. Considering the fact that in 2010 the company's beer sale fell by ...-...%, we can say that its needs for malt were fully covered by its own production. However, the issue of purchasing malting barley has become quite an actual for "Baltika".
The most malthouses are owned by company AB InBev. By our estimate*, the potential capacity of the malthouse in Saransk amounts to ... thousand tons, in Kurks - ... thousand tons, Ab InBev branch in Omsk can produce about ... thousand tons, in Volgagrad - up to ... thousand tons, and the branches in Perm and Ivanovo have the capacity of less than ... thousand tons. Thus the total capacity of the malthouses amounts to more than ... thousand tons per year. For example in 2007, when the company reached its beer production peak, namely ... mln dal, the malt output amounted to ... thousand tons.
* The potential capacity was calculated basing on the maximum monthly malt output over the period 2008-2010.
In 2010 the beer sales of company AB InBev stabilized after protracted and fast decline - the sales fell only by ...% to ... mln. dal. Though the malt production continued shrinking very fast, having reduced by ...% to ... thousand tons. This reduction can be explained by substantial raw material stocks formed in 2009.
By our assessment, which is based on the regional statistics data, in 2010 the malthouses in Ivanovo and Perm ... (in 2011 ... enterprise continued resumed malt production); Saransk, Kursk and Omsk malthouses ... their production volumes to different extents and Volga branch on the contrary, ... its output significantly. At that AB InBev share in the total output of Russian malt decreased by ... p.p. to ...%.
Company Efes owns two malthouses, these are "Solodovnya Mutena" with the capacity of ... thousand tons in Moscow, and enterprise "Vostok-Solod" in Kazan which is able to produce ... thousand tons of malt per year. In 2010 Efes was the only big producer that continued investing substantial resources into the extension of malt producing capacities. By our estimation, based on the data of the regional statistics, in 2009 Kazan malthouse got investment to the sum of ... mln roubles or $... mln and in 2010 - to the sum of ... mln rubles or $... mln.
The capital expenditure growth certainly effected the output volumes of "Vostok-Solod". In 2010 they grew by ...% to ... thousand tons. Given that "Solodovnya Mutena" retained the volume of production approximately at the level of 2009 (... thousand tons), the total malt output grew by ...% and amounted to about ... thousand tons. This amount of raw material meets the growing needs of Efes group. The control of production price of malt is strategically important for the company as it stakes on development of inexpensive beer sorts.
Due to the production growth at the background of general negative Russian indices, Efes company share in the total malt output volume grew by ... p.p. and amounted to ...% by our estimation.
"Ochakovo" having sold the enterprise in Belgorod, still owns a malthouse in Lipetsk region, with a capacity of more than ... thousand tons of malt per year. The switch of raw material production to one enterprise led to a steep production raise of Lipetsk malthouse in 2009. However as early as in 2010 the malt output shrank by ...% to ... thousand tons. This reduction in our view resulted from the raw material overproduction in 2009 and beer production decline in 2010. The company does not deal in malt on the market, as it did before Belgorod enterprise was sold, but, obviously it fully satisfies its needs for raw material.
A production base of its own is very important for "Ochakovo" for the same reasons as it is important for Efes, namely, the basis of company portfolio is made up by inexpensive beer sorts. Besides it is necessary to have enough of malt as "Ochakovo" declares claims not to use any non-malted materials.
Over 2010 the share of "Ochakovo" in the total volume of malt output shrank by ... p.p. to ...%.
Three small malthouses are owned by Heineken. By our estimation the malthouse at plant "Shihan" in Sterlitamak and "Volga" in Nizhniy Novgorod can potentially produce about ... thousand tons of malt per year and the malthouse in and Irkutsk as year 2009 showed, has the capacity of more than ... thousand tons.
In spite of production potential, in 2010 reduced the raw material production sharply. Basing on the data of regional statistics, the total reduction amounted to about ...% to ... thousand tons. In particular, the malthouse in Sterlitamak saw some minor prodiction decline, having produced about ... thousand tons, the enterprise in Irkutsk produced half of the amount of 2009, namely about ... thousand tons of malt and the malthouse in Nizhniy Novgorod practically suspended its operation producing insignificant amounts of malt. The company, in spite of the cost cutting efforts, started orienting at purchasing the malt from other companies.
The substantial production fall can certainly be explained by beer sales fall, which by our rough estimation averaged ...%. However even if the malt production remains at the same level (... thousand tons in 2009), Heineken is not able to satisfy its current need for raw material.
By our estimation, ... more malthouses with the output volume of less than ... thousand tons belong to medium and small beer producers. The ... regional enterprises, the data of which are provided by Rosstat, saw malt production increase by ...% to ... thousand tons. At that the regional companies are gaining still more importance as clients for independent malt producers, giving them about ...% of the malt sales.
"Russkiy Solod" is a major company considering the capacities for malt production, besides it is a major independent malt and malting barley producer. In Russia the company owns 4 manufacturing enterprises - in Voronezh, Moscow and Oryol regions, with the total output capacity of ... tons and an unfinished malthouse in Kursk region which is now used for production storage. "Russkiy Solod" is the only specialized company which includes several enterprises in different regions of Russia.
As a result of brewers' developing their own raw material production, "Russkiy Solod" has been reducing its output since 2007. At that time the company was the absolute leader providing % of the total malt production in Russia. By today this share shrank to ...% by our estimation.
In 2010 the rates of the production decline slowed down and averaged ...% to ... thousand tons. However by value the shipments grew by ...% to ... mln. roubles or by ...% to $... mln. The dynamics of "Russian Solod" proceeds did not coincide with the shipment dynamics at all and surpassed it sharply. The difference can be due to deferred payment of the brewing companies. Accordingly, over 2010 the proceeds decreased by ...% to ... mln. roubles or by ...% to $... mln. The cost price shrank proportionally.
It is a challenging task to determine the production indices of Russian division of Souflett (Saint-Petersburg, with a capacity of ... thousand tons) and Cargill ("Yefremoskiy" in Tula region, ... thousand tons) basing on the regional statistics data. However, we can give our estimation concerning financial performance of Souflett.
According to our data the proceeds of Souflett in 2010 decreased by ...% to ... mln roubles or by ...% to $... mln. The shipments practically reflect the same dynamics having shrunk by ...% to ... mln roubles, and in dollars - by ...% to $... mln. Souflett sends the main part of malt to "Baltika", with which the company is partially connected by proprietary right.
A new player on Russian malt market, the company Malteurop Russia, finished year 2010 with a production decline of ...%, having produced ... thousand tons of malt. At that by value the company's shipments grew by ...% to ... mln roubles or by ...% to $... mln. The proceeds of Malteurop Russia grew slower, in 2010 it went up by ...%, to ... mln roubles (by ...% to $... mln). However the profitability made a steep decline as the cost price grew at advancing rate, namely, by ...% to ... mln roubles or by ...% to $... mln.
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The article materials were prepared using analytical system FIRA on the basis of Rosstat data (www.fira.ru).
The data on companies' output and production sales, financial and economic indicators of enterprises of RF after 2009 as well as their interpretation are our assessment based on the regional indicators and the current trends in case the source has not been named.
We do not guarantee that the given information is absolutely correct, though it is based on data obtained from reliable sources. The article content should not be fully relied on to the prejudice on your own analysis.
3 Jun. 2011