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4-2017

Global hop market

A 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 Russia

Germany 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.

Global Beer Wars

It's hard work growing an economy, and at the end of the day, the only way to unwind after all that hard work is to throw back an icy cold, watered-down macrobrew. That is exactly why the world's biggest beer companies are focusing resources on emerging economies. All right, there may be some other reasons as well, but the important part is that these big companies are making moves.

East Africa
As the world's largest energy companies continue to make discoveries off the eastern coast of Africa, they will soon have several choices of refreshment after a long day of drilling.

Diageo (NYSE: DEO ) and SAB Miller have both closed deals in East Africa and are poised to duke it out over market share in Uganda, Kenya, and Tanzania. Diageo has invested $1 billion in Africa over the last four years. The company's Kenyan subsidiary, East African Breweries, recorded a first-half profit increase of 17%. Sales for the unit were up 36%.

SAB Miller invested $80 million to build a new beer plant and double the capacity of its Nile Brewing subsidiary. It has also invested $1.75 billion in Africa over the last four years.

Eastern Europe
Many companies are making an effort to expand their presence in Eastern Europe before this summer's Euro 2012 soccer tournament in June, and Anheuser-Busch InBev (NYSE: BUD ) is no exception. The company plans to open six to 10 new locations for its Belgian Beer Cafe franchise in Poland, where half of the games will be played.

Anheuser-Busch also has its eye on a pricey Czech lager. Competition is stiff for StarBev, the brewer of Staropramen, as SABMiller (SBMRY.PK), Heineken (HINKY.PK), and Molson Coors (NYSE: TAP ) are expected to look at the $3 billion operation as well.

An interesting point here is that Anheuser-Busch actually used to own StarBev and sold it to CVC Capital Partners in 2009. The potentially lucrative developing economies in Eastern Europe may prove to be a strong enough siren song for the beverage giant to repurchase the company.

China
Though China's economy is huge compared to the examples above, it will continue to grow at a breakneck pace. As a result, Anheuser-Busch is competing with the likes of SABMiller, Tsingtao, and China Resources Enterprise to purchase Chinese company Kingway Brewery Holdings.

Kingway is the third-largest player in Guangdong province, one of the wealthiest in China. The brand holds a 15% market share there, and the unit is expected to sell for $550 million.

Foolish takeaway
China is the world's largest beer consumer, but I like the East African play the best. There isn't as much competition, and those economies could really take off as energy investments pour into the region in the next five years.

29 Feb. 2012

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