Beer and climate change? adelphi expert Christian Kind explains the connection

Germans love their beer, and during Oktoberfest it flows like water—6.6 million one-litre mugs of beer were distributed during Oktoberfest in 2016. But even beer cannot avoid climate change.

Christian Kind of adelphi explains below what this means for the beer industry. He is an expert on climate change adaptation in Germany. Theresa Kaiser and him will publish shortly a journal article titled "Exploring Economic Implications of Climate Change for the Value Chain of the Beer Sector". In June 2017, they spoke on the topic at the international conference "Beeronomics".

What does global climate change have to do with beer from the supermarket?

Hops is the most important flavour in beer and requires a moderate climate to thrive. In extreme weather conditions, such as persistent drought, heat or hail, crops can be lost and quality can degrade quickly. Global hops cultivation is concentrated in Bavaria: about 30 per cent of the global production comes from Hallertau, a region north of Munich. Over the past 15 years, harvest losses have been increasingly frequent due to summer heat and drought. In 2014 for example, hops yield was 26 per cent lower than the previous year's harvest. Such climate conditions will become even more frequent in the future due to climate change. Since other hops cultivation areas are also affected by this, climate change can lead to shortages that ultimately lead to changes in the quality and price of the final product — beer.

How does the beer industry deal with climate change?

Research, irrigate and act: hops growers are developing more drought-resistant varieties that maintain a good hoppy taste. Climatic changes are also directly reflected in the field: in Hallertau, 20 per cent of the fields are irrigated, whereas 15 years ago there was no irrigation. It has been observed that if yields drop, for example in Germany or the US, imports of hops from other, less affected regions increase.

Where do you see a need for further research?

We want to examine how stakeholders in the beer industry's value chain perceive climate change, how they react to it and especially who profits from it. If cultivation costs increase as a result of irrigation, who bears the ultimate costs — is it the hop growers? Or will the costs be passed on to hops distributors, brewers, traders or consumers? Little is also known about the exact relationship between weather extremes and hops prices or about cross-border hops trading.

Will beer become more expensive as a result?

Hops usually only make up a small portion of a beer’s total cost, and breweries are safeguarded against price fluctuations by holding inventory and having long-term contracts with suppliers. However, a price increase is conceivable for beers brewed with a lot of high-quality hops—such as the Indian Pale Ale (IPA) that is growing in popularity in Germany. This is especially true for beers from smaller breweries that have not yet established long-term relationships with their suppliers.

For large beer brands complex statistical models will be required to determine the role that climate change or weather extremes play in hops and beer price changes. Breweries often justify price increases with increased raw materials prices. The prices of beer in the supermarket, however, ultimately depend on a range of factors, from the competitive structure of the market to labour costs.