The influence of the economic crisis over the Dutch beer market

With a beer production of 27,259 million litters, the Netherlands are the worlds third largest producer. Actually, the Beer markets turnover represents 2.7 billions of the Dutch economy. However, even though the beer production is huge, about 62% of it is exported. In 2008, the Dutch people drank about 12.643.934 hl of beer, so about 77,2 liters of beer per capita. However, the beer consumption is slowly decreasing in Netherlands (in opposite to wine consumption which is increasing each year (see graphics below). Regarding the figures, the beer consumption per capita was 90 liters in 1991, 80,5 liters in 2002, 78 liters in 2006 so a decreasing of beer consumption by 15,16% in 17 years.
Consumption of beer and wine per capita

The blackboard below shows the consumption, production and export of beer in Netherlands. Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 Consumption Total per capita (liter Consumption per year) 13.449 90 13.639 90,5 13.692 90,2 13.019 85,2 13.231 86 13.265 85,8 13.276 13.475 13.225 85,1 86,4 84,3 Export Production 7.209 7.025 7.495 7.966 9.489 10.46 7 11.11 8 12.16 6 11.71 20.004 19.893 20.659 20.431 22.175 23.118 23.494 47,32 24.701 23.988 49,25 48,83 % of Production that it is exported 36,04 35,31 36,28 38,99 42,79 45,28

2000 2001 2002 2003 2004 2005 2006 2007 2008

13.309 13.129 12.922 12.885 12.771 12.941 12.747 12.655 12.644

84,4 82,8 80,5 79,8 79,5 79,4 78,1 77,4 77,2

3 12.18 8 12.88 8 13.09 5 12.91 3 13.49 1 12.97 6 13.78 2 16.01 4 17.01 6

24.502 49,74 25.072 51,40 25.232 51,90 24.898 7,68 25.124 53,70 23.828 54,46 24.560 56,12 26.479 60,48 27.259 62,42

As we can notice, even though the beer consumption is constantly decreasing, beer production and beer export are still increasing. P d

. . . .

2008

1991

Q s

. . .

1991

2008

With the financial crisis, market conditions are changing. Worldwide consumption of beer could remain flat this year as the economic crises goes more and more deep, after several years of impressive growth. Between 2005 and 2008, worldwide beer production rose 14 percent to 1.8 billion hectolitres, to meet rising consumption, especially in emerging countries. After rising 5.3 percent in 2007, global demand had been forecast to grow by 2 to 2.5 percent in 2008, but these expectations have been scaled down. Beer retail prices had remained constant for the last several years, but began to increase in the second half of last year and continue to do so. Beer could become up to 10 percent more expensive shortly, due to higher costs for raw materials, caused by international grain crisis. Due to higher grain prices, local producers spent an extra 50 million in 2007 for beer productions, as most of the raw materials are imported. According to data from producers, higher prices for malt and hop made their ratio in production costs to grow to some 45 percent, from 20-25 percent last year. The two main grains used to make beer have risen dramatically in price over the last year. Malted barley, which is the second biggest ingredient used in making beer after water, is the grain used to create alcohol during beer fermentation. Barley prices have risen by double-digit percentages over the last year due to worldwide demand of all grains. The other main in beer is hops. Some hop varieties give beer its bitter taste while other varieties give beer its aroma. Hops have had even more dramatic triple-digit percentage price increases over the last year and continue to be in short supply. When economic times are frightening, people do turn to alcohol to help with that, depending on how curtailed people's spending becomes. But in general, people do turn to alcohol. It is true that they stop or reduce going to bars but, instead they drink at home or at friends' homes.

World coffee market

Coffee is the 5th most widely drink in the world and millions of people depend directly or indirectly on the production and sale of coffee, each day nearly 2.5 billion cups of coffee are being consumed. The global market for coffee is characterized by volatile prices and production levels which impacts directly on the incomes of producers and prices towards consumers. Experts often references to the world coffee market as being a paradox because when a crisis in the coffee producing countries is occurring it leads to lower prices, declining producer profits, it affects exports revenues and also, and most important, the standards of millions of people; and when a boom in consuming countries is triggered prices will go up and also the profits for coffee retailers.

Regarding the price of the coffee for the period between 1990 and 2000, there have been no price controls. In this period the price started to decline gradually and a main reason for that was a gradual and continuous increase in coffee production throughout the world, particularly the new coffee exporting countries entering the international market, a good example being Vietnam. Global coffee production grew faster than demand leading to large surpluses of production, this increase in production being mainly due to technical innovations. The chart below shows the average monthly price for coffee in the world markets. Between 1997 and 2001, the average price of

coffee collapsed from $180 to less than $40. Prices remained very low until 2004 since when there has been some recovery in prices.

Consumption of coffee and price elasticity of demand The problem is that demand has not increased as quickly as supply. World coffee consumption has been increasing over the last two decades, but only very slowly at around 1% per annum. Even if the price of coffee substantially declines, demand will only marginally increase since coffee has a relatively low price elasticity. That is to say consumers do not drink a lot more coffee when its price declines. Due to this starting with the year 2000 the actors in the market started to establish barriers to entry in the market to intensified the equilibrate between supply and demand in a market with a price floor. So, entering the coffee market, presents now major difficulties for young producer organizations. Without assistance from development organizations or big export companies, the new companies stand no chance to participate in the market. Today, the main buyers of raw coffee beans are the largest multinational buyers, dominated by four firms: Nestl, Kraft, Procter & Gamble and Sara Lee.