Economic effect of beer on the European Union

The European Union is home to over 4500 breweries, including some of the largest in the world. This includes famous names such as Heineken, Guinness, and Pilsner Urquell. The countries with the most breweries are Germany (1300), the UK (1113), and France (503). Each country and brewery has its own traditions that date back thousands of years and that they keep very dear to them. These breweries produced a total of around 390 million hectoliters of beer in 2012, making it the second-largest beer producing region in the world behind China. The production and sale of beer has a noticeable impact on the European Union’s economy. This effect is very clear when the 28 member states of the EU are examined. This industry affects the European Union’s employment, imports and exports, and government’s revenue, along with many others. The industry usually contributes positive economic benefits to the economy; however, it was hurt by the 2008 financial crisis just like every other industry. But, the breweries have adapted new menthols and strategies that have seen rebound from the global financial crisis.
One reason that the European Union’s beer production has such a profound impact is that the industry affects the global market. The popularity of the beer left the brewing industry with a 3 billion euro trade surplus in 2012. The diversity in the breweries is what makes the region’s beer so popular. The traditions that are unique to each brewery and country cannot be recreated in other places and this makes the demand for the original very high. The modernization and improvements in the technology have allowed these breweries to produce more and more, which leads to
an increase profits. Some of these breweries, mostly the larger ones, have developed subsidiaries and licenses for their beer to be produced outside of the EU.
Effect on the Trade Market
The industry has a strong effect on the trade market of the EU. The EU exported around 3.2 billion euros of beer in 2012, while it imported only 234 million euros. This 200 million difference is what creates the 3.0 billion euro trade surplus that the industry accumulated. The 3.2 billion euros shipped was a total of 74 million hectoliters, or 19% of the region’s total beer production. This is an increase of 4 million hectoliters from 2008. The most important export market is the United States, followed by Canada and Africa. Another striking statistic is that 60% of the beer exported is shipped to other EU member states. This is surprising because most of the countries prefer to drink their own brews. This shows the popularity and quality of the beer produced and it makes it very obvious why the beer is in high demand in places like the United States. The countries with the most amount exported are Germany (15.7 million hectoliters), the Netherlands (14.7 million hectoliters), and Belgium (11.7 million hectoliters). Although the import market is smaller than exports, it is still quite a large amount. Of the 357 million hectoliters consumed in 2012, 47 million of them were of imported beer. That is approximately 13% of total beer consumption. This is an increase of 7 million since 2010.
The European breweries are also investing in foreign breweries to increase their global presence. These investments are made into third world and developing countries, like Africa and even China. This benefits both the European economies and the economies of the small brewery. It will create employment, provide them with more funding and hopefully more profits and continued success.
The brewing industry effects other sectors within the European economies. First and foremost, it creates jobs. In 2012, almost 2 million people were employed either directly by the breweries or by companies that were indirectly related to the production of beer. Half of those people were directly involved with the production and consumption of beer. In fact, the amount of people employed in this sector is only 400,00 less than the total population of Finland. Every job in the brewing sector creates 16 other jobs in the supply chain that is associated with the brewery. The areas on the supply chain that will experience an increase in jobs are the hospitality sectors (bars, pubs, etc.), retail (liquor stores, supermarkets, etc.), and supply (farming, transportation, etc.). All of these jobs within the industry create value-added revenue. In 2012, the total value-added revenue was 51.5 billion euros. This amount accounted for 0.4% of the EU’s total GDP. This revenue is shared by the retailers, the breweries, and all of the different players in the supply chain. The money goes towards paying employees' wages and rewarding investors with their payouts.
In 2012, the suppliers of the breweries received 23 billion euros from the brewing companies. These suppliers include marketing, packaging, transportation, and agricultural companies. Nearly a quarter of their spending was on the packaging of their products, totaling around 5.4 billion euros. The statistics for the other type of companies are: the agricultural companies received around 3.7 billion euros, the marketing and the transportation companies totaled 2.6 billion euros, and the “other sectors” received 4.7 billion euros. Within in the packaging companies, over half went to packaging for glass bottles, 30% went to can packaging, and 17% went to a combination of kegs, casks, and bulk tanks. Due to the brewing industry, the European Union countries now have the largest glass production in the world. Breweries bought 29% of the glass produced, which was a 1.5% increase since 2011. This could be explained by consumers preferring to drink at home to save money, instead of at a bar or restaurant where the beer is most likely served on draught. The increased business for the glass companies has led to a development of 13,340 new jobs. The glass companies also increased their profits by increasing their use of recycled glass bottles by 10% over the last five years. Approximately 50% of all cans produced in the EU went to the brewing companies, which was an increase of 3.5%. These companies reaped the same benefits that the glass companies did.
The agricultural companies received a large amount of business from the breweries. The main ingredients in beer are cereal, hops, and yeast, all of which are grown by EU farmers. In 2012, the European Union produced 54.5 million tons of barley. Of this amount, nearly a fourth of it was used for malting for the production of beer. The EU also has the largest malt producing capacity in the whole world. This is, of course, do to its high production of beer but it is also due to the favorable climate that the EU is in. Of all the malt produced, 94% is used for the production of beer. The EU also leads the world in malt exports, shipping out 2.1 million tons every year. Lastly, the EU accounts for over half of the world hop production producing around 51,800 tons. EU breweries purchase 23,000 tons by paying 150 million euros. The reason that EU countries don’t purchase as much proportionally as the malt and barley is because there is a large export market for the hops. It is also because there is a declining demand for bitter beer. The more hops used in a beer, the more bitter it will be. If the consumer is not demanding bitter beer then there is no incentive for breweries to purchase as many hops.
Effects on the Hospitality Sector
In 2012, one third of all of the beer sold, 116 million hectoliters, in the EU was through the hospitality sector, including pubs and liquor stores. This is a 1% increase from 2010, and narrowing down to each citizen drinking 70 liters of beer a year. The amount of beer sold in the hospitality sector is significant because it directly relates to the amount of jobs that are available. In 2012, approximately 1.4 million jobs were created in the hospitality sector in the EU. This is 14% of the population working in the sector. This number is very high and it is inflated because low-skilled workers are employed in this sector because they do not have the same opportunities in other industries. Beer purchased in the hospitality sector have more of an economic benefit than ones not because it is more labor intensive. Consumers are willing to spend more money in these institutions that results in more employment and more value-added. In fact, in 2012, the VAT revenue from the hospitality sector was more than double of the retail sector. Therefore, in countries with a higher percentage of beer consumed in the hospitality sector, beer has a greater economic impact.
Even though the hospitality sector has more than double the VAT revenue of the retail, the most beer is being consumed at consumers' homes. This is a trend that has existed for the last decade, that can be attributed to a few reasons. First, the population in the EU is again. Older people are less likely to go out to consume beer than younger people. The second reason is the 2008 global financial crisis. The crisis hurt consumers' disposable income, which prompted them to spend less money in non-essential areas, such as at bars or pubs. Whatever the reason is, the decline in consumption in the hospitality sector has had a profound economic impact. The sector lost around 100,00 jobs from 2010 to 2012, and from 2008-2010 it lost 200,000. There is a direct connection between the amount of beer consumed in the hospitality sector and the rise of unemployment in the EU.
Breweries have been taking steps to try to stop the decline of purchases in the hospitality sector by investing more in the beer sales. This includes hiring specialists in their craft to ensure that the consumers receive the most information they can. If a consumer is an avid beer fan, then he or she will enjoy learning about the techniques and methods behind the brewing. There has also been an increase in the variety of beers that are offered. This will appeal to both the casual and experienced consumer as they will have more options to suit their particular taste. The specialists will also have a role in this as they will be able to explain the new beers that are being offered. Lastly, some breweries are offering a higher selection of low-alcohol beers that may attract consumers during non-peak “drinking hours.”
Effects on the Government
The sector’s increasing spending on their suppliers has been increasing with roughly the same rate as inflation in the European Union, 5.4% and 6%, respectively. There has been an increase in the price of raw materials, which may explain the increase of the spending. This statistic is also what the EU governments use as a source for their VAT (value after tax) revenue. These governments also benefit as well because of the taxes that were paid on the value-added revenue. Through taxes and social security programs, the governments of the EU were able to bring in around 53 billion euros. This means that the government actually brought in more money than the brewery supply chain did in 2012. The real number for government is most likely higher because certain taxes, such as corporate taxes, could not be included in this estimate.
Since 2010, governments in the EU have brought in an increase of 4% revenue from beer sales. The government brings in this revenue through the taxes that they impose on the sale and production of beer. The most well-known tax that is imposed is the income and payroll tax, as it effects every single notch on the supply chain. In 2012, the governments brought in 23.8 billion euros, which was actually a 1% decrease from 2010. The decrease occurred even with a tax increase in the majority of the EU member states. This means that the decrease has to be made up with another tax and that tax is the VAT. Since 2010, there has been a 9% increase in the revenue taken in from this tax as it rose from 17.8 billion euros to 19.2 billion euros. The hospitality sector was responsible for 68% of the revenue and the retail sector was responsible for the remaining 32%. This is an increase in the retail sector due to the reasons outlined for the rise in sales in this sector. The last channel that the government brings in revenue from is the excise duty revenue as it accounted for 19% of the total revenue In 2012, this duty totaled 10 billion euros, which is an increase of 9% from 2010.
The governments are able to bring in more revenue because, for most countries, they have increased taxes on the brewing industry. These increases are most often seen in the VAT and excise duty. Even though each EU member state is allowed to institute their own excise tax, there is a trend of increasing it. Around half of the member states have increased this tax, with France raising it the most by an astonishing 160%. The countries that decreased the tax rate probably did so to try to fix their unemployment problem. However, the VAT is a much more debated tax. Twelve of the member states increased their VAT in between 2010 and 2013. This is less than half of the countries that make up the EU. There is an ongoing debates as to whether institute a single VAT rate for all EU countries and a reduction of the goods that are effected by it. Member states are allowed to reduce their VAT rate on goods in the hospitality sector, which leads to a reduction in prices. This will lead to higher turnover that will benefit the economies of the EU. In fact, countries that have imposed lower VAT rates have experienced faster economic growth than those that didn’t. A lower VAT rate will generate more employment because a greater number of costumers will force companies to hire more employees.
Non-Economic Effects
These breweries also had an impact on non-economic areas. For example, in 2011, the breweries in the European Union spent 1 billion euros and activities that were not part of their production. These events included sporting, charity, community, environmental, and art events throughout the member states. Most of these were very personal as breweries would take part in events that were in their hometown, thus furthering the connection that the citizens have with their local breweries. These events are also significant because the breweries are stepping when governments are cutting costs on public programs such as these. It makes the breweries shine in a positive light and will attract more business.
Czech Republic
Beer production is an integral part of the the Czech Republic’s culture, tradition, and economy. The Czech Republic and Estonia both have proportionally the largest beer production sector in the EU. Despite the country’s beer production numbers and tradition, its brewing sector was been hurting since the 2008 financial crisis. There has been a 6.6% decrease since 2008 as the total production fell from 19,086,107 hectoliters to 18,497,660. The production is on the upswing since its low point, but it is still well below the pre-crisis levels. Another effect to he economic crisis is that the importing of low-priced beer increased until 2010. However, when the Czech production began to show signs of recovery, their importing of low-priced beer was cut in half. On the other hand, the amount of Czech beer exported declined after the crisis and did not begin to recover until 2011. A summary of the Czech beer production can be seen in Table 1.
The Czech people consume the most beer per capita in the EU, with most of it being produced locally. Only 3.3% of the beer consumed in the Czech Republic is produced in other countries. There have also been some new trends that have developed. Like other EU states, there has been an increase in low-alcohol beers to satisfy customers tastes, such as the increased demand for fruit-flavored beer that has a lower alcohol content. There has also been an increase in the production of beer in PET, or plastic, bottles. These bottles are made out of recycled materials and can hold 1.2-2 liters. Both of these trends point to a decrease in sales in the hospitality sector, as it fell from 48% in 2010 to 43% in 2012. This decrease in sales is for the same reasons as stated above for other EU states.
The beer production directly employed 7,000 people in the Czech Republic. If the citizens indirectly employed by the sector is included, then total number of people employed increase to 63,100 (more than half is from the hospitality sector). Since the Czech Republic has begun its recovery from the crisis, there has been an increase in employment in the retail and supply sectors. This made up for the 10% decrease in employment in the hospitality sector due 8% reduction of consumption in that sector. The supply sector accounts for 20% of the jobs in the industry. This is largely due to the fact that the Czech breweries use raw materials that were produced in the Czech Republic. This was mandated by the EU when they established the Czech Republic as a Geographical Protected Indication. This action by the EU ensures that the Czech Republic will have a stable agriculture sector that resulted in 5,300 jobs in 2012.
In 2012, the total value added by the brewing industry was 1.09 billion euros, which is close to their pre-crisis levels. During 2010-2012, the time of the recovery, the brewing industry experienced the largest growth in value-added in the Czech Republic. The Czech government also has experienced an increase in revenue. In 2012, the government brought in 1.13 billion euros. This is a substantial increase from 2008, in which, the government brought it 1.09 billion euros. The increase is most likely due to the tax increases, most notable a 2% increase in the VAT.
The beer industry has followed a similar trend in the Czech Republic as in the European Union. This no surprise as the country may have felt pressure from other EU countries and saw their success. The difference between the Czech Republic and the other member states is that the brewing industry makes up a larger portion of their economy. This is evident by the Czech Republic producing the most amount of beer, proportionally, and the fact that Czech people consume the most amount of beer per capita.

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