Brexit: weak pound threatens craft beer revolution, say brewers

craft beer

Brexiters toasting an impending exit from the EU with a pint of ale could be in for a sobering shock, after some of Britain’s top brewers warned that the weak pound is putting the craft beer revolution at risk, reports The Guardian.

The country’s brewery industry has been enjoying a renaissance, with about 200 new breweries a year adding to the choice for drinkers. But small-scale brewing is already feeling the pinch from the slump in sterling, which has sent the cost of imported ingredients and equipment soaring.

Now drinkers, already asked to pay more than £5 a pint for some independent brews, are being warned that they may have to accept price rises or switch to cheaper mass-market brands.

Unlike multinational beer companies behind such brands, which are not immune to the weak pound but spend relatively little on ingredients, craft brewers scour the globe for the best hops and malt, often preferring overseas varieties.

“Everybody’s noticed it and it’s to be expected because you’re importing hops from places like the US and Europe,” said Andrew Paterson, head brewer at Dark Star Brewing in West Sussex. “It’s also the case for steel tanks, kegs, yeast manufactured in Holland, anything that’s imported. We’re not going to compromise on quality so it’s an ongoing cost.”

Fabio Israel, head brewer at Bedlam Brewery, says the Brexit effect is making it harder for firms such as his to grow. Bedlam, which like Dark Star is also based in West Sussex, is planning to build a new brewery and Israel reckons the investment cost has gone up from about £500,000 to £600,000.

He has also been forced to pay more for malt from Germany, yeast from France and hops from the US and the Czech Republic. The end result, says Israel, is that beer companies must either risk their own survival by absorbing cost increases, or ask consumers to fork out more.

“We’ll work hard to keep costs where they are but everything is getting more expensive and we’re likely at some stage to pass these costs on to publicans.”

While established independent brewers with a loyal customer base can wield some pricing power, cost increases pose more of a threat for newcomers.

Neil Randle had just launched Bang On Brewery in Bridgend, Wales, when the Brexit result sent the pound into a tailspin. “Within our first month of trading, the price of pretty much everything has gone up,” he said.

“Brewers work on pretty tight margins. Pubs are already trying to squeeze the margins to increase their profits so we’re being squeezed from both ends.”

The flip side of the devalued pound is that brewers’ pain could be British farmers’ gain. The price of hops was on the rise well before the EU vote, owing to increasing demand for hop-heavy craft beers and limited supply.

“Imported varieties are more expensive due to the drop in the value of the pound so British brewers using these varieties have taken a double hit on the price,” says Paul Corbett, managing director of hop merchant Charles Faram. “The good news for British hop growers is that their hops are much more competitive and they are now seeing increasing demand.”

Gavin Hogg, managing director of Salcombe Brewery in Devon, has witnessed the same effect in the price of barley. “UK barley is very attractive to overseas buyers right now so that’s pushing up the price for us by about £50 per tonne.”

But while some brewers are considering switching to British-grown ingredients, Hogg is among those far from thrilled about that prospect. He says UK soil is not right for growing some types of hops such as Citra and Mount Rainier.

“The Americans produce really good hop varieties and we don’t in the UK, so we’re at the whim and mercy of the exchange rate,” he adds.

Hogg says Salcombe has begun buying more hops in advance to hedge against any further falls in the pound. Daniel Lowe, co-founder of London brewery Fourpure, took a different route, buying euros before the EU referendum to insulate the business against currency risk.

For brewers who export, there is some upside. “Five days after the [Brexit] vote, when the pound dropped to €1.20, we exported our first pallet to Germany,” says Israel. “The buyer didn’t want to buy but five days after Brexit we offered a 15% discount, which was basically the drop in the pound.”

However, Israel warns that the export benefits are far outweighed by import costs.

That leaves drinkers with a Hobson’s choice: pay more for beer, or risk seeing their favourite brewers go out of business.

The Society of Independent Brewers (SIBA), which represents 850 breweries in the UK, is hoping ale enthusiasts are prepared to dig deeper into their wallets.

“It is important that beer drinkers understand the challenges that face Britain’s independent brewers in terms of rising costs but also the fundamental truth that craft beers rely heavily on quality, often imported ingredients,” said its managing director, Mike Benner.

“Independent brewers use these quality ingredients purely for their flavour, which means consumers are getting very good value for money when they choose an independent craft beer.”