Click to read the original article for details. Source: China Wine News (ID: huaxiajiubao) If previous price increases in the beer industry were driven by the desire to improve product structure, then the price hike wave that may come in 2019 originates from the source of the industry chain. For China's beer industry, which relies heavily on imported barley, fluctuations in raw material prices directly affect the retail prices of end products. In 2019, with multiple factors such as reduced harvests in growing regions and increased tariffs, price increases seem inevitable. Raw material price fluctuations reach 25% Data shows that in 2018, the price of imported beer barley fluctuated significantly, with the year-end price showing a notable increase compared to earlier in the year. Moreover, the difference between the annual average price and the year-end price was about 25%. In 2018, China imported 6.811 million tons of beer barley, a significant decrease of 23.2% from the previous year. The annual average import unit price rose by 17.6% year-on-year, with an average price of $240.9 per ton and a year-end price of $293.4 per ton (CIF, source: General Administration of Customs of China). Similar to the overall state of the beer industry, statistics show that from 2012 to 2015, China's barley imports increased year by year, reaching a peak in 2015 in both volume and value. During this period, the domestic beer industry's production capacity and sales also reached their peak. Subsequently, under the guidance of import policies, imports dropped sharply to 5 million tons in 2016, with an import value of $1.142 billion. In stages, barley import prices rose significantly from 2011, and from around 2012, barley prices entered a downward cycle. In 2015, China imported 10.732 million tons of beer barley, a substantial increase of 98.3% from the previous year. The annual average import unit price decreased by 8.4% year-on-year, with an average price of $266.5 per ton and a year-end price of $252.2 per ton. The surge in imported barley volume was partly due to bumper harvests in major exporting countries such as France, Australia, and Canada, and partly because the domestic beer industry had reached its peak—since 2002, China has been the world's largest beer producer, maintaining the top position with rapid growth. Compared to the peak period, China's imports of beer barley have dropped significantly, by nearly 40%. Meanwhile, although the average ton price of wheat decreased by $26, the year-end price increased by $31.2, about 12%. The gap between the average ton price and the year-end price is also much larger than in 2015, indicating that in 2018, imported beer barley prices experienced severe fluctuations. In addition to beer barley, another important raw material, hops, also saw price increases. In 2018, imports of pellet hops reached 4,749.3 tons, an increase of 28.4% from the previous year, with an average unit price increase of 6.8%. The industry believes that China's beer industry is overly dependent on imported raw materials and is affected by multiple production and trade factors. Drought-induced production reductions and tariff increases from trade frictions between 2018 and 2019 have greatly impacted the import prices of beer barley. Production down 16%, prices may double Cost increases due to reduced production, anti-dumping measures against major producing countries, and other factors have led to a significant rise in the unit selling price of beer barley. A previous authoritative study published in Nature Plants found that global warming will lead to a sharp reduction in barley yields, and in extreme cases, could reduce global beer production by 16% (29 billion liters), potentially doubling beer prices. According to scientists' calculations, if the current warming trend is not improved, global barley production is expected to decline by 16%. Regionally, the situation varies: Europe and southern Canada will be most severely affected, while barley production in the northern United States, southern Siberia, the Urals, and the Volga region could increase by 50%. On the other hand, scientists estimated that if countries strictly implement the Paris Agreement and strictly control greenhouse gas emissions, the warming trend would slow but not stop. In this case, barley production would also decrease, but only by a total of 5%. It is reported that currently, global barley production is mainly used for beer brewing and livestock feed. In the event of a significant reduction in production, these barleys will be prioritized for animal husbandry, meaning the beer industry will receive even less raw material, leading to an average doubling of global beer prices. In regions like Ireland, where beer consumption is high, prices would increase even more. In addition to production factors, trade disputes and frictions have also become important factors affecting raw material prices. During the peak period of China's beer industry, due to large import volumes and the impact of free trade agreements with trading partners—such as the elimination of the 3% tariff on agricultural products under the China-Australia Free Trade Agreement—the import price of beer barley was relatively low. This situation has changed in the past two years. In November and December 2018, the Ministry of Commerce announced anti-dumping and anti-subsidy investigations into Australian barley, leading to instability in beer barley trade. Australia is China's largest source of barley imports, accounting for more than 50% in most years and over 70% since 2011. The China-US trade friction also affects beer raw materials. The United States is China's third-largest source of pellet hops. In 2018, hops imported from the US accounted for 17.66% of total imports. Starting June 1, China imposed an additional 20% tariff on US pellet hops, which will inevitably affect finished product prices. A new wave of price hikes in the beer industry is coming Amid severe fluctuations, whether the beer industry will see widespread price increases in 2019 has become a focus of industry attention. With significant increases in imported raw material prices, rising domestic price levels, and a strong desire to improve product structure... under the combined effect of internal and external factors, price increases in the beer industry may have become inevitable. The industry believes that the domestic beer industry's high demand for imported raw materials naturally makes it deeply affected by the international market. From the supply chain perspective, although China has established high-quality beer barley production bases in regions such as Gansu and Inner Mongolia, current production cannot yet meet the needs of the domestic beer industry, and external dependence remains high. For example, in 2017, China's barley production reached 1.897 million tons, a year-on-year increase of 43.2%. However, this is still less than 30% of imports, leaving a large gap. It is reported that currently, imported beer barley accounts for about 85% of the barley used for brewing beer in China. The main source of imported barley is Australia, with smaller amounts from Canada and France. Since 1996, barley imports from these three countries have accounted for more than 95% of China's total barley imports. Among them, Australia is China's largest source of barley imports, accounting for more than 50% in most years and over 70% since 2011. Under these circumstances, the state has guided import companies to establish stable trade relationships with suppliers from major barley-producing countries such as Russia and Ukraine, gradually reducing over-reliance on Australia, France, and Canada. It also actively leverages competition among import source countries to improve the controllability of barley imports and reduce import risks. The industry believes that only when self-sufficiency reaches over 50%, or when import sources are diversified and no single importing country accounts for more than 30%, can the impact of sudden factors (trade frictions, production reductions, etc.) from major source countries be avoided. However, at present, given the domestic beer industry's high dependence on imported raw materials and the gradual rise in domestic consumption and price levels, the only way for the beer industry to offset the pressure of rising raw material and labor costs, and to maintain appropriate profit levels and development speed, is to collectively raise prices. The increase in raw material costs constitutes an important reason for price hikes. In addition, the domestic beer industry is rapidly advancing product structure optimization to adapt to consumption upgrades, making price increases inevitable. Previously in 2018, several domestic beer giants adjusted prices for their main products, with most increases ranging from 15% to 20%. Budweiser and Harbin saw increases close to 50%, with Budweiser's wholesale price rising from 57 yuan per case to 85 yuan per case. In 2019, with several important factors affecting finished product prices continuing to exist, the beer industry may still be in a state of "rising prices."