EconomyFinancialRussia's invasion of Ukraine: a threat to Mexican beer?

Russia's invasion of Ukraine: a threat to Mexican beer?

The brewing industry, which suffered collateral damage from the COVID-19 lockdown, shows signs of recovery, while the armed conflict between Russia and Ukraine generates a spike in the price of some grains and raw materials. Even with this situation, the industry has everything to resist.

Karla Siqueiros, general director of the National Chamber of the Beer and Malt Industry (Cerveceros de México), highlights the strength of the supply chain of the Mexican industry, despite the fact that these types of situations usually have effects on all sectors and in global production chains.

“So far, we do not foresee a direct impact on the Mexican brewing agribusiness. The national beer sector has a highly integrated value chain. 73% of the total purchases required for the production of beer are national purchases, and among them, barley stands out, particularly, “he said.

During the past weekend, the Federation of Chambers of Commerce (Fecanaco) of Tamaulipas, reported that the price of beers could rise up to 37% in Mexico, because Ukraine is the second world producer of barley and the fourth importer of barley. However, Siqueiros points out that Mexican beer is made, for the most part, with domestic barley.

“We can say that almost 100% of the country’s barley production is used for beer production, in any case we are in close communication with our affiliates to find out about potential impacts,” said Siqueiros. “The beer is made by Mexican hands and with Mexican supplies. The fact that it is an icon of national pride and that it puts Mexico on high as a beer-producing power is a reflection of the work and collaboration of thousands of Mexicans throughout the entire value chain,” he added.

The value chain of the Mexican brewing agribusiness contributes 1.5% of the country’s Gross Domestic Product (GDP), as a result of the integration of its value chain, which ranges from the barley fields, the manufacture of malt, the production of beer in plants, as well as distribution and marketing in almost a million points of sale, according to industry data shared by the chamber and Inegi.

Glass and aluminum shortage

A potential increase in the price of barley is not the only challenge that the national beer industry faces. The shortage of glass has generated a bottleneck in production and lower product sales, .

“Inside the chamber we are analyzing the impact that (the lack of glass containers) could have,” said Siquerios, without detailing the attacks that those associated with Cerveceros de México have experienced, among which are Heineken Cuauhtémoc Moctezuma, Cerveza Minerva and Cervecería Allende, to name a few.

Given the option of packaging the beer in cans, Siqueiros specified that it is a commercial decision of each of the associates. Figures from Cerveceros de México show that aluminum has been an input that is increasingly in demand by beer production plants to face the shortage of glass: in 2021 around 39.9% of Mexican beer was canned, while in 2020 the percentage was 36.2%.

But a possible shortage of aluminum, stemming from the conflict between Russia and Ukraine, threatens the brewing sector. Russia produces about 6% of the world’s aluminum and in the past it has been seen that the effects on Russian production generate an impact on the global price of the input. Sanctions against aluminum producer Rusal in 2018 sent metal prices up 35% in just a few days.

Now, following the Russian invasion, the metal is up almost 20% this year after gaining 42% in 2021.

Beer beats COVID-19

Data compiled by Cerveceros de México and Inegi show that 134.7 million hectoliters of beer were produced in 2021, an annual growth of 13.5%, and 8.2% compared to 2019, the year before the pandemic.

During the past year, 42 million hectoliters were exported, a growth of 11.5% in the annual comparison. Meanwhile, beer imports were 0.3 million hectoliters, a decrease of -19.7%, compared to 2020. For the chamber, this is a phenomenon that has occurred in recent years, as a result of industry investments in the country and the development of the national beer supply.

Siqueiros also highlighted that beer continues to be the main agro-industrial export product, with 5,618 million dollars and represents 23% of the country’s agro-industrial exports. The trade balance of the brewing agribusiness in 2021 was 5,579 million dollars, an increase of 20% compared to 2020.

“We are on that road to recovery. We brought a positive trend from many previous years, and 2020 was an atypical year that hit not only this industry but many more. If we compare, 2021 versus 2020 we see very large recovery figures. And if we compare with 2019, which was a good year for the brewing industry and with sustained growth, we see that we are very close to continuing this positive trend in the industry,” said the director of Cerveceros de México.

The main countries to which Mexican beer is exported are the United States with 81%, Guatemala with 2%, Chile with 2%, Australia with 1.3% and the United Kingdom with 1%.

The representative of the brewers foresees that, despite the volatility in the main commodities of the sector, Mexico will remain as a brewing power. “Second place is very far from us and that makes us feel very proud of this product that puts the name of Mexico high,” he said.

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