Russian’s Beer Boom Sells U.S. Ingredients

By Eric Trachtenberg

Malting barley and hops may be the key ingredients for success if you seek enhanced exports in Russia.

Russia’s beer production grew by 33 percent last year, making it one of the fastest growing sectors in an otherwise lackluster economy.

It’s not that Russians are buying U.S. beer. They prefer their own cheaper domestic brands. Still, this creates an opportunity for U.S. exporters.

What Russia really needs, say beer brewers, is a reliable source of hops and malting barley–and there are plenty of U.S. producers who could fit the bill.

A U.S. trade association, the Hop Growers of America, Inc., plans to host representatives from the largest Russian breweries for a week-long tour of the hop growing areas in Washington, Oregon and Idaho this September.

During their visit to the United States, brewery representatives will observe growing and harvesting, processing and hop research facilities.

"The Russian executives will have a chance to meet key players in our hops industry–from growers, to scientists, to merchants," said Shan Schnebly, with the association. "This tour is just part of our efforts. U.S. hop growers routinely produce a wide variety of hops in stable volumes at competitive prices. We are well-positioned to meet the Russian brewers’ needs."

Russia’s Dynamic Beer Industry

Even in the face of recent ruble devaluations and disruptions in the financial services, breweries are being built and production is growing.

The industry is spurred on by increasing consumption, lower imports, industry investment and government support.

Why is the beer business bubbling so merrily in the land of vodka? In part, because of younger consumers. They appreciate its lower alcohol content and feel drinking vodka is passe.

This began in the late 1990s. In 1996, per capita consumption of beer was 7 liters; three years later, consumption was 25 liters. The current market is worth $5 billion.

This high-growth industry is fueled by more than youthful Russian trend- setters, however. It’s also tied to the country’s economic situation.

When the 1998 ruble devaluation cut consumer purchasing power, consumers quickly turned to cheaper domestic beer, putting a cap on what was once a growing import market. In fact, market share of imported suds fell from more than 21 percent in July 1998 to a little over 4 percent a year later. So long as the economy remains uneasy, beer imports are not expected to rebound.

Moreover, Russia’s domestic beer industry has tapped into $1 billion in foreign investment over the last three years. Beer companies in Belgium, Denmark and South Africa have started joint ventures there. In addition, a U.S.-based brewery is considering investing almost $150 million in breweries in Siberia and Kaliningrad that are expected to brew 20 million liters of Russian and U.S. beers by 2002.

The third reason why times are heady for Russia’s domestic beer industry is government support.

Russia's legislature, the Federal Assembly, is divided into two chambers–the upper Federation Council and the lower State Duma.

The Duma views breweries as a key source of jobs and tax revenues. There is also a general feeling that beer consumption is healthier than vodka, which has a higher alcohol content.

Russian brewers successfully lobbied the Duma to lift a special stamp tax on beer in 1995; by 1999, the excise tax on beer had been rolled back 84 percent. The Duma even has a working group in place to assist the beer industry.

Currently, beer interests are lobbying for laws that would lower import tariffs on ingredients for beer production as well as make further cuts in excise taxes and increase duties on imported beers.

Meanwhile, vodka is more regulated than ever, and there has been talk of having the Russian government take over the vodka distilling industry again.

Beer Demand: A Global View

While per-capita beer consumption in Russia is on the rise, it is still relatively small compared to that of other nations.

Russia’s Brewers Need Supplies

This beer boom is fueled in part by reliable import of raw materials. Some Russian breweries have tried to secure domestic sources, but have had problems finding a consistent supply.

Chronic problems in Russian agriculture mean that good-quality domestically grown hops and malting barley will continue to be scarce in the near future.

Some Russian beer producers, who feel that a reliable supply of raw materials is their only impediment to growth, are particularly interested in long-term relationships with exporters offering reasonable prices.

This excludes joint ventures with European companies, since they are supplied by their partners. For example, Vena in St. Petersburg gets its raw materials through Carlsberg of Denmark.

Bring on the Barley

The chronic shortage of malting barley in Russia was worsened by a poor 1999 domestic harvest. Stocks fell almost 23 percent from the already-low levels of a year before.

Although there is no official data on Russia’s imports of malting barley, industry sources report robust sales from Europe, especially Germany, Sweden, Finland, Denmark and France.

Opportunities for U.S. exports in Russia have been boosted not only by increasing beer production, but also by the construction of new malting plants.

For example, Prince Rurik Efes Moscow, an affiliate of Turkish-based Efes Beverages Group, has recently swung into operation. The plant, located just outside Moscow, is expected to produce 100,000 metric tons of malted barley each year.

The Russian company Baltika is currently building a plant near St. Petersburg. When completed, that plant will need a yearly input of 125,000 tons.

U.S. sales of malting barley could be boosted by last year’s small European Union crop.

Seasons of Beer

Beer consumption tends to vary with the calendar in Russia, peaking during the hot months of the summer as well as around New Year’s Day. Early fall and winter tend to be quiet periods. Breweries tend to buy imported ingredients most heavily three to four months before peak consumption seasons.

Making Malt for Moscow

Despite the fact that some Russian companies export malting barley and re-import the finished malt, there remains a substantial demand for imported malt, estimated at 470,000 tons annually. Already, imports have doubled to almost 250,000 tons since 1996.

Currently, the largest malt exporters to Russia are France, Germany and Finland. Russia’s duty on imported malt is 15 percent.

Industry sources said that a key factor for successful U.S. exports is maintaining malt quality during ocean transit.

Russia to U.S. Exporters: Hop to It!

Russian hops growers harvested an estimated 500 tons of crop in 1999–not nearly enough to meet the demand of breweries.

Russian hops producers, based in Kursk, Mordovia, Chuvashia and Altai Krai, have a reputation for being unreliable. As a result, many breweries import hops from the United States and other suppliers. Imports are likely to expand further in line with production.

Russian breweries have particularly benefitted from low-priced hops from the Czech Republic and Germany. These countries were able to give the Russians a deal because their own domestic beer consumption is down. The duty on imported hops is 5 percent.

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The author is an agricultural attache at the U.S. Embassy in Moscow. Tel.: (011-7095) 956-4103 Fax: (011-7095) 956-4262; E-mail:

Last modified: Thursday, October 14, 2004 PM