Commodity price inflation, particularly barley, is a major concern for United Breweries Ltd., and escalating geopolitical tensions in Ukraine could add to the risks, according to Motilal Oswal.
Unlike other agricultural commodities (with the exception of palm oil), which have experienced relatively modest inflation, barley prices have been rising for much of the last 10 months. Spot prices in India are up more than 60% from a year earlier, the brokerage said in a Feb. 21 report.
“Ukraine is among the world’s top five barley producers (estimated to account for 18% of world barley exports in 2022). It is unclear how the situation in Ukraine will eventually unfold. Thus, any major escalation could affect global barley supplies.
While Indian brewers, with the exception of some premium brands, largely source their barley locally, prices in India can move in parallel with world prices in the event of a supply disruption, the report says. .
United Breweries, according to the brokerage, buys barley every February-March for the rest of the year. The company has been spared the impact of a sharp increase in the cost of barley since the start of FY22, as it stocked up ahead of high price inflation from April 2021.
“With barley prices rising sharply in the fourth quarter of FY22 (up 62.5% year-on-year and 5% sequentially) and the Ukraine crisis, bringing additional uncertainty related to the costs of supply ahead of key demand in the summer season from April 2022, United Breweries could witness significant commodity inflation,” Motilal Oswal said. “Brewers could be stuck with higher cost inventory. high throughout FY23, even if the situation in Ukraine were to deescalate and global prices stabilize.”