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Beeronomics: brewing up big beverage business
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Beeronomics: brewing up big beverage business

Ask any foreigner what comes to mind when they think about Belgium and chances are they will mention our tasty beer.

7 minutes
24 February 2020

Ask any foreigner what comes to mind when they think about Belgium and chances are they will mention chocolate, fries and… of course, our tasty beer. However, the ‘amber nectar’ is much more than one of our most popular national symbols. Globally, beer is currently the third most popular drink, only preceded by water and tea. Its production and consumption have had a significant effect on the economy. This triggered a few economists’ interest, and soon, ‘beeronomics’ – a term aptly coined by KU Leuven Professor Jo Swinnen – was born. The fairly recent discipline within economics focuses on the overall impact of beer and brewing on commerce. And, surprisingly perhaps to some, that link is strong.

The ancient Greek philosopher Plato allegedly stated, “He was a wise man who invented beer.” The beloved beverage brewed from cereal grains is one of the oldest alcoholic beverages and has been quenching people’s thirst for thousands of years. In the distant past, beer was actually considered a ‘healthy option’, as water tended to be contaminated. Moreover, people back then truly needed the calories these ‘Barley Sandwiches’ provided.

Beer was originally brewed in the home, on farms, in taverns and, later on, in the great monasteries, of which we have several world-renowned examples in Belgium. Just think of the famous Saint Sixtus abbey, where the much-coveted – and notoriously difficult to find – Westvleteren Trappist beer is produced.

While so many of us love beer, few of us know exactly how it is made. In fact, the general steps are rather straightforward: you mix some kind of starch, usually grain – which will help determine strength and flavour – with water. Given the right conditions, this mix will then start to ferment. Fermentation produces alcohol, so you end up with a very basic form of beer.

Hop revolution

A problem with beer was that it could not be preserved. Therefore, it had to be brewed almost daily, making trade very difficult. This changed when German brewers discovered the preservative characteristics of hops. In the Low Countries, hops, i.e. the flowers of the hop plant, have been cultivated since the 13th century. Hops, like many other plants and spices, were used to add flavour to our beer, as they provide that distinct bitterness, but also some fruity or citrus aromas. However, once people discovered that hops also can act as a natural preservative, the beer world was truly transformed. As soon as beer could be preserved for longer, it could be traded and commercialized. In the 14th century, brewing moved from households and monasteries to commercial breweries.

Part science part art

In the 19th century, the production of beer was characterized by a series of innovations. One might even call it a ‘beer revolution’. Owing, among other things, to Louis Pasteur's 1857 discovery of the role of yeast in fermentation, significant improvements in the efficiency of the steam engine, new cooling equipment, and the use of glass bottles, the quality of beer improved immensely. Moreover, these innovations allowed beer production to move from artisanal to large-scale industrial manufacture. In addition, the first ‘pils’ beer was brewed at that time. Pils (pale lager) soon became the preferred beer and by the 1980s, it dominated global beer markets. In the 21st century, however, there was an interesting throwback to more ‘artisanal’, local and home-brewed beers.

Bottle caps 1866945 1920

The cost of a cold one

Naturally, as soon as brewing became more organized – and therefore profitable – tax collectors took notice. In the 15th and 16th centuries, for example, beer taxes amounted to no less than 50 percent of total tax revenues. Nowadays, according to EU law, every EU country is required to levy an excise duty on beer of at least €1.87 per 100 litres and degree of alcohol content. In reality, only a few EU countries stick to the minimum rate, while most countries have decided to levy much higher excise duties. Obviously, it was only a matter of time before a product that is in such high demand – and generates so much income – caught the attention of researchers who specialize in economic trends.

It was only a matter of time before a product in such high demand caught the attention of researchers within economics.

Within the niche field of ‘beeronomics’, the scientists at the LICOS Centre for Institutions and Economic Performance investigate the various driving forces in the production, consumption, regulation and distribution of beer at a regional, national and global level. Leading the way is KU Leuven Professor Jo Swinnen, an economist who has published widely on agricultural and food policies. Being the chair of the Beeronomics Society, the International Association for the Economics of Beer and Brewing, he is not only able to distinguish an English brown ale from an Irish stout or an American IPA, but he is equally knowledgeable about larger economic trends related to beer, which he analyses and discusses with the high-profile scientists and academics within the Association. In 2009, Professor Swinnen chaired the very first Beeronomics Conference in Leuven. Ever since, these conferences have taken place every two years, and they continue to provide an ideal forum for high-quality interdisciplinary research related to beer and brewing activities, covering a wide range of topics related to economics, law, policy, marketing, innovation management, health and well-being.

Champagne!

One example of this kind of exciting research is a recent study by Professor Swinnen and Liesbeth Colen on the intricate relationship between beer consumption and a nation’s wealth, especially during longer periods of recession. Global beer consumption was traditionally concentrated in the United States, Great Britain and Germany. In recent times, however, beer consumption has decreased in what were known as traditional “beer drinking nations” while it skyrocketed in emerging economies. China, for instance, has even overtaken the US as the largest beer economy. Swinnen and Colen’s analysis of the situation led to the discovery of two crucial factors, i.e. economic growth (income) and globalization. They found that, when incomes rises, beer consumption initially increases. Then, as incomes continue to rise, beer consumption actually starts to decrease. Does this imply that we all switch to French champagne as soon as we start to cash bigger pay cheques?

Hopdoetleven grafiek

This might not be so very far from the truth. The answer lies in the ongoing openness to trade and globalization. As wealth increases in traditional beer-drinking nations, such as Belgium, inhabitants are not only more exposed to exotic foreign beverages through travel, they can also afford those (expensive) wines and spirits at home, especially considering falling import taxes. The myriad wine and cocktail bars in every major Northern European city are a testament to that trend.

Bye bye to beer?

So, does that mean there is more beer left for those of us who want to stick to our beloved pint? Sadly, some bad news has recently emerged for beer drinkers. Research has shown that the consequences of climate change are expected to cause a global decrease in beer production. This is because extreme weather events could reduce global barley production; after all, barley, the key ingredient of beer, is very sensitive to increasingly hot and dry environments.

Research has shown that the consequences of climate change are expected to cause a global decrease in beer production.

According to several economic models, this could lead to sharp increases in the cost of beer. The worst-case scenario even predicts a decrease of 16 percent in beer consumption, meaning the price would become twice as high. Not everyone considers the glass to be half-empty though. There are alternatives, according to KU Leuven bio-engineer Kevin Verstrepen: we could replace barley with rice or maize, although we cannot replace all of it – after all, beverages containing less than 60 percent of malted barley cannot legally be labelled ‘beer’. Even though the increase in beer prices is not our biggest worry when it comes to climate change, it does need to make us think twice about the effects of global warming on food in general.

Beer and the economy: they seem to be worlds apart, topics that should only meet during a heated debate over Friday night drinks at the pub. However, from the current research efforts in beeronomics, it is clear that our hoppy national pride had – and continues to have – a direct link to the welfare of our global economy. Cheers to that!

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