What’s That Have to Do With the Price of Beer in Germany?

Dan Hamermesh, on his Economic Thought of the Day blog — it is excellent, and always fun — wrote this recently:

A disaster has occurred in Germany: The staple drink – beer – is rising in price. The reason is that there is a worldwide shortage of barley, a major ingredient in the brew. This has pushed up the price of barley, and shifted the supply curve of beer to the left. I would think that the shortage is temporary – with higher prices of barley, more farmers will plant the crop. That should alleviate the shortage, bring the price of this input back down, and after a year or two lead beer prices back more or less to their current levels. Not much consolation for those wishing to quaff the brew of the holidays, but their pain is probably going to be short-lived (and, if they drink enough, they won’t remember it anyway!).

One upside of this “disaster” is that there may be less crime in Germany, at least in the short run. Here’s what we wrote on the subject in a column about the economic impact of different weather events, including global warming:

Consider 19th-century Bavaria. The problem there was rain – too much of it. As Halvor Mehlum, Edward Miguel and Ragnar Torvik explained in a recent paper, excessive rain damaged the rye crop by interfering with the planting and the harvest. Using a historical rainfall database from the United Nations, they found that the price of rye was significantly higher in rainy years, and since rye was a major staple of the Bavarian diet, food prices across the board were considerably higher in those years, too. This was a big problem, since a poor family at the time would have been likely to spend as much as 80 percent of its money on food. The economists went looking for other effects of this weather shock. It turns out that Bavaria kept remarkably comprehensive crime statistics – the most meticulous in all of Germany – and when laid out one atop the other, there was a startlingly robust correlation between the amount of rain, the price of rye, and the rate of property crime: they rose and fell together in lockstep. Rain raised food prices, and those prices, in turn, led hungry families to steal in order to feed themselves.

But violent crime fell during the rainy years, at the same time property crimes were on the rise. Why should that be? Because, the economists contend, rye was also used to make beer. “Ten percent of Bavarian household income went to beer purchases alone,” they write. So as a price spike in rye led to a price spike in beer, there was less beer consumed – which in turn led to fewer assaults and murders.


Joe Mann

Actually, as a homebrewer, I've been hearing about the upcoming shortage of both hops and barley for quite a while. For barley, the yields are a little lower worldwide, but a bigger cause of the price increase is the madness over ethanol from corn. Corn is being diverted to ethanol, and barley is the next grain in line for animal feed.

Hops on the other hand have been hit really hard. Depending on the country, excess rain caused fungal rot, hail storms at harvest time decimated crops, and drought also hit some parts. The US isn't too far off normal yields, but world wide the hop yield is very low. Add to that the fact that hops are sort of like wine grapes - harvested once a year, and new crops planted take a few years to reach full yield, and the hop shortage could last a while. Even for American pale lager beer, where not so many hops are used, they depend on hop extract for the hop flavoring, and the last couple of years for hops have been low yield and the reserves have been pretty well depleted. The hop shortage will not be a temporary spike in prices, and will impact the price of beer much longer than the current barley shortage.

Read more...

john

Maybe violent crime went down because people just didn't like to go out as much in rainy weather, and thus had less reason to get involved at all? Seems it'd be more pleasant to rob a place and get dry than to go out and club some pedestrians.

Christian Bieck

Is he serious? Prices only go back down to their old levels in economic theory.
The consumption of beer has been going down per capita here in the last few years, anyway. (From 142 liter in 1990 to 115 in 2005.) Besides reducing crime (apparently), a lot of breweries are having problems, which led them to introduce some really weird products - though you probably wouldn't consider some of them weird, you poor guys have to drink lemonade, I meant US beer... ;-) (sorry, couldn't resist that one...)

Brian Befano

I do not believe their analysis is entirely correct. The German's had a beer law, the Reinheitsgebot, which excluded the use or wheat or rye in the production of beer. It mandated the use of only barley exactly to prevent price competition with bakers for wheat and rye. So a price spike in Rye would not cause a price spike in beer, unless barley production was also hampered by unusually heavy rains.

That being said, if more of their income went to higher food costs then maybe they were just buying less beer.

S. Heaton

Very interesting - there is a very nice NPR piece from a few weeks ago on the German beer story. (Sorry I can't find the link immediately but I'm sure it's on their website).

Eric Samuelson

For better brews, hops are the bigger issue:

Microbrewers hop to secure beer's 'spice' - North County Times
http://www.nctimes.com/articles/2007/12/16/business/news/4_24_0512_15_07.txt

Trouble brewing - The Economist
http://www.economist.com/world/na/displaystory.cfm?story_id=10337782

htb2

There are other ways to interpret this data. It could be that people who are stealing to feed their families don't want to attract official attention, so they're more likely to suppress the urge for a fist fight. The USA sees that behavior among certain groups of (illegal) immigrants: Don't break the speed limit, because the cost could be not just "getting a ticket" but "getting a ticket plus getting deported."

(Why do I get so many "You can only post every five seconds" error messages -- when I haven't posted a message for more than 24 hours?)

mesnenor

Beer made with rye (Roggenbier) is a relatively obscure specialty product in southern Germany. The beer that is the staple drink is all-malt, as per the famous Reinheitsgebot. Even wheat beer (Weizenbier) is much more common that rye beer.

Caroline Gnagy

I'd like to commend Stephen Dubner for bringing Dan Hamermesh's blog to the attention of the general public. I, too heard the NPR story about this a week or two ago. The link is here:

http://www.npr.org/templates/story/story.php?storyId=11734830

In my opinion, it's neither fish nor fowl. To anyone other than the farmers who depend on proceeds from their barley crop, beer would be considered a luxury rather than a staple. Any rise in price should be borne with a chagrined smile and a reminder that there are many other food and environmental staples that, when they rise in price (often needlessly), more severely affect the economy and thus the lives of the consumer.

In the meantime, I look forward to more of Stephen's blogs about blogs (among other topics). I have followed his career for many years.

Incidentally, his book "Turbulant Souls" was both relevant and eye-opening. I highly recommend it.

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B2

Hops are scarce here in the US - I haven't read yet that European hops growers are under the same sorts of pressures. Barley though, that's apparently bad internationally.

Beer is just as much a staple in my house as bread or milk. I'd give up all other grain-based products before I'd give up beer.

Adjusting my thinking so that I would consider beer a luxury in order to somehow feel better about about a price hike seems odd to me.

Crash

Caroline: beer isn't purely a luxury; as a form of processed grain it has historically been an important source of calories in the German diet, and to some extent remains so to this day. Colonial-era Americans also considered beers to be more of a foodstuff than a drink, though the tremendous success of corn agriculture eventually displaced it in our diet as a source of carbohydrate energy.

In any case, though yes, beer isn't an absolute necessity, it is in a sense a cultural staple; it's part of what consititutes the basic basket of consumer goods in that society.

batasablind

What an idiotic correlation between beer drinking and violence ... Islam forbids drinking alcoholic drinks ... should not they be the most peaceful society on Earth ... are they?

Ava

Are you kidding? I can still get a bottle of beer for 50 cents and then get 25 cents back when I return the bottle! GOOD beer may be getting more expensive here, but it's still cheaper to drink beer than water to be honest. If you don't believe me I'll show you a bar tab or the picture we have that we took of the beer section and the water section of the grocery store.

Joe Mann

If anyone is really interested, there is a podcast featuring two authorities in this area: Ralph Olson, the owner of Hopunion, a premiere distributor of hops in the US, and Ian Ward, President of Brewers Supply Group. The podcast is kind of long, and available at http://www.thebrewingnetwork.com/archive/dwnldarchive12-02-07.mp3

Joe Mann

Actually, as a homebrewer, I've been hearing about the upcoming shortage of both hops and barley for quite a while. For barley, the yields are a little lower worldwide, but a bigger cause of the price increase is the madness over ethanol from corn. Corn is being diverted to ethanol, and barley is the next grain in line for animal feed.

Hops on the other hand have been hit really hard. Depending on the country, excess rain caused fungal rot, hail storms at harvest time decimated crops, and drought also hit some parts. The US isn't too far off normal yields, but world wide the hop yield is very low. Add to that the fact that hops are sort of like wine grapes - harvested once a year, and new crops planted take a few years to reach full yield, and the hop shortage could last a while. Even for American pale lager beer, where not so many hops are used, they depend on hop extract for the hop flavoring, and the last couple of years for hops have been low yield and the reserves have been pretty well depleted. The hop shortage will not be a temporary spike in prices, and will impact the price of beer much longer than the current barley shortage.

Read more...

john

Maybe violent crime went down because people just didn't like to go out as much in rainy weather, and thus had less reason to get involved at all? Seems it'd be more pleasant to rob a place and get dry than to go out and club some pedestrians.

Christian Bieck

Is he serious? Prices only go back down to their old levels in economic theory.
The consumption of beer has been going down per capita here in the last few years, anyway. (From 142 liter in 1990 to 115 in 2005.) Besides reducing crime (apparently), a lot of breweries are having problems, which led them to introduce some really weird products - though you probably wouldn't consider some of them weird, you poor guys have to drink lemonade, I meant US beer... ;-) (sorry, couldn't resist that one...)

Brian Befano

I do not believe their analysis is entirely correct. The German's had a beer law, the Reinheitsgebot, which excluded the use or wheat or rye in the production of beer. It mandated the use of only barley exactly to prevent price competition with bakers for wheat and rye. So a price spike in Rye would not cause a price spike in beer, unless barley production was also hampered by unusually heavy rains.

That being said, if more of their income went to higher food costs then maybe they were just buying less beer.

S. Heaton

Very interesting - there is a very nice NPR piece from a few weeks ago on the German beer story. (Sorry I can't find the link immediately but I'm sure it's on their website).

Eric Samuelson

For better brews, hops are the bigger issue:

Microbrewers hop to secure beer's 'spice' - North County Times
http://www.nctimes.com/articles/2007/12/16/business/news/4_24_0512_15_07.txt

Trouble brewing - The Economist
http://www.economist.com/world/na/displaystory.cfm?story_id=10337782