Assess the Economic Factors that Affect the Beer Industry
Mariam Peyton is a professional Financial Analyst. She holds a Masters degree in Economics. She specialises in financial analysis and forecasting. Her expertise includes studying the financial performance of companies, markets and entire industries looking for trends, insights and information that can help you glean rich insights for use in academic and market research.
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Beer has been part of human culture for thousand years and is the most consumed alcoholic beverage in various parts of the world. The global beer market increases every year. According to yahoo finance, the global beer market is estimated to reach US$ 747.7 billion by 2028. Beer consumption has been triggered by the improving disposable income across developing regions like South America and Asia Pacific.
According to the data on the amount and type of alcohol intake in the world, beer ranks among the top alcoholic drinks. This means that people drink more beer than any other alcoholic beverage, both in terms of the volume of liquid and the content of ethanol.
It is important to note that the world economy has been influenced by numerous economic factors including the Ukraine war resulting in the rising costs of energy, glass paper, transport costs, gas and fuel, and other raw materials. The aim of this essay is to assess the various economic factors that affect the beer industry internationally.
The beer industry is influenced by several economic factors at the global level and these are to be discussed in detail in the following sections of this paper. Some of these factors include the demand and supply of beer, the price and availability of raw materials, the level of competition and innovation, the taxation and regulation policies, and consumer preferences and income levels. These factors can have positive or negative impacts on the profitability and growth of the beer industry in different regions and markets.
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Assess the Economic Factors that Affect the Beer Industry A Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Understand generally some of the factors that affect the beer industry
- Understand the economic factors that affect the beer industry and how they lead to its growth and development
- Demonstrate your understanding and deep knowledge of the various factors that affect the beer industry
1.0 INTRODUCTION
The beer industry is one of the oldest and most popular sectors in the global beverage market. According to a report by Grand View Research, the global beer market size was valued at USD 693.39 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 3.1% from 2021 to 2028. However, the beer industry also faces various challenges and opportunities due to the changing economic factors that affect its demand, supply, production, distribution, and consumption. The aim of this essay is to assess the various economic factors that affect the beer industry internationally. The questions attempted are; what factors affect the beer industry? What is the economic impact of the beer industry? The essay will also address the social, legal, and technological factors that affect the beer industry.
The key economic factors that affect the beer industry include:
Consumer’s Income: The income level of consumers is a major determining factor in their demand for beer. Generally, as income increases, consumers tend to spend more on discretionary items such as beer. However, this also depends on the price elasticity of demand for beer, which measures how responsive consumers are to changes in price. For some consumers, beer may be an inferior good, meaning that they consume less of it as their income rises and switch to more expensive alternatives such as wine or spirits. For others, beer may be a normal good, meaning that they consume more of it as their income rises and regard it as a necessity or a luxury. Therefore, the income effect on the demand for beer may vary across different segments of consumers and regions.
The Price of Beer: The price of beer is another important factor that affects its demand and supply. The higher the price of beer, the less it is bought by the consumers, and this is widely known as the law of demand. However, the degree of this response depends on the price elasticity of demand for beer, which may differ across different types of beer (e.g., lager, stout) and different markets (e.g., domestic, export). On the supply side, as the price of beer increases, producers tend to produce more of it, assuming that their costs and technology remain unchanged. This is known as the law of supply. However, the degree of this depends on the price elasticity of supply for beer, which may differ across different scales of production (e.g., microbreweries, craft breweries, industrial breweries) and different inputs (e.g., barley, hops, water). Therefore, the price of beer plays a crucial role in determining the equilibrium quantity and quality of beer in the market.
Taxes imposed by the government: The government may impose taxes on the production or consumption of beer for various reasons, such as raising revenue, discouraging alcohol abuse, or protecting domestic producers from foreign competition. Taxes on beer can affect both the demand and supply sides of the market by changing the prices faced by consumers and producers. For example, an excise tax on beer production will increase the cost of production and reduce the supply of beer, leading to a higher equilibrium price and a lower equilibrium quantity in the market. Similarly, a sales tax on beer consumption will increase the price paid by consumers and reduce the demand for beer, leading to a lower equilibrium price and a lower equilibrium quantity in the market. The impact of taxes on the market outcome depends on the relative elasticities of demand and supply for beer, as well as the incidence of taxation (i.e., who bears the burden of taxation).
Substitutes and complements: The demand for beer may also be affected by the availability and prices of other goods that are either substitutes or complements of beer. Substitutes are goods that can be used in place of another good to satisfy a similar need or want. For example, wine and spirits are substitutes for beer because they can also provide alcoholic satisfaction to consumers. Therefore, if the price of wine or spirits decreases, consumers may switch from beer to these cheaper alternatives, reducing the demand for beer. Conversely, if the price of wine or spirits increases, consumers may switch from these more expensive alternatives to beer, increasing the demand for beer.
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