Can India bridge the gap between beer and barley?
The answer is probably yes, provided maltsters dare invest in India. After two months of India-bashing by global financial media, this seems however increasingly unlikely. Still, Rabobank, in a recent report ("Mind the gap: Can India bridge the gap between beer and barley", published August 2013), anticipates malt production will increasingly move to these new markets in emerging regions, with India a likely candidate as a regional hub.
Why should maltsters look to India? Rabobank argues that global beer producers are faced with a conundrum. On the one hand, global beer production has shifted to emerging markets, where demand is growing at twice the rate of developed markets. On the other hand, agro-climatic circumstances limit where barley can be grown, with the bulk of production remaining in Europe.
Currently, Europe and North America account for over 60 percent of the world’s malt production capacity of 24.5 million tonnes. Asia Pacific, the largest and the fastest growing beer consumer, has just 21 percent of malt production, of which 80 percent is concentrated in China.
Rabobank says that, in an attempt to balance the demand and supply situation, brewers and maltsters may single out India as both a buyer and supplier of strategic importance in the evolving global malt supply chain. In India, malt demand from Indian breweries has shown robust growth, driven by the rising penetration of beer amongst Indian consumers. Rising demand from both brewers and other malt users is likely to require additional malting capacity by 2016/17.
"India offers several tactical advantages to global maltsters and brewers evaluating investment in malt capacity in emerging Asia", explains Rabobank analyst Sudip Sinha. "First, the availability of domestic crops provides access to competitive malting barley. Second, India has an established but growing local product demand base. Furthermore, due to its strategic location between Middle East and Africa and South East Asia, capacity enhancement along the ports will facilitate targeting of malt demand across the South-South trade corridor [between developing countries in Asia, Africa and Latin America]."
However, India's economy stands in disarray. As the New York Times wrote on 5 September 2013, the recent economic decline has laid bare chronic problems: An antiquated infrastructure, a sclerotic job market, exorbitant real estate costs and bloated state-owned enterprises never allowed manufacturing, especially manufacturing for export, to grow strong."
What do export-oriented maltsters need above all: a good infrastructure and affordable industrial real-estate near ports. On both accounts, India rates exceptionally badly.
According to the New York Times, "poor infrastructure has driven up costs for industrial real estate in India, which are high compared with China's. Just in the last five years, China has opened 5,800 miles of high-speed rail routes and 400,000 miles of highways of two or more lanes. That has allowed tens of thousands of factories to move to smaller towns in the interior with much lower land costs."
"India has been unable to open up its interior the same way, building half as many miles of highways over the same period and no high-speed rail routes. At the same time, rent control and other land regulations make it extremely difficult to tear down and replace even the most dilapidated buildings. The acute shortage of real estate less than a day's drive from ports has produced steep real estate prices and rents."
Sensible as Rabobank's strategic musings sound, maltsters may continue to give India a wide berth in years to come, if only for those two – but major – objections.
