Why Foreign Ownership of Local Breweries Matters

Following up on yesterday’s news about Heineken’s purchase of the Drinks Union brewery group, I did some back-of-the-beermat math to try to explain why it matters if local breweries aren’t locally owned. Here’s what I came up with:

128 million dollars.

That’s a quick estimate for the amount of money that is leaving the Czech Republic every year, simply due to foreign ownership of local breweries. That is to say that the Czech Republic — a transitional economy just 18 years removed from communism — is sending countries like Holland — one of the wealthiest nations in the world — an amount akin to $128 million every year.

Here’s how I came up with that figure.

Using the most recent reports for the Czech Republic’s 2007 beer production, we start out with 19.9 million hectoliters of beer produced here and 3.6 million hectoliters exported — meaning a domestic consumption of 16.3 million hectoliters.

One hectoliter is 100 liters. So we can call this 1.63 billion liters of beer consumed locally — right on track for the average of about 160 liters of beer consumed annually by every Czech man, woman and child.

Let’s say that the average wholesale price of a liter of beer is 16 Kč, or 8 Kč per half-liter serving. (I believe this is on the low side. Pilsner Urquell, for example, wholesales for 37.80 Kč per liter.) At 16 Kč per liter, we come up with 26.08 billion Kč in annual wholesale trade.

Let’s assume that breweries make a 10% profit on their wholesale trade. We’re now at 2,608,000,000 Kč in total annual profit, and only on the Czech Republic’s domestic beer consumption — not the exports.

According to the Czech newspaper Lidové noviny, foreign-owned breweries account for 80% of Czech production. (The world’s largest brewing group, SABMiller, accounts for roughly 49% of production here all by itself. According to its annual report, InBev, the owner of Staropramen, Ostravar and other brands, chalked up almost 15% of production by the end of 2006. With its new purchases, Heineken’s market share is now estimated at 14%. That’s 78%, and it doesn’t include the many small and medium-size breweries that are foreign-owned.)

With 80% of production, we assume that the foreign-owned breweries also earn 80% of the profit. That comes out to 2,086,400,000 Kč per year.

At today’s rates, that’s $128,078,576.

Or €81,500,000.

Or £64,236,453.

Leaving the country every year.

Just because most Czech breweries are owned by companies far away from here.

And when that $128,078,576 gets to London (home of SABMiller) or Belgium (home of InBev), or Amsterdam (home of Heineken), it is of course reinvested or spent there, not here. That $128,078,576 pays for things far away from your local pub in Prague or Brno. It pays for the very large houses of very wealthy people in London and Amsterdam, and it pays for the builders to build those houses, the suppliers to bring the lumber and bricks, the painters to paint and the technicians to install those fancy stereo speakers in the back garden that are made to look like rocks and boulders.

Just something to think about the next time you feel like drinking a beer. Instead of sending your money out of the country, you could buy a beer from a brewer like Primátor, 100% owned by the city of Náchod, which contributes its profits to the city coffers, helping to pay for schools and other essential services, instead of fancy stereo speakers that look like rocks and boulders.

This isn’t meant to be a definitive figure, just a number knocked out between pints. Naturally, I’d love hear other interpretations. If any economists out there can provide better estimates than these back-of-the-beermat calculations, please let us know in the comments.

And speaking of beermats, there’s only a few days left to send in your beermat haiku and win a prize. Of course, your haiku doesn’t have to be about locally owned breweries — but it certainly wouldn’t hurt.