{"id":9432,"date":"2016-11-03T21:36:04","date_gmt":"2016-11-04T01:36:04","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/will-climate-change-skunk-the-beer-giant\/"},"modified":"2016-11-03T21:36:04","modified_gmt":"2016-11-04T01:36:04","slug":"will-climate-change-skunk-the-beer-giant","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/will-climate-change-skunk-the-beer-giant\/","title":{"rendered":"Will Climate Change Skunk the Beer Giant?"},"content":{"rendered":"

Climate change has the ability to affect the beer industry at large in a multitude of ways from raw materials to packaging to carbon footprint regulations.\u00a0 All of these elements directly impact the supremely dominant player in the industry, AB InBev.\u00a0 How will the company shield itself from the impact of climate change and, with limited options for consumers, will it even try?<\/p>\n

Global beer consumption in 2014 totaled 397 billion liters and completely dwarfed all other types of alcoholic beverages (15.5x wine and 17x spirits) [1].\u00a0 Given the staggering sales of beer worldwide, it is truly amazing that just over 20% of it is from consumers who are \u201cwatching the game, having a bud\u201d<\/a> [2][3].\u00a0 To keep up with this demand, AB Inbev produced 457 million hectoliters of beer in 2015 [4].\u00a0 The sheer size of AB Inbev in the marketplace has resulted in the company consistently making headlines in its efforts to acquire SABMiller (AB Inbev\u2019s largest competitor at only 10% market share [5]), which would dramatically drop purchasing options for consumers.\u00a0 However, the impact of climate change on AB InBev\u2019s operations and its subsequent effect on pricing is equally newsworthy.<\/p>\n

\"beer-sales-market-share\"<\/a><\/p>\n

Although the production process of beer is fairly simple – grains, hops, and yeast are combined and fermented in water \u2013 and bottling and packaging are also straightforward, both of these steps are dramatically affected by the impacts of climate change.\u00a0 This vulnerability has the potential to result in variability in the price of raw materials and packaging.<\/p>\n

First, let\u2019s look at the raw materials element of the production process.<\/p>\n

The primary ingredient in beer is water.\u00a0 With global drought continuing to expand across Europe, Asia, and North America, access to water has become scarce [6].\u00a0 However, AB InBev has not been caught flat-footed in its response to water scarcity.\u00a0 There have been several company-wide goals enacted since 2012 aimed at reducing the company\u2019s water usage and improving its sustainability.\u00a0 Examples of these initiatives include: the mission to \u201creduce global water usage to a leading-edge 3.2 hectoliters of water per hectoliter of production [by 2017]\u201d, a weather station network called AgriMet that informs growers of relevant climate conditions, and irrigation improvement research in general [7].<\/p>\n

\"goals\"<\/a><\/p>\n

Barley is the second most consumed resource during beer production.\u00a0 Interestingly enough, AB InBev discovered that more than 90% of its water use can be attributed to growing barley and other agricultural inputs [8].\u00a0 Again, AB InBev has been one step ahead of the curve with the implementation of its SmartBarley program [9].\u00a0 SmartBarley aligns AB InBev with its growers by allowing the company to provide quality seeds, insights into global growing data, anonymous benchmarking and sharing of best practices amongst growers, as well as recommended adjustments to standard growing practices [10].<\/p>\n

Due to the impact production facilities have on the environment through carbon emissions, AB InBev is also under immense pressure to limit its carbon footprint.\u00a0 To meet carbon emissions goals, AB InBev has taken a multifaceted approach to reducing emissions.\u00a0 These efforts include everything from switching diesel tractors to vehicles that run on compressed natural gas or biodiesel to glass lightweighting in order to reduce the amount of material used in packaging [11].<\/p>\n

Given all of the diverse steps that AB InBev has taken to hedge against the impact of climate change, there are not many additional steps that the company could take.\u00a0 One potential alternative would be to utilize ingredients other than barley and wheat. There are several examples of alternatives, such as rice, sorghum, and millet.\u00a0 Furthermore, AB InBev could also examine fuel alternatives.\u00a0 The company has already ventured into solar power [12], but perhaps they can begin to implement wind power to help fuel their operations like the Outerbanks Brewing Station [13].<\/p>\n

It only seems logical that these investments in sustainability would trickle down to consumers in the form of price increases and they have.\u00a0 However, researchers Nathan Miller and Andrew Weinberg claim that the price increases experienced after the 2008 merger of Molsen Coors and SABMiller \u201cexceed the predictions of a standard economic model, accounting for changes in demand and cost conditions. This is consistent with tacit collusion between ABI and MillerCoors that emerges after the consummation of the MillerCoors joint venture\u2026\u201d [14][15].<\/p>\n

\"graphs\"<\/a><\/p>\n

This data does not bode well for the beer consumer given the imminent merger of AB InBev and SABMiller.\u00a0 Unfortunately, it appears that, despite AB InBev\u2019s access to massive economies of scale and bargaining leverage to lock in long term contracts with suppliers, consumers should expect to continue to pay increased prices for beer.\u00a0 However, these high prices appear to be the result of other factors beyond the impact of climate change and AB InBev\u2019s investment in capital expenditures to attempt to mitigate this impact.<\/p>\n

 <\/p>\n

(791 words)<\/p>\n

[1] https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/437290\/global-consumption-of-beer-wine-and-spirits\/, accessed November 2016.<\/p>\n

[2] https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/257677\/global-market-share-of-the-leading-beer-companies-based-on-sales\/, accessed November 2016.<\/p>\n

[3] Anheuser-Busch Companies, Inc., \u201cWhassup?,\u201d television advertisement (directed by Charles Stone III), 1999, https:\/\/www.youtube.com\/watch?v=UDTZCgsZGeA, accessed November 2016.<\/p>\n

[4] https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/269111\/production-volume-of-anheuser-busch-inbev-worldwide\/, accessed November 2016.<\/p>\n

[5] https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/257677\/global-market-share-of-the-leading-beer-companies-based-on-sales\/, accessed November 2016.<\/p>\n

[6] https:\/\/www.drought.gov\/gdm\/current-conditions, accessed November 2016.<\/p>\n

[7] Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.13, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

[8] Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.13, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

[9] http:\/\/www.smartbarley.com\/, accessed November 2016.<\/p>\n

[10] Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.10, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

[11] Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.17, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

[12] Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.14, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

[13] https:\/\/www.obbrewing.com\/wind-powered-brewery\/.<\/p>\n

[14] Max Ehrenfreund, \u201cWhy you might be paying too much for your beer,\u201d The Washington Post<\/em>, November 12, 2015, https:\/\/www.washingtonpost.com\/news\/wonk\/wp\/2015\/11\/12\/why-you-might-be-paying-too-much-for-your-beer\/.<\/p>\n

[15] Nathan H Miller and Matthew Weinberg, \u201cMergers Facilitate Tacit Collusion: An Empirical Investigation of the Miller\/Coors Joint Venture,\u201d Georgetown and Drexel University, 2015, p. 32, https:\/\/site.stanford.edu\/sites\/default\/files\/miller-weinberg-15.01.14.pdf, accessed November 2016.<\/p>\n

IMAGES <\/strong>(in order of appearance)<\/p>\n

https:\/\/www-statista-com.ezp-prod1.hul.harvard.edu\/statistics\/257677\/global-market-share-of-the-leading-beer-companies-based-on-sales\/, accessed November 2016.<\/p>\n

Anheuser-Busch Companies, Inc., 2015 Global Citizenship Report, p.13, http:\/\/www.ab-inbev.com\/media\/company\/press-kit\/ab-inbev-global-citizenship-report-2015.html, accessed November 2016.<\/p>\n

Max Ehrenfreund, \u201cWhy you might be paying too much for your beer,\u201d The Washington Post<\/em>, November 12, 2015, https:\/\/www.washingtonpost.com\/news\/wonk\/wp\/2015\/11\/12\/why-you-might-be-paying-too-much-for-your-beer\/.<\/p>\n","protected":false},"excerpt":{"rendered":"

Climate change has undoubtedly affected AB InBev's operations, but will it also affect the prices consumers pay for their beer?<\/p>\n","protected":false},"author":2631,"featured_media":9433,"comment_status":"open","ping_status":"closed","template":"","categories":[62,1448,64,645,427],"class_list":["post-9432","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-ab-inbev","category-barley","category-beer","category-production","category-water"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"\nWill Climate Change Skunk the Beer Giant? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/will-climate-change-skunk-the-beer-giant\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Will Climate Change Skunk the Beer Giant? 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