Tuesday, April 26, 2011

Beer Consumption and Economic Growth - or - Why I am Opening My Brewery in China

From Felix Salmon I learn of a paper by Liesbeth Colen and Johan Swinnen which looks at the correlation between income and beer consumption. Interestingly the authors find that the relationship is non-linear and in fact has an inverted U-shape suggesting that beer consumption rises with wealth, but then declines as richer consumers switch to things like wine and spirits.

The good news for brewers is this:

Beer consumption has been increasing steadily while the consumption of wine and spirits has been flat.  This, they argue is largely due to emerging economies like China increasing their consumption dramatically:

The USA 'aint doing badly either, by the way.  This is, of course good news for those that are in the business of making and selling beer (especially those in China) but it also suggests that the other shoe might fall as the emerging economies become high-income economies and switch their drinking habits to wine and spirits. 

By the way, as a counterpoint to the volume graph above, note the value of alcohol consumption:

So while the volume of beer has gone up, the prices of wine have increased while volumes have remained flat and this is even more true of other alcoholic beverages. 

NB: Inverted U's are a favorite of development economists - the Kuznets inverted U is a posited relationship between wealth and inequality and the environmental Kuznets inverted U is a posited relationship between wealth and environmental degradation.