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Beeronomics: I’ll drink to that

David Zilberman, professor, agriculture and resource economics | September 14, 2015

This past week I attended the fourth Beeronomics conference in Seattle. The conference brings together economists and other scientists who work on the economics of beer. The first three conferences were in Europe; this was the first U.S. conference.

I was excited about the conference first because of the location: I wanted to see my friends and family in Seattle; our new granddaughter, Nava; her brother Geo, and her parents, Shie and Leigh. The weather was warm and pleasant and I guess that climate change may benefit Seattle (unlike Berkeley, where the heat seems unbearable).

Of course, I was also very curious about the topic; but I prefer wine to beer, and knew relatively little about it. Still, beer plays a significant role in the life of many of my friends, and I have always been fascinated by the way beer is marketed.

Finally, I was scheduled to give a talk, “Beer: The Poster Child of the Bioeconomy,” which allowed me the opportunity to learn about it.


As I understand it, the Beer Consortium was founded by two beer aficionados: Jo Swinnen and Julian Alston. Actually, their fascination with beer seems to be shifting, from the applied side to theory. The consortium has attracted the attention of the industry and a diverse group of fascinating scholars.

The conference was organized by Jill Macloskey, AAEA president and one of our most prominent alumna, and Tom Marsh, a professor at Washington State University. It was further supported by WSU, whose provost, Ron Mittelhammer, participated in the conference.

Beer through the ages

I learned a lot about beer from this experience. First, it seems from the blogs that it’s unclear which came first: beer or bread? Historians speculate that prehistoric nomads may have made beer from grain and water before learning to make breadThe ancient Egyptians who built the pyramids got paid by beer, bread and green onions. Different cultures use different grains to make beer; and beer served for nourishment, pain relief, and socializing.

Swinnen suggested that the Low Countries (Holland and Belgium) won their independence from the Spanish because of beer. They financed their armies from beer tax, while the Spanish relied on tax on silver. The beer won. We learned that people consume more beer than any other alcohol and that the gap is increasing in spending and consumption. As in many other arenas, China has overtaken the U.S. as the largest consumer of beer.

What’s more surprising is that Russians consume more beer than vodka. Swinnen suggests that one reason could be that advertisements of vodka were disallowed in 1995. He also suggests that beer consumption increases with per capita income, but that once GNP per capita is greater than $30,000, beer consumption declines – this has been true in Germany, the U.S., and Belgium. But overall production continues to increase due to increased export.

book cover: the economics of beer

Prohibition in the U.S. was a traumatic event for the beer industry. More than 80% of the breweries disappeared, but those that survived became stronger, according to Carlos Hernandez, an economic historian from UCLA. Survivors switched to other drinks, such as sodas, and I imagine that during Prohibition, they were able to gain a foothold in the black market.

Another economic historian, Martin Stack from Saint Louis University, suggested that between the 1870s and 1950s, the poor were drinking local, unpasteurized beers with many exotic flavors, while the well-to-do middle class were buying more expensive pasteurized, uniform beer. After Prohibition, there was a period during which the big companies provided bland beer accessible to everyone.

And now, we live in a period of the budding sector of craft beers. The difference is that the middle-class pays the extra for the local, exotic beers while individuals with lower income purchase the standard beers. One encouraging statistic is that 46% of Millennials claimed not to consume Budweiser.

Beer is produced from yeast, hops, water and malted barley. The West Coast, and especially the Yakima Valley in Washington, specializes in hops, which is a high-value crop and is managed effectively through contracts. But the barley industry, which is a low-value crop, is declining in the U.S. and Canada. Furthermore, there is little breeding of it to provide more flavorful beers.

Enter craft beers

One interesting lesson from this conference is that the emergence of the craft-beer industry — with its emphasis on product diversity and quality — provides the opportunity to establish a specialized malt-barley sector. In particular, the new tools of crop breeding could be employed to develop special varieties of barley that will provide improved flavors resulting in better beers.

I expect that the 21st century will see immense growth in the bioeconomy, which consists of the sectors of the economy that use biological processes to produce products like food, fiber, mineral, fuel and other consumer goods. The bioeconomy is part of the renewable economy (which also includes solar energy and the recycling sector) that will allow humanity to deal with the increasing monetary and environmental cost of non-renewables and climate change.

The potential of the bioeconomy has been enhanced immensely with the discovery of DNA and new technologies that utilize modern molecular biology, genetics and information technology. Beer is perhaps the oldest sector of the bioeconomy, and its history has many lessons for the modern bioeconomy. The supply chain of the various sectors of the bioeconomy consists of at least two elements: the production of feedstocks and their processing to a final product. In the case of beer, feedstocks vary across locations and have changed over time. Beer-like products use wheat, corn and of course barley. The fermentation process has become a science based on increased selection and better management of yeast.

Technology and regulations are two drivers of the various sectors of the bioeconomy. The discovery of the use of hops in beer production around the 14th century improved quality and taste, as hops contributes bitterness (to counter the sweetness of barley), adds flavor and aroma, and contributes to the preservation of the beer.

Refrigeration, gradually introduced in the 19th century and improved ever since, redefined brewing. It improved production processes and created new types of beer, assured uniform products and expanded the reach of breweries becoming a major source of economies of scale in beer production.

Beer and public policy 

The history of beer at various locations was affected by its taxation as well as regulation on alternative products, such as wine. Regulations of production practices and distribution were introduced for safety, as well as to serve the interests of various groups, such as brewers.

The negative side-effects of alcohol led to an excessive reaction in the form of Prohibition in the U.S. But by 1933, society realized the folly of excessive regulation and bans, and repealed Prohibition. But even after Prohibition, breweries were denied the right to sell beer to the public.

In 1982, the current mayor of Berkeley, then state Assemblyman Tom Bates, sponsored AB 3610, which legalized brewpubs in California. It was followed by similar legislation elsewhere and spawned the craft beer industry in the U.S., which became the most creative and dynamic segment of the beer industry.

The rich history of beer illustrates the potential and the unpredictably of the nascent sectors of the bioeconomy. It demonstrates the expanding revenue potential originated in the agricultural sector, the importance of cleverly designed supply chains, the challenge of combining globally affordable products with differentiated, high value, specialty creations, the capacity of science to increase the diversity and safety of the product, and the necessity of creative regulations that assure safety but don’t impede creativity.

Comments to “Beeronomics: I’ll drink to that

  1. Dear David, Thank you for this article, and I am pleased to know you are well and continue to educate the public on various issues, like beer drinking. My only exposure to beer is through my husband, he is a lover of different kinds of beer so whenever I have opportunity to travel and to bring local beers, this is my going home treasure.

    Now, through this article, I become to know there is more to beer than beer drinking. Kudos and I will keep following you. I am a Bearhs ELP alumna back many years ago.

  2. Thanks for a wonderful, insightful blog on a fascinating topic. For academic studies on beer and spirits in Africa, i would recommend Justin Wilis’ book Potent Brews: Social History Of Alcohol In East Africa 1850-1999. It’s a groundbreaking historical study of alcohol in traditional history in East Africa, its links to power before and during the colonization period, and how representations on the consumption of bottled beer and spirits have evolved over time. I haven’t come across other more recent studies on the economics and sociology of beer in Sub-Saharan Africa, and would be grateful for any pointers.

  3. This creative blog shows there is no limit to research findings, more so to topic that is related to socio-economic characteristics of human livelihood. Beer drinking is noted as one of the vices, and due to its impact on health and sometime the economy of individuals that become addicted, instructions always follow every bottle produced. This is a good eye-opener research topic that needs further information, especially in Africa. Maybe someone has worked on this topic especially in Africa. I am interested to have their findings.

    Kudos, David. I envy you, being a successful grandfather (as shown in the plates) and still remaining academically vibrant even at this age.

  4. Thanks, David. This is amazing narrative on the economics of beer. In fact, so much brewing goes on in rural economics not captured at tertiary level. A majority of rural folks socialize, drink local beer and pay no taxes. In Kruger National Park, the locals, elephants, monkeys among others enjoy the amarula beer at no cost. The question is, how do you internalize, formalize and regularize earnings from beer with social local benefits? Cheers

  5. Dear David: Whaaaw I am amazed. Thanks for this. You always inspire me. How can I also catch up with you in publicizing my experiences?

    Great staff
    Osmond Mugweni
    ELP 2008 Zimbabwe

  6. Thank you, David, for this educative post on an unusual topic.

    Thinking about the future of the beer industry, we should probably add possible taste changes, that can vary not only with income but also due to health concerns. If the general population becomes wealthier and more “healthy living” oriented, then, contrary to wine, beer consumption might decline. It is probably again up to technology development to assure constant improvement in taste along with declining caloric value. In general, is the industry tracking impacts on drinking habits of cultural and demographic changes (e. g. due to increased share of Muslim population in the European countries)?

    The observation that Russians drink more beer than vodka is also interesting. I can try to speculate on the subject (although I don’t drink neither of them :-)) suggesting that, first, beer consumption is, in general, in much larger cans than vodka. Second, for population that likes alcoholic beverages, beer is somehow considered a light beverage. It is commonly (wrongly) assumed in Russia that contrary to vodka, one can drink a bottle or two of beer and drive immediately. It is changing now though with strict regulation.

    What was your impression from the conference: is climate change considered an impact factor in the future of the industry?

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