In China, 1/2 liter of beer costs 9 minutes of work.
To calculate how many minutes of work it takes to buy beer in 150 countries, Swiss bank UBS researchers divided the median wage in that country by the price of 1/2 liter from a retailer. Their results? Beer drinking is most costly for workers in India (55 min.), Philippines (48 min.), Colombia (47 min.) and Nigeria (29 min.). At the other end of the list is the US (5 min.), Czech Republic (7 min.), Germany (8 min.), the Netherlands (9 min), and China (9 min.)
The UBS report reminded me that national beer consumption relates to affluence. According to the American Association of Wine Economists (yes, really) the connection between beer and per capita income is an upside down “U.” As individual incomes increase up to $22,000, so too does beer consumption. Then though, when wine and spirits become affordable, people move from beer to pricier liquor. Currently, nations with emerging markets represent two-thirds of the world’s beer consumption. (The ascent of China’s beer drinking curve in the graph below is striking.)
So, when anyone mentions beer, we can think about of purchasing power, economic growth and demand from the developing world.
A Final Fact: Beer has also been in the news as a source of government revenue. President Hollande just said France’s beer tax will rise by 160% to fund programs for young people and the elderly. Meanwhile, 2 years ago, after Russia spiked its beer tax by 200%, beer purchases declined.
Sources and Resources: This BBC article on the impact of the impending French beer tax was a good read as was the Economist’s details on the UBS beer cost study. More academic, the AAWE paper was the source of my beer drinking information about developing nations. Please note that all information from UBS and The Economist is current while data and the graph from the AAWE is from 2010 and before.
World Beer Consumption, 1961-2007
Posted by: adminEcon
Tags: American Association of Wine Economists, beer consumption, beer taxes, China, developing nations, economic growth, emerging markets, France, India, per capita income, purchasing power, Russia, The Economist, UBS, US
There appears to be a correlation between beer drinking and economic growth…up to a point. According to a paper from the American Association of Wine Economists (yes, really) the connection is an upside down “U.” As individual incomes increase up to $22,000, so too does beer consumption. Then, though, beer drinking drops.
Specific examples? Between 1985 and 2007, China’s total beer consumption skyrocketed. For Russia, beer consumption starting rising in 1997. The AAWE paper indicates that in many emerging economies, beer consumption is up.
Broader implications? Perhaps, this is not a beer story at all. Instead, we are considering the impact of higher income, increasing world trade, and economic liberalization on what we consume.
In addition to the AAWE paper you might want to look at this NY Times blog and this Reuters blog.
The Economic Lesson
The AAWE paper refers to the “determinants of demand” for beer. Thinking of demand/supply graphs, the demand curve will shift when a determinant changes. So, for beer, as for all other commodities, the determinants relate to substitutes and complementary products, consumers’ income, utility and the number of consumers.
An Economic Question: For beer specifically, what might shift its demand curve?
Asking, “Do More Expensive Wines Taste Better?” a group of researchers decided to find out. They described the results of their study in a working paper for the American Association of Wine Economists (AAWE).
The researchers introduced their paper by citing studies that concluded people expect a “positive correlation between price and quality.” They then explained that their experiment involved “blind tasting” of wines whose prices ranged from $1.65 to $150. The results? They differed between the non-experts and experts. For the non-experts, drinking unidentified wines, the less expensive wine was more frequently chosen as better. For experts, the opposite was true.
(While other studies from the AAWE include a paper on wine investing and carbon and the global wine trade, one title particularly captivated me: “Can People Distinguish Pate from Dog Food?“)
I recommend the Freakonomics podcast that described the wine tasting experiment.
The Economic Lesson
As economists, how might we describe the connection between a price tag and enjoyment? We can refer to utility. If a higher price increases enjoyment then we can conclude that it also increases utility.