India, Bangalore: On the beer front, the UB group Chairman, Vijay Mallya, who controls over 50 % of the domestic consumption, inducted UK's Scottish & Newcastle (S&N) as an equity partner in his flagship brewing company, United Breweries Ltd. Following the deal, Mallya and S&N would hold 37.5 % stake each in the company.

The transaction saw Mallya opening up his biggest asset, Kingfisher brand, to a foreign brewer. Every third beer sold in the domestic market is a Kingfisher, which towers over rivals in a country where per capita beer consumption is still a fledgling 0.7 litre.

The deal is expected to bolster UB's fight against SABMiller-managed Shaw Wallace Breweries, which accounts for 35 per cent of the domestic beer sales. Away from the deal making and boardroom moves, the alcobev industry fought heavy odds in the marketplace.

The profitability of IMFL business, the most visible segment in the domestic alcobev sector, came under strain due to the soaring price of Extra Neutral Alcohol (ENA) as a drastically reduced sugarcane crop squeezed the availability of molasses.

The companies across the board were forced to drop low-end labels as they became unviable with ENA price doubled to cross Rs 40 per litre.

Even though the volume sales were largely unaffected (the sales are expected to register 7 to 8 per cent growth and cross 90 million cases in 2004-05), much of the industry's profit pool is expected to vanish as the operating margins of the big companies came under pressure.

On the other hand, the domestic brewers grappled with unprecedented rise in the cost of recycled beer bottles, which pierced the Rs 7-mark as it galloped from the normal rates ranging between Rs 2.75 to Rs 3.

The brewers have been crying foul as the recycled bottle traders allegedly formed cartels at regional levels to enhance their holding capacity in a bid to drive up price to lead to summer months when production peaks.

SABMiller has been at the forefront in galvanising the brewing industry response that has threatened to come up with its own mechanism to get the bottles back to the factory gate. SABMiller also called for strengthening the industry bodies like All India Brewers' Association (AIBA) to push for beer sector reforms.

The country's beer sales, pegged at 83 million cases last year, are tipped to grow between eight to 10 per cent in 2004-05.

E-malt.com, the global information source for the brewing and malting industry professionals. The bi-weekly E-malt.com Newsletters feature latest industry news, statistics in graphs and tables, world barley and malt prices, and other relevant information. Click here to get full access to E-malt.com. If you are a Castle Malting client, you can get free access to E-malt.com website and publications. Contact us for more information at marketing@castlemalting.com .