ON TAP: BELGIAN BEER BREWS BIG BUSINESS

UNCLAS SECTION 01 OF 04 BRUSSELS 000263

SIPDIS

SIPDIS

STATE FOR EUR/UBI, EB/CBA AND EB/TPP

E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD ELAB BE
SUBJECT: ON TAP: BELGIAN BEER BREWS BIG BUSINESS



1. (U) SUMMARY: Long before it was selected as the capital
for the European Union in 1958, Belgium was a capital of
beer. The rich variety of choices (115 breweries produce
nearly 500 different beers) makes Belgium a prime destination
for beer enthusiasts. The world's biggest brewer is Belgian,
as are six of the world's seven beer-brewing Trappist
monasteries. The industry generated nearly two billion euros
of sales in 2005, and directly or indirectly employs 6,000
persons. Although the number ofBelgian brewers has shrunk
through a series of mergers, the industry has bucked the tide
of corporate consolidation and product homogenization that
has characterized the American beer industry. So far,
Belgium has expanded its presence in the world beer market
without sacrificing the heritage and traditions that
characterize its humble beginnings.Belgium's beer sector has
evolved into two very different parts: a few large scale
breweries dominated by one global powerhouse, and a large
number of popular small-scale brewers producing specialty
products. Fortunately for the consumer, there is room for
both in the demanding Belgian market. END SUMMARY

A SHORT HISTORY OF BEER IN BELGIUM
--------------

2. (U) The history of beer in what is today Belgium dates
from Roman times. While the Romans generally favored wine,
appreciation for beer arose in the northern reaches of the
empire where conditions were better for growing barley and
hops (key ingredients used to make beer) than for grape
cultivation. Evidence of brewing can be found in some
Gallo-Roman villages dating from the third or fourth century
BC. After the fall of the Roman Empire, the rise of
Christendom saw the Church assume control of much of the
land, its output, and products fermented from grain.


3. (U) In Belgium, many cloistered religious communities have
a centuries-long brewing tradition. For early monks, beer
supplemented a fairly plain diet and was the chief beverage
aside from water and milk. A brewery was a common feature of
nearly every abbey in the Low Countries during the Middle
Ages. In Belgium's Meuse region, the Grand-Axe monastery is
mentioned in documents as early as 805. Villers-la-Ville has
had a community of monks brewing since 1146. In addition to
abbeys, medieval Belgian brewing took place in inns, castles,
and private homes.


4. (U) Breweries proliferated in response to growing demand
during the 14th and 15th centuries. Not only had beer become
a popular beverage, but it was commonly thought that beer was
safer to drink than water. Belgian public health history
supports this theory: epidemic diseases such as cholera and
typhoid fever were spread through water, making beer a better
choice for consumption. The guilds established during the
Middle Ages also worked to maintain quality through strict
guidelines for brewing. In addition, guilds played an
advocacy role for their industry, and fostered comerce and
wealth -- which nobility could tax. By 1696 the Belgian
brewers guild was wealth enough to establish the "Maison des
Brassurs" (House of Brewers),in an elegant townhouse on the
square of the Grand Place in Brussels. Today, the building
still serves as the headuarters of the Confederation of
Belgian Brewes.


5. (U) Through the 17th and 18th centuries, brewing spread
across Belgium. Each Belgian village generally had its own
brewery, and produced a beer with its own character deriving
from local ingredients, water quality, and brewing
techniques. An economic downturn and the mayhem of the
Napoleonic Wars in the late 18th century slowed the brewing
trade, but only temporarily. Napoleon's reforms of the
church's role in society meant that by the early 19th
century, the religious orders had been largely displaced by
secular brewers as principal purveyors of beer.


6. (U) Innovations during the 19th century kept Belgium in
the forefront of beer brewing. Pasteurization led to
improved quality, and different types of yeast used in the
brewing process yielded different flavors. Private
innovation and investment led to a boom of breweries, and by
1900, there were 3,223 registered in Belgium.


7. (U) The onset of the First World War saw a massive
reduction in the number of Belgian breweries, however, as raw
materials and human capital were shifted into the war effort.
By 1920, the number of breweries had fallen to 2,103 (for a
country of 8 million). The economic depression of the 1930s
followed by World War Two further diminished the number of
operating brewers; by 1946, "only" 755 independent breweries
remained in Belgium. Pressure for economies of scale and

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high investment costs forced a wave of mergers in the
post-war decades. By 1983 just 134 separate breweries were
registered in Belgium.

500 BEERS TO CHOOSE FROM
--------------

8. (U) Today, small and medium-sized breweries are enjoying
a somewhat of a renaissance. Consumers appear to value the
specialized, even obscure, brews appearing. Some artisanal
beers are brewed in such limited quantities that consumers
wait for months to buy them. Much sought-after brews include
the Saint Sixtus Westfleteren, judged best beer in the world
in a recent international professional tasting. In 2007,
there are approximately 115 independent breweries active in
Belgium, which together produce nearly 500 different beers,
some of them only for export.


9. (U) In Brussels, among the numerous cafes and museums
dedicated to beer are the Delirium Cafe, with a pink elephant
as its symbol, serving 2,004 varieties of beer including its
own brew, and "Mort Subite" (Sudden Death),a popular cafe
serving its own fruit-flavored brews. Beer features on both
domestic and international tourism circuits.


10. (U) Immense variety and high quality distinguish Belgian
beer, and some types are only brewed in this country.
Lambic, Geuze, and Kriek are varieties of Belgian beer
protected by a 1998 European Commission regulation ((EC)
954/98) regarding the "specific character" of the beer. This
regulation counters imitation by protecting the name and
prohibiting production of the beer outside of Belgium.
Belgians thus defend the rules-of-origin of their beer, no
less than the French do for their champagne. One American
brewer, for example, was required to change the description
on his label from "Belgian white beer" to "Belgian-style
white beer".


11. (U) The most common types of beer brewed in Belgium
include:

-- Brown beers: Maturing for several months, these beers are
characterized by caramel-like malty sweetness and sourness.
An example is Goudenband.

-- Golden or blonde beers: Akin to Pilsner lagers, very pale
malts and hops are used with ale yeasts. Duvel is an example.

-- Lambic: This variety is one of the most well-known Belgian
beers. It is a non-malted wheat beer that is naturally
fermented by wild airborne yeasts. Its production is
prohibited beyond a small area in and around
Brussels. Faro is a sweetened, lighter variety of Lambic.

-- Geuze: Involving secondary fermentation, this is a blended
sparkling beer, combining two or more Lambics.

-- Kriek: A Lambic beer, Kriek relies upon the additions of
cherries or raspberries for more fermentation and a fruity
taste.

-- Red beers: Red barley gives color and body to these beers,
which are often aged in oak barrels. Rodenbach is an example.

-- White beers: The beers, sometimes called wheat beers, are
light and cloudy, often served with a slice of lemon.
Hoegaarden brews a classic example.


12. (U) Trappist beer is a special type of beer that is
almost exclusively Belgian. Since Medieval times, Trappist
beer has been brewed by or under the close control of
Trappist monks. In 1997, Trappist abbeys formed the
International Trappist Association ITA) to protect the
Trappist name from increasing abuse and imitation. All
authentic Trappist beers carry a distinctive logo. The
monastic community has a great deal of freedom in terms of
what and how much to produce, but the economic purpose of the
brewery is aimed toward charitable assistance rather than
profit. In 2005 there were 171 Trappist monasteries
throughout the world; just seven produce beer, six of them in
Belgium.

BEER BY NUMBERS
--------------

13. (U) PRODUCTION, EXPORTS, AND IMPORTS: The 115 Belgian
breweries produced 456,210,354 gallons of beer in 2005, a
slight increase over production in 2004. About half of
Belgium's production (232,787,009 gallons) was exported.
The main destination countries for Belgian beer in 2005 were:

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France, the Netherlands, Germany, the United Kingdom, and the
United States. The U.S. imported 3,739,203 gallons, equal to
nearly 40 million 12 ounce bottles. Pils-style beer, e.g.
Stella Artois, was by far the most popular. Belgium imports
beer as well: in 2005 imports rose two percent over the
previous year, with more than 26 million gallons imported,
mainly from the Netherlands and Germany. Unlike some other
European beer-producing countries, such as Germany, Belgium
has no barriers limiting the import of foreign beer. Some
Belgian brewers, however, complain about difficulty in
gaining access to the U.S. market.


14. (U) CONSUMPTION: Among European countries, Belgium
consistently ranks near the top in beer consumption. In
2005, annual consumption averaged about 24 gallons of beer
per person, slightly more than the U.S. average of 22 gallons
per person. Beer consumption in Belgium has fallen slightly
during the past two decades, attributable in part to health
concerns and to the increasing popularity of non-alcoholic
drinks. Other EU countries report similar trends. In 2004,
there were nearly 46,000 bars or restaurants serving beer in
Belgium; the country's 18,000 cafes alone sold over a billion
euros worth of beverages.


15. (U) TAXES AND TOTAL EARNINGS: As in previous centuries,
taxes remain an inevitable part of the industry. Belgian
excise taxes collected on beer in 2005 totaled 193 million
euros. Combined with the Valued-Added Tax (VAT) and
reimbursed costs related to packing, the Belgian state earned
more than 940 million euros in 2005 from the national beer
industry. As a whole, breweries make up nearly six percent
of Belgium's "industrial food" sector, which earned more than
1.83 billion euros in 2005.

INBEV: THE BELGIAN GIANT
--------------

16. (U) Belgium-based InBev is the world's largest beer
brewer by volume, and of one the most profitable. Worldwide,
it employs 85,000. InBev can trace its roots back to 1366,
to the Den Horen brewery that operated in Leuven, Belgium,
which is still where the company is headquartered. The
company's modern history dates from a
1987 merger between the first and second largest Belgian
brewers, Brasseries Piedboeuf and Brasseries Artois, to
create Interbrew. In 2004, Interbrew joined AmBev, a
Brazilian-American company, to form InBev. InBev continues
its aggressive growth strategy, buying major brewers in
India, Brazil, and China during the past year.


17. (U) In 2005 InBev brewed more than 5.3 billion gallons
of beer worldwide, nearly 14 percent of the world beer
market. It holds the number one or number two position in
more than 20 key markets and boasts more than 200 brands of
lagers, premium beers and specialty brews. Well-known labels
include: Labatt, Beck's, Stella Artois, Bass Ale, Hoegaarden,
Leffe, and Rolling Rock. InBev's annual profits dwarf other
Belgian brewers: through the third quarter of 2006, it reaped
nearly 1.3 billion euros, with a global sales turnover of six
billion euros. In addition to higher returns for its
shareholders, the company invests some of its profits in
research and development. In November 2006, InBev opened a
Global Innovation and Technology Center at its Leuven
headquarters. The new facility, with a price tag of 500
million euros, will support research, innovation, packaging,
and new product development.


18. (U) InBev's size and increasingly international
character draws criticism from Belgian employees, consumers,
restaurant and cafe owners, and even politicians. The prime
concern is job losses. Among the 13 positions in InBev's
management structure, only five are held by Belgians. A
Brazilian, Carlos Brito, replaced American John Brock as
InBev's CEO in December 2005. In February 2006, almost 400
jobs in Belgium were lost in company restructuring, while 295
new jobs (mostly administrative) were to be created in
Hungary and the Czech Republic. This news came the same day
the company announced its 2005 net profit of 904 million
euros, poor timing that led to strikes in protest.


19. (U) InBev's size draws government attention too. In
April of 2006, Belgian Federal Economy Minister Marc
Verwilghen requested that Belgian competition authorities
investigate InBev for possible abuse of dominant market
position. InBev accounts for about 57 percent of the Belgian
market. The company,s reputation with InBev purveyors
suffered when InBev raised domestic prices an average of
three percent twice within seven months, and then ordered the
use of larger glassware, increasing the size from 25 to 27

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centiliters, for cafes serving InBev brands. Stuck between
the company mandate and a cost-conscious public, bar and
restaurant owners were forced to absorb the loss resulting
from serving an extra two centiliters of beer for the same
price.

THE POLITICS OF BREWING: BIG VS. SMALL
--------------

20. (U) Harkening back to the medieval guild, the
Confederation of Belgian Brewers (CBB) is an advocate for the
industry. Its stated objectives are to maintain quality, to
protect brewers from unreasonable regulation, and to promote
the beer sector in Belgium and beyond. Located on the Grand
Place in Brussels since 1696, the CBB represents 77 of the
115 Belgian brewers. Some smaller brewers have chosen not to
join, finding the CBB to be dominated by what they see as
profit-thirsty industry giants. Indeed, the six largest
members of the CBB account for about 82 percent of Belgian
beer production by volume, and because membership dues are
scaled to company profits, the larger members wield
considerable influence and have dominated policy on issues
such as labeling and content standards. Officials at InBev,
the CBB's largest member accounting for nearly two-thirds of
the Confederation's operating budget, have expressed
frustration that the CBB has not done more to put Belgium on
the world beer map, and have even threatened to leave the
organization.

BELGIAN BEER IN A GLOBALIZED WORLD
--------------

21. (U) Two types of brewers characterize Belgium's diverse
beer marketplace. The large-scale sector is dominated by one
global powerhouse. A key challenge for InBev will be playing
its role as a profitable global multinational without losing
sight of its humble beginnings and purveyor of a national
drink. For example, InBev has tried to highlight its link to
the 18th century Artois brewery, and has invested
significantly in managing its image. Meanwhile, scores of
small artisanal brewers jockey for the specialty brews niche,
fostering a growing international appreciation for the sheer
variety and artistry of Belgian beer. Their main challenge
is remaining afloat in the face of global competition.

KOROLOGOS
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