Beer and the Prices and Incomes Board
The reason why brewery shares have been lagging behind the market is that the Prices and Incomes Board has asked all brewers to defer intended increases in wholesale and retail prices for six to nine months. This is not so bad as it appears, for of the £9 million of higher costs incurred in the current financial year £7 million has been covered by price increases already made. But for the long term the question must be asked how long the Board expects industry to go on absorbing rising costs at the expense of profit margins. Fortunately the Board is still adopting a strictly commercial attitude. In the brewery industry the annual increase of 2 per cent in productivity is likely to be less than the annual rise in hourly wage earnings and, according to the Board, this would soon reduce the rate of return on capital to 121 per cent. The industry's capacity to absorb in- creased costs could thus be quickly exhausted.' This suggests that the Board would allow price increases to enable the brewery industry to main- tain its 12+ per cent profitability. For a closed industry without great entrepreneurial risks this may be considered adequate, but for highly com- petitive and risky industries the Board's inter- ference in the price-fixing mechanism could be upsetting for equity shareholders. In the case of beer the Board's present understanding would make me inclined to add to brewery shares on any fall in the market. But the budget caused a temporary rise, the industry being favoured by employment tax refund. Most leading shares are already offering yields of 51 per cent upwards.
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