Explained: UB's suspension of beer supply in Telangana and consequences

Despite the ongoing conflict, UBL has highlighted its essential role in Telangana’s excise revenue. The company earns 500 crore annually from its annual duties.

United Breweries Limited (UBL), known for beer brands like Kingfisher and Heineken, has stopped supplying beer to Telangana Beverages Corporation Limited (TGBCL), the state's only liquor distributor. This decision marks an important change in one of India’s largest beer markets. It also reflects a growing conflict between the beer company and the state government over pricing and unpaid amounts.

What led to the suspension?

UBL has decided to stop supplying beer due to two main issues: stagnant prices and unpaid debts. TGBCL owes Rs 658.95 crore for past supplies that have not been paid. UBL also pointed out that the state government has not updated the base price of beer since 2019-2020, even though production costs have risen significantly.

In a filing with the Bombay Stock Exchange (BSE), UBL stated, “We are taking this action because TGBCL has not raised the basic price of beer since 2019-20, which has caused significant losses in Telangana.” A spokesperson added, “We are stopping supplies to TGBCL because we keep losing money in Telangana. Despite our efforts over the last two years, we have not increased our product prices. This has led to greater losses, making it impossible for us to continue our operations in the state.”

Telangana government’s stand

The Telangana government has refused to raise beer prices despite demands from beer manufacturers. In December 2024, Chief Minister Revanth Reddy rejected the request for a price increase of at least Rs 10 per bottle. He said that protecting consumers was his main reason and accused beer companies of trying to pressure the government.

“Our government will keep beer prices the lowest in the region. Any beer company that thinks it can pressure us is wrong. We will remain firm,” Revanth Reddy stated. He stressed that the Congress-led government in Telangana would not give in to the alcohol industry's demands, unlike the previous Bharat Rashtra Samithi (BRS) government.

Excise Minister Jupally Krishna Rao supported the Chief Minister's position. He explained that a 33% increase in beer prices would raise the cost of a bottle from Rs 150 to Rs 250, putting a heavy burden on consumers. “We will not give in to their pressure,” Krishna Rao said.

Price fixation committee’s role

In July 2024, the Telangana government set up a Price Fixation Committee (PFC) to review how liquor and beer prices are determined. The committee, led by a retired judge, reviewed beer companies' suggestions and recommended price changes.

Little progress has been made despite talking with industry representatives, including the Brewers Association of India (BAI). The government is still focused on protecting consumer interests instead of meeting the demands of beer manufacturers.

Brewers association concerns

The Brewers Association of India (BAI) has expressed concerns about the rising costs of beer production. Vinod Giri, BAI's Director General, stated that production costs have increased by 35-40% since the last price change in 2019. Higher prices for raw materials like glass and barley, inflation, and increased labor costs have hurt the beer industry’s profits.

In a letter to the Telangana government dated November 10, Giri explained the difficulties facing beer manufacturers. He said, “The current price system does not consider rising production costs. Over the past seven years, small price increases have not kept pace with the actual increase in costs, which have risen by 45-50%, according to Wholesale Price Index (WPI) data.”

Despite these issues, the Telangana government has refused to allow price increases. Excise Commissioner Chevvuru Hari Kiran noted that the government follows a 45-day payment cycle for paying suppliers. He mentioned that payments from April to August 2024 are still pending but assured that these have been submitted to the finance department for processing.

Impact of the suspension

Industry analysts predict that the ongoing stand-off will hurt United Breweries (UBL) in the short term, especially since Telangana is one of its biggest markets. According to political analyst Rajesh Karanam, Telangana contributes about 15-20% of UBL's sales and 10-12% of its earnings, but the state has lower profit margins than others.

Karanam also noted that UBL's financial health in Telangana has suffered due to slow payment processes and no price increase. He believes the Telangana government must act positively by raising the ex-brewery price (EBP) since companies often halt supply when they cannot secure price hikes.

Karanam stated that if the government approves a price hike within the next three months, UBL could recover its market share during the peak season. However, if the suspension lasts too long, it could hurt the company's competitiveness in Telangana.

Telangana’s pricing with neighboring states

The Brewers Association of India has pointed out a problem with beer prices in Telangana compared to nearby states. Beer prices in Telangana are about 30-50% lower than in Karnataka and Maharashtra, which makes it hard for companies to operate profitably in Telangana.

To address this issue, the association has suggested two solutions to the Telangana government: allowing companies to set their own prices, like in Karnataka and Maharashtra, or adjusting prices based on inflation measures like the Wholesale Price Index (WPI).

UBL’s contribution to state's revenue

Despite the ongoing conflict, UBL has highlighted its essential role in Telangana’s excise revenue. The company earns 500 crore annually from its annual duties.

“Our company provides more than Rs 4,500 crore annually to the state’s revenue. Even with increasing financial challenges, we have ensured a steady supply of our beer, as we are committed to our consumers and customers. We ask the state government to act quickly to protect jobs, restore financial stability, and keep our products available,” said the UBL spokesperson.

Consequences for state's beer market

Analysts say Telangana needs to act quickly. If not, people might start buying beer from nearby Andhra Pradesh, which opened its market to more breweries. This shift could hurt Telangana’s excise revenue and negatively affect local businesses that rely on beer sales.

The Price Fixation Committee's recommendations will be necessary for the future of the state's beer market. A slight price increase could help satisfy both the government and beer manufacturers.

“If the government allows a reasonable increase in the EBP, it could help both sides. UBL would be able to continue its operations in Telangana, and the government would not face a big loss in revenue,” said Karanam.