In 1886, an American consul named George C. Tanner, who was stationed in Chemnitz, Germany, wrote, “Beer is the national beverage, and is used as such, if not to a greater extent than water, then assuredly equally so.” To illustrate his point, he wrote that, during his stay in Germany, he had yet to see anyone drink a single glass of water. Tanner’s report—which one suspects wasn’t conducted scientifically, in the absolute sense—noted that the sheer volume of Germany’s annual beer production could be compared to some of America’s largest rivers, and painted a picture of a highly refined beer culture. “Drunkenness is rare,” he wrote, “and if so, it rarely manifests itself in a boisterous or belligerent manner, but more frequently takes the shape of song, fun, and a general pleasurable feeling of warmth, energy, and self-command, and hence those horned crimes that sometimes shock us in the United States are rarely heard of here.” (The German-Americans Adolphus Busch and Adolph Coors had already crafted their iconic beers in the United States, but these had yet to really catch on.)

More than a century later, German beer is facing an existential crisis. This week, Germany’s anti-cartel office announced that it is levying more than a hundred million euros in fines against four of the country’s largest breweries, for price-fixing. Between 2006 and 2008, the office found, the breweries colluded to keep prices artificially high. (In general, fierce competition in Germany keeps prices low; in supermarkets in Berlin, for instance, it’s not hard to find a case of twenty half-litre bottles for less than five euros.) The scandal could mark the lowest point yet for the country’s beer industry, which has shrunk substantially in recent years.

It’s not that Germans aren’t drinking anymore. From my own admittedly unscientific research—which includes losing count of the number of people I’ve observed drinking lagers on the train during my morning commute in Berlin—Germans still consume a lot of beer. A 2011 Kirin Holdings report said that Germany places third on the list of top beer-drinking nations: Germans drink about twenty-eight gallons per capita annually, practically neck and neck with the second-place Austrians and a bit behind the world-leading Czechs, who drink about thirty-two gallons. But German beer consumption has been steadily declining since a peak in the late nineteen-seventies, when West Germans were drinking about forty gallons each.

A spokesman for the German Brewers Federation recently attributed the decline, in part, to the loss of traditional industries like mining and construction—implying that it’s a bit less socially acceptable to drink a bottle of beer in an age when people are sitting at desks rather than swinging pickaxes. People are also getting more health-conscious. Plus there’s a demographic change underway: the country’s birth rate has been dropping, so there are fewer young people to drink prodigious amounts of beer.

Declining beer consumption isn’t unique to Germany. In the United States, according to the Beer Institute, a trade group, consumption in 2011 was down about nine per cent from 1994; consumption has also fallen across much of Western Europe. However, brewers in countries like Belgium, the Netherlands, and Denmark have made up for lost sales domestically by targeting high-growth markets in Africa, Asia, and Latin America—partly by experimenting with new varieties that might appeal to tastes in those regions. In Belgium, between 1995 and 2012, production was up almost thirty per cent, even as consumption fell within Belgian borders by about thirty per cent, according to the trade group Belgian Brewers.

By contrast, German beer production has fallen more than twenty per cent since 1993, according to the German Brewers Federation. And, as of November, Germany’s beer output for 2013 had declined by about three per cent from the same period last year, according to the research firm Canadean.

The beer industry in Germany is unusually fragmented: the top three producers control about thirty per cent of the market. In the Netherlands, by comparison, four producers control more than ninety per cent of the market. That means Germany lacks the giant producers that are best equipped to export their beer. “When we receive an order from Russia or China, we fulfill it as a one-off,” a brewer told Knowledge@Wharton last year. “We do not actively seek new business in these markets.”

There are signs that the larger German brewers might make more of a push in international markets. In December, the German Brewers Federation filed an application to include the country’s beer-purity law, the Reinheitsgebot, on UNESCO’s “intangible cultural heritage” list, to draw international attention to the country’s beer traditions. “I could imagine that the title could boost export chances,” the Federation’s president, Hans-Georg Eils, told the Wall Street Journal.

The Reinheitsgebot, adopted in 1516, limited the ingredients that could be used in beer to water, barley, and hops. At a 1955 beer convention in Baden-Baden, brewers accused each other of adulterating their products with sugar—a clear violation of the law—to cater to a population that was already beginning to turn away from beer. (One brewer blamed the American occupying forces for getting Germans hooked on soft drinks.) As the Reinheitsgebot was modified over time and eventually replaced by a more permissive “provisional beer law,” in 1993, German brewing legislation added yeast and, in the case of certain beer styles, wheat and sugar to its list of accepted ingredients. It also became increasingly symbolic: in 1987, for instance, the European Court of Justice forced Germany to allow imports of noncompliant foreign beers. Today, brewers can file for exceptions to use specialized ingredients, and sometimes, warily, call concoctions that might break the rules “ales” or simply “malted beverages.”

Nonetheless, the Reinheitsgebot still occupies an almost mythic space in the German beer industry’s collective psyche: many brewers, still relatively conservative, brew in accordance with the original law, seeing it as an emblem of high-quality, traditional beer (and marketing it as such: many pilsners display labels reading “brewed according to the Reinheitsgebot”). And, for the most part, the country’s breweries haven’t tested the boundaries of cultural tastes, such as by fortifying their beers with fruit, as the Belgians sometimes do, or by evoking earlier forms of brewing by using juniper berries or tree bark, as adventurous American brewers have.

If the Brewers Federation sees the Reinheitsgebot as a way to raise international awareness of German beer, some smaller breweries are questioning whether the idea behind it is stifling innovation. For these brewers, new beers could reinvigorate the industry. The Reinheitsgebot “doesn’t affect our decision-making when we’re deciding what to put in the beer,” David Spengler, an American who co-founded Vagabund Brauerei, a small brewery in Berlin, told me. At Vagabund’s adjoining bar, patrons can order beers like double India pale ales—which are stronger, hoppier, and feature bolder flavors than the crates of pilsners down the street in the local supermarket. Also on tap is an espresso stout.

Even some large, well-established beer makers are testing craft beers. This year, Bitburger, the country’s third-largest beer producer, launched a brand, Craftwerk Brewing, that offers such options as a Belgian-style tripel and an I.P.A. The Craftwerk launch was met with some skepticism from those who wondered whether a stodgy brewery could successfully sell hip, innovative beers. One blogger asked, “Are they allowed to do that?” But, for a big brewery like Bitburger, the “craft beer” label represents a way to expand profit margins in a market dominated by low-priced offerings. Craftwerk sells its I.P.A. for about three to four times as much as Bitburger’s standard pilsner, which is easily found on sale in supermarkets.