Hops Shortage

Alert to all craft beer drinkers: Brace yourselves for higher prices in 2008!!! Hops, the delightful flowers that add bitterness to your beer, are in short supply in 2008. To make matters worse, the barley supply is also tightening up. This double whammy shortage of essential ingredients is leading to higher prices from small breweries.

HopsThe cause of the hops shortage is multi-faceted. Two thirds of the world’s hops comes from Germany and the Pacific Northwest of the United States. In the US, a fungal infection is destroying hops crops, as well as a fire at a major hops warehouse, which destroyed 3% of the 2007 crop. Worldwide, hops yields have been low due to poor weather conditions damaging crops. The biggest factor reducing supply is economics. For years hops prices have been very low due to excess supply, so many hops farmers have either switched to other more profitable crops or sold their fields to developers. All these factors have caused the price of many hops varieties to shoot up from $2 or $3 a pound to over $20 a pound.

The years of low hops prices have led small brewers to buy hops on the open markets, but those supplies are no longer there. The large brewers like Anheuser-Busch, Coors and Miller have long-term future contracts with growers to buy hops at set prices for several years at a time due to their massive purchasing power. This means that after the big guys get their promised supplies of hops, small brewers must compete for the scarce supply of hops on the open market, leading to higher hops prices. While the large brewers’ production costs are set for 2008, due to their future contracts, the small brewers must make up their increased production costs by raising beer prices.

Barley is the essential ingredient in making malt. Malted barley provides the sugars brewing yeast needs to make alcohol and CO2. Barley prices are rising as farmers shift to corn production to cash in on the corn ethanol boom.

In addition to not having the buying power to secure long term pricing for barley and hops, small brewers generally use more hops and barley per beer than the large brewers, further pushing up the price of their beer. These ingredient shortages not only will cause craft beer prices to go up $1 to $3 per six pack, but may also cause brewers to change recipes and in some extreme cases, to even discontinue certain varieties like IPAs that require lots of hops.

I have begun to see these price increases locally. My local brewery has had to raise keg prices by $5 a keg. My local bar keeps an ever-changing selection of about 30 craft beers on tap, and I was chatting the other night with the manager about what beers are upcoming. Unprompted, he began to bemoan the price increases and scarcity of some kegs. He said all the breweries he deals with have raised keg prices $10 to $50 plus. In order to hold his pint prices steady (which are very reasonable) he has had to drop some breweries and varieties he prefers for brands are that similar but in his opinion not quite as good.

Hopefully, the weather will be better for hops in 2008 and the high prices for hops will encourage farmers to increase production in 2009. Sam Adams, the biggest of the craft brewers, is trying to help out by offering some of their stored hops at cost to other craft brewers through their hops share program. However, the tight barley situation seems like it will continue for the foreseeable future until the ethanol boom subsides. So, it looks like beer prices will jump in 2008, but might come down again in 2009.


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