worldwide hops shortage
Amy Sancetta/AP
A hand full of hops.

Craft Brewers Keep From Going Flat Amid Hops Shortage

October 13, 2008 10:25 AM
by Anne Szustek
Competition from large brewers and a worldwide shortage of hops are forcing craft brewers to improvise with their tipples.

Craft Brewers Have New Recipes on Tap

A global shortage of hops, a plant used in brewing to lend bitterness, kill undesirable microorganisms and impart flavor, is cutting into craft brewers’ price margins. A bad harvest of hops in Europe, diversion of cropland to more profitable harvests such as grain for ethanol, and steady growth in consumption in Asia, have led to a year-on-year price increase from $3–5 to $20–40 a pound for the plant.

Smaller breweries don’t have the contracts with hops producers like those of beverage conglomerates, leaving them more susceptible to price shocks—as well as competition from international companies looking to carve a niche into the premium beer segment. Anheuser-Busch, for one, has released its own line of craft beers. Given the company’s huge reach—especially if the proposed InBev merger comes to fruition—it is better equipped to deal with price increases for ingredients.

George Lenker, the writer of a column called “Beer Nut” in Springfield, Mass., paper The Republican, asks, “Is this good for craft beer, or will the macro breweries just cut into the craft market and hurt some good smaller brewers?”

Judging from sales figures for early 2008, success is definitely on tap for smaller brewers. According to statistics provided by The Wall Street Journal, sales of beer made by smaller, independent producers have gone up by 11 percent during the first half of 2008. And during 2006 and 2007, 47 of the top 50 American craft breweries expanded production to keep pace with demand.

But the current trend in the microbrew segment is toward more “hop-laden” beers, causing some small-scale beer makers to either rethink their business strategy or recipes. Scott Vaccaro, who works for Pleasantville, N.Y.’s Captain Lawrence Brewing Company, told The Wall Street Journal, “We don’t want to cut back on the hoppier varieties because they are our best sellers. … If we have to, we change the recipes.” Some brewers are thus lowering the amount of hops used or forgoing them entirely. California’s Stone Brewing Co. brewed a chocolate-oatmeal stout instead of a hoppy beer to celebrate the company’s anniversary.

Bitter chocolate can be used in place of bitter hops in beers to lend a rich taste. Other non-traditional flavors to emerge in microbrews of late are curry powder, pomegranate and pine needles.

Background: Beer remains affordable luxury during economic downturn

Historically, sin sector stocks have been a safe bet in bearish financial markets; however by and large this year they have slumped. Shares of tobacco conglomerate Altria dropped 11 percent from the start of the year to July 25. On the gambling front, Forbes writes that as of that same date, shares of Penn National Gambling were down 54 percent from the start of the year.

Shares of Diageo, the world’s largest alcoholic beverage company, including foreign beers Harp and Guinness, showed a 16 percent decrease over the first seven months of 2008.

Sales for domestic beer have been on the upswing though. U.S. beer sales for the first seven months of 2008 are up 1.4 percent since the start of the year, with more than 16 million barrels of domestic beer sold in the country during July alone, according to statistics from lobbying group Beer Institute.

Higher sales were reported across price segments. According to statistics compiled by Nielsen Research this summer, sales at grocery and convenience stores of “superpremium” beers, which include Michelob and Rolling Rock, have shown increases in the double digits. Budget beer sales were up some 4.8 percent, and “below premium” beers were up 3.3 percent in sales volume year-on-year.

Market observers attribute the trend to several factors, including more people entertaining at home. Lofty oil prices and a weaker dollar have translated into less attractive prices for foreign beer. A similar trend has been seen in wines.

Reference: Beer guide


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