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08.2014

Massachusetts Beverage Business

OnBeerReport

HOLY HOPS! PRICES GO SKY-HIGH

SEEMS THERE is a downside to the explosive popularity of craft beers: The craze for microbrews has led to a scramble for hops, the key ingredient used to add flavor and bitterness. The $14 billion US craft beer industry has seen annual double-digit production growth over the past few years. This has in turn doubled the price of the specialist aroma and flavor hops favored by craft brewers to about $7 to $1O a pound over the past five years – the highest since 2OO7-O8 when the market was hit by a severe drought. Craft beers use between four to 1O times more hops than the average brew produced by multinational beer companies.

The total number of US craft breweries grew to 2768 last year, a 15 percent jump on 2O12. The industry now accounts for almost 8 percent of the total US beer market. The popularity of craft beers has spread to the UK, continental Europe and Japan, as well as emerging markets, and there is increasingly intense competition for hop crops around the world.

Ironically, surging demand for craft beers stands to hurt microbrewers the most. Low levels of hop inventories make it difficult for the small players to procure extra crops because they do not have forward contracts with growers. If a brewer’s new beer is a sudden hit, they’ll find it almost impossible to cover their unexpected hop needs. The real crunch could come as early as next year when large multinational beer companies looking to replenish their hop inventories start negotiating with the growers. In the US, there are only about 35 to 4O farmers in Washington, Oregon and Idaho, the key growing regions, run by fourth- and fifth-generation growers. Some new growers have started cultivating hops in upstate New York and Michigan as well as Colorado, but production levels in the new areas remain low.

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