Hold Onto Your Mugs - Beer Prices are Heading North!

Hold onto your mugs, beer prices are heading North!

Hugh Sisson’s Diary of a Brewer

Never in my 20 years of brewing have I seen raw material prices (and availability) so much up in the air as they are right now! While I can’t predict precisely how things will end up, there is little doubt that the cost of beer on your retail shelf is going to be on the move, and not in the direction any of us would prefer. So what’s this all about?

In the normal course of business, now is the time of year when most small breweries begin to get the love letters from their suppliers telling them that X commodity is increasing Y percent effective Z date. This is normal, usually the increases are only a few points, and most breweries take a reasonable increase sometime in the early part of each year to cover the increases in these costs. The usual rationale from our suppliers is that “energy costs” are up, or some other genuinely likely scenario, not out of keeping with the normal course of events, and so not usually overly dramatic.

This year is anything BUT normal! While I was anticipating the usual bump from the packaging suppliers, and we all know what is happening to energy costs, the real news is what is happening to the cost and availability of malt and hops. As of right now, these costs have virtually doubled!

Let’s take hops first. Europe is having its second consecutive bad harvest. Those breweries have to source their hops somewhere – so they come to the US. The situation was exacerbated by a couple of warehouse fires in the US hop production areas in the last 12 months which only served to degrade an already bad situation. The old supply and demand curve has kicked in with a vengeance! Almost every variety of hops we use has increased in price at least 50%. And to make matters worse, the hop supply is so tight that breweries that do not have contractual arrangements with their suppliers may find themselves completely out of luck sourcing hops at all, no matter what the price!

The situation is not likely to get better anytime really soon. I am told it takes at least 3 years before newly planted hop vines can begin producing usable hops. And the amount of acreage devoted to hop production in the US has declined by almost 50% over the last 20 years as farmers look for other ways to increase their income. Can’t blame the farmers – they have families to feed. But the next few years hop wise are certainly going to be challenging.

The malt situation is also adversely effected by the poor European harvest of the last few years. But here the situation is accelerated by the foolish (in my opinion) demand for corn for ethanol production. Quite frankly, producing cheap corn for ethanol is often less costly and significantly more profitable than producing malting grade barley. Consequently, as acreage for barley declines, and demand (thanks Europe, China, and South America) goes up, malt prices have just about doubled from the levels we saw in late 2006. Again, I don’t think it will change much soon.

So what is a brewer to do? We don’t have much choice – prices will probably go up to cover costs so we can stay in business. We don’t like it much, but I for one don’t see much of an alternative. If the market continues to want good craft beer, it will just have to understand what is happening and be willing to pay for it. There is some small consolation that current conditions will affect all beers, not just crafts - but the large producers have greater economies of scale and will be somewhat less affected.

Those of us in the industry can only hope our customers realize that this is not the fault of the brewer, the retailer, or the distributor (the usual suspects that get blamed). This is not the result of brewers getting greedy in a hot business segment. It is simply a good example of supply and demand at work – an economic reality that isn’t always pleasant, but is certainly always enlightening. The cost of a six pack of good beer will still be a pretty affordable luxury relative to the cost of many other luxury items, so we all just need to decide what is important to us, and proceed without guilt or hesitation. However, don’t think you are being taken for granted - I know I speak for all of my brewing brethren when I say, “Thank you for your continued support! Today’s world of beer wouldn’t exist without you.”

For comments, please click the area below or email me at hugh@ccbeer.com

Feel free to forward to a friend by clicking on the envelope below.

	Hold Onto Your Mugs - Beer Prices are Heading North!
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Oct 04, 2007 10:04 AM Hold Onto Your Mugs - Beer Prices are Heading North! Hold onto your mugs, beer prices are heading North! Hugh Sisson’s *Diary of a Brewer* Never in my 20 years of brewing have I seen raw material prices (and availability) so much up in the air as they are right now! While I can’t predict precisely how things will end up, there is little doubt that the cost of beer on your retail shelf is going to be on the move, and not in the direction any of us would prefer. So what’s this all about? In the normal course of business, now is the time of year when most small breweries begin to get the love letters from their suppliers telling them that X commodity is increasing Y percent effective Z date. This is normal, usually the increases are only a few points, and most breweries take a reasonable increase sometime in the early part of each year to cover the increases in these costs. The usual rationale from our suppliers is that “energy costs” are up, or some other genuinely likely scenario, not out of keeping with the normal course of events, and so not usually overly dramatic. This year is anything BUT normal! While I was anticipating the usual bump from the packaging suppliers, and we all know what is happening to energy costs, the real news is what is happening to the cost and availability of malt and hops. As of right now, these costs have virtually doubled! Let’s take hops first. Europe is having its second consecutive bad harvest. Those breweries have to source their hops somewhere – so they come to the US. The situation was exacerbated by a couple of warehouse fires in the US hop production areas in the last 12 months which only served to degrade an already bad situation. The old supply and demand curve has kicked in with a vengeance! Almost every variety of hops we use has increased in price at least 50%. And to make matters worse, the hop supply is so tight that breweries that do not have contractual arrangements with their suppliers may find themselves completely out of luck sourcing hops at all, no matter what the price! The situation is not likely to get better anytime really soon. I am told it takes at least 3 years before newly planted hop vines can begin producing usable hops. And the amount of acreage devoted to hop production in the US has declined by almost 50% over the last 20 years as farmers look for other ways to increase their income. Can’t blame the farmers – they have families to feed. But the next few years hop wise are certainly going to be challenging. The malt situation is also adversely effected by the poor European harvest of the last few years. But here the situation is accelerated by the foolish (in my opinion) demand for corn for ethanol production. Quite frankly, producing cheap corn for ethanol is often less costly and significantly more profitable than producing malting grade barley. Consequently, as acreage for barley declines, and demand (thanks Europe, China, and South America) goes up, malt prices have just about doubled from the levels we saw in late 2006. Again, I don’t think it will change much soon. So what is a brewer to do? We don’t have much choice – prices will probably go up to cover costs so we can stay in business. We don’t like it much, but I for one don’t see much of an alternative. If the market continues to want good craft beer, it will just have to understand what is happening and be willing to pay for it. There is some small consolation that current conditions will affect all beers, not just crafts - but the large producers have greater economies of scale and will be somewhat less affected. Those of us in the industry can only hope our customers realize that this is not the fault of the brewer, the retailer, or the distributor (the usual suspects that get blamed). This is not the result of brewers getting greedy in a hot business segment. It is simply a good example of supply and demand at work – an economic reality that isn’t always pleasant, but is certainly always enlightening. The cost of a six pack of good beer will still be a pretty affordable luxury relative to the cost of many other luxury items, so we all just need to decide what is important to us, and proceed without guilt or hesitation. However, don’t think you are being taken for granted - I know I speak for all of my brewing brethren when I say, “Thank you for your continued support! Today’s world of beer wouldn’t exist without you.” For comments, please click the area below or email me at hugh@ccbeer.com Feel free to forward to a friend by clicking on the envelope below.
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