E-Malt.com News article: USA: Consumers will be paying more for their favourite brews next year

A perfect storm of factors affecting beer making and distribution have come to a head, meaning that consumers will be paying more for their favorite brews next year, Online Athens posted on December 22nd.

A shortage of beer making grains, higher prices on those commodities, the weakening U.S. dollar and increasing costs for transportation have added to the price of brewing.

Hops and malted barley, the two essential ingredients for flavoring beer, have gone up in price significantly in the past month, with hops rising by as much as 400 percent in some markets. Hops provide the aroma and bitterness to beer while barley gives it color and sweetness. The skyrocketing costs of both will impact small breweries and imports the most.

"In the course of one week, hops prices increased three to four times what I was paying," said John Cochran, a founder and owner of Terrapin Beer Co. "A month ago, I was paying $5 a pound for Cascade (a popular hops) and now it's 20 bucks if I can find it."

English malts rose nearly 28 percent, and German malts increased even more at 47 percent, said Matt Buley, brewmaster at Copper Creek Brewing Co. in downtown Athens.

Those escalating costs are expected to translate into more expensive beer at the package store.

The price of a six-pack of beer from a microbrewer or craft beer maker likely will go up at least a $1 to a $1.50, said Sachin Patel with Five Points Bottle Shop.

"Those six packs you've been paying $7 for, expect them to go up a dollar if not $1.50," Patel said. "That's 15 percent just on U.S.-made craft beer."

Anheuser-Busch, which produces non-craft domestic beers such as Budweiser, Bud Light and Michelob, announced at the end of November that the company would be raising the prices of its major products early in 2008.

Most domestic beer prices should reflect a more modest increase because the majority of those beers are lagers that use less hops in their production, Patel said. Beer distributors have told Patel that prices are going up, but haven't said how much or when, he said.

Nowhere Bar owner Craig "Sky" Hertwig said the same thing. "My understanding is it's supposed to go up, but I have not seen any paperwork, and they have to give us that in advance," Hertwig said. "No distributors have given us any paperwork, so I have no earthly idea what is going to happen."

Whether the price increase affects his bar business will depend on how high costs go, Hertwig said. "If it only goes up $2 a case, we'll probably eat it, but if it's higher we'll look at raising our prices, and we usually go up by a quarter a bottle of beer," Hertwig said.

The prices for Anheuser-Busch brands should be increasing by only about 1.7 percent, said Brian Roth, marketing director with Leon Farmer & Co. the local distributor for Anheuser-Busch. "It's similar to normal adjusted increases to keep pace with inflation and the cost of goods and fuel prices," Roth said.

Larger beer makers like Anheuser-Busch and Coors, because of their size, have exclusive hops supply contracts and greater buying power, enabling them to buffer the effects of the hops crisis.

The current hops shortage has been building since 10 years ago when farmers produced an oversupply of hops, Terrapin's Cochran said. Because of the overabundance, the hops inventory was harvested, palletized and frozen. Brewers found it was cheaper to buy hops on the spot rather than contract with growers, so farmers weren't making as much money for their efforts, Cochran said.

Gradually, farmers began dropping the acreage devoted to hops plants and putting their work into other crops. In recent years, a mold decimated hops crops in Europe, and bad weather hurt American's yield of hops. The fervor for corn-based ethanol also compelled farmers to replace hops fields with corn.

Those trends resulted in a vastly reduced supply of hops now. "Worldwide acreage in hops is only 50 percent of what it was 10 years ago," Cochran said.

Additionally, the craft beer industry has enjoyed robust growth. Microbreweries sold 11 percent more in beer volume in the first half of the year, and revenues grew by 14 percent compared to last year, according to the Brewers Association, a craft beer trade organization.

For the entire year, the craft beer growth increase should be 17 percent, Cochran said. More craft brewers, which depend on hops to flavor their beer, means a greater demand for that much smaller supply. "This year's entire crop of hops was sold before it was harvested," Copper Creek's Buley said.

And as the law of supply and demand dictates, the greater the demand for product, the higher the cost.

Those higher prices will affect imports and heavily hopped craft beers even more than they will the large domestic brewers, Buley said.

"I see the price of a (craft) six pack going up at least $1 maybe even $3," Buley said. "I think $3 is a little absurd, but I'll bet (it will go up) a buck on a six-pack."

Buley has been brewing beer for 12 years, and in that time, he has never seen the cost of brewing materials like hops and barley escalate so dramatically. Beer makers expect to see higher prices, but the huge hike on hops was shocking, Buley said.

"I'm freaking out," Buley said. "For us, it's a significant increase of doing business."

As a whole, the price increases for hops and barley will add about $9,000 in expenses to Copper Creek, which operates as a microbrewery and a pub, Buley said. Suppliers haven't begun charging the higher rates yet, but Buley expects it at the first of the year. He and the owners of Copper Creek have been discussing how to adjust the prices of the draft beers they make and sell at the pub.

Copper Creek likely will charge an extra 25 cents per pint of its house brews, Buley said.

The downtown brewery and pub, however, won't feel the bite as badly as larger breweries like Terrapin in Athens and Sweetwater in Atlanta, Buley said. Copper Creek produces nearly 500 barrels of draft beer a year, but breweries like Sweet Water and Terrapin that produce bottle beer for package sales, make considerably more. Sweetwater produces nearly 50,000 barrels a year. Last year, Terrapin contracted to produce about 7,300 barrels, or 226,000 gallons, but the company just obtained a license to brew and bottle its own beer in Athens and expects to produce 20,000 barrels or 620,000 gallons.

Higher costs for production of those volumes add up quickly.

"Some of those larger operations are really going to be hit by the hops prices," Buley said.

Terrapin, which has procured about 85 percent of the hops it needs for next year's brewing, expects to absorb some of the increased hops and barley prices, rather than pass it on the consumer, Cochran said.

"We'll be eating some of it, probably passing on about half," Cochran said.

Prices on six packs of Terrapin's Rye Pale Ale and Golden Ale could go up 50 cents to 75 cents in Athens, Cochran said.

Higher costs aren't the only concern for Terrapin, though, Cochran said. Several varieties of hops have sold out completely with none available for 2008, Cochran said.

"The way it usually works is we contract out our needs for the next year, but all the 2008 hops are gone," Cochran said. "It's kind of an ugly situation."

The brewery planned to begin bottling an India-style brown ale in 2008, but likely will have to postpone that, Cochran said.

"(The hops shortage) is absolutely affecting our decisions on what beer to make," Cochran said. "We have to come up with something more malty and less hoppy."

"Terrapin makes hoppy beers," Cochran said. "It's hurting us more than some who make lighter style beers."

Terrapin's projected volumes of production for 2008 likely will be cut back, too, Cochran said.

Home brewers also will feel the pinch of higher beer making costs, but the limited supply of hops poses the biggest challenge for them as well, said Justin Manglitz, owner of Blockader Homebrew Supply in Athens.

"(The prices) are not that big a deal for home brewers," Manglitz said. "Most home brewers can afford to pay twice as much, but what's really been bad in home brewing is the availability."

Blockader normally carries 20 different varieties of hops, but now Manglitz only can get eight. Home brewers still can make about any kind of beer, but the ideal hops for certain beers are unavailable, he said.

Home beer makers use mostly European hops and barleys, which have seen the most drastic price increases, Manglitz said. Although the hops prices have quadrupled for his brewing supply business, Manglitz said he is charging his customers only half of that increase, cutting into his profit margins.

Still, Manglitz is optimistic about the future of beer making.

"Home brewing is not going away, and beer is not going away," he said.


27 December, 2007