Craft beer industry could be caught on the hops as shortage looms

Blighted European hop harvest last year and growing demand for craft beer may see prices rise too high for some independent brewers

Fans of craft beer could soon face higher bar bills as small, independent brewers face a potentially serious shortage of hops.

The hot and dry weather last summer blighted the European hop harvest, and strong demand for craft beers, many of which use a large amount of hops, is putting small brewers profit margins under pressure and forcing them to raise prices.

Prices of some hop varieties have risen by up to 50%, industry sources say, while others are up to five times more expensive or simply not available, according to insiders.

On his farm at Boughton Under Blean in Kent, Tony Redsell has been growing hops since 1948, and some of the varieties he cultivates, strung along yarns supported by rows of high poles in the traditional fashion, are more than 200 years old.

He sells most of his hops under contract to small brewers in the US and his prices have risen by 20% in the past three years. Last year, the German crop was well down and American growers could not make up the difference, suggesting that prices will go up again.

The growth of craft brewing in the US has boosted demand for English varieties, Redsell told Reuters. Its a good time to be a hop farmer.

Most brewers have contracts with hop growers that protect them from sudden price surges, but future supply is at risk. The scarcity may get worse as multinationals such as AB InBev and SABMiller buy up craft beer brands and ramp up their production.

Bill Manley, the small batch product manager at Californian craft beer pioneer Sierra Nevada, said: Its tough for brewers, especially brewers that dont have hop contracts or who were a little late to the contracting game.

According to Manley, you have to go around and knock on doors like a neighbour trying to borrow a cup of sugar if you require more hops than projected due to better than expected sales.

Along with water, malt and yeast, hops are one of the main ingredients of beer. Germany and the US are the two dominant hop growers, each accounting for one-third of global production.

Germanys harvest fell by 27% last summer, according to the International Hop Growers Convention. There were also sharp declines in Czech Republic and Slovenia.

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A selection of beers at a bar in New York. The US accounts for one-third of global hop production. Photograph: Brendan Mcdermid/Reuters

Stephan Barth from hop company Barth Haas Group said: There has been a considerable tightening of supplies on the European hop market after the major reduction in the 2015 harvest, with a sharp increase in prices.

Europe will need at least an average harvest in 2016; otherwise, we could see serious supply shortages.

Barth said some hop prices had already shot up by between 35% and 50% depending on type since last summer.

Craft beers are produced by small, independent brewers using traditional methods. Popular styles such as India pale ale can use six times as much hops as typical lagers.

Rabobank analysts Ciska van den Berg and Francois Sonneville forecast an increase in global beer consumption of about 1% in 2016 as drinkers continue to turn to craft beers.

Craft beer accounts for one in every eight pints sold in the US and is becoming more popular elsewhere, according to Bart Watson, the chief economist at the Brewers Association.

Were seeing small and independent brewers spring up in a variety of locations across the globe. Europe, particularly northern Europe, is one area, he said.

Hops often range in price from about $3 a pound to $25 a pound (2-18), but extreme demand can push prices higher.

Hops fall into two main categories: alpha, which give beer its bitterness, and aroma, which enhance smell and flavour. Aroma hops are currently either unavailable or in very short supply, but ways have been found to help brewers.

Barth said: By shifting inventories from well-stocked breweries to those in need, the hop merchants have been able to balance the market.

Sierra Nevada, which helped launch the American craft beer movement with its flagship Pale Ale in 1980, said that given the perishability of hops, brewers will often transfer them to other beer makers if they have more than they need.

Manley said: Sometimes well trade like 60 empty bourbon barrels for 500 pounds of hops, or something like that.

Small brewers are also making beers that use fewer hops, while still retaining their flavour, or using less popular, cheaper varieties.

Rabobank said high prices would bring an increase in plantings, but since it takes three years for a new hop field to reach full yield, hop prices would rise further this year.

This would not affect mainstream beers, where hops make up 2% at most of the price, Barth said. But craft beers have a higher proportion of hops and so an impact on prices may be seen.

Read more: http://www.theguardian.com/business/2016/apr/11/craft-beer-industry-hop-shortage