DRAFT Magazine

A couple issues ago, Tim Cigelske (who writes DRAFTMag.com’s The Beer Runner blog) took a look at the growing hops shortage across the globe. He spoke with experts such as Samuel Adams’ Jim Koch and BridgePort Brewing Company’s Karl Ockert to determine what was causing the problem and how it could be fixed. Read on for Cigelske’s entire report.

What happened to the hops?

Somewhere in the Bavarian region of Germany, a camera stationed in a hops field captures images of crops and weather conditions and transmits them in real time to Samuel Adams brewery in Boston.

On this side of the Atlantic, owner Jim Koch keeps close watch over this immensely valuable crop. As a sixth-generation family brewer, he saw or heard about every one of his predecessors’ projects ultimately failing. He doesn’t want his to end the same way.

“All it takes is one hail storm,” Koch says, “and we’re screwed.”

Like nearly every other craft brewer, Koch’s business is being threatened by an unstable hops supply that has ranged from tight and exorbitantly priced to virtually non-existent since last fall. Conditions forced his brewery to wait until 2009 to start brewing the double IPA that won the 2007 LongShot home brewing contest. Then Koch further decreased his margin for error by selling off a small surplus of 20,000 pounds of hops at his purchase price of between $5 and $6 a pound.

On the open market, hops are selling for at least 3 to 5 times that amount. And that’s only when a supply is available, which has set off a feeding frenzy in each increasingly rare instance. The impact has already hit beer drinkers, who are paying up to a dollar more for draft pints and six-packs.

This spring, desperate brewers swamped Samuel Adams with requests for more than 100,000 pounds of hops when news spread of its offer. A lottery was held to determine who would receive what the country’s largest craft brewery could spare.

“It certainly increases the risk for us,” Koch says. “But it’s nowhere near as great as the
guys who don’t have any hops.”

The ongoing hops shortage — which has been described by many veterans in the beer industry as “the perfect storm” — caught most craft brewers off guard. For years, hops have been plentiful and cheap with no danger signs in sight. Most brewers who used them to provide the signature bitter flavor in their brews saw no need to lock up a supply under contract. In fact, they could usually get surplus ingredients cheaper in what’s known as the spot market.

But the supply suddenly dried up; now, brewers are faced with a widespread crisis, and the long-term fallout could cause permanent industry changes.

In many ways, the hops shortage is just one symptom of a worldwide crop market in turmoil. The price of food has soared 45 percent around the world in the last nine months, according to the Food and Agriculture Organization of the United Nations. This is due to a number of factors, including skyrocketing costs in energy and transportation, competition for space in fields used to grow biofuels, crop-damaging floods and droughts and rapid industrialization in other parts of the world that increased demand for grains. Surging prices for other raw beer ingredients including malt, wheat and even glass have only added pressure on brewers.

“It’s like two trains headed toward each other at high speed,” says Karl Ockert, brewmaster of BridgePort Brewing Company in Portland, Ore. “I’ve been in business 25 years and I’ve never seen this before.”

Ockert said he normally receives his annual hops supply in two truckloads — but not this year. He couldn’t get an insurance company to cover the value of a single shipment. He had to split the load into three separate trips.

“I was just about to ask the driver to carry a shotgun,” he quips.
Ockert said niche producers of high-hop beers will have to raise prices, take big losses or overhaul their recipes. He expects more breweries to focus on wheat or fruit beers and even “dumb down” their ale formulas.

“I don’t want to be alarmist,” he said. “But realistically, something has to give.”
Ockert was at least fortunate enough — after being nudged by longtime associates in the hops industry — to sign a contract to guarantee hops shipments through 2009. But now, even the brewers with contracts are concerned.

“There is some worry in the industry that not all these contracts will be upheld,” says Andy Tveekrem, brewmaster of Dogfish Head Brewery, who signed a deal through 2009. “And we can’t make our beer without hops. Well, we can, but it’s not very interesting.”

Tveekrem said Dogfish buys enough hops for a brewer fives times its size in order to make imperial IPAs, which account for two-thirds of the brewery’s sales. He’s received e-mails from customers inquiring if they’ll still be able to get their favorite beers. If worse came to worse, Tveekrem says, he may have to tweak recipes. “I think we can change some ingredients and probably not have anyone even know, but we’d rather not do that.”

Those who didn’t contract have resorted to begging, borrowing and bartering with other breweries to scrounge up hop varieties they’re lacking. There are different hop varieties, from bittering agents to those that account for aroma. Adam Avery of Avery Brewing Co. in Boulder, Colo., relied on trading different styles to keep making their extremely hoppy beers.

“That’s pretty unusual,” Avery says. “I don’t think Apple would be selling keyboards to Microsoft.”

Avery is increasing his use of hops, including adding 25 percent more hops to his New World Porter and introducing two more ales. He says customers demand it, as sales of their No. 1-selling IPA alone jumped nearly 70 percent last year. The beer uses a staggering eight pounds of hops per barrel, and Avery said to change the formulas now would undermine his growing business.

“I’m afraid of not making the beers I like to make,” he says. “It really couldn’t be any worse for us as an industry, except that we’re growing like gangbusters.”

Indeed, while the hops supply has dwindled, demand has never been higher. More than 1,500 microbreweries sprouted in the 1990s, and they all had plentiful hops supplies to quench beer drinkers’ increasingly sophisticated tastes. A typical model is Albuquerque’s Chama River Brewing Co., where an IPA containing four varieties of hops accounts for a third of the brewpub’s beer sales. Chama River proved so successful that its investors decided to distribute a new line of craft beer called Marble Brewery, and it’s no accident they chose a hop leaf as their logo.

“When someone first gets into craft beers, they settle into an IPA or a pale ale as their go-to beer,” explains Ted Rice, director of brewery operations for Chama River and Marble breweries.

But Rice has had to make sacrifices to meet demand, which exceeded even his expectations. He delayed the launch of Marble’s line and dipped into its hops stock, which he ordered before the shortage. He also decided to phase out a pale ale to conserve for hoppier beers.

“Things aren’t as freewheeling as they used to be,” Rice says.

Hop farmers have heard brewers’ cries, and they’re doing all they can to help. In Washington’s Yakima Valley, where most domestic hops are grown, farmers are tearing up other crops to plant hops. Brewers have become more cautious and are signing long-term contracts for hops, which help stabilize the market by providing farmers with steady income and allow them to better meet expectations.

“We’re in this together,” says Gayle Goschie, owner of Goschie Farms in Oregon. “We need brewers, and brewers need hop growers.”

But relief won’t come instantly. Farmers who scraped by while hops were overly plentiful can’t afford too many additional acres, which requires a pricey investment to plant, maintain and harvest. Even when farmers are putting more aces into cultivation, it takes up to three years to produce a viable crop.

“It’s not an investment you jump in and out of,” says Goschie, whose family has grown hops for more than 100 years. “We’re in it for the long run. We don’t want a couple of years where the market has gone berserk to impact the relationships we have with our brewers.”

Goschie is no more certain about what will happen in the future than anyone else in the beer industry. The picture will be clearer when this year’s harvest is delivered to brewers at the end of the summer.

Koch of Samuel Adams, who has endured shortages before, has survived with the help of other brewers who came to his aid, just as he decided to help the industry by sharing his hops. He expects brewers to emerge from this shortage weathered but wiser and more resilient — for next time.

“It will happen again,” he says. “But craft brewers are survivors.”

– By Tim Cigelske