NEW YORK -- The sharpest increase in decades in the cost of hops and barley is about to drive up the retail price of craft beers, according to a Wall Street Journal report.
Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch craft beers, as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops, said the report.
Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, [image-nocss] say they may eat the higher ingredient costs, which will pare their profits.
The hops are to Samuel Adams what grapes are to wine, Jim Koch, founder of Boston Beer Co., maker of Samuel Adams Boston Lager, told the newspaper. The company has raised its prices just over 3% this year to help offset the hops and barley costs. Koch said that for next year, the company is probably looking at the same or maybe more.
The cost increases have been the largest we've ever faced, both in barley and in hops, added Koch, who founded the company in 1984. The company only buys hops that are grown on several thousand acres in Bavaria, and the crop has been smaller in the past two years, making them more expensive.
The cost pressures could slow the expansion of American craft brewers, which account for about 5% of U.S. beer revenue, and even put some smaller ones out of business, the report said. Craft-beer makers also are battling other cost increases, including higher prices for glass, cardboard, gasoline and the stainless steel used to make beer kegs. People are very concerned, Kim Jordan, co-founder of Colorado's New Belgium Brewing Co., which makes Fat Tire Amber Ale, told the paper. It significantly affects profitability.
Big American brewers like Anheuser-Busch Cos. and SABMiller PLC's Miller Brewing Co. also face cost increases, but the impact isn't nearly as great for them, said the Journal. They use much less hops and barley in most of their beers, which is why they are lighter in taste and calories. A barrel of craft brew Sierra Nevada Pale Ale, for example, has about twice the malt and as many as five times the hops of a mass-market brew, like Budweiser or Miller High Life.
Large beer makers are also better able to secure long-term contracts to mitigate the impact of rising ingredient costs, the report said.
The craft-beer segment has been among the few bright spots in the slow-growing U.S. beer industry, the report said. The number of barrels of craft beers sold rose 11% in the first half of this year against year-earlier levels, according to the Journal, citing data from the Brewers Association. Meanwhile, the Beer Institute projects total U.S. beer sales, by barrel, will rise 1.5% this year. The boom in craft beers reflects heightened awareness of their brands and a willingness by American beer drinkers to pay an extra $2 or $3 per six pack to get a premium product.
Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer's color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe, said the report.
The news worsened for craft brewers significantly in recent weeks. Firms that turn barley into brewing malt informed craft brewers of price increases ranging from 40% to 80%, and hops suppliers announced increases ranging from 20% to 100%, depending on the variety of hops.
The price of hopswhich give beers their bitterness and aromahas risen because of shortages across the globe, due in part to poor crops in Europe. Some European brewers are competing with American brewers for hops grown in the Pacific Northwest.
For years, hops were cheap due to a glut, the report said. That prompted growers over the past decade to replace hops with other crops, such as apples. Now, the amount of hops acres worldwide is about half the total of 12 years ago, Ralph Olson, a hops dealer with Hopunion CBS LLC in Yakima, Wash., told the paper. That has caused some hops varieties to quadruple in price over the past year, he added.
To cope with higher malt and hops prices, smaller brewers are trying to secure longer-term contracts for the ingredients. And, in some cases, they are tweaking their recipes.
Boston Beer has inked long-term contracts for some of its ingredient needs. But many smaller brewers, such as Allagash Brewing Co. in Portland, Maine, buy hops and malt on the open market, exposing them to huge price swings, the report said.
Rob Tod, president of Allagash, said the company expects to absorb some of the recent cost increases. But it will likely impose some price increases, resulting in a four-pack of its Allagash White costing about $9 at retailers in the Northeast, up about 50 cents. We're getting hit on all sides, he told the paper.
Ken Grossman, the founder of Sierra Nevada Brewing Co., Chico, Calif., said the brewer plans some price increases, but it is better positioned than others because a price spike for hops in the early 1980s prompted him to sign long-term contracts. I've gotten calls of panic from other brewers, he told the Journal.
Dogfish Head Craft Brewery Inc., Milton, Del., is coping by trying to make its operations more efficient, locking in commodity contracts as early as possible and weighing a price increase, said brewmaster Andy Tveekrem, whose company is known for hoppy beers like 60 Minute IPA, or India pale ale. I think there's going to be some brewers out thereif they haven't looked that far ahead, that actually might run out of malt or hops, which would be a catastrophe, he told the paper.
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