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Home | The Hop Bine | The real value of hops

The real value of hops

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The once-humble hop, its value reconsidered

Current concerns about pricing are overhyped

The sky is falling, brewing division. You’ll be aware that there’s a bit of a panic on at the moment, at least in the media, with London’s usually reserved Financial Times stirring things up, taking the lead on allegedly soaring hop prices. Interest in all things craft has led to the realisation that muscling up your average barrel of beer with considerably more raw material can result in both a) shortages of said material, and b) paying more for the privilege.

True, for some niche hops there are scarcities and these varieties are priced accordingly. And there’s competition aplenty for varieties coming into the market, limited releases that can provide commercial quantities for just one or two brewers but attached with kudos aplenty from craft beer aficionados seeking the latest excitements.

But as needs must in an Internet-linked world voracious for immediate news, the underlying trends – what’s really happening in hop markets – have been oversimplified in this burst of sensationalist headlines.

In recent years it hasn’t been a banner proposition to be a hop grower, or supplier. Throughout the 1990s and into the new millennium a grower could expect to achieve prices that would barely cover the cost of his inputs, let alone provide a profit. Industrial scale brewers looked to ‘high alpha’ varieties, those with the highest percentages of bittering alpha acids possible, in order to minimise costs. 

And hops were, by and large, treated as a commodity. Associated marketing efforts were confined to the back label, with consumers assured that the ‘highest quality malt and hops’ had gone into the brewing of the brand of their choice. Efforts centred instead on associating brands with music, sports – looking back, it is astonishing how little attention has devoted to the product per se. 

Growers and suppliers also faced a second problem – a dearth of forward contracts. In years of oversupply growers could count on purchasing their remaining, non-contracted, requirements on the spot market at discounted rates.

Sure, there was an element of risk. If there were poor harvests, as was the case in consecutive years in 2007 and 2008, prices could skyrocket, leaving brewers to exhaust their cold room stores of hops. And in the aftermath of such shocks forward contracting would resume again, at least for a while.

But underlying damage was done to the supply chain. Growers unable to count on future income were unable to reinvest in expensive trellises that support the hop bines, and in other inputs. Some cut back on their hop plantings; others left the industry altogether in favour of more profitable crops. 

The craft revolution

The arrival of craft brewers en masse is providing a short, sharp shock to the brewing industry. These guys and gals like hops, delighting in what an aroma, or ‘flavour’ hop can do to their brews. Not for them are high alpha varieties, which offer comparatively little in the way of aroma characteristics.

And they stuff lots and lots of these hops into their kettles. Thomas Raiser, head of sales at the Barth-Haas Group, estimated this time last year that America’s craft brewers, then at seven per cent of market share, combined to use the same amount of hops as the country’s industrial scale brewers. This was possible due to high hopping rates, around eight to 10 times greater than their light lager focused counterparts.

It means that hop varieties with low alpha acid percentages are being used for bittering craft beers. This is not the most economical of choices: you will have better utilisation rates with high alpha varieties. But it does mean that you are willing to pay more for your hops – with the rush to purchase aroma hops over alpha hops, the prices of the former, which previously languished, are now anywhere up to five times that of the latter.

While hop prices are rising, it’s a price that craft brewers by and large are willing to pay. The current hop shortages for aroma varieties will ease in due course as land devoted to alpha is given over to flavour and aroma varieties. 

And there’s another element of uncertainty for all concerned: varieties that are suddenly in favour today may not be tomorrow, leaving suppliers with unwanted surpluses. The reverse is also possible: suppliers may abandon certain new-to-market varieties because of unanticipated production costs, or disease susceptibility, leaving brewers bereft.

The gathering storm

The implication is that what we’re witnessing today, the imbalance between supply and demand and the resulting price spikes, is set to become an industry-wide issue if current trends continue. 

Growers who continue with high alpha varieties are now in a position to demand a comparable return as for those with aroma varieties. And, as Raiser noted this time last year, hop growers, no fools they, are switching from alpha to better margin aroma varieties, at some point applying pressure on alpha prices as quantities available start to shrink.

But there’s a twist in the tale. Considered in isolation, hops are becoming more expensive; considered in the context of the other costs of making and marketing a beer, they’re downright cheap. 

It’s a point brought home by Tim Lord, managing director of Hop Products Australia (part of the Barth Haas Group). In a recent interview with Brewers’ Guardian, Lord was discussing the impact of craft brewers on the hop industry. He commented, “The hop becomes the king; it becomes something the consumer they can relate to, something they can taste and smell which they are interested in but still, at the end of the day when you are putting a lot of hops in, it’s probably still less than the cost of the labels on the bottle, for example.”

In focusing almost solely on pricing we’re in danger here of satisfying Oscar Wilde’s definition of a cynic – someone who knows the price of everything and the value of nothing. While prices will rise, they will remain manageable in the context of other inputs.

What the craft brewers real contribution to hops is their ability to create and experiment with, to heighten and challenge the senses with their use of this most modest of materials. And to make sure that consumers are informed of their value. 

The real challenge to the industry at large isn’t on price, or on scarcity. It’s simply this: craft brewers have identified hops and raw materials generally as their battleground. Everyone else needs to rethink what innovation is – and how high the cost of failing to do so could become. 

A verison of this column was first published by the good people at www.just-drinks.com

 

 

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