Good beer guide: Local brewers need our support

By George Zens

The craft beer industry has been growing in leaps and bounds over the past decade, persistently nibbling away at the industrial brewers’ stranglehold on the beer market, and surviving despite lawmakers’ best efforts to throttle it. But now it is facing an obstacle that poses a serious threat.

Beer lovers will have noticed that the price of many of their favorite brews has increased over the past few months – if they are still available at all. It’s the result of several phenomena lining up to create an almost perfect storm: a shortage of hops, steep rises in the price of grain, and the consequences of the increased price of oil.

As Carl Nolen, president of Middleton’s Capital Brewery, sees it, this is about a lot more than rising beer prices:

“There’s a lot at stake here. The soaring cost of goods is the biggest single threat I’ve ever seen to the craft brewing industry. If costs cannot be control, the implications could be that we will see less product innovation – small brewers will stop launching new products because the costs of brining new products to market are very high already. Brewers might also reformulate beers to take them from being unprofitable to being profitable. We might beers be retired or suspended – put on the bench for a while until they can bring them, because the costs to make them are too much out of control. It has also led to businesses that wanted to get into brewing put their plans on hold. What’s really crazy about all that is that there wasn’t a better time to be in the craft beer industry because consumers are so supportive of local initiatives. But now we have these threats that for a change are not legislative, they are not environmental, they are not competitive, but they are totally uncontrollable by the brewer – that’s where it becomes frustrating.”

It is difficult to pin the rising prices of ingredients down to one particular reason. Rather, it is likely that several factors combined to create the problem, which is finally amplified by the rising price of oil.

In the case of barley, the main aspect seems to be that simply less of it is grown, essentially because farmers have switched to other crops. Bad harvests in other parts of the world have also had a considerable influence.

This is also the case for hops. Bad harvests combined with the fact that many hops farmers got out of the business because a glut in previous years kept prices low have led to a worldwide shortage. And since newly planted hops take three years to produce their first harvest, the supply won’t rebound very quickly.

Capital Brewery has seen its grain and hops costs increase between 100 and 500 percent:

“When it comes to hops, the problem isn’t necessarily price, but availability. They simply aren’t there.”

About 15 months ago, Capital was paying about three dollars for a pound of their principal hops:

“We were lucky to lock into a contract in January at $7.90 a pound – for the same item. But I know brewers who were just a month behind us and got in at $29! Others can’t even get their phone calls to the hops suppliers answered anymore.”

Grain has risen from thirteen cents a pound to 38 cents a pound within a few months, and is expected to go up another dime before the end of the year.

While much lower, pound for pound, than the price of hops, the price of grain has a bigger impact on a brewery’s bottom line because it is used by the ton, as opposed to by the pound for hops.

Rising energy prices impact many other aspects of the brewing business, from transportation to bottling and packaging. According to Carl Nolen, glass and packaging have added another dollar to the price of a case of beer.

Capital Brewery has had to raise the price of their beers once this year already, and they’ll have to do it again in August, when the price of a six-pack will probably go up another dollar:

“It’s a 12 percent increase to help absorb a one hundred to five hundred percent ingredient price increase, but I am nervous about it. People are enjoying craft beers and we have very loyal customers, but there is the threat that we are going to cost ourselves out of affordability. Or that brands will not be available anymore. We haven’t seen the end of this yet.”

One local casualty of the hop shortage is Lake Louie’s Kiss The Lips I.P.A., and Lake Louie’s Tom Porter predicts more fall-out:

“Some of the hoppy beers will be really hard to produce come winter time”, mainly because many brewers will have used up their supply of hops and have their hopes resting on a good ’08 harvest.

According to Tom Porter, Lake Louie is “okay for the short term, but it is tight. We had to get a little crafty, making the best of the hops we have and tweaking some recipes.”

While this might challenge a brewer’s creativity, the increased costs of grain and the energy-related costs could threaten a business’s survival:

“The fun and easy days of brewing are over,” says Tom Porter. “Now we have to attend to the business end of things, and make our operations more efficient.”

Fauerbach’s line-up of beers leans more towards the malty side, so they aren’t quite as impacted by the hops shortage, but Peter Fauerbach feels the pinch nonetheless:

“The increased price of grains and energy influence everything. We haven’t dropped any brands, but we had to raise prices.”

Fred Gray, brewmaster at Gray’s Brewing in Janesville and contract-brewer for Fauerbach, concurs:

“We try to use economies of scale and scale back on very hoppy beers, but price increases are inevitable. It has a very negative effect.”

The Ale Asylum in Madison is known for its famously hoppy, and very popular, Hoppalicious pale ale. Brewmaster Dean Coffee managed to save it, but only at the cost of being locked in some “horrific contracts – it’s basically take it or leave it.”

At Furthermore Brewing, the price increases forced a change in priorities, as Chris Staples explains:

"Because of the hops shortage, we had to write a great, big fat check at the beginning of the year for a full year's worth of hops. We paid about 400 percent more for hops in 2008 than in 2007.
The two results of the increased cost and shortage of availability are that we had to make minor recipe adjustments and our cash flow went towards hops instead of a fermenter, which was not what we had planned."

As discerning beer drinkers, our mission is clear: support your local brewery.

Resources:
www.aleasylum.com
www.capital-brewery.com
www.fauerbachbrewery.com
www.furthermorebeer.com
www.graysbrewing.com
www.lakelouie.com