Dollar drafts may be a thing of the past. That's because hops and barley, the two agricultural cornerstones of beer production, have seen price hikes in the past few months that make crude oil look affordable: 100 to 400 percent for hops; 25 to 50 percent for barley, which is made into malt.
In Vermont, which has the largest number of artisan brewers per capita in the country, this is sobering news. Brewpub customers will likely be seeing higher print prices — between 25 and 50 cents — within a few weeks. Larger bottlers will likely stay the course for a while, but a comparable rise in six-pack prices is expected within the next six months.
Hops are a hot commodity. "Last year was a poor harvest to begin with," says Bryan Bechard of North Country Malt Supply in Champlain, New York. "There were also fewer acres being planted, in part because of the gigantic increase in U.S. corn production. World consumption of beer — notably in Southeast Asia and third-world countries — has also shown double-digit increases," Bechard continues. "More demand and less supply means price increases, but the extent of the increase has surprised me."
Bechard calls it a "perfect storm" in the small-scale beer market.
An additional problem is the immense pressure that big-beer makers such as Coors and Miller have put on hops and barley farmers for the last 20 years. In a seemingly perpetual buyer's market, farmers saw flat or falling prices, and many simply gave up on the business altogether. The few that remain are seeing their fortunes reverse and are suddenly looking to make up for past losses.
The immediate question for Vermont's cadre of small- and medium-scale breweries is how they're going to adjust to the change without pricing themselves out of a highly competitive beer market. The options come down to: a) change recipes; b) cut more esoteric or seasonal brews in favor of bigger sellers; c) cut other costs to compensate; or d) raise prices. None of these choices is desirable.
To Steve Parks, owner and head instructor of the American Brewers' Guild in Salisbury and head brewer at Otter Creek Brewers in Middlebury, salvation lies in preserving the brand at all costs, even if it means more expensive beer.
"Some price increases are going to be inevitable," Parks admits. "None of the small brewers are making money hand over fist; we're all working on slim margins and always have been. I think we can sustain a price increase. The key is not to panic and radically change recipes or product lines," he suggests. If people can no longer taste the difference between products, he says, "That's real trouble."
Greg Noonan, owner of the Vermont Pub and Brewery in Burlington, sees hope in the possibility of weaning beer drinkers from extra-hoppy brews, such as American brown ale, to more lager-based ones.
"It's a change that was likely overdue anyway," says Noonan. "And recipe shifts will simply have to happen for the small guys, because at some point they will run out of hops." The problem is more availability than cost, he says. "So, what do you do? You innovate."
Parks of Otter Creek sees a virtue in brewpubs adjusting both price and taste. As the smallest of the local beer manufacturers, they will be particularly vulnerable this year. "Your 25,000 to 30,000 barrel per year breweries — Otter Creek, Harpoon, Magic Hat, Long Trail — most if not all have already bought their contracts for the brewing year," he says. "And even though they are looking at higher ingredient costs, it's nothing like what a pub has to pay in the spot market. They could be seeing that nightmare 400 percent increase."
Even amid such market volatility, local beer makers exhibit an inspiring amount of solidarity. Under the circumstances, you might expect them to hoard ingredients and flex any possible muscle to win favor with hops and malt suppliers. But exactly the opposite is going on.
"It's very common for colleagues to beg and plead [with] others for supplies," Parks continues. "For any brewer who has been in business only during the boom times of the last 20 years or so, this is the first serious threat they might have faced. So we all try to help as much as we can."
It's going to be a challenging year for homebrew aficionados, too. Anne Whyte, owner of Vermont Homebrew Supply in Winooski, was hit particularly hard, and with virtually no notice.
"It's been shocking — as recently as October, we were able to call up our hop dealers, place an order, and were able to get them," she says. "In a couple of weeks, we discovered that, for all intents and purposes, the hop harvest of 2007 had been sold. There was actual rationing . . . followed quickly by a tripling in prices."
Acknowledging that her business is a "little fish in a big pond," Whyte came to terms with the reality that she had neither the buying power nor the financial resources to negotiate aggressively, and so relied upon her customers to understand and adjust. So far the results are encouraging, but not without a price.
"Thank goodness we've still got a good variety of supplies, but we have to forecast our hop needs until next October and buy them all now, which is a huge hit," Whyte laments. "What alternatives do we have? Without hops, we are out of business."
What about local suppliers? Hops is a close relative of marijuana, which grows abundantly in Vermont.
UVM's Plant & Soil Science Department conducted an in-depth study of hops production nearly 20 years ago. It concluded that Vermont's short growing seasons and early frosts make commercial growing difficult and results unpredictable. Oregon and Washington — with their long and relatively warm growing seasons — have produced most of the country's hops since Prohibition.
Whyte says some of her customers grow their own, but it's a tricky proposition. Hops is a perennial, "and you have to plant it two to three years before you'll get a decent harvest," she explains. "They are vulnerable to aphids and mildew and Japanese Beetles, so it's not something that you can just walk away from after planting."
Global warming could change all that. "Let's face it: The climate has changed in the last 20 years," Whyte offers. "It might be time for a new UVM study."
In the meantime, Whyte is counting on local customer loyalty. "This is a business like very few others," she offers. "The brewers are concerned about us staying in business, and they are taking the longer and wider view that we have to get through this together. If I have to adjust the type or amount of hops in our ale recipes, homebrewers — being inherently innovative and adaptive — are the kind of people who will understand. So far we are doing all right."
How long will the hops and barley price hikes continue? Depends on who you ask, but local brewers may not see a hops price correction for two to five years. Crops planted next year need to be harvested, processed — this step alone can take a year — and delivered, so holding out for the 2009 hops crop is the only option for now. Adjustments in barley prices may come within a year.
Noonan holds out hope for an impending corn glut. "People are already talking about a corn bust," he says. "I think we've way overextended ourselves with corn, and farmers will recognize that they need to plant crops in demand. It all boils down to simple economics. But for the time being," Noonan says, "we are going to have to hold on and stick together."