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Beer prices to hop on shortages

November 14, 2007|From the Associated Press

SUNNYSIDE, WASH. — Fans of Snipes Mountain Brewery's cloudy Hefeweizen relish the subtle wheat flavor of the bright, summery brew, and like beer drinkers everywhere they know when their favorite brew tastes a little too hoppy or bitter.

Connoisseurs could be in for a surprise this year, and they may not be alone.

Small brewers worldwide face the daunting prospect of tweaking their recipes or experimenting less with new brews thanks to a global shortage of one key beer ingredient and rising prices for others.

Oh, and one other thing: Beer prices are likely to climb. How high is anybody's guess. Craft brewers don't have the means to hedge against rising prices, like their industrial rivals.

"I'm guessing, at a minimum, at least a 10% jump in beer prices for the average consumer before the end of the year," said Terry Butler, brew master at central Washington's Snipes Mountain.

Sales have been relatively flat in recent years among the country's big three brewers -- Anheuser-Busch Cos., Molson Coors Brewing Co. and Miller Brewing Co. -- whereas small, independent brewers have experienced tremendous growth.

The craft brewing industry experienced a 12% increase by volume in 2006, with 6.7 million barrels of beer. Sales among microbreweries, which produce fewer than 15,000 barrels per year, grew 16% in 2006.

Now the bright spot in the brewing industry is facing mounting costs on nearly every front. Fuel, aluminum and glass prices have been going up over several years. Barley and wheat prices have skyrocketed as more farmers plant corn to meet rising demand for ethanol, while other farmers plant feed crops to replace acres lost to corn.

A decade-long oversupply of hops that caused farmers to abandon the crop is finally gone and harvests were down this year. In the U.S., where one-fourth of the world's hops are grown, acreage fell 30% between 1995 and 2006.

Australia endured its worst drought on record. Hailstorms across Europe damaged crops. Extreme heat in the Western U.S. hurt both yields and quality.

Big brewers can hedge against rising prices for raw ingredients and can negotiate longer-term contracts, while smaller brewers generally are left with whatever remains.

Snipes Mountain saw its barley malt prices grow 10% to 15% this year, and it paid $12.35 a pound for Cascade hops, far beyond the $5.60 allotted last year.

Those rising prices, and in some cases shortages, may force Butler to rethink his lineup of 13 beers in the months ahead. He'll also be tinkering with a Hefeweizen recipe that relies on Saaz hops, a mild variety popular with Bohemian pilseners, after severe weather in Europe dinged as much as 40% of the crop.

"Palate-wise, it may change the flavor a little bit, but only a little bit," he said.

Brewers at Tommyknocker Brewery in Idaho Springs, Colo., already have been doing some tinkering of their own. Last year, a slim supply of Hallertau hops forced them to substitute the Mount Hood variety, slightly altering their three lagers: Alpine Glacier Lager, Butt Head Bock and Ornery Amber Lager.

The brewery contracted for hops a year in advance, allowing it to switch back again this year, lead brewer Eric Rode said. But recipe tweaking is becoming more common, and it's likely to continue, he said.

Those contracts also enabled Tommyknocker to hold the line on prices, with only a 50-cent increase per case wholesale, largely because of rising glass prices. The numbers could be much bigger when soaring costs of raw ingredients are factored in next year, he said.

So far, price increases have been modest -- less than a dollar a 12-pack at retail, said Harry Schuhmacher, editor of the online trade publication Beer Business Daily.

"Brewers are trying to take pricing up, but it's hard when beer is pretty sensitive to pricing per volume," Schuhmacher said.

On the other hand, smaller brewers have more pricing power than the big guys do. "They're able to increase pricing more without losing drinkers," he said.

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