As we prepare to head over to Germany to visit the Brau Beviale in Nurnberg, my thoughts naturally turned toward Germany … in particular the effect the craft revolution is having on hop growers there.
Just the other day, I heard an interesting story. Analysts were alarmed because the craft industry is only growing at 19% over last year during the last quarter instead of the 21% that some analysts anticipated. Think of that growth for a minute and think how difficult it would be if you were a hop farmer to increase the size of your farm 20% each year.
The United States is far away from Germany. What happens here doesn’t doesn’t affect those guys way over in Germany, you say? Maybe you’ll tell me about how the price of tea in China also affects German hop growers
? This demand for craft beer can’t last forever, you say? It may be easy not to see the forest for the trees. It’s also true, nothing lasts forever. For the foreseeable future though, this craft thing seems to have legs! For some reason though
, American craft beer demand has translated into very few tangible results for the German hop farmer despite the rumors of a very real and rapidly growing demand for some of the newer German varieties such as Mandarina Bavaria, Hull Melon and Hallertau Blanc
Prices to German hop farmers don’t reflect the demand (i.e., they haven’t gone up) so the farmers are not getting the signals they need to plant more. The result is that very few new hectares of these varieties are being planted.
Instead, German growers continue to change from Magnum to Herkules to get more efficient alpha acid … great idea, very 20th century. Opa would be proud.
Every week, the German hop farmer reads an article about American craft beer growing. He hears how American hop farmers are removing alpha hop acreage and imagines that soon there will be no alpha production there.
This is an opportunity they think! Unfortunately, t
hat is not entirely true.
Craft brewers use alpha hops too, but it is true that soon very few American hop farmers will be growing for the traditional alpha markets. American hop farmers are focused on the craft industry like a laser beam and will produce for them whatever they need, and it will be at a fair price and on contract.
Those are reasonable demands by the hop farmer, aren’t they?
Today that means American alpha prices must compete with aroma prices on a dollars per acre basis.
What does that mean in real terms, in dollars?
An average American hop farmer expects to receive no less than $9,000 per acre (17,503 Euros/Hectare)
, and that number is increasing.
Varieties in very high demand with short supply will sell for $12,000 – $14,000 per acre (23,338 – 27,228 Euros per hectare). I believe in the next couple years these prices will look cheap. So …
Why are German hop farmers asking for less?
That is, quite literally, the million dollar question.
Is there no longer demand for German aroma varieties?
Is there not enough demand for German hop varieties to warrant such prices too?
These are reasonable questions for German growers who hope to receive 12,000 Euros/hectare ($6,170 per acre) to ask themselves.
The answer is simple. There is unprecedented demand for new varieties like Mandarina Bavaria, Hallertau Blanc and Hull Melon. Demand is even increasing, albeit more slowly, for more traditional German varieties. That demand is not a fad.
It’s a trend. Large breweries are already buying large quantities of the new varieties and committing to them on 5-year contracts
. Other smaller brewers taste and read about the successful beers these large brewers make.
They see the sales and they want to do the same. Makes sense to me.
New varieties are the trend in the American craft beer industry if they offer something unique and preferably citrusy, not just new for new sake.
News Flash for all those European growers who think they’re clever by growing Cascade: Cascade grown in Europe won’t have the same characteristics as Cascade from Washington State. European growers should stick to growing what they already excel at, amazing varieties that were developed for Europe. Don’t just try to grow American varieties cheaper. That’s not a good plan.
Prices to the German grower don’t reflect the demand for these new aroma varieties so they are not being planted in adequate quantities.
Perhaps the German merchants think that there will be hops on every hectare between Nurnberg and Munich if they increase the price. I’ve actually heard that one!
Perhaps they think they are doing the industry a favor by managing the supply. Heard that one too!
Perhaps they are just trying to stock up on cheap alpha prior to the next shortage. Who knows, but it wouldn’t be such a crazy idea. Perhaps German hop farmers are just price takers, not price makers. One thing is certain. Every year, more new varieties are released. This further dilutes the demand and opportunity for existing new varieties and gives more choice to the brewer. If you are growing something special, regardless of whether you are in New Zealand, Germany or Washington State, this translates into greater competition and less likelihood that the customer will buy your special variety in the future. The farmers who plant early, the early adopters, will benefit the most
. Demand is there.
Each year a German hop farmer waits to plant new hectares of special aroma varieties in demand creates an opportunity for somebody else. You cannot continue to grow Perle, Magnum and Tradition in the Hallertau and be competitive. Farmers must farm for today’s market
Brewers will have no choice but to buy the hops they can get, not the ones they want, if those hops do not exist. They’ll do it reluctantly. Most craft brewers are willing to pay fair and sustainable prices to get the hops they want. That sounds like a partner you want to work with! Farmers should not expect the hopfenschmoozer to magically offer the price they want. Farmers must ask for the prices they need if they want to ride the wave. If the merchant you usually work with says no, seek out alternate outlets through which you can sell your hops. As it says in the Bible in the book of Matthew,
“Ask, and it will be given to you; seek, and you will find;
knock, and it will be opened to you.”
So there’s a message from God directly to hop growers. Amazing! In the past, once every decade, prices for hops have been good due to cyclical demand for alpha hops. If it had alpha acid in it, the price went up during times of shortage.
Making a profit 2 or 3 years out of every ten is not a sustainable business model, which is one reason why there are less German hop farmers today than there were just 20 years ago. The system isn’t working. The trend in Germany today is to remove Magnum and to replace it with Herkules. Some adventurous people are putting in Perle or Tradition. Woo Hoo! That still supports the old paradigm. Naturally, German hop farmers don’t want to miss any opportunity. They are taking advantage of alpha prices that today are 50% higher today than they were just a few years ago. Relatively speaking, this seems like progress.
Whoa … wait a minute. I don’t want to pay higher prices for my beer, you say. Don’t worry. Chances are that won’t even happen. If you enjoy craft beer but don’t want to pay sustainable prices, you won’t have the craft beer you enjoy for long. That’s for sure!
The opportunity for every hop grower worldwide today is to supply the craft revolution. It’s a worldwide revolution and should be the concern of hop growers worldwide. By focusing on that and saying no to prices below the cost of production, the trend of paying a sustainable price for hops can even spread to the mega brewers. It seems their strategy is to pay as little as possible, endure the price spikes once every decade and carefully manage inventory afterwards to keep their inventory costs low on paper. Does that sound like a partner you want to work with?
Maybe once every ten years! Planting more alpha hops at a time when aroma hops are in such heavy demand helps maintain the status quo. It fits in nicely with the mega brewer business plan. They don’t even send you a Christmas card for the favor. German hop farmers are fighting the last battle hoping to be lucky and have open hops when the next shortage comes. Instead, they should control their destiny and focus where the attention is today, aroma. That doesn’t mean they should change variety every time the wind changes direction like growers in Washington State seem to do, but you have to farm in the century we’re living in.
Do German hop farmers really believe that there is such an increase in demand for German Herkules to warrant expansion?
The real reason for the surge in demand for German alpha acid is that it has become too expensive in the United States. Why? Farmers there are saying NO to low prices. It’s that simple. Merchants, who operate globally, can buy alpha, which is simply a commodity, cheaper in Germany at the moment than they can anywhere else, except maybe China … but let’s not go there.
By feeding the alpha machine, the German hop farmer is missing an opportunity that would benefit his farm and his family for the long term, something that should appeal to the German mentality.
By planting alpha hops in a time when aroma hops are in such demand, he is giving away opportunities and potential profits for himself.
Somebody else will benefit from that decision.
The hop revolution taking place today isn’t limited to the United States. It’s a global phenomenon. Exports of American craft beer are growing. Already the seed has been planted that will change preferences for beer worldwide. By 2016, Stone Brewery from San Diego, California will be brewing in Berlin to ride the wave of this demand into Europe. Other big American craft brewers are not far behind. The craft revolution changes the historical cycles of the hop industry to which we have all grown accustomed. We are all in uncharted waters now. There will very likely be a shortage of alpha in the near future. Will it matter though? Any hop farmers holding unsold hops at the time may benefit. Brewers who are not fully contracted will suffer. For the most part, as usual, high prices will favor only a select few. The trend for the next 10-15 years from which the German hop farmer can benefit are the steadily increasing sustainable prices for aroma and alpha hops for craft brewers. Once German hop farmers head down that path, they will have the courage, much like their American counterparts, to also say NO to low prices. Farmers everywhere deserve to make a good living. Farming is hard work filled with risk. Sustainable prices are the right thing to do. Now is the right time for the farmer to demand sustainable prices!
Hop Growers of the world Unite!
PS: If you know a German hop farmer, please share this with him. If you don’t know one, share it with everybody else you know so it can find a hop farmer eventually. Knowledge is Power. Help fuel the Hop Revolution!