For the love of … Money

I met recently with a brewer in California who walked away from $1.5 million dollars in hop contracts his company signed with 47Hops over a year ago. 47Hops is not a huge company. Even if we were, $1.5 million is a lot of money! If our competitors love reading that, they shouldn’t. In time, the hop market will crash because farmers will plant too many hops. When that happens (assuming a collapse isn’t already underway), prices will crash. Brewers, growers and merchants alike will suffer. Back to the brewer … he originally asked us to cancel the contracts without any compensation or renegotiation. They said they weren’t interested in renegotiations or buying out the contracts. They said they just didn’t want the hops anymore. They told us to move them somewhere else. We explained that it’s not quite that simple. Silence … followed by more silence. Big sums of money apparently makes people do crazy things. Ultimately, that led to our attorney getting involved. Meanwhile, their business is expanding. There’s lots of great press about them. Presumably, their need for hops continues to grow. At least the involvement of our attorney broke the silence with them. The lawsuit is pending so I can’t offer any more detail than that just now. Let’s just say that brewers making decisions like this make it difficult for the system to continue. 

I could go on with examples of other similar cases (unfortunately there are a few more) but you get the idea. Some brewers believe they can save money by neglecting contracts and buying hops on the spot market. I know we are not the only hop merchants in this position, but others, for some reason seem more willing to take the pain. Some merchants are only being paid now for 2015 hops. Many varieties are now cheaper on the spot market than they were for the past several years, a time during which Brewers signed long-term contracts. Hop prices fluctuate in response to supply and demand. That’s part of the market. It can go either way. Brewers, however, don’t want to pay MORE for their hops if the market goes up. Maybe the Brewers Association should focus a seminar or two on the economics of hop contracting. 

We see brewery shirts with hop cones on them everywhere. Hop variety names appear on beer labels all across the country. It’s good marketing to paint oneself as a hophead these days. Supposedly craft brewers love hops. The number of brewers late on paying for their hops is growing, but it’s not all because beer production is slowing. Rather than destroying surplus hops, growers sell them on the market directly to breweries at prices lower than they sell them to merchants. Brewers have a hard time resisting. Neither group realizes when they do that they are sawing off the branch on which they’re sitting.

Brewers should be careful wishing for cheap hops. They might get what they ask for, and that won’t be a good thing either.  So many brewers are new to the industry in the past 10 years. They may not understand how fragile the hop industry is. They buy cheap spot hops and abandon their contracted hops because it looks attractive in the short term. The green those brewers and the growers who sell them cheap spot hops care about is the money lining their pockets, not the hops themselves. Sadly, there is nothing new under the sun. The Bible even warns that the love of money is the root of all evil. 

Hop merchants and farmers have no choice but to bend to the will of the brewers. That’s where the money comes from. Most big brewers know this and use their relative buying power to get what they want or they withhold payment.  The hop industry will bend until it breaks. When it does, the consequences will be severe.  With less money available, the assortment of varieties will decrease. Farms will reduce acreage as they struggle to survive. Before they do that, they will try to survive by cutting corners. They might abandon voluntary food safety measures. They might bale a lot of hops that previously would go to the trash. More low-quality hops will enter the market at low prices. Brewers looking for low prices will find exactly what they want, and they will get what they pay for. It will be hard to tell the good from the bad because all hops will be cheap.

To survive, growers will produce varieties they know will somehow generate a profit. It is more economical to produce larger quantities of fewer varieties, or to produce varieties that yield more per acre. Those aren’t threats. Those are facts. Farmers will jettison anything that eats into profit. That would be low-yielding varieties for which brewers don’t want to pay a sustainable price. Farmers and merchants need money to survive. All the little extras craft brewers have come to expect are expensive luxuries of a market that pays for the services it requires in a timely manner. Unfortunately, that doesn’t describe the current relationship between brewers, merchants, and growers. 

I used to say that one of the things I love about being in the hop industry was that brewers are great people and they are fun to work with. Lately, I tell a different story. Some brewers are still great. Some of them though are real d-bags. Thankfully, to balance out the bad stories I mentioned above, there are brewers interested in working together to find a common solution to their problems. Those brewers realize the importance of their actions.

 

For every action, there is an equal and opposite reaction.

     – Sir Isaac Newton

 

 

If you’re a brewer honoring contracts and you know brewers who aren’t, let them understand the consequences of their actions. They are the ones making your contracts look expensive. If all of this is just about making money, then can brewers please drop the pretense that they care about the hop industry. It doesn’t seem like it from the hop side of the fence. Let’s knock off the demands for more food safety and higher quality standards. All that should fall by the wayside if all that matters is price. Forget about perks like selection and cool new experimental varieties. Brewers will have to learn to brew a greater variety of beers with fewer varieties of hops.

 

With every action, we create our future.