Imbibers of 'craft beers' expected to be paying more, with the cost of hops and barley surging
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That six pack of high-brow beer is about to come at a higher price, thanks to the sharpest surge in decades in the cost of the hops and barley that give each brew its distinctive taste.
Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch ''craft beers'' as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which would pare their profits.
"This is a crisis of epic proportions for us. It is nothing short of a catastrophe," said Steve Kuftinec, sales and operations manager at Uinta Brewing Co. in Salt Lake City. "All we can do now is just hope to be able to stay in business and continue to make good beer for our customers."
Kuftinec said Uinta Brewing - the maker of such beers as Cutthroat Pale Ale, King's Peak Porter and Blue Sky Pilsner - will do its best to keep the prices of its products down by absorbing some of the costs rather than passing it all on to its customers.
"What we're hoping is that our customers will understand the situation and not think that we're out trying to gouge them," he said. "But we're dealing with grain prices that have doubled and hops prices that are up 60 percent. This is just something that has never been seen before in this industry."
The cost pressures could slow the expansion of American craft brewers, which account for about 5 percent of U.S. beer revenue, and even put some smaller ones out of business, Kuftinec said.
"I seriously doubt that there will be any new brewers wanting to get into the industry under these conditions," Kuftinec said. "And we'll probably see some just deciding that with these prices, it's no longer worth it."
Craft-beer makers also are battling other cost increases, including higher prices for glass, cardboard, gasoline and the stainless steel used to make beer kegs. ''People are very concerned,'' says Kim Jordan, co-founder of Colorado's New Belgium Brewing Co., which makes Fat Tire Amber Ale, a top-selling craft beer. ''It significantly affects profitability.''
Big American brewers like Anheuser-Busch Cos. and SABMiller PLC's Miller Brewing Co. also face cost increases, but the impact isn't nearly as great for them. They use much less hops and barley in most of their beers, which is why they are lighter in taste and calories. A barrel of craft brew Sierra Nevada Pale Ale, for example, has about twice the malt and as many as five times the hops of a mass-market brew, like Budweiser or Miller High Life.
Large beer makers are also better able to secure long-term contracts to mitigate the impact of rising ingredient costs. Most spirits makers, such as Diageo PLC and Fortune Brands Inc., also face a relatively limited impact from global increases in the cost of grains such as corn.
Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer's color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe.
The news worsened for craft brewers significantly in recent weeks. Firms that turn barley into brewing malt informed craft brewers of price increases ranging from 40 percent to 80 percent, and hops suppliers announced increases ranging from 20 percent to 100 percent, depending on the variety of hops.
The price of hops - which give beers their bitterness and aroma - has risen because of shortages across the globe, due in part to poor crops in Europe. Some European brewers are competing with American brewers for hops grown in the Pacific Northwest.
For years, hops were cheap due to a glut. That prompted growers over the past decade to replace hops with other crops, such as apples. Now, the amount of hops acres world-wide is about half the total of 12 years ago, says Ralph Olson, a hops dealer with Hopunion CBS LLC in Yakima, Wash. That has caused some hops varieties to quadruple in price over the past year, he says.
* STEVEN OBERBECK contributed to this report