Good Beer Hunting

47Hops and Nothing's On — Yakima Valley Hop Broker Files for Bankruptcy

Popular hop merchant 47Hops filed for Chapter 11 bankruptcy earlier this month, having felt the squeeze of slowed industry growth, according to the company.
In a blog post detailing the filing, 47Hops CEO Douglas MacKinnon says the company ended up in the position it’s in thanks, essentially, to a widespread hopefulness for the future that may have turned out to be a bit misguided.
“Unfortunately, during the past several years, brewers fueled by optimism contracted for more hops than they now need due to that slower rate of growth. Based on our contracts with brewers, we, in turn, contracted with suppliers to cover our brewer contracts,” he writes. “Based on late brewer payments, it seems a good portion of those hops are simply not necessary in today’s market.”

MacKinnon goes on to write that the company tried to renegotiate contracts with its own larger suppliers, but they were “not willing or able” to, at least to “the extent necessary to match the declining needs of the market.” Furthermore, MacKinnon claims that a “sizable number” of his brewer partners have delayed payment for hops and, in some cases, are behind schedule by a year. “Some brewers have stopped responding to calls and emails altogether,” he writes. In turn, 47Hops says it is now left with an abundance of inventory it bought, but can’t move, and new debt incurred through purchasing said stagnant supply.
The company says it’s not going out of business, however, but rather is “attempting to restructure, and become more nimble and responsive to the market.” It also says that hop supplies belonging to brewers with preexisting contracts are “secure.”
“We believe we can bring currently contracted volumes in line with actual brewery demand,” MacKinnon adds. “Holding firm to previous contract levels if those contracts cannot be fulfilled is not a sustainable way for anybody to do business. The Chapter 11 process will enable 47Hops to make necessary changes that ultimately will be good for the market.”
As far as contracts not being fulfilled, the increasing price of hops has been put under a microscope the last few years, as expensive varietals grow in popularity and we even envision a future where yields are negatively impacted by climate change.
This particular story also lurks in the shadows of the recent controversy over Anheuser-Busch InBev’s decision to effectively monopolize South Africa’s hop yield (which they owned). Brewers were angry about being barred by the world’s largest brewer from securing some increasingly popular hop varietals; meanwhile, at least one stateside supplier has been devastated by diminished demand for the hops it has already contracted.

In a post from July 6th, MacKinnon examined the brewery acquisition environment and took an unpopular stance, titled "Why Big Brewery Acquisitions are Good for Craft." While he had plenty of punches for both sides, especially large brewer prerequisites and payment terms, for a hop farmer, stability is key. "From a hop merchant perspective, the financial stability, business acumen and order that big brewers possess would be a welcome addition to the craft brewing industry. Some craft brewers are definitely more creative types than businesspeople." 
MacKinnon even seemed to foreshadow his current scenario mere weeks before the filing. On July 25, in a post titled “For theLove of…Money,” he wrote that a seeming growing number of brewers simply don’t understand how the hops market works, and that their shoot-from-the-hip approach to ambitious contracts could wreak havoc on the industry.

To illustrate the point, he cited a relationship with an unnamed partner (emphasis his own):

“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.”
Located in Yakima, Washington, 47Hops sells a number of popular hop varieties, including Cascade, Chinook, Centennial, El Dorado, Summit, and more. The company says it sells hops to brewers of all sizes to more than 38 countries around the world. According to its statistical summary, the company is listed as having between $1,000,001 and $10 million in assets.
- Dave Eisenberg

Chapter 11 [47Hops]