No part of the beer industry and its supply chain will be untouched by COVID-19—hops included. The pandemic hit during a historic year for American hops: acreage has increased almost 99% since 2012, and was set to surpass 60,000 acres this year for the first time in decades. And then the coronavirus came, and greatly reduced what had, until that point, been growing beer production volumes.
On March 1, the quantity of hops in storage at farms, dealers, and breweries was 180 million pounds, the highest quantity ever recorded, and a 9% increase over March 1 of last year. Before the coronavirus’ arrival, there were more hops in storage and ready for planting than ever before. Oversaturation was already a fear.
When COVID-19 hit, America’s hop growers and dealers realized they had a very narrow window of time to adjust their production to meet an anticipated dip in demand from brewers. In some cases, growers had just a few days to decide how many acres to plant for the 2020 season. But the pandemic was new and without precedent. The industry had nothing to use as a model.
The result has been an uncertain start to a growing season that, just a few months ago, was shaping up to be the industry’s largest ever. Because IPAs are almost single-handedly responsible for recent craft beer category growth, the entire industry depends on a healthy, functional supply chain for hops.
The economic slowdown and the closure of bars, restaurants, and taprooms immediately reduced hop usage. Breweries who sold much of their beer through taprooms or to on-premise accounts halted or reduced production in March and April—and the pandemic has already closed some breweries permanently.
Under normal circumstances, the brewing and hop-growing industries delicately try to balance supply and demand. Hops are expensive to grow, and most of the in-vogue varieties are particularly pricey and often difficult for a brewery to procure. (From 2010-2019, the USDA reported the average price per pound of hops had increased 78%, while the number of U.S. breweries has grown almost fivefold.) It’s in everyone’s best interest for supply and demand to be as closely aligned as possible.
Growers incur both fixed and variable costs on hops. According to the Brewers Association (BA), one extra acre of unsold hops translates to $8,950 in establishment or fixed costs like trellises, wire, rootstock, and other infrastructure. Variable costs including water, pesticides, and labor can equal those baseline expenses in a given year. If hop growers could avoid planting 3,000 excess acres this year, the supply chain would save more than $26 million in costs.
But as is true for all parts of the industry, disruptions to the status quo have come in real-time, ever-changing waves. Everyone’s just doing the best they can to keep their heads above water.
The beginning of March, as panic over COVID-19 was starting to hit a peak in the U.S., was early enough in the Pacific Northwest’s planting schedule that growers could, to a degree, adjust their plans. At that stage, growers hadn’t yet strung bines, the stems of the hop plants on which their cones grow. The timing offered two solutions: reduce production by leaving certain acres bare, or allow the hop bines to grow on those acres but not string them or harvest their cones.
Those unproductive fields still cost growers. If farmers want bines to come back the next year, they have to irrigate the fields, control for pests and disease, and pay back bank loans used to purchase that land. Hops are notoriously labor-intensive, as rhizomes must be planted by hand and bines must be trained by hand.
“Hops are a specialty crop and a high-liability crop to grow as it is. Our growers are very conscientious in making sure they’re growing a product that has a home in the end,” says Amaya Aguirre-Landa, marketing and sales associate for Parma, Idaho-based hop dealer Mill 95.
The combination of labor costs and maintenance on excess acreage represents tens of thousands of dollars in expenses that hop farmers won’t recoup in sales this year. Yakima Chief Hops (YCH), a grower-owned hop supplier based in Yakima, Washington, asked its growers to cut production by 7%. The Oregon Hop Commission says its growers were asked to cut production by 7-10%.
Those reductions are a stark about-face from what farmers had heard going into the 2020 season, when the industry was preparing for a record year. At the annual Hop Growers of America Convention in January, the outlook for the year was overwhelmingly positive, reflecting the wild growth of hop-forward beers over the past decade. According to the Brewers Association, its members used an average of .92 pounds of hops per barrel in 2009, but that almost doubled to 1.72 pounds per barrel in 2019, and was expected to continue growing in 2020.
The crucial task for growers now is to realign the pounds of hops produced with the pounds of hops the industry will need—a dizzying equation that’s complicated by the number of hop varieties and by the ways in which they’re purchased.
Breweries can buy hops two ways: on contract or on the spot market.
Most breweries, especially large ones, contract with a hop dealer to purchase a predetermined amount of the varieties they’ll need in a given year. The dealer works with individual growers to ensure they’re growing the types of hops its customers want in the proper quantities.
Breweries that don’t have hop contracts must buy hops on the spot market, essentially an open marketplace where dealers or breweries can sell excess or non-contracted hops to breweries that want them. Given that the spot market is driven entirely by supply and demand, pricing and availability vary greatly.
As Bryan Roth reported for Sightlines Premium in January, 72.8% of breweries had hop contracts in place in 2018, according to the most recent numbers shared by the Brewers Association, after that percentage declined in 2016 and 2017. There’s even been a significant jump in contracting among small breweries: among companies making fewer than 2,500 barrels of beer a year, the percentage estimated to have hop contracts increased from 45.6% in 2017 to 53.9% in 2018. More breweries are locking in hop contracts, fueling competition for raw materials.
Ryan Hopkins, CEO at YCH, says many of his client breweries are just now dipping into their 2019 harvest hops. YCH is asking them to honor their contracts for those hops, and is assuring them there will be no changes to pricing or availability for already-contracted hops. Mill 95 is offering its current supply of hops to breweries at deep discounts and in some cases, for free. Surely that’s welcome relief for breweries, but it’s also a warning siren for the supply chain. When a supplier is literally giving away an in-demand, valuable product, nothing is business as usual.
What will happen to this year’s hop harvest, though, is less clear. Hops growing on bines right now won’t be harvested until September and October, and aside from their application in a smattering of fresh-hop beers, they might not find their way into a brew kettle until 2021.
“Growers realize that 7% [reduction] is just the first shot at this and it’s probably not the overall solution. It’s just one stage of mitigation of some unknowns,” Hopkins says.
No one can say how long bars and restaurant closures will continue and how severe the overall economic crisis will be. Consumer confidence is weak. Unemployment is historically high. Most Americans say it’s too early to return to normalcy. Some breweries are seeing upticks in sales while others are barely hanging on. Those factors are creating confusion for the hop industry, which is trying to calculate future demand based on data that’s changing every week.
The BA is asking its members to try to estimate their hop demands for 2020 and 2021 and communicate that to suppliers. That’s crucial to keep the supply chain functioning, but it’s almost an impossible task given current levels of economic uncertainty. A survey of BA members in early April found roughly 60% said they could keep their businesses afloat for fewer than three months under social distancing guidelines.
The murky future calls to mind the Great Recession of 2008, which still looms large in hop growers’ collective memory.
“When that happened, the hop industry basically fell apart,” says Jaki Brophy, communications director for Hop Growers of America.
Craft beer was a fast-growing phenomenon between 2008 and 2010, when the number of American craft breweries increased 15%. Those breweries were just beginning to sign significant hop contracts. In that early phase, the brewing and hop-growing industries weren’t as clearly aligned in terms of predicting supply and demand, and when the economy nosedived, it threw an already-shaky balance totally out of whack. Many hop farms consolidated or closed as a result. Brophy said 2008 prompted brewers and hop suppliers to work more closely together to predict demand in the following years. Now, another potential economic crisis looms for both.
Fallout from the pandemic only emphasizes how delicate and imperfect the symbiosis between brewers and hop growers still is. Though it’s mutually beneficial to balance supply and demand, perfection is impossible given the variability inherent to an agricultural product that’s beholden to Mother Nature, and production schedules influenced by economic changes and fickle consumer behavior. When either side of the equation is unbalanced, entire businesses are at risk. The nature of the American hop market requires growers and brewers to possess well-calibrated crystal balls—something no one has during a pandemic.
“This will certainly throw a wrench into things,” Brophy says. “We know it’s not going to be good, but we don’t know how not-good.”
Bleeding Green, Pt. 1 — COVID-19 Forces U.S. Hop Farms to Cut Production During Historic Growing Season
Bleeding Green, Pt. 2 — COVID-19 Forces Hop Growers to Confront New Concerns Over Supply, Safety
Words by Kate Bernot