Dive Brief:
- Independent craft brewers face a future with a shortage of hops, an ingredient they rely on heavily, according to Reuters.
- Small craft brewers require higher proportions of hops than mainstream brewers. Those producing India Pale Ales can use six times the volume of hops as opposed to other beers.
- The market is tightening as big brewers with contract buying clout scoop up craft brewers and bulk up their supplies of hops. This week, AB InBev announced the purchase of another craft beer company, Devils Backbone Brewing Co., adding to its roster of craft brews.
Dive Insight:
Germany and the United States account for one-third of the world’s hop production. Last summer, Germany’s harvest shrunk by 27%. "Europe will need at least an average harvest in 2016 otherwise we could see serious supply shortages," Stephan Barth of Barth Haas Group, a global hop merchant, told Reuters.
Craft brewers are feeling the pressure, especially those that do not have hop contracts in place, or who were late locking in prices. Further exacerbating the challenge are large brewers that continue to acquire smaller craft brewers in order to capitalize on a vibrant market. One pint in eight sold in the United States is a craft beer, according to the U.S. Brewers Association. And Rabobank said craft beer has become a "worldwide phenomenon," as small brewers open shop in locations around the globe, creating an even stronger demand for hops. What’s more, in 2014, craft beer accounted for 11% of volume market share and 19.3% of the retail market share.
Companies such as AB InBev have a "policy of long-term contracts and sufficient physical inventories in place to protect against the current shortage for our brewing operations," an AB InBev spokesperson told Reuters. Major brewers will have an advantage when buying hops, which could reduce the supply for small brewers.