A Hops Shortage Would Brew Trouble for Beer

Jun 9, 2016 in Alcohol Beverage, Startups

Beer is more in demand than ever. With new varieties regularly available, particularly within the craft beer market, consumers can find even more reasons to enjoy favorite beers at home or with friends. However, this increased demand for beer may create a problem for beer enthusiasts and breweries globally, and in fact, the conditions creating the current hops shortage in the beer industry have been brewing for the past several years and may only continue to worsen.

High Demand for Beer Ingredients

The beer industry is a $106-billion-a-year market, with the craft beer sector accounting for $22 billion of the total. The craft beer market is expected to continue expansion because of millennials’ increased interest in craft beer, taking much of the market share away from established brands. Some of these larger brands have started or acquired their own lines of craft beer to appeal to this growing millennial market of beer enthusiasts.

Not only are millennial consumers big fans of craft beer, but many of them are starting their own breweries to meet the demand. As beer production increases, the strain on beer ingredients increases, too. Most of the time there are enough ingredients to meet production demands; however, you should know that a shortage in hops threatens the production and profitability of breweries of all sizes.

Low Ingredients Supply

The influx of new beer companies into the market — combined with various other factors, such as bad weather during growing times — means the amount of hops harvested is not enough to meet the increased supply demands. Since hops is an essential beer ingredient, this shortage is a major problem for the beer industry. Breweries may not be able to get the hops they need to continue with expected production.

The hops growing season presents added challenges, since changes in global climate and other conditions have further reduced the total supply of hops available for sale. Increased global temperatures in growing areas as well as other unstable weather patterns have stunted the harvest of hops around the world, and the market saw a staggering 8.5 percent decrease in the total global harvest of hops. Lower crop yields have sent ripples through the industry, forcing a stronger competition over the available supply of hops.

Possible Results

As a result of these changes in the beer market, breweries and customers can expect to see changes in their local beer dispensary. The increased cost of hops due to insufficient supply to meet rising demand will significantly raise some production costs; in Europe, a few hops producers have raised the prices of certain hops varieties up to 50 percent.

Unfortunately for beer lovers everywhere, this increase in price will most likely be passed along to customers in the form of price changes per unit sold. Customers may buy less beer to compensate for increased prices. This decrease is not great news for craft beer companies, since the larger, traditional and more established beer companies usually have the financial assets and connections needed to weather such changes to supply costs. SABMiller and other multinational beer producers maintain this unique advantage to better cope with shifts in price.