Beer: Does this count as a crisis?

This is simply not the kind of headline I like to see in the morning: “Shortage of beer ingredients may mean higher prices“. Ye gads, that sets a bad tone for the day.

Shannon Dininny explains:

Small brewers from Australia to Oregon face the daunting prospect of tweaking their recipes or experimenting less with new brews thanks to a worldwide shortage of one key beer ingredient and rising prices for others.

Oh, and one other thing: Beer prices are likely to climb. How high is anybody’s guess. Craft brewers don’t have the means to hedge against rising prices, like their industrial rivals.

“I’m guessing, at a minimum, at least a 10 percent jump in beer prices for the average consumer before the end of the year,” said Terry Butler, brewmaster at central Washington’s Snipes Mountain.

While recent years have seen major brewers struggle with flat sales, craft breweries have enjoyed the fruits of dignified labor and proper beer. 2006 saw an estimated 12% increase among craft brewers to 6.7 million barrels. Microbreweries saw 16% growth overall last year.

Now the bright spot in the brewing industry is facing mounting costs on nearly every front. Fuel, aluminum and glass prices have been going up quickly over a period of several years. Barley and wheat prices have skyrocketed as more farmers plant corn to meet increasing demand for ethanol, while others plant feed crops to replace acres lost to corn.

A decade-long oversupply of hops that had forced farmers to abandon the crop is finally gone and harvests were down this year. In the United States, where one-fourth of the world’s hops are grown, acreage fell 30 percent between 1995 and 2006.

Australia endured its worst drought on record. Hail storms across Europe damaged crops. Extreme heat in the western United States hurt both yields and quality.

Dininny notes that industrial brewers such as Miller and Anheuser-Busch can plan against rising prices, and this makes sense. The volume of their supply contracts, combined with the fact that their beers do not depend so integrally on quality ingredients, makes it easier for them to weather the storm. As long as what they’re buying is remotely viable, they can make their swill which, in some countries, is illegal to sell as “beer”. With trouble in hops and rising malt prices, some quality brewers will simply scale back their product diversity. This sounds worrisome in a certain way.

I remember, for instance, the first time I had New Belgium’s famous Fat Tire Ale. The stuff was accessible the way few of the craft brews at the time were. Over time, that accessibility came to count against it in my book; its flavor came to seem generic. Fat Tire has taken a dubious station among beer snobs; it is our bottom-tier brew. On the one hand, that puts it in decent company; local favorite Redhook has somehow transformed its ESB (extra special bitter) into one of the blandest beers around, which, in the end, makes it more accessible to consumers attempting to graduate from the MGD and Busch market.

And this is where the looming crisis becomes worrisome. I do not doubt that quality beer will survive this period. We need not throw our hands in the air and run screaming to the hills with our hair on fire. But as our fine brewers decide on how to respond to market troubles, one could hardly blame them if they choose to run with their most accessible labels, and leave some of their more complex or specialized flavors to neglect and the shadows of memory. Heaven help us all if the blue lines suffer.

Snipes Mountain brewmaster Terry Butler is among those who will tinker with their recipies. “Palate-wise,” he notes, “it may change the flavor a little bit, but only a little bit.” Eric Rode, lead brewer at Tommyknocker Brewery traded out his hops last year, which altered the flavor of is the brewery’s three lagers. Though the Hallertau crop was there for him this year, the tweaking of recipes is a trend likely to continue. Thanks to Tommyknocker’s foresight in supply contracts, their brews saw only a fifty-cent increase per case on wholesale. Harry Schuhmacher, editor of Beer Business Daily, said price increases have so far been modest. “Brewers are trying to take pricing up, but it’s hard when beer is pretty sensitive to pricing per volume.”

To the other, though, the small breweries that cannot protect themselves as well against price fluctuations are better positioned to raise their prices. “They’re able to increase pricing more without losing drinkers,” Schuhmacher said. And it’s true. I’d pay more for a Boundary Bay or Diamond Knot IPA. And it doesn’t matter to me what happens to the price of a Miller High Life or Coors Light. I’m unlikely to put money down for either.

The question, of course, is how much of a rise consumers will tolerate. Matt Long, brewmaster at Big Sky Brewing, suggests, “The trend is going to be toward ten-dollar six packs.” To the other, he tries to be optimistic about the future: “”Maybe the pendulum will swing back … It might not happen for the 2008 crop, but maybe at some point, it’ll come back halfway, which would be nice.”

The truly worrisome note, though, comes from Paul Gatza of the Brewers Association. He sees challenges to innovation and testing for seasonal brews. “I would think brewers will try to keep their existing beers in the marketplace if they can …. But this may put a damper on some of that innovation and experimentation for some of those hoppier beers, which is a shame.”

And that means the blue lines are in danger. Can we call it a crisis yet?