Monday, April 7, 2008


I was in a store today wondering whether I should purchase a single 12 ounce Dogfishhead 120 Minute IPA for $8.50, then looked around and decided 6 really good beers for $9.99 was a better deal. But is $9.99 for 6 really good beers a good deal? Besides my trusty Busch Light, I generally buy craft beers that are pricey, but I don't remember spending, in the last few years, $10 on a six-pack of a lot of craft beers I like. A recent article in the WSJ explains why I might remember lower prices for my craft brews and why $9.99 might soon seem like a pretty good price.

Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch "craft beers," as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers' shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which will pare their profits.

There are many factors at work, but of course a perennial favorite for screwing up anything and everything has contributed:

Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer's color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe.

Rising oil/energy prices have affected the prices of just about everything in various ways, including higher transport costs, higher feedstock costs (for petroleum derived products), and, in this case, attempts at substituting for our standard energy choices.

For poor people and small businesses, a small price change can be a large fraction of an income or budget as opposed to rich people and big businesses who either wouldn't notice a price change or could absorb shock. But this isn't the only disproportionate effect that rising energy/oil prices have:

Big American brewers like Anheuser-Busch Cos. and SABMiller PLC's Miller Brewing Co. also face cost increases, but the impact isn't nearly as great for them. They use much less hops and barley in most of their beers, which is why they are lighter in taste and calories. A barrel of craft brew Sierra Nevada Pale Ale, for example, has about twice the malt and as many as five times the hops of a mass-market brew, like Budweiser or Miller High Life.


At Bell's Brewery Inc. in Comstock, Mich., founder Larry Bell says he is substituting other varieties of hops into the brewer's Bell's Oberon Ale and Bell's Lager because he could only secure 60% of a Czech Saaz hops that he normally uses in the beer.


"I am concerned that there could be some small players out there that will fail because of this," says Mr. Bell, whose brewery sold its first beer in 1985.

Not only do energy price increases affect the small breweries more because they have smaller budgets, but also because their products have more direct ties to energy prices. I'm not presenting a call to action here (at least not for the particular circumstances in the beer market) because the situation could have easily been reversed: High Life could be really hoppy and Dogfishhead could specialize in light beers, giving small breweries an advantage when hops and barley prices shoot up.

Some small breweries like Long Trail in Vermont are taking on the energy/environment problem head on and others are just preparing for higher prices:

Dogfish Head Craft Brewery Inc. in Milton, Del., is coping by trying to make its operations more efficient, locking in commodity contracts as early as possible and weighing a price increase, says brewmaster Andy Tveekrem, whose company is known for "hoppy" beers like 60 Minute IPA, or India pale ale.

"I think there's going to be some brewers out there," Mr. Tveekrem says, "if they haven't looked that far ahead, that actually might run out of malt or hops, which would be a catastrophe."

For those who like small craft beers, let's hope the proposed catastrophe doesn't come true.

One final note: As far as energy is concerned, the 120 minute IPA, at 450 calories in a 12 ounce bottle, might not be so bad a deal.

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