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NEW YORK -- Many craft, microbrew and other upscale beers will soon sport a higher price, due to the largest jump in decades for ingredients such as hops and barley, two plants that give beers their distinctive taste, the Wall Street Journal reported.
Price increases for consumers could rise $0.50 to $1 during the next few months for smaller-batch craft beers. The increase stems from brewers passing on the costs as a result of poor harvests; the weak dollar overseas; and farmers' shift to more profitable crops. In some instances, craft beer brewers will absorb the costs, making their profits shrink, the report stated.
"The hops are to Samuel Adams what grapes are to wine," Jim Koch, founder of Boston Beer Co., told the Journal. This year, the company -- maker of the Samuel Adams line of beer -- raised its prices 3 percent to offset the costs. For 2008, the company is "probably looking at the same or maybe more," Koch added.
"The cost increases have been the largest we've ever faced, both in the barley and in hops," he told the newspaper. Samuel Adams is made from hops grown on several thousand acres in Bavaria, which has yielded a smaller crop the past two years, making the materials more expensive, the report explained.
As a result of these cost pressures, American craft brewers could see their expansion slowed, or some may go out of business. The segment accounts for 5 percent of U.S. beer revenue. This rise comes at a time when many other costs are also rising, including glass, cardboard, gasoline and stainless steel, which is used to make kegs, the report stated.
"People are very concerned," Kim Jordan, co-founder of New Belgium Brewing Co., told the Journal. "It significantly affects profitability," she noted.
On the other end of the scale, the large domestic companies, such as Anheuser-Busch and SABMiller's Miller Brewing Co., face cost increases as well, but they are not as greatly impacted. Those brewers use less hops and barley in their beers, resulting in a lighter taste and less calories, the report stated. For example, a barrel of the craft beer Sierra Nevada Pale Ale has twice the malt and five times the hops of a Budweiser or Miller High Life barrel, according to the Journal report. In addition, large brewers can secure longterm contracts to offset the impact of rising costs.
Other price increases such as for malted barley -- which gives beer its color and sweetness -- have risen as farmers shifted to plant corn, a more profitable crop due to the demand for biofuels such as ethanol, the report stated. In addition, a weak dollar makes imported ingredients more expensive to purchase.
In recent weeks, firms that turn barley into brewing malt told craft brewers their prices would increase 40 to 80 percent, while hops suppliers informed brewers costs would increase 20 to 100 percent depending on variety, the report stated.
To offset the prices, smaller brewers are attempting to secure long term contracts, and in other cases, some are adjusting their recipes, according to the report.
Bell’s Brewery Inc., located in Comstock, Mich., is substituting other varieties of hops for the brews Bell's Oberson Ale and Bell's Lager, as founder Larry Bell could only secure 60 percent of a Czech Saaz hop he normally uses, the report stated.
Employees at the company who test the beer have not noticed a difference, Bell told the Journal. In 2008, Bell will raise the price he charges wholesalers by 50 to 60 cents per case, and customers may see an even higher price as retailers mark up the prices further, the report stated.
"I am concerned that there could be some small players out there that will fail because of this," Bell said.
Meanwhile, Rob Tod, president of Allagash Brewing Co., based in Portland, Maine, will absorb some of the costs for ingredients, but will likely impose price increases of about $0.50 cents. "We're getting hit on all sides," he said.