Microbrews pinched by hops shortage, mounting costs

SUNNYSIDE, Wash. -- Fans of Snipes Mountain Brewery's cloudy Hefeweizen relish the subtle wheat flavor of the bright, summery brew, and like beer drinkers everywhere, they know when their favorite brew tastes a little too hoppy or bitter.

Connoisseurs could be in for a surprise this year, and they may not be alone.

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.

Sales have been relatively flat in recent years among the country's big three brewers -- Anheuser-Busch Cos., Molson Coors Brewing Co. and SABMiller PLC's unit Miller Brewing Co. -- while small, independent brewers have experienced tremendous growth. The craft brewing industry experienced a 12 percent increase by volume in 2006, with 6.7 million barrels of beer. Sales among microbreweries, which produce less than 15,000 barrels per year, grew 16 percent in 2006.

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 U.S., 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 U.S. hurt both yields and quality.

Big brewers can hedge against rising prices for raw ingredients and can negotiate better, longer-term contracts for ingredients, while smaller brewers generally are left with whatever is left.

Snipes Mountain saw its barley malt prices grow nearly 15 percent this year, and paid $12.35 per pound for Cascade hops, far beyond the $5.60 per pound allotted last year.

Those rising prices and, in some cases, shortages, may force Butler to rethink his lineup of 13 beers in the months ahead. He'll also be tinkering with a Hefeweizen recipe that relies on Saaz hops, a mild variety popular with Bohemian pilsners, after severe weather in Europe dinged as much as 40 percent of the crop.

"Palate-wise, it may change the flavor a little bit, but only a little bit," he said.

So far, price increases have been pretty modest -- less than a dollar a 12-pack at retail, said Harry Schuhmacher, editor of the online trade publication Beer Business Daily.