The Seven C’s: How to Navigate Hop Contract Renegotiations

The last year has seen a slow down at the top end of the craft beer industry resulting in the need to renegotiate many contracts. Thankfully, in most cases it is possible to resell the hops in question. The process of renegotiating a hop contract is a bit tricky, but there are some simple things you can keep in mind if you’re a brewer needing to make some changes.

 

1) Connection: Relationship is important between any two people doing business together. That seems painfully obvious, but it is often ignored. At the end of the day, the hop merchant and the brewer who get along well will work together well in good and bad times. It’s simple. We want to help our friends. If you’re a brewer and contract for hops and then the next time anybody hears from you is a year later when you send an email saying you don’t need all the hops you contracted, guess what … it’s not going to go so smoothly for you. There are a few things you can do to make sure that doesn’t happen. You can reach out to chat about what’s new in the hop world a few times during that year, even if it’s only for 10 minutes. You can stop by the office when you’re in Yakima and say hi. You can send a bottle or two of that new beer you’re so excited about that was made with hops from that merchant thank them for being a part of the process. I can count on one hand the number of brewers who do those types of things. All those things are small pieces of a puzzle, but they will make a huge difference if you find yourself needing a favor down the road.

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2) Communication: Renegotiate early and often

As soon as you think you might have a hop position that does not match your needs, either over or under, that’s the time to bring up the topic if you hope to get it resolved smoothly. The sooner you can contact somebody about adjusting a contract, the better. If you’re preoccupied with other things and honestly didn’t notice that you have over or under contracted, you can lead with that, but that is not very confidence inspiring. It tells the person on the other end that you might have some other problems lurking.

 

3) Clarity: Remember that you are not doing anybody a favor by asking to renegotiate a hop contract. Quite to the contrary … You are asking for a favor. Be nice. Don’t expect that anything has to be done to make you happy or to correct the situation you’re in. True, it’s better for everybody if contracts reflect actual demand, but getting there is not free and it’s not easy either.

sketch14443275659104) Compromise: Be ready to compromise. The contract began with the mutual desire to work together. More than likely the merchant will want that relationship to continue. As a brewer on the other side of that contract, you should be ready for some sort of contract to continue in some form. The exception to that is if you’re giving away a valuable position (i.e., low priced or difficult varieties that are not stable producers or a variety that can easily be resold because it is highly desirable). The merchant has invested in the hops already and changing that contract in any way may cost them money. There are ways to make up for this. Prices can change. Terms can change. The length of the contract can change. If you’re requesting a contract adjustment, all the variables are in play. It’s not typical to just cut the volumes and move on unless the merchant has a waiting list for those particular varieties.

 

5) Candid: Honesty is worth its weight in gold, and unfortunately sometimes just as hard to find. If your contracts are not where you would like them to be, honesty will go a lot farther than a story. Please don’t make up a story about how your head brewer went rogue and contracted a bunch of hops without your knowledge and that you can’t be held liable for contracts that he signed. The hop industry is very small. Most likely the person who sells hops knows a lot of other people. If your story doesn’t pass the sniff test, they can easily fact check any story you may give.

 

6) Cherry Picking: You’re a brewery with a contract for several varieties and want deep cuts in all but one. Let’s suppose that one variety you want to keep is a very hard to find variety. Perhaps, it’s the only one with a lower price than the current spot market. Maybe neither of those are actually the reasons you need to renegotiate. The perception on the other end will likely be that that is the reason. Maybe the real reason is that the beer you brew with that variety is the one that’s taking off and has left all the others in the dust. Without some of the other C’s mentioned above, particularly communication and connection, it will very likely look like you’re trying to cherry pick the most attractive parts of your contract.

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7) Cash: Be ready to pay some sort of compensation if you can’t find a common way to proceed. Yes, you may have to pay to get out of a contract. On the other end, those hops are already purchased and reserved for you. A contract with a hop merchant represents a volume of hops that has been purchased from a grower. In many cases, the grower and perhaps the merchant, has gone to the bank with those contracts and borrowed money against their value. That’s true regardless if it’s 2016 or 2020 and you want to renegotiate. If you want to change a contract, those hops will need to be resold or removed all together.

 

Some of the things mentioned above sound painfully obvious. Unfortunately, all of the suggestions above come from real life situations we have experienced within the past year or two. Our grower and brewer relationships are very important to us, so please keep these Seven C’s in mind if your thinking about contract negotiations. 

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