Everything you read about the craft revolution being over is wrong

There is no shortage of brewers who, in recent months, have the courage to claim a day of reckoning is coming, the sky is falling, or a shakeout is happening in the craft beer industry. Jim Koch’s infamous interview in which he stated, “The end of the craft beer revolution is near” got a lot of attention. From where Jim sits, I imagine it looks that way. Jim’s empire is worth less than $2 billion today. Only a couple years ago, it was worth nearly twice that. Given that perspective, It’s not hard to imagine why he and other corporate craft brewers at the top of the game think the revolution is ending. With all due respect to Jim and the others, they are all wrong. The real revolution is just beginning.

From where Jim and other corporate craft brewers sit, their world is definitely changing. They take that to mean that preferences for craft beer are also changing. They can’t see the forest for the trees. Today’s big craft breweries strayed a long way from what originally fuelled the craft revolution. The most successful craft breweries today are not so different from the big multinationals. They just don’t have the Super Bowl commercials … yet. Maybe that’s what they aspired to be all along, or maybe they let opportunity get the best of them. What does it mean to drink an 805 in Berlin, Germany? I grew up in the 805. Back then, most people in Southern California didn’t even know what that meant, but times are changing.

Craft beer is also changing. There are 5,300 craft breweries today. That’s an awfully long tail that gets longer with each passing day. It’s the rise of the long tail. I can imagine a day when there are 10,000 craft breweries in the U.S. For that day to come, not everybody who starts a brewery can be the next nationally or globally distributed beer. If that’s the reason people get into the business, then the revolution is already over. The first generation followed a well-worn path of getting as big as they possibly could until what they produced became commonplace. Spins data, grocery store shelf space and the other macro statistics collected by companies like IRI and Nielsen reflect their sales well. That data won’t accurately measure when craft continues to grow from the bottom up. The revolution is far from over. It’s just evolving.

 

Photo: www.craftbeer.com 

Of course, nothing is guaranteed. For the craft revolution to continue to evolve and flourish, it must be filled with brewers who don’t have ambitions of world domination. To survive, the next 5,000 craft breweries will need passion, and lots of it. They will need to aspire to have 2,000-3,000 loyal customers who stop by for a beer or two a couple times each week. If they get more than that … great! Their sales will cannibalize sales of the big craft beer companies that make the news. That will continue to create the impression that the craft revolution is dying. It’s in the interest of every big craft brewer to perpetuate that myth that the craft revolution is over so they can draw new borders, circle the wagons, protect the empires they’ve built and prepare for a period of greater stability. The same is happening in the hop industry. It’s never in the big guy’s interest for the little guys to get stronger and more numerous. Think American Revolution and the success story that followed.

The best time to kill any revolution is in its infancy. The next generation of craft brewers threatens to jeopardize the existence of the current empires in the same way that corporate craft brewers threaten the existence of the multinational brewery empires. Economies of scale allow the biggest guy on the block to produce for the cheapest price. The smaller players have something with which the big guys can’t compete … local. You can’t scale local. That is a trend that will disrupt the craft beer market. It will disrupt the hop and malt industries along with it. We’ll talk more about that in an upcoming blog.

Private equity firms don’t like to invest in local business with no prospects for hockey stick growth. Famous business journals don’t usually report on local success stories. Being local isn’t a business model that will make anybody a billionaire. To be successful, the next generational of craft brewers must bring craft back to its roots or be content drinking somebody else’s beer. Thousands more craft breweries will create hundreds of thousands of jobs, resurgence in locally produced quality products and a sense of community for millions of people. That’s a real revolution!

Who sets hop prices – Part 2

Welcome back! So now you know how hop prices can change and what makes them change. What can you do to keep the cycle from affecting you? Here are some practical tips that will help you save money. They can also keep the cycle from recurring to the extreme that it happened in the past.

It seems some new brewers don’t understand the history of contracting. For years, this was the normal buying strategy was something like this:

When the craft beer revolution happened everybody started contracting at 100% of anticipated growth for 5 years into the future. Bankers and growers required that stability to lend hundreds of millions of dollars to the hop industry. It’s hard to know what you’re going to do 5 years in the future. Of course, when the market slowed the imbalance between supply and demand caused everybody to shudder to a stop. The zero cost of signing a contract mistakenly led brewers to believe that it was easy to hop in and out of contracts. While contracts are too easy to sign, they are difficult to unravel.

How do brewers growers and merchants move forward now in a way that will keep the market from getting out of control, in either direction. Here are some ProTips to consider.

 

ProTip #1: Always be in the market for hops, even if you think things will be better tomorrow. That doesn’t mean buy hops until they are coming out of your nose. Quite the contrary … It means regulating your buying habits so you never have to buy all your hops at once. Plan to buy some every quarter, or even as often as every month. You’ll get a mix of some high prices and some low prices. The mix will beat the market in the long run. If you always base your future purchases on your current needs, you won’t end up with a surplus. If you buy 20% for each of the next 5 years annually and further spread that 20% throughout the course of the year, you’ll pay far less than the guy who has no hops when the shortage happens and has to buy at peak pricing during a shortage.

ProTip #2: Timing the market is impossible so don’t try. After that first ProTip, you’re probably thinking, “yes, but I’ll be paying more than if I buy when the market is cheap”. That’s true, but very few (if any) people are lucky enough to buy all their hops when the market is at its cheapest. If you try to be that person, the odds are not in your favor and you will not likely succeed.

ProTip #3: Don’t be afraid to buy old hops. You’ve been taught that fresh is always better. I don’t mean you should buy those cheesy old hops that Lambic brewers love … unless you’re brewing a Lambic. What I mean is that you can buy 1-2 year old hops so long as they have been kept in cold storage at a constant temperature. If they have, the only difference you’ll likely notice is a slightly reduced alpha value. If the hops have not been stored properly, don’t consider taking this route.

ProTip #4: Don’t ever be dependent on one hop variety. In this age of variety specific shortages, none of your beers should rely upon just one variety. Diversity is strength. If you can’t get one variety, you can easily substitute something for it and nobody will ever feel the difference.

ProTip #5: Know your hop vintage. What?!? Hops don’t have a vintage … do they? Typically, nobody thinks of it that way, but there can be big differences between crop years. Depending on the weather, an old crop can be better than a fresh crop. Most recently, that happened with German Magnum and Herkules from the 2014 crop. They were much better than those from the 2015 crop due to the weather in 2015. You might not want to waste the time to know all about each crop year, but you should know enough to ask the person selling you your hops. They know.

ProTip #6: Remember that hops are a sensitive agricultural product. You NEVER know what the weather can do to the crop tomorrow.

 

If you follow the ProTips in this article,YOU will be the one who sets your hop prices. If brewers leave the market en masse now because they perceive an oversupply that may or may exist, their actions will send the market down an old familiar path.

In the end … We are all just actors.

Who sets hop prices – Part 1

Events unfolding in 2017 will determine the course for hop prices for the next generation. In the past growers, merchants and brewers always traveled a well-worn path. When standing at a similar crossroads, they followed the animal spirit. That path leads to boom and bust cycles. It is a path that brings shortage causing skyrocketing hop prices. This is the one time when that cycle can be interrupted and at no time in history has it appeared more likely to happen. It will determine whether craft brewers are different from the big multinational brewers against which they rebel and who have dominated the scene for generations. Now, it is the craft brewers’ turn at bat. The hop industry is eager to see how craft brewers will play their cards differently.

 

All the world is a stage,

And all the men and women merely players”.

   – William Shakespeare, As You Like It, 1599

 

If, brewers perceive an oversupply and move to exploit the market to their advantage, it guarantees the next cycle will resemble previous cycles. By buying only on the spot market instead of contracting forward for their hops, and by relentlessly driving prices lower, craft brewers will virtually ensure the future direction of the market. When we see that happening, we will know they are following a well-established path of events, and there is good reason to fear it. At that point, growers would be powerless to stop the cycle.

Without contracts, growers don’t know what demand exists. They cannot know what to produce. They will remove acreage more slowly than necessary hoping to sell their hops on a spot market that may or may not exist. When they produce too many hops they will sell them at a discount to push them into the market. After a few years of doing that, family farms will go out of business. Equity will slowly drain from the hop industry. True, brewers will save some money on hops, but at what cost? Companies will go bankrupt. Growers will remove more acreage. Annual production deficits emerge and grow eventually leading to shortage. It’s a transfer of wealth from farms to breweries. 

That’s not the end of the world by any means. Life goes on if the cycle continues, as will the volatility in the hop market. By the time the next hop shortage occurs, the hop industry will be so drained physically, financially and mentally, growers have no choice but to recover as quickly as possible. Prices will skyrocket. Brewers will feel they’re getting screwed. The whole process is unpleasant for everybody. We all like to save money wherever we can. I get that. If you could know with absolute certainty you would pay as much as 40 times more in the future for something you need every year, would you still try to save 30-40% today? If you can save $1-2 per pound for the next few years, will you be equally as happy when you have to pay $20 more per pound. That’s where this road leads.

How can I be so sure that this can be the path for the future? Each cycle is slightly different, but basically this is how every cycle played out for most of the 20th century when the multinational brewers dominated the industry. The beer market is different now, that’s true. Will the fact that craft breweries dominate today’s market make any difference?

We already see a few craft brewers foregoing contracting in favor of buying hops on the spot market. We already hear their perception of oversupply as a justification for the low prices they expect. What else should anybody expect? Can anybody do anything differently to avoid repeating the mistakes of the past? We’ll provide some more insights and options in our next blog.

 

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Why homebrewers pay more for hops

A comment regarding homebrew shops from a friend on Facebook inspired this blog. I thought rather than answering his question in Facebook it would be worthwhile to share the answer with everybody since it applies not just to homebrew shops, but to everybody who buys hops. Enjoy!
 
…. specifically for home brewers. 3.00/ounce for some varieties in the homebrew shops. What is the shops’ wholesale price from the supplier. How many times do the hops get sold before they reach the end user? I’m working on connections to local growers in upstate ny to source hops, and be free of an inflated market price for hops. Supply and demand.
 

Good question. You are paying for several conveniences that apparently you don’t fully value or appreciate. If you are buying a 3 ounce package of hops, it seems you don’t want to buy any more than you absolutely need at the moment. You are paying extra for packaging and labor to put hops in 3 ounce packages. That’s just one thing that increases the price of the hops as they make their way from the farm to you. You probably have a freezer at home where you could store a pound or two of hops at a time. Are you not willing to use that as your own personal cold storage in order to save a little money?  If you buy in larger volumes, you’ll get a cheaper price. That’s the Costco business model.

Secondly, you’re going to a home-brew shop. The owner of that shop invested their time and money to collect a little bit of everything just for you so you can buy everything in one place … in person at a storefront. That involves rent and somebody’s salary to run the shop. When you go there, you probably like to ask questions from time to time to take advantage of the owner’s experience. That’s a convenience you’re paying for in that price  that it seems you don’t appreciate. That’s also another way price is increased on its way from the farmer to you. 

Yes, that homebrew shop probably bought those hops from at least one hop dealer so there’s an additional layer, or possibly two, of the supply chain adding to the price. Have you ever been to the grocery store? It’s the same situation there. Did you know the grocery store adds 100% margin to most of the goods it sells? I wouldn’t be surprised if your homebrew shop has to do the same. Do you feel the need to contact a carrot grower to buy your carrots or a cattle rancher to buy your steak? That sounds a little ridiculous, doesn’t it? That extra margin doesn’t mean the store is making a mint. There are just a lot of expenses involved in that business model.

If you want to buy at cheaper prices online, you can check out the store on the 47Hops web site.  We sell one pound resealable packages that you can stick in your freezer. If you can figure out a way to make that work, you’ll cut your hop bill way down … but you won’t get that same experience as at your homebrew shop. If enough people do that, the homebrew shops go away forever. That might not be a good thing, but that might be the way of the future. We’re definitely not going to hold your hand or have all your brewing supplies, but the price of your hops will be lower.

You shouldn’t make the mistake of judging everything by price alone without factoring in the value of all the other things you’re getting along the way. Nevertheless, brewers large and small do this all the time. I haven’t even mentioned cold storage, processing, financing and shipping, all things that add to the value of the hops you’re buying. There are a lot of people who have families to feed who touch that little convenient package of hops before it gets to your local homebrew shop.

Sure, growers sell hops for less than you can buy them in a homebrew store. Do you want to, or are you even able to, buy 13 or 130 or 200 pounds of raw hops at a time and pay for them in September? Do you have a freezer big enough at home to handle that?  Do you even use raw hops? If so, what are you doing buying 3 ounces at a time in the first place? Most growers don’t sell pellets. They don’t have storage facilities and they won’t package into 3 ounce packages. Very few growers are set up or are inclined to deal with somebody wanting a retail style product like what you are getting at the homebrew shop. All in all, you’re already getting a pretty good deal at that homebrew shop, but no … It’s NOT the cheapest price.

If you all you are looking for is cheap prices and nothing else matters, there are probably some really nasty old hops floating around out there. I imagine you can probably buy them for less than a $1.00 per pound if you’re lucky. Good luck making good beer with them though.  You should be careful driving your decisions based on price alone … you might actually get what you pay for. 

Contract Repudiation? – Letter to a Brewer

One of our salespeople recently received several emails from an upset brewer in which he seemed to be discussing the repudiation of his contract with us.  It was not entirely clear however. We offered several options for the brewer to change the terms of their contract in an attempt to make them more amenable, but all were shot down. We decided since our salesperson was not able to make any progress, that perhaps our lawyer would. So, we sent the brewer the following letter:

 

February 13, 2017

 

Dear John,

I would like to thank you for your business. I am writing you today regarding your recent communication with one of the members of our sales staff. I have read through your emails and understand that you are not happy with the contract you signed. From my interpretation of your emails, it seems that you do not plan to honor the terms of your agreement in full.

It seems there may be some confusion on your part as to the purpose of our contract. Our contract exists to dictate how our companies will work together. Unless we mutually agree to changes in writing, those are the terms. In your emails, you appear to dictate what you are willing and not willing to do and you unilaterally intend to change the terms of our agreement. That, I am afraid, is not how this works. We are very willing to discuss reasonable adjustments that are mutually agreeable for both parties. However, the changes you have requested are unreasonable, completely one-sided, and therefore unacceptable.

I would like to ask you to clarify for me if it is your intention to repudiate your contract. If you choose to do so, please be aware that we will not relinquish any rights we have under this contract to any remedies to which we are entitled. The remedies, and our willingness to pursue them, are clearly presented in your contract. I am hopeful that our companies can find a compromise on this issue so we may continue to work together in the future.

Kindest Regards,

Steven

In-house counsel, 47Hops

 

Following that letter, not surprisingly, the brewer’s attitude seemed to change a little bit. Honestly, we want nothing more than to find an agreeable solution for both parties. It is not in our interest to bring any brewer to his or her knees. Hopefully the brewers don’t want that for us either. During the challenging times that lie ahead, we must all remember that we need each other. We should strive to work toward goals that are mutually beneficial so we can all survive long into the future.  

Hop Contracts – Did you read before signing?

At CBC 2016 a brewer visited the 47Hops booth. We talked for a while. By the end of the conversation, he wanted to sign a contract. I gave him the contract and terms and conditions to read. He was about to sign them without reading them. It was the 2nd day of the 3-day show. I told him that I’d make sure the hops didn’t go anywhere and suggested he take the contract and the terms and conditions back to his hotel, read them. I assured him we could talk about it the next day if he had any questions. Then he could sign the contract.

The next day arrived and so did the brewer. He was a little hungover, but had the hop contract and terms and conditions in hand. I asked him if he had the chance to read it. He responded, “Naaa … I didn’t. I don’t like reading those things. We like to do business with people we can trust.” I couldn’t believe what I was hearing. We sat down and went over the contract, terms and conditions together. I highlighted varieties, quantities, prices, payment dates, penalties for not paying, how long hops could be stored for free and storage costs once they did kick in. The rest was legal stuff about venue and jurisdiction. It seemed he was paying attention and then signed the contract.

Most of us click the AGREE box on the ULAs for apps and for our cell phone operating systems. Today, people are accustomed to not reading contracts. There’s a great South Park on that called HUMANCENTiPAD. I have to admit, regarding the iOS on my iPhone I don’t read the ULA before agreeing to it. I figure if I want to use that phone that’s the price I have to pay. If it says in there they can track my location, then that’s the price of that technology.

It seems some brewers take the same approach with hop contracts. So many brewers are surprised later … when they have too many hops and discover they cannot just walk away from them. Finally, they read the details of the contracts they signed. That feeling of surprise can turn anger and some get very emotional. That doesn’t help.

Please read your hop contracts. You should read every contract you sign, unless you’re just willing to accept whatever costs there may be to working with a company. Education is never free. I suppose this is one of those expensive business lessons new brewers need to discover not only how to brew better beer, but run a better brewery in the process.

Oversupply: Who is to blame?

The farmers grow the hops so it would be easy to say that they caused the current oversupply problem the large brewers have. While that sounds neat and clean, it’s not accurate. I’m not defending hop growers. They’re not choir boys. They have definitely done their share to contribute to supply problems in the industry, but they are not alone.

Of course, brewers contracted with merchants. Merchants, in turn, contracted with growers to produce those hops mentioned above. So, are brewers and merchants are an easy target to blame for today’s mess? It would be easy to point a finger at them, but that wouldn’t be entirely right either. Brewers calculated that they needed more hops to fuel the growth they were experiencing. They watched as production went out the door faster and faster with each passing month. That growth represented real numbers. Their customers clamored for more and more beer because that’s what their customers, the public, wanted.

Throughout the year, we see data about off premise sales and other very interesting statistics in the media. The IRI Group and Nielsen data, however, do not represent the most accurate data on the craft beer industry. Nevertheless, those are the numbers we look to and the reports we read throughout the year to guide our decisions, perhaps mistakenly so.

Here’s an interesting article from Julia Hertz at the Brewers Association about how to interpret the data the Brewers Association reports. Anybody looking at the numbers should understand what they’re looking at. 

https://www.brewersassociation.org/communicating-craft/dissecting-craft-brewer-data/

Don’t cross a river if it is four feet deep on average.

– Nassim Nicholas Taleb

 

But how do breweries estimate how much of their beer consumers might drink in the future in an expanding market with increased competition? Despite all the sophisticated math that could be done, it really comes down to a hopeful educated guess. Brewers try to base future production on sales trends of the past and forecast where they might be going. Forecasting the public’s tastes would be difficult at best … so they can’t be blamed for doing their best at guessing. That’s where the reality based decision making ended and wishful thinking takes over.

It’s a basic fact of life that many things “everybody knows” turn out to be wrong.

 – Jim Rogers,

 

Everybody in the craft beer and hop industries wanted to see the craft market explode. Hop growers and merchants wanted to see more demand. Manufacturers of bottles, labels and cans wanted more sales. They couldn’t even keep up! Everybody believed the market would get explode, and it did. In the process, craft brewers are today giving big beer a serious run for their money. It is the mother of all underdog stories we ever wanted to believe finally coming true. It just didn’t continue to explode as everybody wanted it to. In that respect, we are all victims of confirmation bias. We are all, therefore, responsible, in part, for the current situation.

Investopedia.com defines Confirmation Bias as “A psychological phenomenon that explains why people tend to seek out information that confirms their existing opinions and overlook or ignore information that refutes their beliefs.”

In short, confirmation bias makes us see what we want to see. It makes us miss the things we don’t want to see. Our social media lifestyles further accentuate the problem. Today, we surround ourselves with like-minded people. By doing so, we reduce our exposure to information we don’t want to hear and we eliminate things that make us unhappy.

 

Bart Watson from the Brewers Association talking about slowed but continued growth for craft. Sounds like a message of cautious optimism.

https://www.brewersassociation.org/press-releases/brewers-association-mid-year-metrics-show-continued-growth-craft/

 

So, is there really an oversupply of hops today? If you ask a big brewer who is over contracted on hops if there is oversupply, the answer is most definitely yes. Ask the merchants sitting on millions of pounds of contracted hops in their warehouses that are not paid for if there is oversupply, and the answer is certain. Talk to the growers having trouble selling their extra hops if there is oversupply and you can imagine what they will say.

People manipulate figures so many different ways depending on their goals. It’s difficult to know what to believe. The hype generated by different media sounds credible and that adds fuel to the fire. This story from the Motley Fool showing how everything is still looking good for craft beer. They present a very convincing argument. They clearly decided they needed to reveal more detail to reach an optimistic tone, and it sounds great.

https://www.fool.com/investing/2016/06/18/dont-believe-the-hype-craft-beer-isnt-dying.aspx

 

At the end of the day, we must believe the facts we know to be true and realize that even with a crystal ball you can’t predict the future. Projecting today’s growth onto tomorrow was clearly not the right approach to take. Wishful thinking doesn’t pay the bills. The slowing payments and mountains of inventory don’t lie. There are too many hops in the ground today considering the rate at which the craft beer industry is growing. Growers ignoring this and planting anyway won’t let facts get in the way of their ambition. They can bring about the end of the party for everybody. Thankfully the growth of craft beer has only slowed. It is not dead. The rules are just changing.

 

 

Craft Inc. – Part 2

Is craft beer a trend or is it part of the culture today? The first craft breweries today are billion dollar companies. The next wave of craft breweries followed the same path. They too enjoyed wild growth and today, they are big corporations. They traded the “local” moniker to be bigger and you can find them in almost any grocery store across the country. Craft brewers followed the examples of the only brewers that had come before them, the ones we know as the “Big Brewers” or the “Multinationals”. In doing so, David became Goliath.

What do I mean using the David and Goliath comparison? It might not be exactly what you think.  This excellent article on Inc.com describes the differences between David and Goliath and why I think the example is appropriate in today’s world.

For craft brewing to be part of our collective culture, rather than just a product on the shelf at our grocery store, the story must evolve. It cannot be about west coast IPAs brewed fresh on the east coast or in Europe. That type of brewing has its place, but it doesn’t transform culture. To be part of our culture, however, it must be about experience and story. It’s about the guy or gal brewing with their friends in the garage. It’s about the person who got the courage up to open a small place in town. That sounds pretty simple, but it’s hard when you’re chasing what you think is “the American dream” where bigger is better.

Small brewers with strong local support and content to stay local can cause a change in culture. People content on supporting a local business can cause a change in culture. The cultural revolution will depend on the uniqueness of thousands of brewers. Each of them may only have a few thousand loyal customers, but that’s enough. They’ll each, in turn, provide jobs to a handful of people. That way, through a grass roots change, all across the country, the culture will change toward one in which craft beer can play a strong role. 

To see the future of the beer culture, it is tempting to look at the top of the list of craft brewers in the U.S., the ones with the largest production. Those breweries represent an old paradigm where bigger is better. The future rests with the small craft brewer practicing his art day in day out. Today, craft beer is a trend. To become culture, however, the small craft brewery must be the goal, rather than the stepping stone it is today. How many businesses today have the goal to be small?

Craft Inc. – Part 1

Craft is an art. Even the word implies a beautiful meaning, creation. So many bearded men in flannel expressing themselves and their appreciation for flavor and creativity in ways previously unexplored can’t be a bad thing, can it? As an American who has lived overseas, I have noticed that we Americans fall prey to a few things that can lead us astray from. We almost always think bigger is better. We almost always want more of a good thing. Those sound like very similar things, but they’re not.

Investor dollars have created a drive for profitability and returns that did not exist previously. That desire for growth for profitability and for growth’s sake has led to many brewers taking the easy way out. Throwing the word IPA on anything has been a fast track to printing money the last few years, regardless of whether what’s in the bottle is good or not. The same is true with hop varieties. We sell Citra® hops so, yes, I’m happy when brewers buy it, but … come on. Grow the art of craft beer by being creative, mixing varieties, experimenting with new flavors! Don’t just make the 25,000th Citra® IPA.

If making another one of what the other guy has so you can sell more beer is all you can think of as a craft brewer, then I’m worried for the future of craft beer. Van Gogh didn’t use just one color of paint when he created his masterpieces. His goal wasn’t to be the biggest most famous painter in the world, however, his paintings are still vibrant and alive for their use of so many bright colors,  I understand everybody needs to make a buck. How will the little craft brewery distinguish itself from the multinational corporate brewery if making a buck becomes the guiding principle of the craft beer industry? If your primary goal is market share, are you being true to your craft? If money is your mantra have you not become what you supposedly despised in the first place?

Crafting anything is an art and it is the way to emphasize and celebrate uniqueness. Brewers … Explore the craft you have chosen. If you truly are a craft brewer you should push the boundaries. Color outside the lines. Mix the paints. Think outside the box. Don’t cheapen the meaning of the word in pursuit of the almighty dollar. Make money as a result of exploring where you can take craft. You don’t have to be bigger to be better. You have to be better to get bigger. Focus on being better and the bigger will follow.

Tomorrow: Part 2 and the conclusion of Craft Inc. 

Contracts vs. Cash Flow

Unbelievably, there are still hop growers increasing acreage in 2017. They say “they have contracts” or “the wheels are in motion” or that “the plans have been in the works for a while”. That was OK back in July, but the picture has become much clearer in the past few months. Time to change the plan!  Last week, a grower who lives about 45 minutes outside of the Yakima valley growing region called. He said he plans “to start a hop farm this year”. He wanted to know if we needed anything. Crazy!  Actually, I can understand his naivety. He doesn’t know the industry. He probably read some poorly researched articles in the Wall Street Journal and other news outlets saying how there aren’t enough hops in the world. The growers who have been around for a while should know better. Some of them don’t. 

What good is a contract if you don’t get paid on time? I believe the year 2017 will be the year the word “contracted” loses its value in the hop industry. Cash flow, instead, will be the operative word. There is no cost to sign contracts. Contracts are too easy for brewers to sign. When things go sideways, brewers expect merchants to fix their contracts at no cost. The hop industry is trying to help fix the problems where it can. The scale of the problem is too large for half of the equation to handle alone. Merchants and growers contracted with brewers they trusted to act responsibly. It seems that trust was misplaced. There has never been a way to check what the total contracted position of a brewer is prior to signing a contract.

I don’t remember hearing a Latin phase “Auctor Emptor” or “Seller Beware”. I guess the Romans never sold hops. There is no way for a merchant or a grower to know if a brewer is contracting responsibly. During the past few years, many of them were not. Maybe there needs to be a transparency phase prior to signing a contract.