Note: This is a fictional story for entertainment purposes. You get to choose the ending. The story, all references, names, characters, and incidents portrayed are fictitious. No identification with actual persons (living or deceased), places, buildings, and products is intended or should be inferred.
Introduction
By the time Steve noticed he hadn’t brewed anything creative for a while, he had been working for a popular craft brewery for decades. Brewing IPA after IPA with the same handful of varieties year after year wasn’t very exciting. That’s what paid the bills though. That’s what the people enjoyed … Those were the varieties offered by the company that sold them their hops. By 2040, a brewery’s return on investment (ROI) and market share mattered more than the art. Science and finance had taken over long ago.
The craft revolution started so strong. It was a great time to be a brewer. By 2030, the excitement that launched the movement two decades earlier had faded. Some thought of Steve as an elder statesman. Others referred to him as a God who could brew no wrong. As he entered his fourth decade in the business, his work brought him more grief than joy. The awards and plaques that littered his office collected dust. The few new brewers that entered the industry these days copied the market leaders. They siphoned off local market share. Soon, the novelty of their newness wore off. Their competitive advantage was that they produced beer locally. The beers they brewed weren’t that different. Some of them copied Steve. He missed the passion. He looked forward to retirement more than brewing the next batch. He wondered how it had all gone so wrong.
Before Craft
Before the craft revolution light beers brewed by macro breweries dominated the world. Their purchasing agents understood the real costs of production of their ingredients. They could name their price for hops. They offered enough for a farmer to survive, but never enough to thrive. All the deals were on their terms. On Wall Street, they returned billions to their shareholders. Before craft, prices spiked once every 10-12 years. That was followed by years of prices below the cost of production. A couple years of soaring prices was easier to manage than long-term contracts. They feared being locked into one vendor at higher prices than their competitors. They signed contracts, but if prices fell, they demanded those contracts be renegotiated or dropped altogether. In an oligopsony, the big customer always got what they wanted[1]. There were no other large buyers for their hops and losing one meant financial suicide. Hop merchants and farmers reinvested when money poured in during the good times. They watched their fortunes drain away as they waited for the next price spike. It was a difficult time to be in the hop industry. Those who thrived during this time plotted for a future when the shoe would be on the other foot. They dreamed of an era when they could decide the winners and losers, an era where they controlled prices and supply, and every year was a good year. But that was just a dream.
A Race to the Bottom
Research and development programs focused on alpha extracts and downstream products to better serve their macro customers. They searched for the fabled 20/20 hop … a variety that could yield 20% alpha acid and 20 bales of hops to the acre. With the 20/20 hop, no competitor could produce alpha for less. They could rule the world. Alpha was everywhere. The commodity flooded the market. The first sales always went to the lowest cost producer. Merchants invented amazing products with greater efficiency than their competitors could offer. This gave them an advantage until their competitor invented something similar. In the process of trying to outcompete each other, they doubled and tripled brewing efficiency. Merchants competed for limited sales in a shrinking zero-sum market. Brewers continued to buy from the lowest bidder. This continued for a generation.
During the leanest years, some farmers couldn’t produce hops at the low prices the market dictated. Their neighbors snatched up their farms so they could lose less per pound by producing more hops. Insurance money from kiln fires financed infrastructure projects. There were a lot of fires back in those days. The big hop farms grew bigger. Their size meant they could sell for less. It was a self-destructive cycle. New tractors in hop fields were a rare sight. The children of farming families looked for jobs elsewhere. There was no money on the farm. They had no idea the tables would soon turn.
The Golden Age
The futile search for the 20/20 variety yielded proprietary aroma varieties with high alpha acids and interesting flavors. Their creators had no idea at the time of their inventions they would change the industry and create fortunes for some in the process. U.S. proprietary hop variety popularity began to soar after 2010. It was called by many the craft beer revolution. That lasted almost 20 years. Modern monetary theory[2] created a period of perceived abundance for many. Expensive craft beer was considered an affordable luxury[3]. It was one of the principles that led to the success of Starbucks decades earlier[4]. Most new hop varieties during this time were privately owned and patented. Their owners managed and heavily regulated their production in accordance with patent law. An unprecedented demand developed for expensive craft beer. The apparent scarcity of popular hop varieties eliminated all signs of price-based competition so common in the alpha years.
American farmers rejoiced as they received the highest hop prices since World War II. All the while, they maintained the argument that they needed more to survive. They were happy to produce these new miracle varieties and loved the amazing high prices. They reinvested in their farms. They reinvested in their farms until everything was new. When there was nowhere left to reinvest on the farm, they bought things they could never have afforded a generation earlier. Some bought cabins to have off-site company meetings. Others bought airplanes to save time when traveling to meetings. There were farmers who chartered planes to attend meetings. They poured concrete around their facilities and called it dust abatement. Chopped hop vines had served that purpose for decades. That wasn’t the look farmers wanted to present to the brewers. They leased new farm equipment they would have owned a generation earlier. This reduced the need for expensive maintenance personnel. New tractors don’t break down as often. They built new hop trellis and rebuilt old trellis using GPS. Wherever a craft brewer might stand the fields looked immaculate. Satellites ensured the rows of polls in every yard were geometrically perfect. It was very appealing to the eye.
Putting lipstick on a pig doesn’t improve the flavor of the bacon. Few of their improvements did anything to improve the quality or the yield of the hops produced. They dd contribute to the rising costs of production, which were labeled “sustainable”. The straight lines of the fields, the new concrete and freshly painted steel factory farms appealed to the thousands of new craft brewers visiting hop farms each season. They knew very little, if anything, about hop production. Brewers like Steve who had been around for some time knew better. He remembered the quality of the hops he received when the equipment was old and rusty. He remembered when chopped hop vines covered kept the dust down. He remembered when the fields were crooked, and it was common to see splinted poles holding up the wire. He remembered the quality of the hops back then had been as good then as it ever was.
Farmers understood though that if their visitors enjoyed their visit and left feeling good, they would pay the prices they thought were necessary to sustain their favorite family hop farmers. Even the farms earning tens of millions of dollars each year that employed hundreds of people were family farms in the marketing literature. The only thing remaining was to manage their thought process. Had brewers known the extent to which prices had been manipulated and what farmers could do without, they might have protested. Ironically, craft brewers were responsible for the changes that led to the higher prices they disliked. There was no way they could find out how inexpensively hops could be produced. Hop farmers were united around the desire to see prices increase every year, and they did. It was a glorious time to be a hop farmer. It was the golden age of hops.
The New Guys
Craft brewers had no idea what it cost to produce hops. Nor did they understand how to buy hops. They had no feeling if the prices they were quoted were reasonable. They were unaware of the personalities involved. They didn’t understand the rivalries between merchants and farmers that had existed in some cases for decades. Many craft brewers bragged about their hop usage and how many pounds they could use in each barrel of the latest IPA. The hoppier the better! Hops were such a small part of their expenditures. Plus, beer drinkers were content to pay more for a pint of craft beer than anybody had ever thought possible. Back then, it didn’t matter if a pound of hops cost $6.00 or $7.00. Farmers sensed a paradigm shift. Soon seven dollars turned to eight. That turned to nine and later ten dollars per pound. Secondary markets saw the price of a pound of hops soar as high as $30 before the inflation hit.
During the boom, the craft beer industry expanded faster than anybody expected. Sales of hops to the world’s biggest breweries still mattered. Craft brewers using loads of aroma hops paid for the paint in those shiny new picking facilities. They became kings. In an ironic twist, the world’s largest breweries took a back seat to thousands of new craft brewers. The macros would not soon forget. That wasn’t on the minds of hop merchants or farmers. The sky was the limit. The whole world wanted to drink craft beer. It seemed like that would never change. It was the golden age of hops.
Investment Brewers
After 20 years of brilliant supply management, the two guys in control of a majority of U.S. proprietary variety acreage noticed that cracks began to emerge in their strategy. The economy was affecting craft beer consumption. There was so much money to be made in brewing during the 2010s and ‘20s price hadn’t mattered. Old-timers like Steve remembered the day when American hop farmers would beg them to buy Cascades on the spot market for $2.00. They wondered if they would ever see those prices again.
Investors in many of these new craft breweries wanted to build a company they could sell to a bigger brewer. That was the American dream. They urged their brewers to copy successful competitors. It worked for many of them. They chased the same few proprietary varieties in an ironic attempt to express their uniqueness from their competitors. Hop farmers, merchants and brewers were interviewed on podcasts. They were filmed in television shows and documentaries. They hosted tourists throughout the year. The hop and brewing industries had gone viral. They were rockstars. A generation earlier, it had not been uncommon for a farmer to be asked to explain what hops were when asked what they did for a living. It was the golden age of hops.
Craft breweries chased consumer preferences. They competed by always offering something new and different. Hop farmers and merchants imposed the same long-term contracts that worked with the world’s macro brewers. For customers that required flexibility, long-term contracts created more problems than solutions. Brewers needed to be perceived as cutting edge. Locking them into one variety of hops for five years was the antithesis of that. New varieties were available every year. They wanted access to the newest varieties. Breweries needed that so their customers would stop by the brewery. The dichotomy disrupted the order. The problem begged for a new solution, but none was available.
Craft brewers signed the long-term contracts. They had no choice. They were told they would not receive hops if they didn’t. They were told the farmers wouldn’t be able to afford to grow them. When they didn’t need those hops, one by one, they realized that hop contracts were an albatross around their necks. Merchants forced them into contract renegotiations. That perpetuated a relationship with the same merchant that had locked them in. Some revolted. They calculated the cost of abandoning those contracts when they no longer served their needs. Some decided it was worth the risk.
Luxury
After decades of growth in the craft beer industry, it was clear to farmers and merchants that money was no object for brewers when it came to hops. So long as they were making money and were sold the right story, it seemed brewers would pay any price. John F. Kennedy once said, “The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest - but the myth - persistent, persuasive and unrealistic.”[5] The myths that worked with brewers were: 1) farming was hard work, 2) there wasn’t any profit in farming, and 3) farmers needed a sustainable price just to breakeven while producing the hops breweries needed. Those all sounded like reasonable requests. The farmers took it upon themselves to define what a sustainable price was.
“The great enemy of the truth is very often not the lie, deliberate, contrived and dishonest - but the myth - persistent, persuasive and unrealistic.”
- John F. Kennedy
By the 2020s, anything that had “IPA”, “Citra”, “Simcoe” or “Mosaic” would sell. Consumers were willing to pay any price for hoppy IPAs. Brewery investors loved that. Unlike lagers, IPAs had a quick turnover time. That meant greater returns on their investments. Some brewers used as many as six pounds of hops per barrel. Breweries even put hop brand names on their labels to sell more beer. That locked them into their supplier. It highlighted the hop brand name rather than the flavor in the beer. By the late 2020s, the industry had no choice but to change direction.
Recessions and even depressions had never affected the beer industry. People drank when times were good to celebrate. They drank when times were bad times to forget. This time, beer drinkers grew more careful where they spent the little money they had. By the late 2020s, a pint of craft beer cost over $10 at most restaurants across the U.S. That was more than Gen Z was prepared to pay. Demand for expensive craft beer decreased for the first time.
Smaller craft brewers searched for ways to compete. A flood of efficient downstream products created over the previous 50 years came to the rescue. Steve flexed his creativity. Beer drinkers discovered more affordable less hoppy session beers with great flavors. They had grown more sophisticated over the previous decades. The crisp clean flavors of these beers were not lost on them. The price was right. Expensive hop forward IPAs had become a luxury.
YOU GET TO CHOOSE THE DIRECTION OF THE STORY.
You can choose:
Section 2: Brewers buy more proprietary hop varieties,
or
Scroll down to Section 3: Brewers return public varieties.
SECTION 2:
BREWERS BUY MORE PROPRIETARY HOP VARIETIES
One Ring to Rule Them All
One of the companies producing proprietary hop varieties enjoyed more success. Its varieties occupied 68% of U.S. acreage. Their competitors’ proprietary varieties combined enjoyed another 25% of U.S. acreage. Public varieties had been downplayed and ignored for over a decade. By 2030, they occupied the few remaining acres. American farmers loved their proprietary varieties. They had to be nice to the neighbors they despised, but they made enough money to swallow their pride. Their largest problem was finding tax write-offs they hadn’t already used. High prices for proprietary varieties increased the prices of the few public varieties that American farmers continued to produce and for the varieties produced by farmers overseas.
Proprietary varieties were a Trojan horse. They served the interests of a few at the expense of many. Merchants subsidized the price of public varieties with profits from proprietary varieties. They offered public varieties at prices so low independent farmers couldn’t compete. In doing so, they gained what limited public variety market share remained. Companies not in the proprietary market could not compete with new varieties being released every year. That and the low prices for public varieties offered to brewers hurt their business. It was the lack of access to a global distribution network at scale that led to their demise. Companies that had traded hops for decades transitioned into related industries. Few remembered when, decades earlier, the largest hop merchant companies in the world had predicted this very scenario.
Alliances
In the mid to late 2020s, small hop trading companies and small hop producing countries began forming alliances to compete against the mammoth companies. They too created proprietary varieties. They wanted a slice of the pie. They were too late to the party. They would enjoy a fraction of the success of the market leaders. Most of their varieties would be vanquished to the growing pile of forgotten heroes after an initial burst of enthusiasm. They were valiant attempts by fish to compete with sharks in a global waters.
The tempo of industry consolidation that began in 2023 increased. By 2028, it was all but complete. Countries with multiple hop merchant companies consolidated until one remained. In many cases, this happened through what they called cooperative agreements. Farmers and merchants became part of the supply and distribution chain of larger companies. The larger company always announced the news of these mergers. They were takeovers, friendly on the surface but hostile underneath. Only those allied with one of the larger merchant groups remained. The large merchant groups ruled the industry behind the scenes with an iron fist. To outsiders, they portrayed an image of solidarity. Anybody that had offended them were left to die on the bine. By the mid 2030s, the smaller merchants became redundant. Their customers developed relationships with the parent companies. After centuries of disorder, there was order among hop merchants. The oligarchs emerged from the shadows. Their dreams had become a reality. They divided the world. It was the golden age of hops.
Nobody knew when the craft brewing industry became hypercompetitive. It was sometime during the late 2020s and early ‘30s. Fierce price competition on retail shelves saw the end of most mid-sized brewers by 2028. The direction of the industry was clear toward the end of the second term of a controversial U.S. Presidential administration. Interest rates, corporate and personal tax rates rose to record levels. Stagflation[6] was out of control. The comparisons to Weimar Germany were unavoidable. Consumer spending came to a standstill. Prices and costs soared. The brewing industry struggled to survive.
Perception & Reality
Craft beer, as many craft brewers had proclaimed for years, was not your father’s beer. It was different in more ways than one from the beers produced by the macro brewing industry. A struggling world economy led to the downfall of what was later known as the “Craft Era”. Craft brewers that hadn’t already merged with macros or who couldn’t survive on thin margins closed. By 2028, the Independent Brewers Union (IBU) reported that the number of brewers in the U.S. had decreased to 2,236. The number had not been so low since 2011. The IBU anticipated decreases of another 60% in their membership within the next decade. Their forecasts had been wrong before, but people believed them this time. Things were bad.
A pivotal moment in the brewing industry’s history happened when 50 regional craft breweries signed a cooperative agreement to share infrastructure. Steve was a signor to the agreement. In the interest of creating a greener industry and saving the planet, they agreed to brew each other’s beer in their local markets. Doing so would reduce shipping related pollution. Beer was heavy and expensive to transport long distances. Their cooperation was seen as a great step for the environment. Everybody cheered when the deal was announced on Capitol Hill by senior Republican Senator from Washington State, Dan Newhouse. Senator Newhouse had once been a hop farmer. That made the opportunity to make history announcing the development even sweeter. Lower costs of production meant increased profits for breweries.
The 2,186 pubs that produced and self-distributed their beers could read the writing on the wall. This new cooperation meant an end to their ability to compete with the big guys. It capped the possibility for growth beyond a certain point. A black market for craft beer developed. Pubs sold unlabeled beer for cash to locals. A year after the agreement, mid-sized brewers were gone. The “Crafty 50” as pub owners referred to them were no longer threatened from below. They could focus on their battle against the macros. With limited growth opportunities, investment in craft brewing ended. The revolution that began with such enthusiasm was over.
Back on the Farm
Among hop farmers, similar changes took place. Decreased demand for hop forward craft beers meant reduced demand for hops. Farmers had allied their production with merchant groups years earlier. They tried to strengthen those relationships to protect their farms. They committed acreage and offered to produce whatever the decision makers needed. Some years, that meant producing no hops at all. They suffered, but they never complained. They feared for their survival if they had to return to the low prices of the previous generations. They supported the status quo. They had grown accustomed to their lifestyles, which afforded them many luxuries.
Several American farmers remained independent. Well-capitalized after 20 years of profitable prices, the largest producer of American hops thought he could afford to compete against the large merchants. He didn’t realize that these companies had earned over a billion dollars in royalties. They could afford to give hops away if they chose to. A secret deal between the oligarchs meant nobody would work with that farmer again. The oligarchs agreed on a final solution. Although he produced thousands of acres of hops, they would make an example of him. That would dissuade any other farmers from opposing them. No individual farmers should be relevant in their new world order. They would set an example and preserve their market dominance. Two years later with thousands of idle acres of hop trellis for sale, the battle was over. Any independent minded farmers knew they too could be taken down in similar fashion.
Negotiations of alliances appeared to continue. They were for show. Within the mahogany paneled offices of the oligarchs, the survival of independents was never an option. The oligarchs wanted to control the world’s hop trade. They would get nothing less. They were close to realizing their goal. Despite more than two decades of success, the hop industry was still a zero-sum game. Even the smallest competitor had to be eliminated.
Mergers or Acquisitions?
By 2030, the smallest of the three remaining global hop merchants had been in business for almost two centuries. They stumbled in the early days of the proprietary variety competition. They never caught up. A succession of lackluster proprietary varieties had failed. Their business had grown more reliant on alpha sales to large breweries. They hemorrhaged equity trying to fight their competitors. It was no surprise when the larger of their two competitors announced the merger of the two. They would combine their global supply and distribution networks to create the largest merchant firm in the world. Each had production, processing storage and sales in various locations around the globe. Their networks would complement the other’s business.
Insiders knew it was a question of time before the principals of the larger absorbed the other. They had seen this before. The resulting mega hop merchant dominated the global market by virtue of its size alone. In a quest for balance, the market righted itself. Several smaller merchants and farmers enticed by generous contracts changed their allegiance. They believed the behemoth billion-dollar hop merchant companies needed them to succeed. The industry found a new balance. Those who changed were naïve. Changing sides convinced both remaining mega merchants they could never be trusted again. The hop industry became a duopoly. Sixteen months later, the principals of the smaller merchant announced their retirement. They said they wanted to spend more time with their families. They would retain their positions on the board of directors. They didn’t care anymore. They had sold out for enough money to support generations of their families to come.
Four oligarch families controlled the world’s hop trade through two companies. Coke and Pepsi had controlled the drinks market for years. Boeing and Airbus controlled the market for aircraft. Mastercard and Visa controlled personal credit markets. Why then could there not be two companies through which all hops were traded? George Carlin had explained it all so well decades earlier when he explained the conspiracy of choice in a standup comedy. It seemed so funny at the time. Consolidation was a familiar argument to anti-trust regulators at the U.S. Department of Justice who since the Reagan administration had taken a weak approach toward pursuing anti-trust violations[7]. So it was that two massive hop merchant companies came to control 93% of the world’s hop trade by 2030. The industry settled into the new dynamic.
For the Good of the Farmer
The oligarchs soon decided it was in their best interest to bring a few industry functions in house. The programs they earmarked for termination had been created when times were different. Market dynamics had changed. The oligarchs represented a new era. Two remaining mega merchants controlled the market. They developed plans to cooperate on issues that did not violate anti-trust laws.
The public collection and dissemination of information by third parties was redundant. Their fieldmen and salespeople collected the same data in house each year. The mega merchants could more accurately and efficiently report this data when necessary. Many of the oligarchs retired now that their legacy was ensured. A new generation was in control.
Public research programs had become symbolic. The mega merchants had little incentive to distribute public varieties. They received no royalties from public varieties. They maintained vocal support for the public variety development programs. Their advertising efforts revealed their true intentions were quite the contrary. For the good of the industry, the mega merchants declared they would cooperate. The industry had never known such a spirit of unprecedented unity.
The Oligarchs saw no use for promotional and international harmonization efforts. The messages of the various country organizations lacked unity. They explained how that would create confusion among brewers. Who better to promote proprietary varieties than the companies that owned them? The oligarchs rallied their respective farmers for the votes to kill the remaining public programs. Farmers followed their orders. Anything else was financial suicide. The two mega merchants ensured the smooth transport and regulation of goods with their global staff.
The farmers wanted to ensure their continued revenue streams. They had grown wealthy under the management of the oligarchs and trusted them to run the industry. Their independence had been worth the trade. They lived like kings. The two merchants began working together to publish industry statistical data. They collected the data from their global networks already. Their efforts focused on the proper way to report it. That meant deciding what brewers really needed to see.
They touted their cooperation emphasizing that it was for the good of the industry. They were happy to absorb the cost of these programs. That meant the farmer would be able to keep more of his hard-earned money. By 2032, farmers voted for the end of all public programs in hop industries around the globe. The farmer assessments that had paid for the public programs became a thing of the past. That saved farms tens of thousands of dollars each year. Between that and the high prices they received; farmers made more money than ever. It was the golden age of hops.
Reductions
Acreage reductions were slow due to the large volumes of contracted hops. Contracts obscured and delayed signs of changing demand for hop products. After a couple years, the pace of acreage reduction increased. The U.S. hop industry had tripled in acreage between 2010 and 2032. Managed acreage reductions began in response to decreasing demand for expensive proprietary products. The streamlined industry structure enabled the oligarchs to control production, processing, and distribution. Farmers had been reduced to anonymous factory managers supplying the machine. They were paraded to brewers during harvest. Unsupervised direct contact between farmer and brewer was discouraged. The punishment for violation would be severe. Individual farms understood their place as a cog in a larger machine. The acreage from each could be reallocated to others over time if problems arose.
The dominance of proprietary varieties made acreage reduction simple. Farmers had no alternatives. The oligarchs long ago had centralized all processing and storage facilities. Production was distributed based on a farmer’s relationship with and usefulness to the oligarchs. Reductions were not equally distributed as most were led to believe they would be. By 2034, U.S. industry acreage had decreased by 40% from its peak. Further reductions were necessary. Brewers worldwide moved to more efficient downstream products.
Several farmers tried to encourage brewers to buy old public varieties. The offered Cascade and Chinook at less than half the price of the average proprietary variety of the day. The brewers who produced beer using only public varieties had retired long ago. Steve looked forward to joining them. Those remaining believed good beer could only be produced with the new proprietary varieties.
In desperation, the farmers went to their banker partners who had spoken so wonderfully about the strength of their relationship over the previous two decades. They were met with resistance at the idea of fighting the oligarchs. Bankers had no appetite to finance a farmer-owned processing facility with storage and international shipping capabilities. The economy was too weak. The bankers had their own challenges now that money was no longer free. They had written down the value of hop inventory that sat in storage for years. They had financed infrastructure that had no purpose other than hop production. Several years earlier, it had been highly valued. Suddenly it was worthless. Banks financing hop farms did not like the outlook for the future of the industry. They said hop farms were “unbankable”. They had little sympathy for the plight of the farmer who they saw as a bad risk. The mega merchants stepped in to provide the financing the banks would not. The bankers were keen to cozy up with the mega merchants. They revealed the names of the farmers who had suggested creating a rival cooperative. That made the oligarchs’ acreage reduction plans easier to execute. They had all the power. They had all the money. The hop world was theirs. It was the golden age of hops.
The End
SECTION 3:
BREWERS RETURN TO PUBLIC VARIETIES
The End of an Era?
Control by a handful of variety development companies grew to dominate the U.S. hop industry. In 2021, 70% U.S. acreage was composed of proprietary varieties. That was the peak. The strategies to correct for over production began to fail in 2022. In response to cuts in acreage of proprietary varieties, farmers planted public varieties instead. Acreage of Cascade increased. That was the first time in fifteen years proprietary variety acreage gave way to public acreage. It would not be the last.
Wars
The trade wars of the 2020s that started with Russia’s invasion of Ukraine led to global conflict. That distracted from an impending economic collapse. More breweries left the business than entered during the deepest recession years. Some blamed Russia. With politics so divided in the U.S. many blamed the politicians from the other party. The problem began much earlier. In the end, that didn’t matter. The decade of the 20s was the worst anybody had experienced. In the beginning, breweries continued paying top dollar for hops. The money reportedly went toward funding the development of new varieties. A handful of individuals in the U.S. collected hundreds of millions of dollars in royalties during the 2010s and ‘20s. A tiny fraction of that to fund their variety development programs. Nobody did the math. Fortunes were made. Despite the hype and fanfare on their release, the new varieties did not compare to the few that had come out around the turn of the century. Most went the way of the infamous spaghetti pellet.
As power in the hop industry consolidated, prices soared. The hindsight of 2040 made it clear that the greed of those in charge brought about the beginning of the end of the golden age of hops. Hops had enjoyed unprecedented popularity. Farmers and merchants became wealthy. The rules that had dominated the trade for centuries had changed. The golden age raised prices for hop farmers worldwide. American hop farmers made billions more than their European counterparts due to the popularity of their proprietary brands. Some hops were more equal than others. The golden age of hops was the beginning of branded hop varieties.
As the economy grew worsened during the late 2020s, markets became price sensitive. Craft brewers used fewer and less expensive hops to achieve similar results relying on creativity instead. The early years of the craft revolution had been so carefree. Craft brewers bragged to each other who used more pounds of hops per barrel. It was the golden age of hops.
Luxury
After decades of growth in the craft beer industry, farmers and merchants understood that money was no object for brewers. If brewers were told the correct story, they would pay any price. The story that worked had three parts:
1) farming was hard work,
2) there wasn’t any profit in farming, and
3) farmers needed a sustainable price to keep producing the hops breweries needed.
On the surface, those all sounded reasonable. What defined a sustainable price was left to the farmers to explain. They jumped at the opportunity.
By the 2020s, American farmers had grown accustomed to naming their price. Anything that had “IPA”, “Citra”, “Simcoe” or “Mosaic” on the label would sell. Consumers were willing to pay any price for hoppy IPAs. Investors in breweries made fortunes on their investments. By the late ‘20s, the industry changed.
Recessions and even depressions had never affected the demand for beer or hops. People drank during the best of times. They drank during the worst of times. By the late 2020s, a pint of craft beer cost over $10 at most restaurants across the U.S. That was a line Gen Z would not cross for a glass of beer. Demand for expensive craft beer decreased.
To increase margins, smaller craft brewers searched for more efficient brewing methods. A flood of extracts and downstream products came to the rescue. Hop oil popularity surged. Beer drinkers had grown more sophisticated over the previous decade. Beer drinkers appreciated more affordable less hoppy session beers. The crisp clean flavors of these beers were not lost on them, and the price was right. Hop forward IPAs brewed with pounds of hops per barrel became a sign of excess and waste.
Brewers marketed their efforts to use fewer hops as efforts to save the environment. Less hop usage reduced the size of the hop monocrops in the Pacific Northwest. They suggest that acreage could be used to produce crops to feed less fortunate people. Reduced hop usage meant reducing water usage. Brewers pointed out that hop fields used hundreds of thousands of liters of water each growing season. Their efforts saved that water. The public’s concern over climate change and the battle for water resources between China and India heightened the importance of this issue in people’s minds. Brewers claimed that fewer acres of hops meant fewer gallons of pesticides drifted through the air. To the public, all pesticides were carcinogenic. Fewer pesticides meant progress. The brewers took credit for all these changes. They saved millions at the expense of the hop industry. Improved social credit scores meant they could access more credit. The public loved their socially conscious brewers.
Reductions
By 2030, brewers worldwide had found more cost-effective ways to brew. Since the turn of the century, the farmers who owned the companies that developed new varieties had grown wealthy. With that wealth came great power. Their companies were debt free. They profited well during the golden age. In response to brewers’ efforts to use fewer hops, they offered reduced prices for their proprietary varieties. They wanted to keep royalty-generating acreage in the ground. They needed to maintain market share. Brewers realized they had been paying inflated prices all along.
American hop farms had tripled in size in about 20 years. No farmer wanted to produce fewer acres in the future than he had in the past. The price cuts offered by the mega merchants trickled down to the farmers. They bore the brunt of the discount. A group of 10 American farmers who were tired of being exploited by the merchants craved their independence. They wanted the right to determine their own destiny. They called themselves The Independents. Smelling blood in the water, they attacked. They offered Cascade, Centennial and Chinook on five-year contracts for $4.00 per pound. That was less than half the average rate of the reduced proprietary variety prices. These were the varieties that had given birth to the craft industry. They thought it was time for a renaissance. Inspired by the words of Benjamin Franklin who once said, “Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”[8]Farmers would miss the profits to which they had grown accustomed. They would regain their freedom. That was worth the sacrifice. Plus … they were still profitable even at the new lower prices.
“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”
- Benjamin Franklin
Few brewers had been around long enough to understand how low farmers could lower their prices. Hordes of craft brewers supported the move. They stopped using proprietary varieties motivated by the lower prices alone. They signed millions of pounds of contracts. Compared to the prices to which they had grown accustomed, they were getting an amazing deal. That would make a difference to their bottom line. A few brewers like Steve who had decades of experience knew better. They watched and waited to see how the new strategy would unfold.
The Independents had pellet mills and a few cold storage warehouses on their farms. They pooled their vast resources to build a state-of-the-art cold storage, pellet and extraction facility. They would be ready for the war for market share that lay ahead. They created a cooperative to compete with the big merchants. The Independents wanted to escape from the self-serving interests of the mega merchants. They wanted freedom from the shackles that the mega merchants imposed upon them. Their plan was to cut out the middleman between brewer and farmer. Others had tried in the past. Despite claims to the contrary, that entity had become indistinguishable from traditional merchants. The Independents knew better. They would do it right.
The big merchants slashed their prices on proprietary varieties in response. They had significant resources. They would drive the ungrateful Independents out of business. The battle was on. The younger farmers had never experienced competition like this. A few wise old timers remained from the turn of the century. They had navigated these dangerous waters before and survived. They thought they had seen the last of this type of cutthroat competition. Now in their 80s and 90s, they emerged from retirement to create a solution to the shared fate of their families.
A Race to the Bottom
Prices fell still further in the 2030s. Brewers that had signed the initial contracts demanded contract renegotiations. Their threats differed based on the size of their contracts with the farmers. Many ended with something akin to, “…or we’ll never do business with you again”. The farmers gave many of the brewers what they wanted. After all, they had nowhere else to sell their hops.
The market had once again become a zero-sum game. Competition was fierce. The brewers that had watched and waited moved in to negotiate contracts at the new lower prices. They offered prices so low they knew they could not fall further. The cycles of the late 20th century that hop farmers and merchants had tried so long to eliminate was back. Brewers who had paid exorbitant hop prices for decades were able to name their terms and prices. It was the golden age of hops.
The End
[1] https://www.investopedia.com/terms/o/oligopsony.asp
[2] https://www.businessinsider.com/personal-finance/modern-monetary-theory
[3] https://www.google.com/search?client=safari&rls=en&q=craft+beer+an+affordable+luxury&ie=UTF-8&oe=UTF-8
[4] https://www.forbes.com/sites/panosmourdoukoutas/2014/10/26/starbucks-from-a-third-place-to-another-first-place/?sh=3db704cc2235
[5] From the commencement address at Yale university, June 11, 1962. https://www.presidency.ucsb.edu/documents/commencement-address-yale-university
[6] https://www.investopedia.com/terms/s/stagflation.asp
[7] https://academic.oup.com/book/32913/chapter-abstract/276851890?redirectedFrom=fulltext
[8] https://www.npr.org/2015/03/02/390245038/ben-franklins-famous-liberty-safety-quote-lost-its-context-in-21st-century