Hops

Hops have been highly prevalent in beer brewing since the early middle ages.  They serve multiple purposes: adding to the taste of the beer, promoting yeast growth over bacteria, and acting as a preservative.

There are substitutes for the use of hops, collectively known as gruit.  There are also several varieties of unhopped beer.  As of yet no large scale brewing company has introduced beer made using either technique.  Instead within the hops industry substitutes lie amongst different varieties of hops.  Centuries of breeding have produced around 80 varieties of hops used in commercial production today.

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Handbook of Brewing excerpt (Google Books)

The above table shows that hop production is just as oligopolistic as beer production.  This leaves room for profit margins on both sides.  Also, many hop varieties are owned by just one firm, which adds to the bargaining power held by hop companies.  Beer firms counter this by owning enough hop farms to partially ensure their supply and by using different mixes of hop varieties, especially in beers that are not very “hoppy” like Bud Light.

7 thoughts on “Hops

  1. Interesting to see the potential market power among suppliers. I missed a chance to tour a hops plant in Oregon due to bad flight connections … I’ve seen hops plants in Germany, but while driving and that was before I had read anything about beer as an industry.

    We can ask DB about this.

  2. I read an article linking the success of the large producers of hops to the recent craze in craft beer: “Craft beers use between four to 10 times more hops than an average lager produced by multinational beer companies.” Do we think a possible strategy for multinational beer companies to tap into this growth could be to brew and sell beers that have more of a ‘hoppy’ flavor such as an Indian Pale Ale?

    http://www.cnbc.com/2015/07/20/craft-beer-brewers-caught-on-the-hop-by-soaring-temperatures.html

    • I think part of this strategy is seen in the buying of these microbreweries. Most of the large multinationals tend to focus on brewing what they brew best, i.e. InBev (Budweiser) brewing Budweiser and Bud Light, but then will buy up or invest in these smaller microbreweries (such as InBev’s acquisition of Goose Island). This allows the large companies to tap into this market with out having to take capacity off of their main products.

      • I agree that this strategy is more viable for large scale brewers. If they were to try and produce a craft beer under the Budweiser label or other product offerings, it is possible that the addition of this product could cannibalize the brewer’s core offerings. By purchasing the micro brewers the company maintains its margins on the large-scale brews and can profit from the emerging micro-brew trend.

  3. Given that craft beers require significantly more hops than a mass produced beer such as Bud Light, craft breweries may want to consider vertically integrating in a similar fashion. A craft brewer could drastically cut margins through owning their own hop farms rather than subjecting themselves to the oligopolistic nature of the hop industry. Will we begin seeing this trend develop into a common practice as the craft beer industry continues to flourish, or will craft breweries stick to the tried and true method?

    • Ah, but how easy are hops to grow?

      – Is it realistic to think you can hire someone to work your land?
      – How much capital would you have to tie up? – it takes 3 years to get much yield.
      – One acre produces a lot of hops, but a viable farm is likely many acres in size. Can a craft brewer use that much themselves?

      ==> See Hops in an online botanical reference. Ditto the Wikipedia entry.

  4. As a native Kentuckian, the bourbon industry is huge. Bourbon is quite similar to beer in that individual yeast strains can play a huge role in how various bourbons taste. Yeast strains are guarded like the secret Coca-Cola recipe! One firm, Four Roses, even releases special editions of their bourbon with differing yeast strains to much fanfare every year. I wonder if there isn’t something the beer industry could learn from the bourbon industries marketing on yeast strains.

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