The AB InBev-SAB Miller merger leaves hundreds of small, independent brewers without access to important hops as AB InBev earmarks the entire production for its own brewers.
Jamie Bogner 1 year, 5 months ago
Small and independent craft brewers across the country received the unfortunate news Wednesday that global brewing giant AB InBev would cease sales of hops from its South African Breweries (SAB) hops farming subsidiary. The varieties grown and bred by SAB Hop Farms—Southern Passion, Southern Aroma, Southern Star, and more—will no longer be sold to other independent brewers and will only be available to the breweries owned by AB InBev.
Hops Broker Greg Crum of ZA Hops was the single largest U.S. importer of these South African hops and had worked for years to build a market for them in the United States. While SAB’s hops farming unit grew the hops, the market in South Africa for these unique flavor and aroma hops was limited, and bigger American hops brokers were more focused on the evolving flavor hops of the Pacific Northwest, New Zealand, and Australia, leaving these South African hops “undiscovered” by American brewers.
“I moved back to the states in 2012 and had a sneaking suspicion that brewers in the United States would be interested in what were then a few of their experimental varieties,” says Crum. “I moved to Albuquerque, New Mexico, from Cape Town, and reached out to brewers including Jeff Erway of La Cumbre Brewing.”
“Greg approached me back in 2012 with these hops,” says Jeff Erway of La Cumbre Brewing. “I’m not going to say they’re the greatest hops in the world, but they were unique. Some of them smelled like the most rank garlic and onion I’d ever smelled in my life, but a couple of them were just absolutely fantastic. That year, we were his only customer, and every year since we’ve bought some.”
La Cumbre’s first order for South African hops, and the entirety of Crum’s first year of business in 2012, was a whopping 220 pounds of South African hops. Last year, that number rose to more than 18,000 pounds (9.1 US tons). His projection for the 2017 harvest was to bring in around 44,000 pounds (22 US tons). While that amount of hops is a tiny fraction of the global yearly harvest, it represented about 10 percent of the hops that SAB Hop Farms’ planned to export to foreign markets in 2017.
La Cumbre’s award-winning beers can claim some of the credit for the growth in popularity.
“All four batches of Project Dank that have won any medals or awards were made with those hops,” says Erway.
But the advent and growth of the New England–style IPA was the turbocharger that accelerated the South African hops “brand.”
“The focus on aromatics, lower bitterness, and softer mouthfeel helps these hops mesh well with that kind of style, and that’s driving interest,” says Crum.
Fallout From the AB InBev-SAB Miller Merger
The current situation that Crum and his small craft-brewer clients find themselves in is a direct result of the merger of AB InBev and SAB Miller, which passed regulatory approval earlier this year. While AB InBev initially stated to the SAB Hop Farm subsidiary that it would take a hands-off approach in regards to their management, according to Crum, that policy changed two months later.
“While I was waiting to get a contract in place [for the upcoming crop year, since South African hops are harvested in March] the InBev merger happened and bunged everything up,” says Crum. “The merger was only finalized in South Africa in January or February, and at that point they were told by the ABI people that they were taking a hands-off approach to the SAB hops farms, and they should carry on just as usual. [That] obviously didn’t turn out to be the case.”
AB InBev Global Hops Procurement Director Willy Buholzer, when reached for comment, attributed the shift in policy to a poor harvest.
“South Africa is not a traditional hop-growing region. SAB’s R&D efforts made it possible to grow hops in South Africa, but it is still less than 1 percent of the world hop acreage and production. This year, South Africa suffered from low yields.
“Previously, SAB has sold a small surplus of locally grown hops to the market. Unfortunately, this year we do not have enough to do so given the poor yield. More than 90 percent of our South African-grown hops will be used in local brands Castle Lager and Castle Lite, beers we’ve committed to brewing with locally grown ingredients. In support of the local industry, we additionally sell hops to South African craft breweries. This means that less than five percent can be allocated to other Anheuser-Busch InBev breweries outside of South Africa.”
From his conversations with Buholzer, Crum believes that other forces, and not the harvest numbers, have driven the decision.
“I had a meeting with the hops director [Willy Buholzer] for ABI, and he was very clever,” Crum says. “In our phone meeting, he said point blank ‘this is going to give our brewers a competitive advantage.’ There is a reason they’re doing it, and that’s it. That’s the only reason they’re doing it. They don’t give a shit about these hops. Giving themselves an advantage and hurting the craft-beer industry—that’s it.”
The numbers seem to back up this argument, as 5 percent of the farm’s output might roughly equate to more than 55 tons of hops distributed to AB InBev breweries outside South Africa, or more than double the amount forecast to be sold to ZA Hops in the United States in 2017.
Crum also questions the validity of the demand from AB InBev breweries.
“Buholzer flew over to the United States and was obviously trying to drum up ‘sales’ within his ten or eleven ABI-owned breweries,” says Crum. “And it didn’t work—they weren’t able to ‘sell’ them—but they don’t care. They’re not going to let craft brewers have these hops, whatever the cost or the long-term repercussions. That is the bottom line.”
This internal “sales” effort to find a home for these hops hit a fever pitch when AB flew U.S. brewers to South Africa to build interest in using these hops.
“It hurts me,” says Erway. “A few weeks ago, I saw a bunch of friends who work for breweries now owned by ABI posting pictures to social media from Capetown, South Africa, and I said to myself, ‘Well, there goes those hops.’ I knew that was exactly what was going to happen—they were going to keep them all for themselves.”
Buholzer, however, claims that the policy this year isn’t an end to external sales of hops.
“Knowing the high demand for South African hops locally and abroad, we are working to expand local hop acreage. Depending on the 2018 crop outcome, we may once again be able to sell more hops to breweries outside of South Africa.”
Few independent craft brewers have built entire brands around these South African hops primarily because of the uncertainty of long-term availability.
“We still have almost a thousand pounds of Southern Passion and Southern Aroma, but we’ve never built a brand around a single variety of these hops for this very reason—we knew the availability was touch-and-go,” says Erway. “SAB down there has always had a monopoly on both the barley industry and the hops industry, so the idea of building a brand around that is not exactly a straightforward thing.”
Other brewers, such as WeldWerks (Greeley, Colorado) had just started brewing with the South African varieties and have had to put future plans around them on hold.
“We were planning on contracting for 500 pounds of each of two varietals,” says WeldWerks Cofounder and Head Brewer Neil Fisher. “That’s not a lot, but enough to do 400–500 barrels of that brand next year.”
“For a freshly harvested 2016 hop at $10 per pound, they’re fairly fruit-forward,” says Fisher. “It’s hard to find any hop like them at that price—El Dorado is pretty much the only one we can get consistently for less than $10 a pound that’s somewhat contemporary. So these were a cool way for smaller breweries to incorporate experimental and lesser-known varietals that were useful in an IPA. And now, they’ve vanished from the marketplace.”
“Southern Passion and Southern Aroma both have played a role in [Project Dank IPA],” says Erway. “Is it going to ruin the beer to not have those hops play a role? Maybe not. But as an IPA brewer, I look at hops like a painter looks at tubes of paint. They’re taking several colors out of my palette. And that kinda sucks.”
One aspect that hits both Crum and Erway the hardest is the work they both put into creating more interest for the hops in the United States. Crum’s sales pitch and Erway’s recommendations, followed by fantastic beers from breweries such as Modern Times (San Diego) and Cellarmaker (San Francisco), got the proverbial ball rolling and created familiarity among craft-beer drinkers. Now, not only do those early proponents of the hops have little to show for it, but they face the added insult of having built the hops “brands” to a point where AB InBev can now exclusively benefit from it.
“The fact that through my use of these hops, and Greg going out to sell them, we got hundreds of brewers from around the country to try using them, and now these brewers from ABI are saying to themselves, ‘now we want them’—I think that speaks to the true colors of who ABI is and what their goals are,” says Erway. “I really hope the Justice Department takes note of this when deciding who ABI can purchase [in the future] and how they can do business in this country. This is just a symptom of who they are and what they’re trying to do to our craft-brewing economy.
“It’s just crazy that Greg and a few of us brewers have built up the demand for these hops—the notoriety of them, or their ‘brand’—and all of a sudden, now that ABI has acquired SAB, they’re going to take them off the market and keep them for themselves. It’s unbelievable, and pretty crappy.”
Crum built his hops brokerage business from the perspective of a former professional brewer, with an ethos to serve brewers with high-quality products, no unnecessary long-term contracts, and prices that made flavorful hops affordable. Now, he has to accept that AB InBev breweries will pay an internal rate that’s far less than what he could charge independent craft brewers.
“The price that SAB Hop Farms proposed to me [for the 2017 crop] would have had me paying $12 per pound,” says Crum. “Now, they’re not going to get $12 per pound from ABI [brands], I can tell you that. It’s cutting off your nose to spite your face. They don’t care if they take a loss on their South African hop growing business unit. They don’t care if they take a loss on Wicked Weed or Goose Island. It’s all about the brand equity for their biggest brands.”
This policy change also spells the end for Crum’s business, ZA Hops. His attempts to secure hops from growers in other countries have been unsuccessful, so he’s faced with the prospect of closing his business.
“The revenue from 20 metric tons of hops is significant. Gross revenue would have been around $900,000,” says Crum. “That’s what I was looking at in 2017. Again, the margins on that are small, but for a one-man operation, that’s a significant amount of loss.”
Crum fought hard with his connections inside of the SAB hop farm to create an alternate case for the business decision makers inside AB InBev, based on the higher rate that non-owned brewers would pay for their hops.
“When SAB Hop Farms and I were putting together a strategy to counter the [corporate] directive, one of the things we discussed was that from an emotional standpoint, the biggest impact on this is the lost relationships [with small craft brewers]. But that’s emotional, and so while we pointed it out, we realized that we’re never going to appeal to bankers—because that’s basically what [ABI management] are—with emotion. It’s all about money. So we presented definitively convincing numbers that they would make a hell of a lot more money from craft brewers than they would selling at a huge discount to their ABI folks—not to mention that demand is way bigger on the craft side. And I think it definitely did have some impact—they took a solid month to make up their minds.”
Future Supply-Chain Constraints
While the impact of 44,000 pounds of hops leaving the U.S. craft-beer market will barely be felt—that represents only a fraction of one percent of the worldwide yearly harvest—the specter of market giant AB InBev buying elements of the brewing supply chain, to limit craft brewers’ access to raw materials, is daunting. Yearly gross revenue for all U.S. hops producers is less than $500 million, and AB InBev makes enough profit in a given year to buy the entire U.S. hops industry, if they chose to do so. Losing small foreign varietals is something American brewers could recover from. Losing in-demand hops such as Citra™ or Mosaic™ could destroy the momentum behind the entire craft-beer category.
“Given this situation and what they’ve just done, I wouldn’t be surprised if [buying out other exclusive hops varieties] isn’t one of their targets,” says Crum. “They have the money to buy out the guys who own the patents [on certain hops varieties]. And if they buy up enough craft breweries who need these hops, they may look to control the [hops] market again.”