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Sunday, 26 April 2015 22:00

Craft beer demand spurs growth in Michigan hop production; processing remains a constraint

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Michigan hop producers have been on a growth streak in recent years, fueled by demand from the state’s craft beer industry for locally sourced ingredients.

But despite the farmers’ expansions and the additional capacity in the pipeline, the industry is currently going through some growing pains, experts say. The demand for locally sourced hops continues to increase at the same time the young industry faces a key constraint in the dearth of processing facilities located in the state.

Yet to make it feasible for more capital-intensive processing facilities to come online — and to achieve the economies of scale the Michigan industry needs to be competitive — more hops need to be grown in the state.

While Michigan’s hop industry may be considered young by national standards, the state’s quality soil and accessible water coupled with surging demand for the crop will likely encourage current growers to expand and attract newcomers to the industry, according to experts and insiders who participated earlier this month in the Great Lakes Hop and Barley Conference in Grand Rapids.

“The upcoming demand is still very intense and large,” said Pam Miller, owner and partner of Greenville-based Hopyards of Kent Co. LLC. “We as growers are still trying to catch up with their needs, and as a state, we’re not there yet.”

EXPANSION PLANS

Hopyards of Kent operates both a growing and processing facility and represents over 60 acres of hops that are managed by its associate growers, in addition to the 14 acres that it manages on its own, Miller said.

Currently, Michigan growers maintain approximately 400 acres for hops, sources said. However, the acreage dedicated to hops is projected to increase significantly as more growers recognize the opportunity to serve the brewing industry.

For example, Traverse City-based Mi Local Hops LLC plans to break ground on 400 new acres of hop production that would effectively double the state’s output by 2016, according to a February report by the Traverse City Record-Eagle.

Hopyards of Kent also plans to add an additional 6 acres, but the company is focusing primarily on expanding its processing operations, something that other growers lack, Miller said.

Nationwide, companies are projected to invest approximately $500 million to build hop production and infrastructure by 2020, said Bart Watson, chief economist at the Boulder, Colo.-based Brewers Association, who spoke at the conference.

In the same timeframe, U.S. hop demand could reach 110 million pounds, up from the approximately 85 million pounds used in 2014. More than 50 percent of that production will be dedicated for use by craft breweries.

The drivers of growth in the hop industry are twofold: Brewers prefer to use local ingredients in the beers, while simultaneously consumers are favoring styles such as India Pale Ales that use the most hops per barrel, he said.

“Even without an increase of hops per barrel, we’re going to need to grow the entire hop pie,” Watson said.

BARRIERS TO GROWTH

Regardless of the the acreage of hops planted in the state, the pinch point for growers remains at the processing facility level.

The reason: Unlike in the Pacific Northwest where most growers have the scale to invest in their own processing facilities, Michigan growers have not yet gotten there, said Rob Sirrine, an educator at the Michigan State University Extension.

The state’s limited processing facilities are restricting further growth of hop acreage as well as keeping costs higher for Michigan hops.

“The investment needs to be put in processing,” Sirrine said. “The economies of scale will always be a problem, but if we can get the cost down a little bit for hops, then I think we can compete.”

The investment for planting a field of hops can range between $12,000 and $15,000 per acre without any processing equipment, Sirrine said.

“You could easily eclipse hundreds of thousands of dollars on 5 acres to get the hops into a form that brewers want,” Sirrine said. “It’s going to be expensive to do it at scale.”

While Hopyards of Kent plans to modestly expand its total acreage, the facility is putting more focus on its processing operations to support regional growers’ immediate needs for handling the acreage they already have in the ground, Miller said.

“We’re anticipating and knowing what will happen when those crops mature,” Miller said. “Just like elevators and grain, you need to take hops to a facility to make it a viable commodity.”

Hopyards of Kent invested approximately $500,000 into new equipment that will double its processing capacity for the 2015 season, which includes drying, baling, pelletizing and brokering the hops, Miller said. Last year, the facility processed 8 tons of hops.

To hedge against the rising costs and uncertainty in the relatively new industry, experts advocate for measured investment and due diligence on the part of startup growers.

In particular, growers need to ensure that they have somewhere to sell their crops, Sirrine said. While that doesn’t necessarily require growers to operate on a contract with local brewers, farmers should do their best to learn what varieties brewers are demanding.

Whether on a business-to-business basis or through an association such as the Hop Growers of Michigan, collaboration among producers will also help new facilities navigate the developing industry and establish best practices for growing the crops.

ACHIEVING SCALE

For the foreseeable future, Michigan will likely lag behind the scale of production in states such as Idaho and Oregon, said Watson of the Brewers Association. But the more hop growers there are in the state, the easier it will be for the industry to grow, he added.

“If you can provide value-add, you can beat scale, that’s what the craft brewery industry is,” Watson said. “I think the same is true in the hop industry. You just need to find the right people to work with.”

Regardless of the challenges the state’s hop industry faces, the demand for locally grown ingredients will drive substantial investment into hop farms and processing facilities in Michigan and throughout the country, Watson said.

“Twenty-five million pounds of hops doesn’t just mean new acres,” Watson said. “It means new infrastructure, new storage, new technology and investment in new things, and I think this will impact us in ways that we don’t even understand.”

Sidebar: Hail to the hop

As consumers’ palates have shifted toward more hoppy beers, that’s creating more demand for the bittering agent.

As a style, hop-forward India Pale Ales (IPAs) have grown between 40 percent and 50 percent by volume, taking more of the craft beer market share each year, said Bart Watson, the chief economist of the Brewers Association.

In 2014, the volume of IPAs by share grew faster than the overall craft market, at the same time increasing the average hops per barrel rate to nearly one and a half pounds, Watson said. Within the IPA category, the bolder imperial IPAs and low-alcohol “session” IPAs — which are rapidly becoming the hot style among brewers — are driving the majority of the overall category’s growth, Watson said. Sales of session IPAs grew by 338 percent in 2014 while the sales of imperial IPAs were up nearly 30 percent.

“I think there are signs that (hops per barrel) will continue to go higher,” Watson said.

— Reported by John Wiegand

Read 7135 times Last modified on Monday, 27 April 2015 08:18

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