Industry watchers expect some of the same consolidation activity that’s taken the craft brewing industry by storm in recent years to spread into its agricultural supply chain, particularly for hops.
Large hops producers and brokers out of the Pacific Northwest, where most of the hops in the U.S. are grown, continue to dominate the market, but could look to firms in Michigan’s nascent hop industry for diversification and as a hedge against weather-related issues, said Ian Kennedy, a partner at Warner Norcross & Judd LLP in Kalamazoo.
“It makes sense for consolidation to occur in that industry,” he said.
Indeed, some of that activity has already taken place.
Hickory Corners-based Hop Head Farms LLC, which launched in 2012 with 40 acres of hops and a processing facility, sold to a fund operated by private equity firm Ceres Partners LLC of South Bend, Ind. in December 2014.
Ceres President Perry Vieth was an original investor in Hop Head Farms and operated a Baroda-based hop farm that was part of the operation’s network of growers.
“We had a farm in Berrien County where we were proving out the economics,” Vieth said. “We liked the economics and decided we wanted to expand.”
That led to Ceres buying out the original dozen investors in Hop Head Farms.
“They saw that we started undercapitalized and under-managed for what they envisioned,” said Jeff Steinman, who founded Hop Head Farms with his wife, Bonnie Steinman, and Nunzino Pizza, an early investor in Chicago-based Revolution Beer LLC. “We had wanted to grow to about 80 to 100 acres, and they saw it going a couple of degrees further.”
Ceres’ Farmland Fund has a base of 470 investors, about $500 million in assets and operates 73,000 acres in the Midwest.
The original founders remain involved in operating the business, which will own about 530 acres of hop farms by late February or early March, depending on the closing of some property deals, Vieth said. That’s not including independent network growers who harvest their hops and bring them to Hop Head for processing.
“We needed to get to this scale to give us the economies we wanted,” Vieth said.
Hop Head Farms is building a second processing facility in Baroda that will open this summer, and expects to add a third facility in Paw Paw in 2017. The company serves more than 200 breweries in more than 40 states, as well as exports hops to clients in China and Taiwan.
For 2016, all of Hop Head Farms’ production has “basically been sold off,” Vieth said. “We just have a few odds and ends left based on our demand.”
Vieth added that in February Ceres will be launching a new $30 million to $40 million fund focused on food- and agriculture-related business. That new fund will hold a 10-percent stake in Hop Head Farms.
— Reported by Joe Boomgaard