Price hikes brewing for micro-brews

That six pack of high-brow beer is about to come at a higher price, thanks to the sharpest surge in decades in the cost of the hops and barley that give each brew its distinctive taste.

Consumers could pay 50 cents to $1 per six pack more in the coming months for many small-batch “craft beers,” as brewers pass on rising hops and barley costs from an unpalatable brew of poor harvests, the weak dollar and farmers’ shift to more profitable crops. Other makers of craft beers, the fastest-growing segment of the U.S. brewing industry, say they may eat the higher ingredient costs, which will pare their profits.

“The hops are to Samuel Adams what grapes are to wine,” said Jim Koch, founder of Boston Beer Co., maker of Samuel Adams Boston Lager, one of America’s fastest-growing beers. The company has raised its prices just over 3 percent this year to help offset the hops and barley costs. Koch said that for next year, the company is “probably looking at the same or maybe more.”

“The cost increases have been the largest we’ve ever faced, both in barley and in hops,” said Koch, who founded the company in 1984. The company only buys hops that are grown on several thousand acres in Bavaria, and the crop has been smaller in the past two years, making them more expensive, Koch said .

The cost pressures could slow the expansion of American craft brewers, or micro-brews, which account for about 5 percent of U.S. beer revenue, and even put some smaller ones out of business. Craft-beer makers also are battling other cost increases, including higher prices for glass, cardboard, gasoline and the stainless steel used to make beer kegs. “People are very concerned,” said Kim Jordan, co-founder of Colorado’s New Belgium Brewing Co., which makes Fat Tire Amber Ale, a top-selling craft beer. “It significantly affects profitability.”

Big American brewers like Anheuser-Busch Cos. and SABMiller PLC’s Miller Brewing Co. also face cost increases, but the impact isn’t nearly as great for them. They use much less hops and barley in most of their beers, which is why they are lighter in taste and calories. A barrel of craft brew Sierra Nevada Pale Ale, for example, has about twice the malt and as many as five times the hops of a mass-market brew like Budweiser or Miller High Life.

Large beer makers are also better able to secure long-term contracts to mitigate the impact of rising ingredient costs. Most spirits makers, such as Diageo PLC and Fortune Brands Inc., also face a relatively limited impact from global increases in the cost of grains such as corn.

The craft-beer segment has been among the few bright spots in the slow-growing U.S. beer industry. The number of barrels of craft beers sold rose 11 percent in the first half of this year against year-earlier levels, according to the Brewers Association, a craft-beer trade group in Boulder, Colo. Meanwhile, the Beer Institute, a Washington-based industry group, projects total U.S. beer sales, by barrel, will rise 1.5 percent this year. The boom in craft beers reflects heightened awareness of their brands and a willingness by American beer drinkers to pay an extra $2 or $3 per six pack to get a premium product.

Craft beer makers have faced escalating costs over the past year. Prices for malting barley, which accounts for a beer’s color and sweetness, have jumped as farmers increasingly shifted to planting corn, which has been bringing higher prices because of high demand from makers of biofuels, like ethanol. The weak dollar also has made it more expensive for U.S. brewers to buy commodities from Europe.

The news worsened for craft brewers significantly in recent weeks. Firms that turn barley into brewing malt informed craft brewers of price increases ranging from 40 percent to 80 percent, and hops suppliers announced increases ranging from 20 percent to 100 percent, depending on the variety of hops.