Hop operation switches gears

As market for large brewers shrivels, grower caters to craft brewers

By MATEUSZ PERKOWSKI

Capital Press

MT. ANGEL, Ore. -- Next year, farmer John Annen won't be supplying hops to a major industrial brewer.

In that respect, his situation isn't unusual.

A surplus of hops has prompted large beer companies to reduce or discontinue their contracts with Northwest growers, many of whom are now drastically reducing acreage.

For Annen, though, the lack of demand from industry heavyweights doesn't mean the market for his crop has dried up.

His 285-acre operation near Mt. Angel, Ore., will totally shift into growing specialty aroma hops for craft brewers, completing a transition that's taken about two decades.

"We just kept adding as we took out production heading to the mega-breweries," Annen said.

Beginning in the early 1990s, Annen has focused on selling to craft brewers and phasing out of the mainstream hop market.

The strategy hasn't left him with any regrets.

"I'd much rather do business with them than be a corporate vendor number," Annen said. "I like to do business with people who appreciate all the hard work you do."

Craft brewers -- independent firms with relatively low beer sales -- appear to be bucking the negative economic trends that plague their much bigger counterparts.

The sector remains small, with craft brewers producing fewer than one out of 20 barrels of beer in the U.S., according to the Brewers Association trade group.

However, last year they were able to increase their output by about 7 percent even as the overall beer market contracted by 2 percent, according to the association.

Growth is expected to be even stronger in 2010, said Paul Gatza, the group's director.

"It's speeding up, as far as I can tell," he said. "It's counterintuitive because craft beers tend to have a higher price point. It's a testament to quality."

Annen was introduced to the sector by a hop buyer, Ralph Olson, who had met several now-prominent craft brewers when they were still operating out of their garages, he said.

Olson was convinced the niche was "not just a flash in the pan," Annen said. "They were going to be something."

At the time, the brewing industry wasn't as diverse as it is today.

Before the U.S. banned alcohol sales in 1920, the country had more than 1,000 beer companies, according to the Brewers Association.

That number plunged during Prohibition and continued to falter for decades after the law was repealed in the 1930s.

After reaching a low point of about 100 breweries in 1980, however, the number of U.S. beer companies surged, topping 1,600 in 2010.

Olson said he first started paying attention to craft brewers when his own palate grew more sophisticated. He soon realized other beer drinkers were looking beyond the choices offered by major brewers.

"They narrowed the market in what they were selling," Olson said. "The craft brewing industry came around and offered people new ways to drink beer."

In the early days, small beer companies were basically forced to use leftover hops from major operations, Annen said.

Eager to fulfill their demand for a high-quality crop, Olson began coordinating brewers' requests and relaying that information to farmers.

The idea was to build aggregate demand for specialty hop varieties, allowing growers to devote some production specifically to craft brewers.

Olson said he reached out to growers with a top-notch ability to grow aroma hops, which are primarily used to enhance flavor in beer rather than to impart bitterness.

"I just went to the guys I thought delivered good product," he said. "They take a little more tender loving care."

From the farmer's perspective, growing a variety of hops presents some challenges.

Annen currently grows 12 hop cultivars and will expand to 16 next year, with plot sizes ranging from 1.5 acres to 30 acres.

This diversity precludes uniformity in farming practices, since fertilizer, water and pesticide requirements vary from cultivar to cultivar.

"Each is as different as each one of your kids," Annen said. "Each needs a different kind of attention at a different time."

About a decade ago, Annen also took a step to vertically integrate his farming operation. When Olson's employer decided to spin off its Hopunion specialty hop division, Annen joined with him and several growers to buy the Yakima, Wash., company.

The company allows Annen and other farmers to effectively maintain control over their crop from the field until it arrives at the brewery, he said. Today, Hopunion sells to more than 1,200 beer companies.