Craft brewers’ supply of hops squeezed by a brewery giant

Anheuser-Busch InBev, the largest beer producer in the world, is taking another shot at the American craft brewing industry, this time by cornering the market on some key ingredients independent brewers need to make quality beer. The company last week announced that they would no longer be exporting hops from their South African hop farms to U.S. craft brewers, as promised, and would instead be redirecting the hops toward their own in-house brands.

The hops in question are grown on farms that are under the umbrella of South African Breweries, which ABI acquired in a $100 billion mega-deal this year. They will be redirected to ABI’s The High Line division, which is where the company houses its many recently acquired craft brands, including Goose Island, Elysian Brewing, and High Point Brewing.

Greg Crum, owner of ZA Hops, the only major South African hops broker, says that “this move [is about] competitive advantage.” According to Crum, ABI believes that brewing more complex beers with unique hops will give it a boost against beers produced by independent brewers.

South Africa harvests just 1 percent of the world’s hops, but those hops are sought out by brewers because of their unique flavor qualities. Crum says ZA Hops had agreements with American craft brewers for over 11 tons of South African hops when ABI ended its hop exports.

Many in the brewing industry believe that a growing market for craft beer has fueled ABI’s increasingly aggressive tactics towards craft brewers. According to the Brewers Association, a trade group for craft beer, in 2016 craft beer production was up 6 percent and craft beer claimed over a 12% share of beer sales.

There isn’t a consensus among the craft brewing community about whether ABI’s South African hops takeover signals a serious threat to small producers. “This is a small amount of hops we are talking about,” says Bob Pease, the president of the Brewers Association, suggesting that this one deal won’t affect a huge number of craft brewers.

However, he adds, “this is not a positive development for small and independent brewers.” The Brewers Association will be keeping an eye on ABI’s behavior regarding key brewing ingredients, says Pease.

ABI has taken other steps to control who has access to specialty hops. In 2016, ABI acquired two giant homebrew companies, Northern Brewer and Midwest Brewing Supplies. According to the American Homebrewers Association, homebrewing is a $1 billion market. Northern Brewer and Midwest Brewing Supplies are still listing some South African hop varietals that commercial brewers can no longer buy at scale.

And ABI already directly owns some of the hops it uses to make its beers, another way the company’s vertical integration has affected the hop market. In 1988, the company bought Elk Mountain Farm in Idaho, a 1,700-acre hop farm. Today, about half of that farm’s harvest goes to producing Goose Island beer, which ABI acquired in 2011.

The revelation of ABI’s intentions for its South African hops came soon after the company’s most recent craft acquisition, of Wicked Weed Brewing in Asheville, North Carolina. The brewery’s acquisition, especially given its provenance in the heartland of craft brewing, angered many small brewers. Greg Crum noted that Wicked Weed brews beers that could benefit from the flavors of South Africa’s unique hops, unlike some of ABI’s other’s acquisitions.

Beer industry stakeholders have previously expressed concern that ABI’s growing market power could begin to affect small producers’ access to ingredients. In his testimony (pdf) before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights in December, 2015, Craig Purser, the president and CEO of the National Beer Wholesalers Association, worried that the then-pending ABI/SAB deal would “lead to increased market pressure for essential materials like hops.”

J. Wilson, of the Iowa Brewers Guild, warned that if the deal was approved, ABI could “buy up an entire year’s hop crop…and kill the craft sector in one fell swoop.” While ABI hasn’t yet exerted this market power since its successful acquisition of SAB, its recent behavior has closed off part of the hop market to craft producers.

ABI has elsewhere been in the news this month for racking up fines for illegally incentivizing retailers to stock Budweiser products. In Massachusetts earlier this month, investigators alleged that ABI had given nearly $1 million in incentives to over 400 retailers for promoting ABI products. This “pay-to-play” behavior is illegal in many states.

ABI was also fined $400,000 in March of this year by the California Department of Alcohol and Beverage Control for illegally buying refrigerators and other equipment for South California retailers. And in 2016, the company was fined $150,000 by the Washington State Liquor and Cannabis Board for entering into illegal exclusivity contracts with several Seattle concert venues.

Leah Douglas, a contributor to FERN’s Ag Insider, is a reporter and policy analyst with the Open Markets Program at New America. She writes and publishes Food & Power, where this piece first appeared.