Most brewers and distillers struggle to manage supply and demand mainly when selling their own products. But for some, ensuring a steady flow of ingredients necessary to their craft can also cause headaches.
Take the plight of tequila producers: The soaring popularity of the agave spirit has created a seller’s market for the fully mature piñas at its heart—and raised crop prices significantly over the last few years.
Other ingredients have been steadier in terms of availability, although the swiftly shifting tastes of consumers—and, therefore, distillers and brewers—have put pressure at various times on hop growers, maltsters, and farmers of all sorts.
Tight agave supplies
Of all the ingredients used to create beverage alcohol, agave is the most susceptible to the rollercoaster of supply, given the six to 10 years it takes for a piña to mature. Just this summer, category king Grupo Cuervo warned that, despite sales increases, it was experiencing a profit squeeze due to “record third-party agave prices.”
Virtually everyone in the business knew this was coming.
“This is the most severe agave shortage we’ve ever had,” says El Tesoro distiller Carlos Camarena. “In the past, the shortages only lasted a couple of years from beginning to end and then we’d have another surplus.”
Right now, though, he expects capacity to lag demand for a few years—and, with agave responsible for about 70 percent of the cost of tequila, that’s significant. It’s a sharp contrast to the crop surplus a few years ago, when some agave farmers opted to instead grow products such as sugar cane (which has a faster turnaround).
Camarena and others worry that some distillers are harvesting unripe agave to make up the shortfall, which will likely extend the situation further. It’s also not good for quality. “Try to make a banana pie with a green banana and it won’t be very good,” he says. “[Using unripe piñas] will affect the quality of the tequila the same way when the agave aren’t mature.”
Most companies own or contract for the majority of their piñas, but it’s inevitable for many distillers to have to enter the spot market to make up shortages. Those that can control their supply, do. For Tres Agaves’ Master Distiller Iliana Partida, becoming an organic brand (with the release of its first organic blanco earlier this year) created an added challenge that was made possible by partnerships with suppliers. “We’ve worked hard to build a strong partnership with our single-source agave supplier, which lets us not only continue sourcing agave solely from the Tequila Valley [in Jalisco, Mexico], but also ensures those agave have reached the right maturity and are at the right price point to create the ideal price-and-quality balance,” she says.
Mezcal faces similar issues, made even more difficult by the wilder nature of many non-tequila agave varieties. (Tequila must be made with only the blue Webber agave, while mezcals can be made from dozens of types, most of them wild.)
Sombra mezcal distiller John Sean Fagan says creating reliable relationships with farmers is key. “We currently have enough agave growing on our land and through long-term relationships with local farmers to sustain production and growth for the next few years,” he says. “We’re also committed to replanting agave crops to replenish our use. In addition to our espadin crops, we’ve planted 20,000 tobala agaves from seed and will replant them in the wild when they’re large enough to survive transplant.”
Monoculture is another worry. “We’re seeing plants get weaker and more susceptible to pests and diseases,” says Camarena. “That’s a risk for the future. If a major disease hits, it could cripple the industry due to genetic uniformity.” He compares [the looming threat] to living on California’s fault line: “It’s the same with agave: Everybody knows that someday we will have a major disease attacking the agave plants, we just don’t know when.”
Rare for a tequila producer, Camarena today lets between 2 and 5 percent of his plants reach bloom and propagate naturally. It’s too soon to know if this project will help, but so far, results—about five percent of the seeds have yielded sprouts—have already surprised those who believed the blue agave could no longer reproduce sexually. “Maybe we’ll see results in 80 or 100 years,” Camarena says, “but this isn’t something we’re doing for our own lifetime.”
Seeking more malts
For maltsters, it’s not so much the supply of barley (which is grown all across North America) that’s a concern, but instead the swiftly changing desires of consumers—and, therefore, of beer and whiskey makers. The best recent example is the surge in popularity of hazy IPAs.
“We’ve seen a solid uptick on demand for ingredients going into hazy IPAs, and one key product is oat malt,” says Darren Smith, president of GrainCorp Malt, which includes local malt production, warehouse, and distribution companies including Great Western Malting, Canada Malting, and distributor Country Malt in North America, Bairds Malt and Brewers Select in the UK, and Barrett Burston Malting and Cryer Malt in Australia and New Zealand. Malting oats have specifications different from other oat varieties, and, “That demand went from a very small amount to something that’s been fairly tight in supply over the past year, mostly because oat malt usually only went into stout and was a very small category.”
As craft beer has flooded the market with new flavors and styles, consumers are conditioned to never drink the same beer twice, says David Richter, technical marketing manager, brew division at Briess Malt in Chilton, Wis. “That [demand for less common ingredients] flows back to the maltster and growers, who then have to do more trials on different barley varieties and on malting different raw materials, such as oats and triticale. It may take some time to find the right one.” For Briess’ new Blonde Roast Oat malt, for example, sourcing ingredients with the right flavor took some trial and error.
Meanwhile, craft distillers are looking at heritage grains or varieties such as blue or purple barley, says Dave Holland, sales manager, specialty grains for Adams Grain Co. in Woodland, Calif. Regional grains and malts are also getting more popular and harder to source. Smith says the success of Michelob Ultra Pure Gold has moved the organic market, and interest is rising for trending products such as gluten-free ingredients, hemp seed, and ancient grains (such as spelt, emmer, and amaranth).
Those new demands often hit smack against nature. Says Holland, “On the supply side, we run into an immediate demand, but, depending on timing, it takes about 18 months to get seeds in-ground, grown, and harvested. There’s a seasonality to it that a lot of folks don’t understand. When supply for the year is gone, it’s gone.”
For 1,000-acre farm operation Mecca Grade Estate Malt in Madras, Ore., specializing is key, says farmer/owner/maltser Seth Klann, whose long-term plan has been to avoid competing on cost and doing something “completely different.”
Klann’s products are all estate grown, and he focuses on developing a limited number of malts with unique flavors. He works with Oregon State University to develop special malts through barley breeding, a process that takes years, to develop novel flavors for beer. “For years, [the industry] has been breeding for better yields, stable extract, and more consistent barley,” he explains. “Somewhere along the way, flavor stopped being a consideration during breeding.”
Says Smith, “We’ve definitely seen more interest in traditional rye malt but also variants of rye malts, rye varieties, and rye from specific growing regions.” The concept of terroir has entered the brewing and distilling world, which makes sourcing even tougher. “Especially in beer, we’re getting requests for grains from specific regions malted in small batches.” (See, “The Good Earth,” Spirited magazine, July/August 2019.)
The rush for rye whiskey has also created pressure, given rye’s notoriously difficult malting and distilling characteristics. The spindly grain, used primarily as cover crop and forage, hasn’t received the breeding attention of wheat and barley, Holland says, and for use in distillation, some growers are having issues.
Hopping around the crop
Earlier this year, the Brewers Association (BA) reported the number of breweries contracting for hops had declined significantly—of those surveyed, more than 95 percent contracted five years ago and only 63 percent did in 2018.
Since the last serious hop shortage 10 years ago, the market has changed dramatically.
“It’s a dynamic marketplace with some major factors over the past few years hitting the hop industry hard,” says Portland, Ore.-based Indie Hops co-founder Jim Solberg. Regional brewers with national ambitions, and major brewers looking to participate in the craft space, created a massive build-up of contracts that, when craft beer started to grow more slowly, resulted in a hop backup, he says.
Add the trend toward tropical and fruitier flavors, and the market for sharp, piney, and bitter hops slowed, while aroma hops such as citra (now the most widely planted variety) soared.
“It was a double whammy, with brewers over-contracted in old school hops and chasing contracts for new school hops to respond to consumer demand,” he says. Last year, Indie ended up composting much of its older hop varieties. “We hated throwing hops out, but there wasn’t much else to do in cases like this,” he says.
In 2014, that shift helped spur John Bryce to launch The Lupulin Exchange, a now-sleek online site where overstocked brewers, growers, and brokers can list for sale hop types, volume available, and prices, and connect with those seeking product. It grew from his experience trying to off-load hops from a brewery in 2011 when he was swamped with offers. “I felt like there had to be a better way,” explains Bryce, who also runs operations at Mount Ida Reserve, a farm brewery near Charlottesville, Va.
The site is experiencing robust growth, perhaps due to the fact that so many brewers—BA estimates 75 percent of the craft breweries in operation today weren’t around during the last hop shortage—have never bought on contract.
Jaki Brophy, communications director for nonprofit trade association Hop Growers of America, says if a brewing operation is very small, the best approach is likely a combination of contracting for the hops you need the most and sourcing the rest from the spot market. She explains, “Does your brewery absolutely need a hop? Contract for it in amounts you’re comfortable committing to. If you’re not comfortable with the commitment, then you need to take your chances and source from the spot market—and be willing to use substitutions.
“The biggest issue we face is that people aren’t familiar enough with the hop growing season, the challenges we have as growers—especially the timeline of propagating new plant material to increase production—and what people need to do to guarantee their raw materials,” she says.
Meanwhile, she adds, seasonal average prices have gone up, mainly due to growth of demand for aroma hops (which are lower yielding, thus requiring more land and, likely, more labor for the same production volumes). But hop acreage has roughly doubled in a short amount of time, mostly due to craft brewers.
Indie Hops recently launched a hot new hop, called strata. “When you launch a new hop in that category of impact hop—such as citra, but with its own twist that can take over a beer and excites consumers—it’s impossible to keep up with it.” He doubled acreage twice (for the 2019 and 2020 growing seasons), years in advance with long-term contracts. “When you’re signing a contract for five crops, you’re really betting on the future.
“We’re heading down a path where there will be a whiplash, with a broad shortage because farmers are reluctant to grow hops without contracts,” he continues. “We, like other suppliers, are unwilling to take all the risk ourselves.
“It’s a cycle that repeats itself, and that’s where we’re heading.”