Saturday, January 19, 2008

Response to Ethanol Fallacy

Jay of the Brookston Bulletin sent a lengthy rebuttal to my post The Ethanol Fallacy. It was detailed enough that I felt that it shouldn't languish in the comments section. So, here:

I'd like to believe that the ethanol theory is wrong, too, but unfortunately I have driven through and around the hop fields in Yakima, Washington (the nation's hop-basket) and seen with my own two eyes many, many fields of corn planted there. And while I don't for a second believe it's the *only* reason hops are currently in short supply, it is one of the factors. For an article I did on hops last year, I interviewed several of the old family growers in the Yakima area (including the great-great-grandson of the very first hop grower there) and they all agreed that at least some of their former brethren were swayed to plant corn by the increased ethanol subsidies offered recently by W. As you mention in your Pollan cite, barley may indeed earn more per acre than corn, but what about hops? Hops are difficult to grow, finicky and require a lot of capital to harvest and process. So in that case, apparently corn is an attractive substitute for some farmers. Not to mention, the subsidy Pollan was talking about in his book (which I thought was wonderful BTW) was at the 2005 levels and my understanding is that Bush increased those when he made his ethanol push.

[I had recognized the increase of subsidies after 2005:
"Hops have been over-planted for years. The glut kept hop prices low. Thus even before the recent spike in government ethanol subsidies, hop farmers had begun to move to other crops." The decrease in hop farms, per se, was in part due to farm foreclosures induced by hop prices too low for sustainable incomes.]

It's my feeling that the barley situation will be fixed in relatively short order, but that the hop shortage will take several more years.

[Sean Wilson at Pop the Cap supplied a link to an article about barley as a possible source for ethanol. The same constituent that bedevils brewers—beta-glucans—may fortunately forestall the distillation of barley for ethanol.]

This year, those brewers who had contracts in place will be relatively unharmed with a few prices increases. Those on the spot market are already screwed. There are posts almost daily on the Brewers Association forum by people looking for hops, trying to trade hops, or just plain begging for them. Next year, all bets are off because even those who are diligent enough to make contracts will have to do so at higher prices.

As I understand it, hop prices tend to run in ten year cycles and that also had a lot to do with farmers turning to other crops. Now that the price is through the roof, however, you'd normally expect more acreage to be planted to meet that demand and make more money. But hops are a bit more tricky than other crops. First of all, it takes three years for a field to mature.

[I agreed, when I wrote, in recognition of the planting-to-harvest cycle: "I would expect to see an increase in hop acreage over the next 3 years." Here's an earlier post on the barley/hops ethanol issue.]

Second, hop growing is more expensive an enterprise to start up than many other crops and are also more difficult to grow for the inexperienced. Third, current hop growers can't easily produce more, not because they don't have more land — they do — but because they're maxed out on kilns, harvesting trucks, etc. and would have to make large capital investments that most are not able to or willing to undertake at this time.

[The current economic downturn may indeed make loans difficult and/or too onerous to obtain.]

There is statistical data available at the Hop Growers Association and a few other places that I can't quite recall (I think I found some world stats at a U.N. agro-agency, for example). And indeed, world production has been steadily decreasing everywhere for some time now, even though demand is on the rise.

[Ian Ward in his current New Brewer article, agrees that production has decreased. But until 2007, it had continued to outpace demand.]

So while the ethanol/corn issue did not necessarily cause the problem, it most likely did exacerbate it and has made a bad situation worse.

So for these, and other reasons, I think the hop shortage is very real and will likely be with us for several more years before it's resolved. Unfortunately, I think many brewers have been and are continuing to stick their head in the sand and are expecting this problem to just fix itself.

In my original post, I had promised that if I were wrong I would "drink a big, fat, over-hopped beer ... and I'll drink it like I like it." I hadn't said what I would do if I were half-right!

1 comment:

  1. Missed your blog entry "Ethanol Fallacy" the other day about the hop shortage but I've also been suspicious of the "ethanol" answer. As I understand it, the hop growers as a group, set out to specifically limit supply by voluntarily cutting back acreage, starting back in the "glut" years of the 1990's. A bit of Googlin' around the net will turn up attempts to get state or federal support for such a program, etc., and hop websites will show that acreage went down long before the current Ethanol supports, as you note. This 2005 report from the Hop Growers of America, shows a reduction of US acreage from 43,000 to 29,500 1995-2005.

    From everything I've read, it seems to me that because of the '90’s glut's surplus, the hop growers may have *under* estimated actual demand (since the mega-brewers were still using the surplus in the form of high alpha pellets and extract) and that, along with increased demand from outside the US (bad growing year in Europe, increased hop demand from 3rd world, etc.) is the greater cause of the hop shortage.

    (Something tells me, too, that despite the growers' efforts to control supply, they're not benefiting as much from current prices as are dealers and other middlemen- as is typical in agriculture, of course.)

    For example, how does one explain this USDA report that shows a 4% *increase* in the US hop harvest?

    As for Jay Brookston's report of corn growing in former hop fields, I , too, am surprised at that since the PNW is not typically “corn country". Perhaps it just seems counter-intuitive that a crop like corn (around 90 million acres planted in the US) could have an effect on a tiny crop like hops (and it’s 30,000 acres)- even given the price supports of corn and ethanol production and the high cost of maintaining hop fields. I still have to wonder if those fields were *specifically* switched from hop to corn, or were they simply taken out of hop production in the concerted effort to reduce hop supply, and, then, planted with the current annual crop that made the most economic sense? Was it “cause and effect”, or two separate agricultural incidences occurring at the same time?

    Or, maybe it's just that non-farmers will never truly understand "modern agricultural economic theory" (something they may share with farmers and US gov't bureaucrats -g-).


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