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Why you're paying more for beer

BY LISA HAIDOSTIAN
Daily Staff Reporter
Published January 23, 2008

Unless it's a special occasion, LSA senior Andrew Bogaard won't order more than a pint or two of beer when he's at a local pub. It's not because he doesn't want more - it's because buying more than a couple brews is getting too expensive.

Clif Reeder
Though beer ingredients have increased in price, managers at Grizzly Peak Brewing Company, an Ann Arbor pub, have not resorted to raising prices for customers. (ROB MIGRIN/Daily)

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Thanks to hefty price hikes for key beer ingredients, many students have already started paying more for their favorite local beers.

While fuel, aluminum and glass prices are rising too, brewers are more worried about a worldwide shortage of hops - a plant used in brewing to add bitterness, aroma and flavor to the final product. The cost of wheat and barley, also used to make beer, are also at near-record highs.

Matt Greff, who owns Arbor Brewing Company and The Corner Brewery along with his wife Rene, said he has seen an increase of between 25 and 40 percent in germinated barley prices in the past year, while the price of hops has jumped a staggering 300 percent over the same span.

Jim Hilker, an agricultural economics professor at Michigan State University, said hops and wheat prices are increasing because the crops aren't as attractive to farmers as they once were.

Because of a global push towards ethanol, a renewable energy source manufactured largely from corn, farmers are devoting more land to corn to rake in profits from the hot crop. Meanwhile, production of other grains has taken a hit.

Hilker places most of the blame for wheat and hops price hikes on booming ethanol production, but said factors like volatile weather and a bustling world economy - which requires growing more food - have also contributed to the shortages.

As a result, Arbor Brewing Company has charged wholesalers about a dollar more per case of beer and about a dollar more per pint of beer served in the pub. Prices at The Corner Brewery went up 25 cents a pint.

Still, the microbrewery is taking a hit along with its customers, Rene Greff said.

"We didn't increase our prices enough to cover the entire increase," she said.

National breweries like Anheuser-Busch, Molson Coors and SABMiller have not been as affected by higher costs because they tend to brew their beers using fewer hops than craft brewers. They also have long-term contracts with set prices for their ingredients.

Duncan Williams, the head brewer at Grizzly Peak, said the worldwide hops shortage is putting smaller breweries in a bind and forcing them to ask other breweries for extra supplies of hops.

"If you don't have them right now, you're in trouble," said Larry Bell, the president and founder of Bell's Brewery in Kalamazoo.

Although Bell's is the largest brewery in Michigan, it hasn't been immune to the price increases, Bell said.

Effective Feb. 25, Bell's will increase its prices by between 50 cents and a dollar for each case of beer, depending on the brand.

"The increases in price of raw materials have just been so astronomical this year," Bell said. "I think it'll be difficult for anybody to not pass those price increases along."

Since the big breweries are first in line to receive available crops because of their large-scale contracts, microbreweries could soon find themselves in the dust. Brewers might have to tweak recipes or even temporarily discontinue certain brews that require more hops than others, Bell said.

"I think you'll see some brands with breweries that'll go out of production as this year comes along because the hop crop doesn't come in," Bell said.

While Arbor Brewing Company isn't changing the recipes of existing beers, the brewery is concocting some new ones, Rene Greff said.

Williams said Grizzly Peak has already had to substitute certain hops depending on which ones they can attain, but that the changes haven't affected the beer's taste.

Grizzly Peak's crop contracts have helped them hold off any price increases, Williams said, but they're absorbing some higher costs themselves for right now.

"The very absolute last resort is to raise prices," said Chris Carrington, general manager of Grizzly Peak.

Once existing contracts with suppliers expire, though, both brewers and consumers will likely be affected.

"From what I've heard from most of our beer representatives and brewers that I've talked to, beer prices won't go up yet, but they will sometime later this year," said Carmen Fernando, the general manager of Ashley's Restaurant and Pub.

Fernando said Ashley's is trying to stock up on the beers they think will be hit the hardest by price increases to avoid charging customers more. Though "hoppier" beers will face the stiffest price increases, Ashley's will continue to serve them, Fernando said.

"As long as consumers are willing to understand the hop shortage and the effect that it's having on beers, we'd still carry them," she said.

Bogaard said the recent increase of the price of beer means he doesn't buy as much of it as he used to. He frequents Arbor Brewing Company because he likes the taste and quality of local brews, he said, but at some point the cost will be too much.

"If pints get over four or five dollars, I'm not going to buy a beer out," he said. "It's just too expensive."

Breweries and economists alike still don't know when the shortages will subside - if they subside at all.

"I'm not saying they'll stay quite as high as today, but they're not going to drop back to where they were a year ago and two years ago," Hilker said.

While Hilker said he doesn't think the demand for corn will drop soon, he said the bolstered prices of wheat and hops should bring more farmers back into the market.

In the meantime, though, college students who enjoy a quality brew aren't likely to sacrifice premium taste for a more affordable beer.

"Beer is a small luxury," Bell said. "When things aren't that great, buying a six-pack of craft beer is certainly affordable."