Improving the Agricultural Value Chain in Pennsylvania Craft Beer
The craft beverage industry across the U.S. has seen unprecedented times due to the COVID-19 pandemic. According to a national poll, more than 22% of craft brew businesses will not make it through the end of the pandemic. Though this statistic is daunting, national trends during 2020 showed that American alcohol consumption only increased by 14% according to a RAND Corporation study. Much of the nation showed the craft beer industry that if they could make a sharp pivot to off-premise beer sales—canning or bottling their beers for consumption off-site—it could keep their businesses steady, if not potentially increase their net profit in the long-term, until taprooms and consumer behavior changed again once it becomes safe to dine-in and drink on site.
When the Pennsylvania Craft Brewer study started in late 2019, we at Penn State Extension wanted to know a) what are the raw material buying habits of the craft brewers in Pennsylvania? and b) what influenced them to consider buying local inputs like hops, barley, and other grains, fruits, and other ag products (think pumpkins, blueberries, and apples) to produce their unique and delicious craft beers the nation is coming to love?
In the longer term, the mission is to help Pennsylvania producers and processors understand what they should grow and process for the craft beer industry and how they might better understand the motives and the trends of that industry. Despite the challenges of climate and soil in Pennsylvania, can producers use a higher percentage of Pennsylvania-grown products for Pennsylvania-produced craft beer?
From some of the initial findings, we were able to see that craft brewers are motivated by the importance of buying locally to the local economy* (52% from our study) and also, by the value to their business, of charging a higher premium on locally-produced beer (30% from our study).
During the pandemic, growers and processors across Pennsylvania were able to collaborate to produce a 100% Pennsylvania-grown beer. PA Pride, released in November 2020, is a hazy pale ale made with local organic spelt (Dauphin County), 2-row barley (Chester County), and generous late additions of Cascade, Citra, and Simcoe hops. PA Pride 2.0, released in February 2021, is a Bohemian style-Pilsner brewed with Pennsylvania-grown and traditionally floor-germinated 2-row barley and hard red wheat with noble Saaz hops. Both collaboration beers were produced by Deer Creek Malthouse and Breweries In Pennsylvania and distributed by over 30 Pennsylvania craft breweries.
Image property of Deer Creek Malt and Breweries in Pennsylvania, Susquehanna Brewing. PA Pride 2.0 Collaboration Brew
Pennsylvania craft brewers, on average, purchase 37 tons of malted barley annually to produce their beers. In comparison, with hops being a secondary ingredient and smaller quantities for the bittering process, brewers purchase, on average, 525 lbs of hops annually (60% of brewers). Both barley and hops are more fickle crops to grow in Pennsylvania. Easily subject to mold, fungus, and pests, many farmers hesitate to enter these markets until they understand the potential profit and build business relationships with enough craft brewers to make the startup and management costs work. Penn State Extension offers research-based resources and important enterprise or startup budget templates when considering hops for your farm business.
Extension educators are making strides to facilitate conversations between growers and brewers, an essential piece of the work to increase the amount of Pennsylvania agriculture dedicated to craft beer. Educational materials on production for the craft brewing industry and collaborations that improve the processing value-chain of hops and grain production are just of few of the resources Extension has worked to develop.
In 2020, the Pennsylvania Malt and Brewed Beverage Industry Promotion Board, which was established under the Liquor Code (47 P.S. §§ 1-101—10-1001) and managed through the Pennsylvania Department of Agriculture, granted us funds to collaborate with CNC Malting in Butler, Pennsylvania to increase hops processing, storage, analysis, and sales to brewers. The project has been a wild success. CNC Malting was able to add hops drying, pelletizing, and storage to their services, in addition to their grain drying and contract malting. Before their introduction into the hops processing market, Western Pennsylvania hop farmers had only a single known pelletizer to process their hops into a more stable product for craft brewers, and producers often shared harvesting equipment.
In addition to working on increased processing for the industry, we offer several resources to residents interested in the craft beverage market, including an open-source resource map and articles on the industry.
Pennsylvania growers and Penn State Extension have a goal to increase processing opportunities so that more growers can enter the market, and to increase the number of hops grown in the state and the amount of Pennsylvania-grown hops that go into Pennsylvania craft beer. This is great news for producers in the hops industry or looking to get in. According to our research, over 51% of craft brewers were somewhat or extremely likely to purchase locally-grown hops for their beer production. An even higher amount of respondent craft brewers, 65% of them, were already considering their local purchases of fruits and vegetables for their craft beer production from local farms. A Pennsylvania farmer does not need to just consider hops when considering craft beer; brewers are often looking for pumpkins, berries, apples, stone fruits, and even vegetables and herbs to add to the unique flavors of their beers.
The Pennsylvania craft beverage industry has the potential to create a significant indirect economic impact on Pennsylvania agriculture. With over $1 billion worth of direct economic impacts from craft brewery and brewpub sales, jobs, and industry spending, the craft beer industry can also affect those businesses on the value chain that produce inputs. From production to processing, to distribution, to the marketing channels in between that get collaboration labels like PA Pride to consumers across the state, there is a market for locally-grown. This impact is $78 million strong its growth could create over 1,000 jobs across these businesses annually.
These are not statistics that Pennsylvania agricultural producers should ignore. Dr. Trey Malone, Agricultural Economist at Michigan State University, created a visual that shows the amount of economic impact on the value chain from each glass of beer.
With 9.3% to malted barley and 6.2% to hops, $500 million gross product would lead to $46 million for the barley market and $31 million for the hops market. Pennsylvania growers have the opportunity on their farms to consider breakeven for hops and barley production and utilize the referenced enterprise budget to determine how much acreage can yield them breakeven to profit.
In 2018, Ohio was producing 70,000 hop plants through its Ohio Hops Growers Guild. In Michigan, that $500 million in gross product equated to 600 tons of harvested hops, trailing the biggest growers in the Pacific Northwest. In Pennsylvania, we currently have around 30 farms with hops in production. Most of these farms are not exclusively growing hops, but have added to their existing operation. When starting to consider the value of hops production, producers can expect to yield 800-1500 lbs per acre and though there is market price volatility, a grower can expect to get $8-14 per pound for dried or pelletized hops. From our survey, over 70% of brewer respondents would pay up to 15% more (above average market price) for locally-grown hops and agricultural products. The only barrier is producers need to have the varieties and match the quality they desire for their beers. But like any other agricultural product, finding the balance between quality and quantity can mean all the difference for a successful producer.
In looking ahead, Penn State Extension developed the Penn State Craft Beverage Research Network. A collaborative of Extension educators, agricultural researchers, and industry professionals that will continue to distribute resources and education to agricultural and craft beverage entrepreneurs in the industry. The potential for growers to join together to form an alliance that can aggregate crops, help set prices, and provide technical resources such as insurance, risk management, shared equipment, contract management, and marketing is something for all in the industry to consider for growth and strength in the market.
