Should you Contract Hops?
I don't blame distribution companies and sales folks for wanting to increase contracting. This is how you are measured by your employers, the board of directors, your stock holders etc; the more contracts, the better you look as a company.
As someone who has an issue with the idea of manipulating a business to take on more than they can handle, I did not practice predatory contracting in any of my previous roles; responsible contracting was something that was frowned upon with minimums.
It makes sense for me to see distributors pushing the notion that, because brewers that did not experience the 2008 hop shortage do not contract as much as those who did experience that crisis, we are now in a market that will correct itself with future shortages of key varieties because of the cuts to acreages this year, specifically of proprietary varieties. Therefore, to give a blueprint to the farmers, everyone should contract because we could see shortages.
A few issues with this logic:
Farmers had to cut major acreages despite the contractual blue prints given to them previously
Predatory contracting meant that distributors over contracted folks who didn't need as many hops because well…it looks good for business to have large contracts
The only information out there about contracting (for the most part) is coming from folks who are selling to brewers, so unbiased education is not found very often or at all
I truly believe that there is an opportunity for brewers with or without contracts to look at the hops they use, understand and seek out educational resources about the surplus, and negotiate with their hop providers. I also truly believe that if there is a shortage in the future that will be artificially created as some of the leading economists in this industry have suggested.
I think its also a critical time right now for brewers to get to know the farmer and talk to them about demand planning directly. Contracting can be extremely beneficial to farmers and this is not a case against them; it's an opportunity to start having more critical conversations between the folks who are making beer and the hard working families that have their boots on the ground.
Even as someone who has been a brewer at over contracted breweries and has had to stop brewing due to cash flow issues once our hop contracts came due, I think contracting can be very important, for the right people, and in the right circumstances.
Companies ESPECIALLY with proprietary hops, economists, and those providing projections to the growers need to do a better job at forecasting, and stop blaming it on brewers.
At this time, there is an enormous over supply of hops and, as mentioned by Douglas McKinnon, it would be foolish to believe sales tactics crying of shortages and requirements for contract to ensure your supply, especially for hops such as Citra and Mosaic.
That all being said, I have come up with a short infographic explaining some of the very high level pros and cons of hop contracting during this time. I have also created a decision tree for those looking for some additional guidance about contracting.
I am also providing services to discuss your contracts. If you need assistance reviewing a contract, old and new, or would like some advice during this time feel free to reach out, or see my services page https://www.shanferments.com/services/p/hopcontractsupplierreview. Happy to jump on a phone call or direct you to the right people who can help you further.
