Hop­ping on board

Times are chang­ing in the New Zealand hop in­dus­try as record re­turns at­tract new en­trants work­ing out­side the tra­di­tional co­op­er­a­tive that col­lects and mar­kets the beer ne­ces­sity.

The Orchardist - - >>In Focus - Story and pho­tos by Anne Hardie

In the past cou­ple of years, the num­ber of grow­ers sup­ply­ing hops to the co­op­er­a­tive New Zealand Hops has grown from 17 to 27 and pro­duc­tion this sea­son is ex­pected to be about 1000 tonnes, which will likely grow to about 1400t in the next five years as farms reach full pro­duc­tion.

NZ Hops chief ex­ec­u­tive, Doug Donelan, said new en­trants sup­ply­ing the co­op­er­a­tive have in­vested in the vicin­ity of $80 mil­lion, with more in­vested from ex­ist­ing grow­ers as they ex­pand, plus $4m at the co­op­er­a­tive’s fa­cil­ity to han­dle ex­pan­sion. De­spite the hype in the in­dus­try, the co­op­er­a­tive is not ac­cept­ing new share­hold­ers and ex­ist­ing grow­ers can only ex­pand their crops in con­sul­ta­tion with NZ Hops. It’s a mat­ter of match­ing the mar­ket with the fa­cil­i­ties and cau­tion learned from its in­ter­gen­er­a­tional his­tory of the hop mar­ket.

Out­side of the co­op­er­a­tive, a MyFarm syn­di­cate has raised $17.64m to plant 116 hectares at Ta­paw­era near Nel­son and has con­tracted new hop ex­porter, Hop Rev­o­lu­tion, to de­velop and man­age the prop­er­ties with post-har­vest ser­vices. It plans to achieve higher re­turns by grow­ing va­ri­eties specif­i­cally for

craft brew­ers and deal­ing di­rectly with those brew­ers.

At Up­per Moutere, an es­tab­lished hop farm bought by United States-based FS In­vest­ments in 2016 and la­belled Freestyle Farms has formed a joint ven­ture with Wellington craft brewer, Garage Project, to specif­i­cally tar­get the craft beer mar­ket. The ven­ture, Hapi Re­search Ltd, has se­cured $5.3m of fund­ing from the Min­istry for Pri­mary In­dus­tries for a sev­enyear Pri­mary Growth Part­ner­ship (PGP) pro­gramme which will fo­cus on de­vel­op­ing new pre­mium va­ri­eties and cre­at­ing op­por­tu­ni­ties for the hop and craft beer in­dus­tries. Govern­ment fund­ing for a for­eign in­vestor and also for de­vel­op­ing new va­ri­eties is puz­zling for Donelan and the grow­ers with the co­op­er­a­tive, es­pe­cially when new va­ri­eties have been a hall­mark for the in­dus­try. In fact, NZ Hops has 16 unique NZde­vel­oped triploid cul­ti­vars as well as some of the newer and tra­di­tional north­ern cul­ti­vars. In the past five years alone, it has re­leased four new va­ri­eties, with an­other one to be re­leased next year.

Those new va­ri­eties don’t hap­pen overnight, Donelan pointed out. Some of the va­ri­eties the in­dus­try has fast tracked have still been 12 years in the mak­ing by the time they are tested com­mer­cially.

MPI’s direc­tor for in­vest­ment pro­grammes, Steve Penno, said Hapi Re­search is aimed at sup­port­ing ex­pan­sion of the en­tire hop in­dus­try, into other re­gions with new pre­mium hop va­ri­etals to en­cour­age broader par­tic­i­pa­tion in the in­dus­try and ac­cel­er­ate its growth. The goal is to also dis­cover new mar­ket niches to en­hance long-term value for NZ’s hop grow­ers and brew­ers as a whole.

Plus, he points out that Freestyle Farms which is part of Hapi Re­search and is a NZ com­pany and though pri­mar­ily funded by a US-based global ven­ture cap­i­tal fund, is ul­ti­mately owned by a Cal­i­for­nian fam­ily with NZ res­i­dency. The pro­gramme will have ser­vices and ex­per­tise do­nated by in­ter­na­tional sup­port­ers such as Sierra Ne­vada Brew­ing Co.

He’s cau­tious about the hype in the in­dus­try be­cause it has been on that roller coaster ride be­fore. Right now, coun­tries like the US are also re­act­ing to the high prices for hops by ex­pand­ing the crop. So much so, that the US is pro­duc­ing more hops than it can use it­self. Donelan said it’s now com­pet­ing in other mar­kets where it has not tra­di­tion­ally sold.

“When­ever the US plant up, it’s al­ways a con­cern and they are,” he said.

“There is a ceil­ing with how many hops the world needs. Craft beer is grow­ing but in­ter­na­tion­ally beer is de­clin­ing. Even though you have a sec­tor in the beer mar­ket, over­all the beer mar­ket is shrink­ing.

“The boom and bust cy­cle doesn’t change. It’s one of the rea­sons we are be­ing fairly mea­sured in how we de­velop and grow. You have to be at pace with the mar­ket and never get ahead of it. It’s not that long ago we had a ma­jor over­sup­ply in­ter­na­tion­ally and the price just fell through the floor.”

In fact it was only a decade or so ago that the global hop in­dus­try was wal­low­ing in an over­sup­ply world­wide and the tiny NZ in­dus­try de­cided to move away from pro­duc­ing a com­mod­ity prod­uct to fo­cus on unique va­ri­eties it could of­fer craft brew­eries look­ing for those dif­fer­ent flavours and aro­mas in beers. The re­sult­ing va­ri­eties are unique to this coun­try and sought af­ter by brew­eries around the world, with a num­ber of in­ter­na­tional prizewin­ning beers in­clud­ing Kiwi hops in the brew.

His­tory has in­stilled cau­tion and Donelan said the in­dus­try needs a mea­sured ap­proach to growth rather than a fren­zied plant­ing that could go be­yond the mar­ket ca­pa­bil­ity. Which is why the co­op­er­a­tive has capped its num­ber of share­hold­ers to match vol­ume in the next few years with the fa­cil­i­ties, with that cap re­viewed in the next 12 months.

MyFarm head of sales, Grant Pay­ton, con­sid­ers the NZ in­dus­try could prob­a­bly dou­ble in size and still be a small player on the world mar­ket, but it would need to main­tain pre­mium prices for its unique hops. He carried out a Kel­logg Ru­ral Lead­er­ship Course study of the NZ hop in­dus­try and said the brew­ing mar­ket will al­ways pay for pre­mium hops. NZ al­ready has spray-free aroma hops that are highly sought af­ter by craft brew­ers for their unique flavours in beer, he said.

The Ta­paw­era syn­di­cate at­tracted 51 in­vestors which ranged from Mum and Dad in­vestors to pro­fes­sion­als and crop­ping farm­ers in Can­ter­bury, in­clud­ing a num­ber who re­mem­bered har­vest­ing hops in their youth. It’s just the first of MyFarm’s hop syn­di­cates and Pay­ton said oth­ers will fol­low, with plans for tak­ing them be­yond Nel­son as well.The chal­lenge is find­ing qual­ity man­age­ment, he said.

Var­i­ous par­ties are tri­al­ing hops in Hawke’s Bay and Gis­borne and he said the po­ten­tial for the in­dus­try is ex­cit­ing.

Plant­ing has be­gun on the Ta­paw­era farm and he said it should be com­pleted by next year. Cash re­turns are fore­cast to start in 2021, ris­ing to 15 per­cent per year by 2023. By the time the crop ma­tures, it ex­pects yields across four va­ri­eties of 1705kg/ha and re­turns of $31.27/kg.

Freestyle Farms direc­tor, David Dun­bar, said the MyFarm syn­di­cate matched with Hop Rev­o­lu­tion was a smart move and raised con­sid­er­able cap­i­tal. He said NZ has the abil­ity to grow both the hop and the craft brew­ing in­dus­try with less than one per­cent of the world’s hops grown in NZ and just 0.15 per­cent of the craft beer mar­ket.

At Up­per Moutere, Freestyle Farms has grown the busi­ness from 55ha planted in hops when FS In­vest­ments bought the hop farm, to about 120ha by ex­pand­ing up the val­ley on mainly pas­toral land, much of which used to grow hops long ago. The busi­ness is sell­ing hops di­rect to craft brew­eries around the world, in­clud­ing Garage Project which it has teamed up with for re­search.

Hapi Re­search is con­tribut­ing $7.95m to­ward the PGP pro­gramme which it states has an es­ti­mated po­ten­tial eco­nomic ben­e­fit to NZ of $171m a year by 2027 which in­cludes $89m of hop rev­enue and $82m of craft beer rev­enue.

Dun­bar said the goal of the re­search is to de­velop va­ri­eties and meth­ods to en­hance hop flavour and aroma, then utilise that work with brew­eries to max­imise the qual­ity of NZ craft brew­ing in­dus­try.

“Whether that is new va­ri­etal or new flavours from new pro­cess­ing tech­niques, or har­vest­ing tech­niques, in much the same way as the wine in­dus­try – thought­ful from the be­gin­ning of the process to the end of the process.”

He thinks there’s scope in the in­dus­try to do more in those ar­eas be­cause craft brew­eries have de­vel­oped to the stage they are seek­ing dif­fer­ent flavours.

“The hop in­dus­try and the craft beer in­dus­try has changed dra­mat­i­cally over the last 15 years and th­ese spa­ces have ap­peared. And we think there’s an op­por­tu­nity and a rea­son to ex­plore them.”

Some va­ri­eties of hops pro­duced around the world are over­sup­plied and cer­tain beer styles such as lagers pro­duced by large multi­na­tion­als are strug­gling, but that’s not the craft beer mar­ket, he said.

“Hops used to be a com­mod­ity, but there’s a wide, wide range of brew­ers now driv­ing flavours in their prod­ucts,” he said.

“We re­ally want to en­cour­age op­por­tu­nity in the in­dus­try and en­cour­age peo­ple to do new and in­ter­est­ing things. But it’s a very cap­i­tal in­ten­sive in­dus­try to get started and it’s not go­ing to be a su­per easy path for growth.”

The PGP pro­gramme, which is named Hapi – Brew­ing Suc­cess, has five as­pects to be re­searched which in­cludes com­mer­cial­is­ing three new pre­mium va­ri­etals and re­leas­ing them with­out roy­al­ties. It will look at op­ti­mal grow­ing, har­vest­ing and pro­cess­ing of hops for unique flavours and aro­mas, in­clud­ing the re­gional dif­fer­ences (ter­roir) on flavour and aro­mas. New li­cens­ing mod­els for pre­mium hops will be ex­am­ined and hop pro­cess­ing stan­dards that en­able qual­ity and con­sis­tency. It will also look at max­imis­ing the NZ flavours for craft beer and con­nect craft brew­ers to in­ter­na­tional dis­trib­u­tors and NZ grow­ers to in­ter­na­tional craft brew­ers.

MPI’s Steve Penno said le­gal con­trols are in place to en­sure the ben­e­fits of the re­search are re­tained in NZ such as spe­cific clauses to ex­plic­itly pro­tect the va­ri­etals and in­tel­lec­tual prop­erty that are de­vel­oped. Li­cens­ing of the hops will be lim­ited to lo­cal grow­ers.

He also pointed out that the pro­gramme will have man­agers, sci­en­tists and busi­ness peo­ple with ex­ten­sive ex­pe­ri­ence in de­vel­op­ing va­ri­etals, brands and busi­ness that have been glob­ally suc­cess­ful and res­onate with cus­tomers across ma­jor mar­kets.

Plant & Food Re­search is in­volved with the pro­gramme – and has been in­volved in the de­vel­op­ment of high aroma hops for the in­dus­try through a Min­istry of Busi­ness, In­no­va­tion and Em­ploy­ment pro­gramme that ends in 2019.

Group gen­eral man­ager of tech­nol­ogy de­vel­op­ment, Dr Kieran El­bor­ough, said Plant & Food has been ex­plor­ing op­tions with the hop in­dus­try to build on the very pro­duc­tive breed­ing pro­gramme and is ex­cited to ap­ply that knowl­edge and ca­pa­bil­ity to new breed­ing pro­grammes such as one with Hapi Re­search.

“We an­tic­i­pate fur­ther com­ple­men­tary ac­tiv­i­ties and ini­tia­tives in the vi­brant and grow­ing hop in­dus­try and look for­ward to con­tin­u­ing to un­der­pin de­vel­op­ment of NZ craft brew­ing and other hop-re­lated en­ter­prise with novel aroma hops.”

Tri­als are al­ready un­der­way to grow hops in dif­fer­ent parts of the coun­try by var­i­ous groups and NZ Hops it­self is in­volved in a trial in Cen­tral Otago. Donelan said Nel­son has been the cen­tre for grow­ing hops partly be­cause the crop is daylight sen­si­tive and fur­ther north has less light hours through the grow­ing sea­son, plus it needs a good win­ter chilling.

“Hops used to be a com­mod­ity, but there’s a wide, wide range of brew­ers now driv­ing flavours in their prod­ucts.”

Cen­tral Otago real es­tate agents re­port land suit­able for cher­ries usu­ally sold be­fore it could go to mar­ket.

This fol­lows a sur­vey carried out in the mid­dle of the year by Druce Con­sult­ing found there were plans for 465 hectares of new cherry plant­ings in Cen­tral Otago in the next four to five years.

Ir­ri­ga­tion sweeps over a Moutere hop crop.

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