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.
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.”
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Irrigation sweeps over a Moutere hop crop.