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2015 Estimated Cost of Establishing and Producing Hops in the Pacific Northwest

2015 Estimated Cost of Establishing and Producing Hops in the Pacific Northwest

Suzette Galinato, Research Associate, IMPACT Center, School of Economic Sciences, Washington State University, Pullman, WA, Peter Tozer, Research Associate and Director of IMPACT Center, School of Economic Sciences, Washington State University, Pullman, WA
If you’re thinking of producing hops in the Pacific Northwest or expanding your existing operation, this publication can be a very valuable resource. Designed to enable growers to estimate costs of equipment, materials, supplies, and labor as well as ranges of price and yield, this publication helps evaluate the feasibility and profitability of producing hops.
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Preface

The results presented in this publication serve as a general guide for evaluating the feasibility of producing hops in the Pacific Northwest as of 2015, with a capital and machinery endowment suited to a 660-acre hop enterprise. Also discussed are the key factors to consider in expanding a hop operation. This publication is not intended to be a definitive guide to production practices, but is helpful in estimating the physical and financial requirements of comparable plantings. Specific assumptions were adopted for this study, but these assumptions may not fit every situation since production costs and returns vary across farm operations, depending on the following factors:

  • Capital, labor, and natural resources
  • Crop yield
  • Cultural practices
  • Input prices
  • Prices of hops
  • Management skills
  • Size of the operation
  • Type and size of machinery, and irrigation system

Costs can also be calculated differently depending on the budget’s intended use. To avoid unwarranted conclusions for any particular farm, readers must closely examine the assumptions made in this study, and then adjust the costs, returns, or both as appropriate for their operation.

Hop Production in the Pacific Northwest

The US commercial hop production is concentrated in the Pacific Northwest region (Idaho, Oregon, and Washington). As of 2014, the US harvested 38,910 acres of hops. Only 2% is outside of the Pacific Northwest states that include California, Colorado, Illinois, Indiana, Maine, Michigan, Minnesota, Nebraska, New York, North Carolina, Ohio, Vermont, Virginia, and Wisconsin (HGA 2014). Within the Pacific Northwest hops acreage is concentrated in Washington State which accounts for 80% of the three-state total based on a 5-year average between 2010 and 2014. For the remainder, 8% came from Idaho and 13% from Oregon (USDA NASS 2015).

Hops are one of the key ingredients in beer. There are a number of hop varieties and each variety has its own alpha acid (AA) rating, which is represented by the amount of alpha acid as a percentage of the total weight of the hops. The two

main classifications of hops are: aroma varieties and bittering varieties (i.e., alpha varieties). Aroma hops have an oil profile associated with desirable aroma and lower alpha acid rating such as Willamette (4–5% AA) and Cascade (4.5–7% AA). Bittering hops have a higher alpha acid percentage such as Chelan (12–14.5% AA), Chinook (12–14% AA), Millennium (14.5–16.5% AA), and Apollo (15–19% AA) (Palmer 1999; USA Hops 2013). From 2010 until 2014, planted acreage of alpha hops decreased by 10% per year on average, while the planted acreage of aroma hops increased by 23% per year on average during the same period (HGA 2014). The expansion in aroma acreage is mainly driven by increased demand for aroma varieties by craft brewers. The choice of craft brewers for hop varieties depends on the flavor profile they want to develop that would distinguish their product from others in the market and what their consumers enjoy. A 2015 survey of craft beer drinkers showed that aroma is a more important factor to them than bitterness (Watson 2016).

Hop growers contract with a merchant, and a merchant contracts with brewers. Hops are typically purchased through contracts as these are the best way to ensure the supply of hops needed by the brewer and to avoid the risky and expensive spot market after harvest. A brewer could contract for some years into the future especially for high-demand varieties.

Objectives of Study

This study provides information on (1) the variable and fixed costs required to produce hops in the Pacific Northwest and (2) the ranges of price and yield levels at which hop production would be a profitable enterprise. An Excel workbook is also developed, which allows the user to estimate production costs and examine the impact of different input assumptions, yields, and price scenarios.

Sources of Information

The data were obtained from the Hop Growers of America board members representing Idaho, Montana, Oregon, and Washington. Their production practices and requirements for labor and capital are the basis for the assumptions used in this study. While there are differences in practices and costs among growers and across the different states, current production methods are considered and a consensus was obtained on the average costs of various inputs in hop production.

Due to the method used to generate the enterprise budget, the values reported represent what growers can anticipate as their

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