A Nation in Crisis: Beer Prices on the Rise

While food prices for basics such as milk, eggs and bread have been increasing, another beverage that many Americans would also argue is a basic is in double trouble with key ingredient shortages and rising oil costs: beer.

Beer retail prices had remained constant for the last several years, but began to increase in the second half of last year and continue to do so. Even worse news is that you will probably continue to pay more for your beer even if prices ease on other foods.

The two main grains used to make beer have risen dramatically in price over the last year. Malted barley, which is the second biggest ingredient used in making beer after water, is the grain used to create alcohol during beer fermentation. Barley prices have risen by double-digit percentages over the last year due to worldwide demand of all grains.

The other main ingredient in beer is hops. Some hop varieties give beer its bitter taste while other varieties give beer its aroma. Hops have had even more dramatic triple-digit percentage price increases over the last year and continue to be in short supply.

While poor weather conditions have something to do with the hop shortage, the main problem actually began in the 1990s when there was a large surplus of hops. The surplus resulted in huge price drops that extended through the 1990s since the beer ingredients derived from hops can easily be stored for long periods of time.

The low hop prices drove hop growers to plant more profitable crops. Many switched to corn and soy due to the rising demands of ethanol. Then in late 2006, there was a fire at a large hop storage facility that took even more of the grain out of the market.

Hops that were selling for between $3.50 and $5 per pound last year are commanding prices of as much as $20 to $30 a pound today. The soaring hop prices have convinced farmers to start growing hops again, but that doesn't mean relief is right around the corner. New hop vines take time to mature and these newly planted fields won't produce significant crops for at least another two or three years.

The continued increase in oil prices is also putting pressure on beer prices. Higher oil prices increase the cost to farmers of growing the crops as well as the transportation costs of getting the beer to retailers, which all ultimately gets passed on to the consumer.

When it comes to the price hit from these rising costs, small brewers and microbrewers are feeling the punch the most. While prices for even the large beer producers are up this year, their size allows them to weather the cost increases more readily than the microbreweries.

Large brewers like Anheuser-BuschBUD, Miller and CoorsTAP have hedged their expenses to a large degree with large advance purchases of barley and hops, which smaller breweries aren't able to do.

Here are a few steps that you can take to dampen the effect of the higher beer prices.

Buy from larger breweries: The larger beer companies, due to their size, profits and purchasing power, are able to absorb and delay some of the increased costs. Microbreweries, whose size means they are much more price sensitive, must pass on the price increases to stay in business. If you don't mind drinking beer from the larger beer companies, their prices should rise less than those of the smaller beer companies.

Even if you don't like many of the big label beers, all is not lost. Craft beers have continued to grow in size and currently four out of the top 10 beer companies in overall in size are craft beer companies: Boston BeerSAM (No. 5), Sierra Nevada (No. 7), New Belgium Brewing (No. 8) and Spoetzl (No. 10). While it won't be the same as the beer from your local brewery, buying form a larger beer company to save money doesn't mean that you need to drink less flavorful beer.