SPECIAL REPORT
CHINA
September 4, 2007
EXECUTIVE SUMMARY
Perhaps the language acts as a barrier. Perhaps it is the geographic isolation of the
region. Perhaps those with the information choose not to share. Whatever the reason, Chinese
hop growers are isolated from the conditions of the world market. There are two hop markets, a
China hop market and a world hop market. They are not related. Prices to farmers are low, but
fair by Chinese rural standards. On the farm, that’s all that matters.
Production is primitive and there is a severely underdeveloped infrastructure. Both of
these facts will limit expansion of quality hop acreage in the future. Many poor farmers will
expand their production in the coming years to get more of the current price with no clue of the
magnitude of the world shortage or the prices being paid for alpha acid anywhere else in the
world. In the Gansu region, there is reportedly a ceiling on the price of hops at $1.81 per pound.
Only one farmer I spoke with hinted of a world shortage and it was in the form of a question.
Growers would like to expand due to the rapidly increasing beer market within China for which
they seem to know there are not enough hops. Their expansion is in response to local breweries
and in many cases contracted. Everybody I spoke with has noticed a difference in the market
this year, but many believe it is only a China problem, not a world problem.
The industry’s main product is a low-alpha Qingdao Flower (Cluster-type) hop variety.
At the moment, only the State-owned farm system, of which the Fubei Sapporo Hop Farm is a
part, produces the Marco Polo (Columbus) variety. The Nugget variety is grown by several
farms in the Gansu region, where both Barth and Steiner influence is greater. Marco Polo
produces 12-13% alpha acid. Fubei Sapporo Hop Farms produces the highest quality hops
available due to the oversight of Japanese brewer Sapporo. They have absolutely no interest in
expanding their alpha production to take advantage of the market, their customers or new export
opportunities. They may increase alpha acreage slightly in response to local brewery demand
only slightly, but will primarily expand their aroma acreage in 2008. They are not a threat to the
world alpha supply because of their orientation toward aroma production and a stable price
regardless of market conditions.
Others are interested in acquiring Marco Polo. Some will get it for 2008 and, regardless
of patent issues, plan to produce it believing it can produce 14-16% alpha acid. Brewers appear
to be focused on acquiring a consistent supply of low-quality product at 6.5% alpha. The focus at
the grower level appears to be on producing greater tonnage with some concern for quality and
less understanding of the importance of alpha acid. Few growers are aware they can sell or
specifically produce kilograms of alpha acid.
International brewery influence within China will eventually change many things about
the market, but foreign beers are an expensive alternative to cheap local beer and at this time are
only for the rich. Most people not in coastal China have not switched from spirits to beer as their
drink of choice due to the cost.
Prepared September 4, 2007
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CONCLUSIONS
1. China will expand its hop acreage in the years to come but it will not be a threat. We
will see approximately 1500-2000 acres expansion in 2008, with a similar degree of
expansion each year for the next several years. This acreage will be a mix of aroma and
low-yielding alpha varieties for domestic brewers. Demand will outpace supply.
2. Chinese hop production is severely limited by infrastructure. There are not large picking
facilities. There are only large farms with many small picking machines requiring large
amounts of employees to operate. Many small independent farms cannot expand due to
the lack of available farmland, financial resources or an adequate labor force.
3. Chinese alpha acid is not significantly cheaper than U.S. or German production. China is
not a major threat despite rapid expansion of hop acreage. Low-yielding alpha varieties,
the cost of labor and even when efficiently produced cannot produce alpha for less than
$40.00/KgA. This is the farmer price without processing and shipping. Only hand picked
hops picked for free by students are produced at lower cost.
4. The cost of Chinese hops will rapidly increase to world levels. Low trellis of 2-4 meters
necessitates arduous hand labor by many people. The cost of that labor, when it is not
State mandated, has doubled since my last visit in 2004 to $10.00 per day per worker.
The rate of growth of the cost of labor is expected to continue for the foreseeable future.
5. The proportion of low quality hops produced in China will increase. Quality on the farms
that are interested in expanding is low. Those firms that are considering expansion have
a high percentage of leaf stems and seeds. Those with high quality are focused more on
producing a quality product than increasing quantity.
6. Expanded Chinese hop production will be inappropriate for International Markets.
Because of the low production quality of those interested in expanding, it is unlikely that
they would ever reach the international market except under dire conditions.
7. The alpha deficit for Chinese beer production will grow necessitating more imports. At
10%+ growth in 2007 beer production and similar growth forecast for 2008, Chinese
growers must produce 115MT more alpha acid in 2007 to maintain its current estimated
deficit of 910MT. Alpha production for 2007 is estimated to be the same as 2006.
8. China is an opportunity for American hops for the future. This conclusion is based on
the infrastructure limitations and a growing alpha deficit cited earlier combined with a
familiarity with American-type alpha varieties.
Prepared September 4, 2007
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QUICK FACTS
2007 hop production:
• Estimated 15000 – 16000 MT (33 – 35.2 million pounds)
• 2007 = 36% increase over 2006.
• Xinjiang = 8000 MT, Gansu = 7000 MT
• Alpha production is low this year. Downy mildew and mites are serious problems.
• 2007 Anticipated alpha acid yield the same as 2006 @ 550 MT.
• Estimated deficit is 14000 MT of hops @ 6.5% alpha = 910 MT of alpha acid.
2008 hop production:
• Estimated 1500–2000 acres increase = +5–6m lbs. production. @ 6.5 alpha = +162 MT
of alpha acid.
• Low first year yields means higher production in 2009 and 2010 from new 2008 yards.
Sold Ahead
• Most are sold ahead at 80-90% for 5 years.
Price
• Growers sell hops by the ton. 30,000 – 40,000 yuan/MT.
• Current exchange rate = 7.5 yuan : 1 USD
• Typical grower prices = $1.80/lb - $2.42/lb. Prices from Xinjiang Xuhong Hops (a pellet
processing and storage merchant company) are double that.
Cost of Labor
• Equivalent of $10.00 per day. An increase of $5.00 per day since 2004.
• In some situations school students and their families pick hops by hand at no cost to the
farm due to a local government program.
Hopping Rate:
• Beer production in 2006 = 35,150,000 MT. For every MT of beer produced 0.5 Kg. of
hops are used. That equates to 0.05% hopping rate.
Varieties in Production
• Marco Polo (Columbus) average yields are 2645–3042 lbs./acre with 12-13% alpha acid.
Only on the Fubei Sapporo Farm.
• Qingdao Flower (Cluster-Type) average yields are 3306–3968 lbs./acre with 6-7 % alpha
acid. Most common variety at 80% of total acreage.
• SA1 (Japanese Saaz-like Variety) avg. yields = 1587–1984 lbs./acre with 3.5 % alpha.
• Nugget avg. yield is 1322 lbs./acre. Alpha acid is 12 - 14 %.
• Qi Lin Feng Lu (alpha variety) can produce 2645 lbs./acre with an avg. of 9-10% alpha.
Prepared September 4, 2007
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Fubei Sapporo Hop Farms
Top Left: 2m hop trellis
Top Right: 4 m hop trellis
Center: Picking crew picking SA1
Bottom Left: Hand feeding a Chinese
Picking machine:
Bottom Right: Some of the highest quality
hops in China.
Prepared September 4, 2007
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Top Left: Crew of
people needed to pick
leaves and stems out
after the picking
machine has cleaned
them already.
Top Right: Closeup
of the same
Center Right: Load of
hops from the field
Bottom Left: Chinese
hop picking machine
being loaded with
hops. Notice the hops
on the ground waiting
to be loaded.
Prepared September 4, 2007
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Independently Owned Hop Farm #1
Top Left: Harvest crew in a field. Top Right: Second part of a Chinese picking machine, the
dribble belts. Center Left: Carrying hops to the kiln. Center Right: A coal fired boiler heats
the kiln. Bottom left: Kiln beds drying in an open kiln house. Heat comes from underneath.
The left half of the building is open. Bottom Right: A 50Kg bale.
Prepared September 4, 2007
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Independently Owned Hop Farm #2
Top: Baby alpha hops
in Xinjiang.
Center: A homemade
picking machine.
Bottom: Low quality
Chinese hops. Note all
the foreign matter and
discolored hops.
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Xinjiang Xuhong Hop Company
Top Left: Hop field with downey mildew and
mites about to be picked. Top Right: Coal for the
boiler for the kiln. Above: Common storage.
Right: Pellet plant in Xinjiang. Bottom Left:
Weighing wet hops before entering the kiln.
Bottom Right: A bale of hops … garbage in
garbage out.
NOTES
China Notes:
Prepared September 4, 2007
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August 28, 2007
Several different production areas.
One large area in Tachen City has approximately 750 acres.
Japanese picking machines used at Fubei Sapporo farms – army farm structure.
Chinese picking machines used at other areas. Designed and made in China.
Marco Polo and Xintao Flower = hand picked with tools.
Another Japanese based variety grown by Chinese growers picked by machines.
August 29, 2007
One acre = 6 mu
FUBEI SAPPORO FARMS NOTES:
• New location – office now in Urumqi.
• 1000 hectares of hops for company.
• Cooler weather in 2007 has caused different production.
• Alpha acid levels are not so good. Production is also down in alpha varieties.
• There will likely be above average yield in aroma hops because of the cooler weather.
• Sapporo still buys direct and is visiting later this week.
• Yields on the farm
o Marco Polo= 200 - 230 Kg / Mu., sells for 40,000 yuan/Kg. He calculated that
works out to $40.00 per KgA. I asked him if at that price he would plant more
hops. He said no.
o SA 1 = 120 – 150 Kg.Mu. & 3.5% alpha, sells for 45,000 yuan/Kg.
o Qingdao Flower = 250 – 300 Kg./Mu.
o Nugget = 100 Kg./Mu.
• Prices stated above are direct contract prices to breweries.
• Only FSH has the Marco Polo and SA1 varieties in China. –Statement by Mr. Gao.
• 15 picking facilities with 2 picking machines in each facility.
• Can pick approximately 6 MT per day per facility – 200 Mu per machine.
• Harvest is 25 days
• Japanese machines have led to Chinese machine copies. Now people buy the Chinese
machines.
o 8 people in picking area working at one time
o 14 people in field harvesting
o People make 80-90 yuan per day. Minimum wage would be 50-60 yuan per day
but they must pay more because they cannot find the people who will work at that
price. Pay may also be based on quantity picked per day.
o Workers typically work an 8 hour day – 24 hour picking – 2 crews
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Plan to buy new machines for 2008.
o Need new harvesters for additional aroma hops in 2008 and for 2nd year
production of current baby hops. At maximum picking capacity right now.
No current plans to expand alpha acreage.
Nearly sold ahead for 5 years. 80-90%. Must expand.
Have many old contracts at old contract prices = not so good. They also have some new
contracts at market prices, but in general do not believe in gouging their customers.
In Gansu Province - have heard that the government controls the price so that growers do
not receive more than 30,000 yuan per ton.
o Hops are all sold by the ton.
Yield are not so great this year and there will not likely be many extra hops if any. Very
likely only to be enough hops to fulfill the contracts they have.
o In 2008 there might be more free hops.
Other growers in China mainly grow Qingdao Flower and Hueller Bitter
Asked Mr. Gao about deficit.
Beer production in China in 2006 was 35,150,000 MT. For every ton of beer produced
the breweries use 0.5 kg of hops. That equals a 0.05% hopping rate.
Estimates the deficit is 14000 MT of hops at an average of 6.5% alpha (the typical hop
product used in China is a 6.5% alpha pellet). This equals 910,000 KgA.
For 2006 the total hop yield was 11,000 – 12,000 MT. Production in the Xinjiang was
6000MT and in Gansu 5000MT.
FSH = 2000MT
For 2007 the anticipated hop yield is 15,000 – 16,000 MT.
Philosophy = must keep the price good to server the customer. We must keep the
customer in mind. The long term relationship is more important to us than short term
profit. This is hard for us. Although hops would be higher, we must consider keeping
our old customers, to return cost to the growers and an adequate interest rate for our
money.
They export – obviously to Japan – one other major customer outside China.
After reviewing alpha estimates from the IHGC booklet, Mr. Gao estimated that alpha
production in 2007 should be listed at 650-700 MT alpha assuming an average crop.
Aroma demand is growing in China and breweries begin to sign long term contracts
80% of China breweries use Qingdao Flower – Mr. Gao believes they would begin to use
super alpha hops if available. They are not tied to the flavor profile of the Qingdao
Flower, only using it as a standard for bittering.
Marco Polo has twice the production and also a higher price so maybe there is a future
for this variety.
Tian Huashan = Growers Name
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300 Mu farm
Independent Farmer as opposed to state farm like Mr. Gao.
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Cost of production estimated at 400 yuan/mu. Average, a range would be 300 – 480
yuan/mu. Depending upon the pesticides and fertilizers a grower would apply.
The variety applied is Qi Lin Feng Lou. This variety can produce approximately 9%+
alpha
Has noticed that hops are much easier to sell this year. Many offers this year to buy his
hops. All hops sold. He sells directly to processing plants.
Cannot increase acreage even if he wanted to because there is no available land near his
farm.
Hops are hand picked.
Has farmed hops for 10 years.
Has had his picking machine for 7 years.
Students pick the hops by hand. The arrangement is that students pick the hops in lieu of
paying for schooling. The family gets a credit for picking hops depending upon the
quantity of hops picked. If they choose not to pick hops or do not pick their quota they
have to pay money to the school. Students, parents and grandparents are all out in the
fields picking the hops.
Wouldn’t say price. Said it is difficult to say a price. Did acknowledge that hops are sold
by the MT and that alpha hops are sold at a slightly higher price.
Independant Grower:
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120 Mu. – 100 Mu old production, 20 Mu new production first year … see picture.
Sells his hops in 3-4 places, to middlemen and to processing plants.
Built his own picker. 4th generation of his machine. 3 years in development. Spent
100,000 yuan for his picking machines that he made himself. Other Chinese picking
machines were just too big for his farm.
Has not sold any hops yet. Says whoever offers the best price will get them.
Same variety as other Indy guy.
Would like to get 30,000 yuan/MT.
Has farmed hops for 5 years.
Picks hops at night.
Only grows hops
Once he has land and more room he would like to expand but says that is not so easy to
come by. May try to persuade neighbors to plant
15 days he harvests 100 Mu.
Xinjiang Xuhong Hops (Formerly known as Xinjiang Green and Fine Hop Company)
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Pellet mill that can process 30-40MT per day. Built in 2004
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Collect all hops first and then begin pelleting. Usually only pellet for one month per
year.
They charge 2000 yuan for outside pelleting.
Buy from farmer for 30,000 yuan/Mt. and sell to brewery for 60,000 yuan/Mt.
The machine costs 5m yuan. One other company imported a machine from Germany for
40m yuan.
XiYu group is the owner of this company.
In the fields this year. There is high pressure from HDM & mites. Trying to pick hops
quickly before damage worsens.
Coal fired kilns dry hops at 60 degrees C.
Land Statistics:
o 1000 mu = owned by our own company
o 3000 mu = owned by our growers – a cooperative of sorts
o 10000 mu = our goal for hop base in the future
o 20000 mu = we plan to expand by 20,000 mu in the next 5 years @ rate of 3-4K
mu/year.
In 2008 they already have plans to expand by 3000 mu. = this will be newly constructed
fields. It will be alpha hops.
o Marco Polo and Nugget.
o To sell in China first and export if possible.
They have long term contracts with breweries. With 3 breweries they have negotiated
10-year contracts. Price for these contracts is not negotiated, only quantity and a
minimum price negotiated.
The contracts in the future are the reason for the extra production.
% alpha in MP = 14-16%
% alpha in Nugget = 12-14%
Already in 2007 their alphas are 14% (contradiction from everybody else)
There is reportedly a new alpha variety in China. The alpha % can be as high as 16%.
No information on it just yet. At this point it might be more rumor than fact.
There is a breeding program in China, which began in the 1960s. Secret location – secret
everything due to stiff competition.
One international brewer specifically requested MP and NU for 2008
A big % of the additional 20,000 mu goal for the next 5 years will be alpha type hops.
Foreign brewers in China are partly responsible for new demand.
Estimate of production relative to IHGC figures:
o In 2006 60,000 mu
o In 2007 80,000 mu
o For 2008 90,000 mu (guestimate)
For 2007 the yield will be lower because HDM is very serious and weather problems.
Alpha and hop yields will be lower
Estimate 10-15% decreased yield due to HDM, mites and weather.
If 550 MT of alpha is correct from 2006 then we can probably assume the same for 2007.
New acreage is low yielding.
For 2008 we will see quite a bit more alpha production due to new production if growing
conditions are good.
Prepared September 4, 2007
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Anticipates that 2010 will be a big year for alpha production based on new plantings this
next year and the year after.
Production of hops for large area farms
o First year 30%
o Second year 60%
o Third year 100%
Tachen Farm (on the border of China and Kazahkstan:
Current acreage = 4000 mu.
Increase from 2006 = +2000 mu (doubled in size)
State farm until this year. This year is the first year as a private entity.
Good market led to increase in acreage.
Price increased 150% this year – grower would not say at first.
For 2008, expect about 1000 mu increase.
Wants 70 yuan per kilogram of hops = 70,000 Yuan/MT.
This particular grower from the group (who has 2000 mu by himself 1400 new) is not contracted
at all and still has hops available for 2007. Most growers however are sold ahead for the next 5
years.
Private farm but have given money to farmers to buy rhizomes & etc. Normally they cooperate
together and work as a group. - Cooperative structure.
Varieties:
Qingdao flower
Xi ling fun lu – (up to 10% alpha variety)
Tsa Yu (Japanese aroma variety)
Acreage is primarily alpha. Aroma is only 600 mu out of 4000.
I am happy to answer any questions regarding the trip to China or anything I’ve seen there.
Please feel free to email me with anything.
Prepared September 4, 2007
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