THE OFFICIAL NEWSLETTER OF HOP GROWERS OF AMERICA - E-EDITION
JANUARY-FEBRUARY 2003, NUMBER 550
47TH ANNUAL HGA
CONVENTION
Another convention has
passed.
During the
convention
growers
discussed many serious
issues that will change the
American hop industry
forever, regardless of their
outcome.
Despite the seriousness
of the times in which we
live, it is important for
growers to put aside their
differences and enjoy one
another’s company.
One
focus of the convention was
to give people the
opportunity to have fun.
The convention opening
reception and the hospitality
room
provided
that
opportunity for many. HGA
would like to thank
everybody who helped make
this convention great. We
hope to see you all again in
San Diego in 2004!
CUT YOUR LOSSES (FROM THE 2003 HGA CONVENTION)
Ladies and gentlemen, … friends and guests. It is my privilage to
speak to you today about the state of our industry. I don’t have to tell
many of you that our industry is under attack. Never before has our
industry faced an enemy so dangerous, so strong, so eager to engage in
battle. The foe of which I speak has driven our industry to the brink of
collapse and threatens the welfare of many growers. That foe is inside
each and every one of us. The voice that tells a grower that if he hangs on
just one more year things will be different .… That is the problem. A
grower that hopes that he can benefit from a competitors’ misfortune .…
That is the problem.
I believe our problem was, in the past, fed by a lack of information.
Now however I believe you have available to you the information to make
the right decisions. The problem is no longer a lack of information. The
problem is the reluctance to make a difficult decision even though you
know it is the right thing to do. The problem is greed. The problem is the
belief by many that they have a right to grow hops because it is a family
tradition. The problem is desperation.
I could stand up here and tell you that things will be better in the future
or that if we all hang in there we’ll all get through this. I suppose I could
stand here and tell you the things you would like to hear. It would be
easier to do that, and everybody might feel better, but that would be a
disservice to you. Some day things will be better … of course. Our
industry has a long row to hoe before things get better … and as difficult as
it is to imagine today … our family of hop growers will probably be much
smaller in the future, than it is today. My job is to do my best to keep you
informed so you can make the right decisions. What you do with that
information is up to you. (Continued on Page 2)
(Cut Your Losses Continued) Back in grad
school one of my professors told me that it is
important to know when to cut your losses. He
was right. It’s the same as deciding whether a
glass is half empty or half full. I think our
current situation is an opportunity for those who
are on the edge to cut their losses. If you don’t
know how you can make it through the year
ahead … cut your losses … instead of trying to
hang on for one more year. Our problem has
been years in the making. At first it was small
and difficult to diagnose but would have been
easy to cure. Today our problem is obvious and
like a cancer has grown out of control
threatening to kill its host.
Some may say we have made a good effort to
reduce our over production problems. I call it a
good start. You have tightened your belts in the
past two years to do what you can to reduce
production capacity. The result was a massive
acreage reduction. Still, in 2002, American
alpha acid production remained stable.
The coming year will be a difficult year
for many. It will require REAL cuts in alpha
production. No more shell games. No more
smoke and mirrors. Our industry can no longer
afford to play the games of the past. Our
competitors continue to play this game changing
out their low yielding aroma hops for high
yielding alpha hops, claiming acreage reductions
while alpha production continues to rise. If that
is the game our competitors want to play, then
the market will insure that they pay the price for
playing.
We can only worry about the
problems we can control! – Our own production
and the entry of hops into our own country. The
course of our industry cannot depend on the
actions of others. We must do what we know is
right. (Continued on Page 4)
For those of you who may hear this and think, “Ah ha, now is my big chance to get back some market share”, … let me assure
you … this year there is NO reason to grow spot hops. That is the kind of opportunism and greed that has led to our current crisis.
Last year I stood before you and spoke of the need to reduce approximately 10,000 acres. Today we are well on our way to
achieving that goal. I believe now that even that goal may have been conservative. The market has given every signal possible that it
is so full of hops it is about to burst. Breweries have purchased hops to satisfy 2003 and 2004 demand from the 2002 crop. Other
breweries have said bluntly that at the current prices they cannot afford NOT to buy hops even though they don’t need them right
now.
I believe we will see a net reduction in acreage this year. The exact amount is difficult to predict at this point, but it will need to
be in the thousands of acres to have any impact. Reducing production to only those hops that are contracted would be another step in
the right direction. The market is sending you a signal through the contracts that are available. It is telling you how much demand
there is for the hops you can produce. If you wish to see any change in the market in the next couple years you must not ignore that
signal. Anybody producing spot hops in 2003 should expect to sell them for far less than the cost of production or pay to keep them
in storage for the foreseeable future.
During the 2002 usa hop tour I explained to one brewer the importance of contracts to the grower. I told him that if he was not
willing to sign contracts the growers would have no way of knowing how many hops to grow. This may be an oversimplification,
but I believe I was right in explaining that to him. It is equally important for you as growers to abide by the same concept. Contracts
are your best … and really your only … guide as to how many hops you need to grow for the coming year. Anything else is only a
guess.
If we as an industry do not let contracts guide our production then we will further encourage brewers to purchase their hops on
the spot market. I think it is safe to say that every grower benefits when there are multi-year contracts. Spot hops create instability.
As growers you must give the brewer reason and incentive to sign a contract. For the past few years, brewers have had little
incentive and no reason to sign contracts as recent history has shown them they can be certain of two things: 1) there will be plenty
of hops to go around, and 2) hops are usually cheaper tomorrow than they are today.
During the past year, we have enjoyed an incredible change of over 25% in the exchange rate between the Euro and the Dollar in
our favor. If the market were not currently flooded with alpha, demand for American alpha would be shifting based on price alone.
We could have the upper hand now because the playing field is more level than it has been in years. Only if our production is
balanced with demand can we expect to reap the benefits of these sorts of advantages in the future.
Hops is truly a unique crop and can be uniquely managed. Growers’ reaction to prices has been pretty common. The supply and
demand for hops is very delicate. You simply cannot respond to high prices by planting. That is what growers have done for
decades and it is the reason for the cycles of the past. We see this same knee-jerk reaction in today’s industry. Self-control is as
important than production control. There is just not room for everybody to be a grower in this shrinking industry.
I believe we are at a crossroad in our industry. Your actions in 2003 will determine the course of events for years to come. My
job is to do my best to keep you informed so you can make the right decisions. What you do with that information is up to you. The
ball is in your court.
Thank you.
Cut Your Losses was originally a speech presented by Douglas MacKinnon, Executive Director of Hop Growers of America
to American growers during the general session at the 47th Annual HGA convention.