So far in an ongoing series that explains the higher price of craft beer over macro beer, Mike has written three fantastic articles on Hops, Grain and Yeast. In an intentional, and hopefully not boring, deviation from the ingredient nature of the series, I am going to write briefly on an uncontrollable variable in the craft beer price equation: Inflation.
While it has been argued by certain economists, namely from the Austrian school of economics (I.E. Rothbard, Mises), that inflation should not exist in a free economy, a free economy (minimal government interference in an organic market) is a pipe dream. Thus, inflation is inevitable. Just ask your grandparents how much they paid for a Coke when they were kids or reflect on the first time you filled up your tank of gas as a teenager.
So how does inflation affect the price of beer, namely craft beer?
To begin with, inflation has been significantly driving up the cost of beer since this site was launched a bit over a year ago. You may find yourself cringing as you shell out $12 bucks for that six pack of Dogfish Head, especially when you recall paying around $11 just 2 years ago. What happened?
Two things: First, economic pandemonium. Notice in the first chart below that dollar is down from where it was two years ago, and has been plummeting in recent months. Now note the second chart below gold is inversely proportionate to the dollar. Were the dollar back on the Gold Standard, instead of fiat, the two currencies would rise together. When the dollar falls, prices rise. If comparatively speaking to the global economy, a dollar is still a dollar but really only buys 1/2 of what it is, a merchant must double the cost of their product to adjust, as do suppliers of raw goods that go into the product, leading to exponential and at time, hyperinflation. Globally, gold as currency is trustworthy while the dollar (or any fiat currency) is not.
Commodities such as grain, corn, etc. are historically the first to rise (limited quantity) and thus, beer is quite prone to the ills of inflation. The micro brewer’s product must rise more than the Big Boys because he/she has less purchasing power. They cannot negotiate as much as a brewer who buys 100 times more malt at each pop. Also, in order to adjust macro brewers have the option of laying off significant employees to boost revenue. Who are small boutiques to lay off? Themselves?
Market collapses have historically permanently affected the cost of goods. You will never again see a gallon of gas sell for a buck. On the other hand, a second cause can lead to inflation that may be temporary. I refer to them as “acts of God,” i.e. hurricanes, floods, or droughts.
The craft beer industry is still reeling from 2008′s hop shortage. Well, the hops came back with a vengeance in 2009. In fact, it was a bumper crop and hops were left on the vines to whither into the ground due to the overabundance. Have we seen hop prices come down? Just ask your friendly homebrewer. They are still up there, but given a couple more years of bumper crops and odds are you’ll see some relief in brewers’ faces.
Macro brewers are again more affected by these acts of God, due to purchasing power. I remember an awful rumor running amok that the Big Boys were purchasing more hops than were necessary for their weak brews for leverage over the Microbrewers. True or not, the Micro Brewers still have less bargaining power and less storage capability. Thankfully, some bigger craft brewers like Sam Adams shared their wealth and proved camraderie is strong in the craft scene.
Next time you see a jump in price on the tag of your favorite beer, don’t blame the brewer, blame the system (and perhaps Nixon for taking us off the gold standard, the Federal Reserve for creating trillions of dollars out of thin air, and the Treasury for allowing it all).