04/18/2008

By CHRISTOPHER LEONARD  / Associated Press

Dan Kopman is chief operating officer for a microbrewery with an intensely local focus. St. Louis Brewery Inc. only sells its craft beers at local restaurants and retailers within a 300-mile radius.

But these days, Kopman has to travel the globe just to find some good barley and hops.

Rising commodity prices are raising costs for brewers across the board, and forcing drinkers to pay a little extra for every draft of cold beer. But the spike in costs is affecting niche players in the beer industry more than the big boys, who lock in their cost for ingredients with big futures contracts.

Kopman is traveling to the West Coast, the Pacific Northwest and England to try and find reliable suppliers of barley and hops. Speaking on a cell phone Friday from a beer trade show in San Diego, Kopman said he wasn't having much luck tracking down a good hops supplier.

"Some of the hops guys are hiding out here. They're not saying a whole lot," he said. "The merchants are trying to finalize their contracts with growers and it's just a very tight market."

Kopman said the price for a metric ton of barley has risen from $125 in 2005 to $400 at the end of last year. Commodity prices have risen globally in recent months, causing food riots in some impoverished nations and raising the cost of staple foods like rice, corn and soybeans.

Anheuser-Busch Cos. Inc., the nation's biggest brewer, is also being pinched by higher costs. Speaking to investors in January, Chief Financial Officer W. Randolph Baker said the cost of making a barrel of beer would outpace the revenue from a barrel this year.

To compensate, Anheuser-Busch is raising prices of all its products by a few percentage points. Baker said the brewer also plans to save money by improving its supply chain and holding down administrative costs.

Beer drinkers seem to be accepting the price hikes, said Benj Steinman, publisher of Beer Marketer's Insights trade newsletter. Overall beer prices climbed 3.7 in March, according to the newsletter. That follows price hikes of 4 percent in January and 4.4 percent in February.

Still, that only adds up to pennies on the six pack.

"The price increases, by and large, I would have to say are not so substantial they will have a dramatic effect on consumers," Steinman said.

The real impact is more likely to be felt by microbreweries, he said. Such small brewers only make up 4 percent of the total beer market, but sales of craft beers have been growing faster than the industry average.

The big brewers are "able to get the supplies. And there are price increases, but they're manageable. That's a different story from you're what hearing from the really small brewers. They can't even get some of their ingredients," Steinman said.

Kopman said he's not even trying to bargain for lower prices with his barley and hops suppliers. Instead, he's just trying to find steady suppliers. He is also asking suppliers to give him a forecast for their future prices, so he can plan accordingly.

"We're looking for more transparency through the supply chain," Kopman said. That way "we can go to our customer base and say, well this is what we see happening in 2009."

Kopman said he's confident that craft beer drinkers won't mind ponying up an extra 50 cents a six pack.

"In comparison to other what you might call luxury goods, that's a pretty good deal."

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On the Net:

Anheuser-Busch Cos. Inc.: http://www.anheuser-busch.com

St. Louis Brewery Inc: http://www.schlafly.com