TAMPA, Fla. - The next time you pop into your favorite brewery, there could be a price shift for that pint you're about to order.
Despite the pandemic and all of its challenges, overall, it's been a better-than-expected year for craft beer in Florida. Now, looking ahead, economists say they will face new hurdles that could lead to some tough decisions for independent brewers – including whether to increase prices to offset their increased costs.
At this rate, Bart Watson, the chief economist over at the Brewer's Association, predicts craft beer production will exceed 2019 levels. However, the ongoing supply chain issues and inflation is already playing a role in impacting brewing and manufacturing costs in 2022.
He said this is happening for three reasons.
Reason #1: Rapid demand changes
An aluminum can shortage is another ripple effect of the pandemic as breweries had the capability to shift to to-go crawlers or cans, increasing the need for the product.
"Overnight, we started drinking a lot more beverage, not just beer, but beverages in package form," Watson said. "We didn’t drink soda at the movie theater or beer at the bar. We drank those things in cans. So, we’re still seeing the effects of that on package markets."
Now, supply is struggling to keep up with demand. Ball Corporation, for instance, announced they were not going to allow some customers to purchase directly from them.
"They’re stated explanation was they don’t have the capacity to make all the cans that are needed right now," Watson said.
Inflation jumped at its fastest pace in nearly 40 years in December – a 7% spike from a year earlier. Prices rose sharply in 2021 for cars, gas, food, and furniture as part of a rapid recovery from the pandemic recession. Vast infusions of government aid and ultra-low interest rates helped spur demand for goods, while vaccinations gave people the confidence to dine out and travel.
As Americans ramped up spending, supply chains remained squeezed by shortages of workers and raw materials, and this magnified price pressures.
The Labor Department reported that a measure of inflation that excludes volatile food and gas prices jumped 5.5% in December, also the highest in decades. Overall inflation rose 0.5% from November, down from 0.8% the previous month.
Reason #2: Broader supply chain disruptions raising costs
As part of the snowball effect, a deficit of truck drivers that started building before the pandemic also remains a problem. The American Trucking Associations said in October that the U.S. was short an estimated 80,000 drivers, a historic high.
And shipping remains delayed, impacting everything from imported foods to packaging that is printed overseas.
"For individual breweries, this might mean an ingredient that they use," Watson stated. "If they make a Guava Florida Weiss, they might not be able to get the guava, or it might be more expensive, or they have to delay production schedules because things they are looking to get are delayed."
The Brewer's Association has not heard of consistent or widespread issues just yet, but where those challenges occur will likely depend on the brewery, its location, and its region. For instance, his team has been hearing some disruptions in west coast breweries receiving CO2.
"Often it’s related to transporting trucking," Watson explained. "Getting the truckers to move the CO2 around. We’re hearing lots of these stories."
He said he has yet to hear of any widespread shipping issues in Florida specifically.
"It is hard to predict. If you can predict it, you can plan for it," Watson said. "That’s been one of the more challenging parts of these supply chain disruptions is that they kind of seem to come out of nowhere because there is a cascading set of events that the next thing you know you’re out of an item that you expected to have."
Brewers said these challenges will likely continue into 2023.
Reason #3: Climate change
Watson went on to explain that climate change has had a negative effect on malt and barley growth.
"The malt and barley crops in 2021 were not very good in either the U.S. or Canada, so that might mean increased prices and decreased quality," he said. "They’re going to have to communicate to the brewhouse. Breweries have to have yeast to deal with barley that has higher protein. It will just mean more work or challenges for them."
According to NPR, barley is described as an "unforgiving crop."
"[It] needs a precise recipe of water and sunshine to thrive — too much of either will cause it to wither and die. And amid a changing climate and unpredictable seasons, that's exactly what's happening," according to a 2018 report.
During a flash drought, Montana barley farmers reported the field dried up two months earlier than usual in 2017.
According to a study out of the University of East Anglia in England, ‘increasingly widespread and severe drought and heat may cause substantial decreases in barley yields worldwide, affecting the supply used to make beer, and ultimately resulting in "dramatic" falls in beer consumption and rises in beer prices.’
While this study was made public in 2018, the effects of climate change on barley farming aren't felt overnight. The study involved researchers from around the world, including in the U.S. They identified extreme climate events and created models that could show the impacts on barley in 35 world regions. Then, they took a look at the effects of the barley supply shock on the supply and price of beer within each of those regions under a range of climate scenarios in the future.
The report says in part:
During the most severe climate events, the results indicate that global beer consumption would decline by 16%, or 29 billion litres - roughly equal to the total annual beer consumption in the US - and that beer prices would on average double. Even in less severe extreme events, beer consumption drops by 4% and prices rise by 15%.
The findings…suggest that total beer consumption decreases most under climate change in the countries that consumed the most beer by volume in recent years.
You can read more about the report here.
Pandemic impact on Florida craft beer
Before March 17, 2020, Florida's craft beer lovers ventured outside their home, stopped at their local brewery, and enjoyed a cold pint. Months later, Gov. Ron DeSantis allowed on-site consumption to resume, which occurred much sooner than other states. Even though the pandemic may have interrupted that routine, the market overall appeared to have weathered the storm.
In 2020, nationwide, craft breweries saw a 9% decline in craft beer volume sales, as well as production, which is the first drop the Brewer's Association has seen since it began tracking statistics in the 1980s. Watson said there are three factors that caused the decrease across the country. While one is obviously the pandemic, the other two are longer-term trends and maturation of the market.
It's one reason why Florida felt less of an impact among its craft breweries compared to other states and markets with much higher brewery-per-capita numbers. In 2020, Florida had 2.2 breweries per capita. In 2019, the BA found that 47 breweries opened in Florida, and nine closed. In 2020, 40 breweries opened and eight closed.
By comparison, Oregon has 9.6 breweries per capita. The West Coast state saw 23 breweries open in 2019 and 16 breweries close. In 2020, 13 opened and 14 closed.
Another state with a high number of breweries per capita is Washington. In 2019, 34 breweries opened and 24 closed. Whereas in 2020, 29 opened and 17 closed.
"We’re starting to see a slowdown in openings. For example, between 2018 and 2019, openings were down by about 15%," Watson previously told FOX 13. "So, a chunk of it is COVID and certainly breweries either delayed or chose not to open, but a chunk of it is that in a more mature market, you’re going to see fewer openings."
However, slightly less than 4% of U.S. craft breweries closed in 2020, which is a much lower closing rate when compared to other hospitality industries, Watson said. Part of that is breweries' quick capability to sell to-go beers, which isn't as feasible as other small hospitality businesses.
"Despite disruptions like weather, labor shortages, manufacturing delays, and more, craft brewers overcame obstacles and proved resilient," according to a BA statement. "Many breweries were nimble and pivoted to packaging their product to bring in much-needed income when their primary sales channels—tasting rooms, brewpubs, bars, and restaurants—disappeared during the pandemic."
According to BA, more than 9,000 craft breweries were operating in the U.S. in 2021 – which is a 6% increase from 2020. In Florida alone, that's a slightly lower percentage, but that will likely change once the state government completes its brewery report for 2021.
The preliminary figures show there were 23 brewery openings in Florida last year with six total closings, reports Watson. A state-by-state breakdown on brewery growth in 2021 will be released by the Brewer's Association before summer.
What is known now though, is there has been a positive trend in the Florida craft brewery industry, and across the country.
In 2020, craft breweries contributed $62.1 billion to the U.S. economy. It also provided more than 400,000 jobs during a time when the pandemic forced businesses to temporarily close their doors. Florida ranked fifth as one of the top contributors to the U.S. economy – based on craft beer alone. The Sunshine State provided $3.1 billion.
"I’ll be honest when the pandemic hit I thought a lot of breweries were going to go out of business and we really haven’t seen that," Watson said. "You know, the combination of some of those factors…the ability for breweries to pivot, to sell their beer in different ways, the recovery in the market, which in terms of restaurant sales have been fairly rapid. Then, government support has been a recipe for breweries staying in business. It doesn’t mean they are healthy."
"We’re starting to see small signs that some things may be easing," he added, "but we’ve seen huge shifts in the U.S. economy in the last couple of years and in the workforce that’s just going to take time to unwind. Ports may be starting some signs of easing but they are still at historic levels of days to unload. This is not a problem that’s going to disappear or go away overnight. It’s going to continue to be a challenge in 2022 for a lot of breweries."