February 5, 2020

Hero Hops

It could be that hops are to find a second home in New Zealand. Currently the only commercial production of hops is in the Nelson region, where the latitude ensures warm summers, regular rainfall and a relative lack of wind required to grow them. These favourable conditions are revered by other food crops too, increasing competition for space and resources.  Trials are underway to grow the plant in various new locations, a process that may take time, but could be the golden ticket to meeting the seemingly insatiable demand for New Zealand hops.

The hops industry players are predominantly family businesses that come together in a 28-strong co-operative, who have spent decades investing and innovating in the crop. Not so long ago growers were replanting up to 40% of their plants annually due to black rot disease, but following a successful research and development programme there are now varietals that not only stay in the ground for 15-20 years, but have a flavour profile that sets them aside from international hops. This intentional move to give NZ hops a ‘point of difference’ has paid dividends as its demand has moved hops out of the commodity market and into ‘picking at a premium’. As NZ often does, it competes in value and quality, rather than volume.  The process whereby brewers select the hops through a process of sensory evaluation and scoring is now an important ritual. 

It may only be anecdotal evidence, but the local New World now stocks 250 craft beers. Of course, not limited to New World shoppers, the demand for this specialty beer is global and fierce. This preference in beer consumption alone increases the demand for hops; a craft beer uses 4x the amount of hops than that of traditional beers.  In the USA there were 44 craft breweries in 1979, fast forward to 2018 to a whopping 7,300, with 26m barrels of beer produced. The US grow 40% of the global supply of hops and have recently been advised by industry leaders to resist adding more acreage after unprecedented expansion in recent years. But for New Zealand hops there is no such warning. New Zealand supplies just 1% of world hops despite the rapid expansion this decade. The co-operative supply 40 countries with the lion’s share going to the USA. The brewers, it seems, can’t get enough of the unique flavours of the ‘Nelson Sauvin’ and other PVR hero hops. 

MyFarm, one of a few corporate entities in the industry have recently fund-raised for a second plantation in Nelson. Even before the plants are in the ground the future hops are allocated to hungry US brewers and a waiting list exists for those not so lucky. These US breweries, far from the perception of being small and boutique, can produce over 1 million barrels a year. A single brewery would happily purchase the entire garden’s crop!

As ‘easily’ as this spray-free perennial crop rises 5m high, year after year, there are substantial infrastructure costs. Land preparation includes drainage, irrigation and track laying, plus the poles and wires that support the plant in its growth. MyFarm’s first hop garden in Tapawera used 185km of wire and 35,000 poles to prepare the 115 hectares of converted dairy land. Once harvested the plants go through processing, drying and conditioning equipment that results in the baling of the hops. For the MyFarm gardens their management arm, Hops Revolution, send the bales directly to the USA for pelleting and purchase, whereas the cooperatives have a processing plant in Richmond. 

The race is on to find an additional growing region to satiate the demand for our hops. This R&D is of course in conjunction with the development of more hero hops. Having that point of difference is the most important thing - it’s NZ inc.

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Financial investment involves risk of loss - please seek professional advice before making any investment decisions.  The views and opinions expressed in this blog are those of the authors. The information we present is of a general nature and should be used as a place to start your own research. It is not intended as investment or financial advice.

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Ross Verry

Ross Verry is CEO of Syndex and a shareholder. The views expressed above are purely his own. Please assess and research all your investment.

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