AN ECONOMIC ASSESSMENT OF HOPS Executive Summary U.S. growers harvested more than 42,000 acres of hops in 1994 and produced a crop of nearly 75 million pounds, about 28 percent of world output. The farm value of U.S. production was $135 million. Acreage and production increased 50 percent between 1985 and 1994. The Census of Agriculture reports 133 farms with 40,549 acres of hops in 1992. Hop production is concentrated in the Yakima Valley of eastern Washington, the Willamette Valley of Oregon, and in two areas of Idaho, Canyon County in southwestern Idaho and Boundary County in northern Idaho. The latter region has just one large grower. The average hop acreage per farm exceeds 300 acres. The majority of farms are family owned and operated, although at least one brewery and one large dealer have hop-growing operations. Because of economies of size in hop picking and processing (drying), hop farms tend to be large operations or to be associated with a large operation. Sometimes, several family members have separate hop farming operations, but use a common picking and processing facility. Hops are used in the manufacture of beer and other fermented malt beverages, such as ale, stout, and porter, where they contribute the bitter taste and other distinctive flavors. Although hops have potential pharmaceutical uses, they have been replaced by penicillium and synthetic compounds. The commercial hop plant produces climbing annual stems (or vines) from a perennial crown and rootstock. The vines grow rapidly, reaching 20 to 25 feet in a single season. Although the plant dies back to the crown at maturity, the live vines are cut away from the roots at harvest-time in commercial production. Mature hop cones are 1 to 4 inches long. They are oblong, yellowish-green in color, and papery to the touch. The bracteoles and seeds bear numerous yellowish, glandular bodies called lupulin. The lupulin contain the resins and essential oils that provide flavoring for beer and other malt beverages. The mature cones, after drying, constitute the hops used commercially. Two bittering compounds have been isolated from the lupulin, identified as alpha acid and beta acid. The alpha acid is the more important of the two components, providing greater bittering effect than does the beta acid. In addition to the bittering effect, hops contain a number of essential oils that impart the unique non-bitter flavor and aroma to beer. Some varieties, known as aroma hops, are grown primarily for their aroma properties, while others (alpha hops) are grown mainly for their bittering effect. A total of 42,412 acres were harvested in 1994, split roughly 60:40 between bitter and aroma hops. There has been a swing toward production of aroma hops in the last decade: in 1985, the ratio between bitter and aroma hop acreage stood at 75:25. The United States is the world's largest producer of beer, and as such, it is the most significant user of hops. Although average hopping rates (pounds of hops per 31-gallon barrel of beer) vary from country to country, the U.S. rate averages about 0.2. The U.S. rate has decline over the past 10 years due to the increased use of high alpha hops. The season average price received by growers for hops, as reported by USDA, is relatively constant from year to year, ranging between about $1.40 and $2.10 a pound for the 1980-94 seasons. This relative stability in season average prices masks extreme variability in the cash (spot) market. Because a very high percentage of hops are contracted, with some contracted up to five years in advance of harvest, as little as 2-5 percent of output is marketed as spot hops. Hops are sold to dealers (also called merchants), who represent multinational firms that also operate hop extract or processing plants in the U.S. and abroad. Historically, growers and merchants were separately owned and managed, although in recent years, some merchants have purchased hop farms. The larger U.S. dealers also handle the bulk of hop imports. Of the seven dealers, six are owned by European firms. Trellis collapse is one of the most frequently-cited production perils. A collapse occurs when one or more of the poles snap or break, causing the wires to sag and permitting the vines to slump to the ground. The danger of collapse increases after about August 1, when the mature vines place the greatest weight on the trellis. Heavy dew or rain adds to vine weight, further increasing stress on the trellis. Excessive moisture is a hazard to hop production because it increases the incidence of mildew. Rain-related mildew is a more serious concern in Oregon than in either Washington or Idaho. Oregon's hops are grown in the Willamette Valley west of the Cascade Mountain range, and experience rainy periods more frequently than the areas east of the Cascades, including the Yakima Valley and southwestern Idaho. The incidence of mildew infections increase rapidly during wet weather. As a practical matter, drought is not a production peril because all U.S. hop production is irrigated. Hops have a high water requirement, however, and a lack of sufficient irrigation water would result in low yields. It is our assessment that there will not be significant demand for Federal crop insurance for hops in most areas, particularly for coverage beyond the minimum catastrophic coverage level. Several private companies already offer coverage tailored to the crop's needs, and unless growers could buy equivalent or superior coverage at a lower cost, they are likely to retain their private insurance coverage. Growers in Oregon, however, specifically indicated that they would like for hops to be a Federally-insured crop so they could qualify for catastrophic coverage. They feel that they would never have area losses large enough to trigger payments under the Non-insured Assistance Program, but that individual growers might incur losses large enough to collect under catastrophic coverage.