Is This Anheuser-Busch InBev's Next Attempt to Control the Craft Beer Market?

By Rich Duprey Markets Fool.com

Has Anheuser-Busch InBev (NYSE: BUD) finally revealed itself as a monopolistic brewer trying to crush craft brew upstarts?Like an updated version of the Hunt brothers hoarding the world's silver, the mega brewer is accused of cornering the market on South African hops and using its dominance to squeeze the life out of craft breweries.

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After its acquisition of SABMiller, Anheuser-Busch also gained control of all the country's hop farms and breeders. And now that it owns them it is refusing to sell the essential beer ingredient to distributors who supply U.S. craft breweries. Instead, A-B will be using the hops for its own beer, threatening to put at least one distributor out of business and cutting off access to the latest taste in brewing.

Image source: Getty Images.

Brewing up trouble

At first blush it appears the beer giant is embodying the very traits that Boston Beer (NYSE: SAM) founder and chairman Jim Koch complained about. In a New York Times op-ed and later at an industry event, the craft brewercalled for regulators to rein in Anheuser-Busch because it was limiting consumer choice by buying up craft breweries. Rather than drinkers choosing their beers, the industry giant chooses it for them.

Draft magazine recently reported ZA Hops, which is one of a very limited number of distributors (read, two or three) that imports South African hops, was told by SAB Hop Farms that the popular hops he had been buying, such as Southern Passion, African Queen, Southern Star, and Southern Aroma, were no longer available. Apparently some 20 metric tons of hops that were scheduled for export to the U.S. were instead being rerouted to Anheuser-Busch for its own use.

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As a result, ZA Hops is teetering on the edge of ruin. Owner Greg Crum told Draft, "It's done. I still have some stock from 2016, but after that I'm out of business."

Many craft breweries are angry. In posts across social media, brewers like Modern Times Beer, Proclamation Ale, and others said the maneuver by Anheuser-Busch shows what happens when mega brewers are allowed to acquire craft brewers without restriction. Because it is directing the popular hops to the dozen or so high end portfolio of beers that it purchased over the past few years, including Wicked Weed just a few weeks ago, it is able to give itself a competitive advantage.

Image source: Getty Images.

Much ado about nothing?

Although it's true the distributors and brewers are being cut off from the hops they were counting on, Anheuser-Busch says the reasoning behind it is far less nefarious than world domination of craft beer. The crisis many in the craft beer industry are suggesting exists is a bit overblown.

According to the brewer's statement to Draft, South African hops suffered from low yields this year, and while it has sold surplus hops to distributors in prior years, the poor harvest means there isn't enough to go around this time. South Africa accounts for less than 1% of the world's total supply of hops and A-B's local Castle Lager and Castle Lite brands use more than 90% of the available supply.

Moreover, because of antitrust concerns in South Africa during the merger with Miller, not only did Anheuser-Busch have to agree to invest over five years some 1 billion rand (about $68 million) in South African barley, hops, and maize production, but it also had to ensure local craft brewers continued to have access to raw ingredients necessary for brewing. A-B was required to continue supplying South African craft brewers with those inputs, meaning they're a higher priority than the export market.

Anheuser-Busch's statement underscores that fact, noting, "This means that less than five percent can be allocated to other Anheuser-Busch InBev breweries outside of South Africa." Even so, it also said that, crop yields permitting, it is hoping to be able to resume their export next year.

Image source: Getty Images.

Molehill out of a mountain

And the amount of hops that are at stake is pretty minuscule. Although 20 metric tons sounds like a lot, it's equivalent to around 44,000 pounds (a metric ton equals 2,204.6 pounds). To put it in perspective, the Hop Growers of America trade group said earlier this year that U.S. hops farmers produced just under 89 million pounds of hops last year, or more than 40,000 metric tons.

It should also be noted the desirable South African hops are simply the latest fad in brewing, so it's hard to blame Anheuser-Busch for wanting to reserve the hops for its own use. Besides, next week another taste profile is likely to be in vogue.

Undoubtedly for breweries that had been crafting recipes based upon the South African hops, having to rework them for something else is both an annoyance and a disappointment. But the apocalypse we're being warned about from Anheuser-Busch's acquisition of Miller seems a bit overblown and looks as though it is still some ways off.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Boston Beer. The Motley Fool has a disclosure policy.