OREANDA-NEWS. The demand for hops is at record levels. However, due to the poor harvesting seasons in the US and Europe in the summer of 2015, the beer industry has started to observe an increasing shortage of supply. A 40% decline in the global crop harvest has driven prices up and added to the tightness of what is already an oversubscribed market. Moreover, the increasing popularity of craft beers, which require around six times more hops than conventional lager has only exacerbated the problem. At the same time, in its latest report ‘A revolution is brewing’, Rabobank warns that alongside the shortage of hops, the scarcity of malting barley supply is another long term challenge that brewers, and in particular the craft beer brewers, should be prepared to face as the beer industry continues to grow.

“There are three main reasons why we’d expect malting barley to be in scarce supply in the next few years; the current tightness in the market and the projected 14% rise in demand, the perception of malting barley as a risky crop for farmers, and the request for different types of barley due to the increasing popularity of craft beers,” explained Rabobank Grains and Oilseeds Analyst Ciska van den Berg.

“Currently the production of and demand for barley are almost equal, meaning that there is no room for crop failure. Many farmers regard malting barley as a risky crop and one with highly volatile premiums, which inevitably means that they will only grow if the premiums are high enough”.

Malting barley needs are expected to grow by 14% in the next five years also requiring investment in the malt industry. The main drivers for this increase are the growing global population, the premiumisation of the beer market in emerging markets, according to Rabobank’s findings. A smaller proportion of the increase is due to the growth of craft beers, which require 4 to 7 times more malt than ordinary beers.

The seemingly unstoppable growth of the craft brewing sector, and competition for good quality hops has also had an impact. Craft brewers increasingly look for malt with distinctive flavours and aromas in order to distinguish their products in a competetitive market. As a result the industry demand for malting barley has become increasingly fragmented, creating additional pressure on supply.

To cope with demand growth, investments on a global scale are needed in order to increase malting capacity, and thereby avoid any potential shortage in the malt supply.