Big brewers walk the 'organic' line

Although the organic beer market represents less than 1 percent of the overall U.S. beer market, according to the U.S. Organic Trade Association organic beer sales more than doubled between 2003 and 2005, reaching $19 million, and is now level with organic coffee as the fastest-growing organic beverage market in the country.

In addition to the increasing number of regional organic microbrews, beer refrigerators in stores all over the country are being stocked with a new batch of organic brews from traditional, mainstream brewers such as Anheuser-Busch (NYSE: BUD), Molson Coors Brewing Co. (NYSE: TAP), and SABMiller. Not that consumers are likely to see these names on labels or marketing materials associated with organic brews. Much like microbrew brands such as Blue Moon and Sunset Wheat, which are quietly owned by Molson Coors and Miller, respectively, Green Valley Brewing Co. produces organic Wild Hop Lager and Stone Mill Pale Ale for its parent company, Anheuser-Busch.

Hood River, Ore., brewer Full Sail, which has been in the organic brewing business for 20 years, signed its first-ever co-packing contract for an organic beer in February 2007. The brewery is now producing 30,000 barrels a year of organic ale bottled for Miller as Henry Weinhard’s Organic Amber Premium Ale.

Hops, a key ingredient that provides beers’ distinct flavors, could be a stumbling block for the expanding market. Across the country, U.S. hop acreage has declined since the late 1990s, bringing prices to an average of $2.06 per pound, up from $1.60 in 1997. A 2001 acreage-reduction program aimed to bring production in line with demand, but increased demand in recent years has led to a shortage over the past two years.

Demand for organic hops in particular has exceeded supply. U.S. growers still reeling from overproduction in the 1990s haven’t converted to organic production, so most of the organic hops used today come from New Zealand. Import pricing and supply shortages have prompted brewers such as Anheuser-Busch to advocate adding hops to the the U.S. Department of Agriculture’s (USDA) National Organic Program list of non-organic ingredients allowed in certified organic goods.

Despite consumer-group complaints, USDA has so far supported large-scale brewer’s efforts to label organic hops as not commercially available and has included hops on the controversial list. Both organic and conventional brewers are awaiting the final ruling from USDA. If the inclusion is upheld, beer could continue to be labeled as organic without using any organic hops—which could crowd the beer aisle with many more organic brews in 2008.