There’s beer, and then there’s Vermont beer

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There’s beer, and then there’s Vermont beer

Sun, 07/15/2018 - 3:09pm -- tim

Andrew Peterson of Peterson Quality Malt, is in the process of buying Nordic Farms in Charlotte, for raising malting barley. He says there are now 250 acres of the farm planted in barley. CB Hall photo.

by CB Hall (This article first appeared in the July issue of Vermont Business Magazine) How much can malted grain, hops, water and a bit of yeast do for a little state's economy? Vermont's breweries numbered 58 at press time, by VBM's count, and the growth in Green Mountain State brewing continues at its almost frantic pace. It makes one wonder if beer has supplanted maple syrup as the state's trademark liquid, but it also makes one ask: How long can the boom keep booming?

Bart Watson, chief economist at the Colorado-based Brewers Association, described the Vermont beer phenomenon as "something that isn't going to go away. We may see a slowdown, but that's going to mean a leveling-off, rather than the number of breweries declining."

While there are 58 breweries in the state, he noted that there are 84 active federal brewer's permits in Vermont – that is, permits that allow for commercial operations.

"Some of them may never open," he said, "but it certainly suggests that there are still brewers looking to open in the state. New breweries are coming in and finding new niches."

"Until there is a tap room in every community, there still is room for growth," said Melissa Corbin, executive director of the Vermont Brewers Association (VBA).

Not everyone shares the optimism, however.

"I'd be surprised if it kept growing the way it has been," University of Vermont economist Art Woolf commented. "Nationally I've read articles that's there's a shake-out, that the micro-brew sector is getting saturated."

In Vermont, he said, "We could see an increase in the number of breweries, but that would come at the expense of the existing ones. Our sales probably won't increase that much."

"The question is the marketing aspect of the Vermont niche being developed."

"I'm not sure why we are predicting constriction for a growth industry in Vermont, particularly one that is fueled by tourism," Department of Tourism and Marketing commissioner Wendy Knight responded in an email statement.

Droves of beer-lovers, she continued, "come to Vermont each year to sample and buy Vermont’s exceptional craft beer. We don’t see that number waning. The quality, limited production and distribution models of many Vermont breweries…means that people must make the trip to Vermont to drink the world’s best beer."

"These visitors may make new discoveries and return again, often to visit new breweries that have opened up in other, often smaller towns," she wrote. "Many Vermont craft breweries are family-run operations that provide a good way of living for these small business owners. Their growth is not solely dependent on their ability to market their products out of state."

According to Watson, Vermont beer-making operations only employ "a bit over 1,000 directly," but account for 3,120 jobs, expressed as full-time equivalents, when all indirect impacts of brewing are included. He put the total economic impact at $378.2 million, a figure that hasn't changed much in the last few years.

"Although the number of breweries has grown a lot, state production hasn’t changed that much," he said.

A study conducted for VBA by Williamstown consultants Kavet, Rockler and Associates in 2015 found that 72% of all visits to Vermont breweries were by people from out of state. Total beer tourism has been estimated at between 1.4 and nearly 2 million visits annually.

The 58 breweries represent one establishment for every 10,500 or so residents, the highest density of any state.

According to Watson's association, in 2017 Vermont's brewers produced almost 24 gallons of suds for every resident over the age of 21. Measured on the same basis nationally, the figure is about 22 gallons. Watson considered it "very unusual" for a state without a large-scale brewery to be "anywhere near the national average, let alone exceed it."

Structurally, the Vermont brewing industry bears only limited similarity to the mass-market beer business.

The VBA study noted that, "Vermont brewing firms are vastly smaller than their larger US mass-brewing counterparts and have lower output per worker owing to the higher labor intensity and much smaller plant size... For Vermont, labor as a percent of total output is 19 percent. By way of comparison, for the US, the corresponding percentage is approximately 8 percent."

But while the labor costs, relatively speaking, are large, other costs, notably including packaging and transportation, aren't: Vermont brewers aren't dispatching fleets of trucks to deliver 24-packs from sea to shining sea – not yet, at least.

The emphasis is local, bringing to mind the English tradition of pubs that offer beers produced on the premises. But can that model work long-term? Will continued growth in Vermont's beer-making, and the popularity of the state's brand, mean that substantially more Green Mountain State brew will be heading out of state for consumption, much as maple syrup is, with the word Vermont prominently displayed?

Steve Parkes, co-owner of Middlebury's Drop-In Brewing, and a Brit by birth, found the English-pub analogy apt, but saw limits.

"It's getting very crowded on-premises," he said, referring to beer consumption in brewpubs, bars and restaurants, and more generally to the local orientation. "There's a finite number of taps and draft beer lines" that a tavern can accommodate.

Breweries, he continued, "need to package their product to get out of the on-premises market ... or they have to develop a tasting room to sell more of their merchandise. That's where a lot of breweries are looking to increase business."

Steve Parkes, co-owner of Middlebury's Drop-In Brewing. CB Hall photo.

And then there's the world beyond Vermont: Parkes rattled off the names of nine Vermont breweries that are already shipping their products beyond the state's borders.

"It would make sense, as breweries grow, that they would move beyond their home market."

Watson expressed optimism on the same point, describing Vermont brewers' out-of-state shipments as "an activity they're succeeding in. That said, that is a trend we're not seeing so much nationally. For a lot of breweries across the US, it's becoming more difficult to send your beer away from home."

He termed that contrast in trends "a testament to those individual [Vermont] brewers' brands as well as the overall brand of Vermont beer."

Indicating the nature of the state's brand, Watson's association considers all but one of the state's breweries craft breweries, which the organization defines as small, independent establishments whose beers are derived "from traditional or innovative brewing ingredients." (The exception is Magic Hat, whose owner, a Costa Rican company, exceeds the size criterion.)

Thus, from the marketing standpoint, Vermont beer does exhibit many similarities to Vermont maple syrup or cheese. But that doesn't mean a free ride to business glory.

The state's brewers are reaching a certain limit, and whether that limit is a wall or merely a threshold is a question that elicits a range of responses, from Watson's optimism to Woolf's show-me skepticism.

"You find micro-breweries all over the US," the latter commented on the possibility of expanded sales out of state. "If one of the cachets in micro-brewing is buying a local product," he said, "why would someone in Michigan ... be interested in buying a Vermont beer? Given the number of micro-breweries nationally, it's very difficult to get shelf space anywhere, and it's very difficult to transport beer."

"I think Vermont may have a little bit of a niche, kind of a name brand for beer – I would say it's quirky – and I think to the extent that Vermont breweries can export their beers out of state, that would be a very niche market. I don't think they can count on it for much sales growth.”

The growth of Vermont brewing can be seen in terms of the vertical integration it has spawned in the state.

That includes the growing of beer's most characteristic ingredient, hops. Having been rebuffed by neighbors concerned about its plans to grow the distinctive catkin-producing vine in Charlotte, Champlain Valley Hops has begun cultivating 20 acres in Starksboro "to bring high quality, locally grown hops to the Vermont craft beer industry," in the words of farm manager Julian Post, as quoted in a recent Shelburne News article.

Nordic Farm in Charlotte. VBM photos.

"I think that's the scale that hops need to be grown at, to try to make a business out of it," said UVM agronomist Heather Darby, who has grown the crop at the University Extension Service's research facility in Alburgh.

She put current Vermont hops cultivation at about 40 acres, which she described as representing "a pretty small dent" in the hops needs of Vermont breweries as a whole.

She estimated that the 20 acres in Starksboro, for example, could produce enough hops for about 400,000 gallons of beer; Vermont breweries produce roughly 11 million gallons annually.

Champlain Valley Hops did not return calls seeking comment.

Asked if she would recommend hops-growing as an alternative for Vermont farmers, she said, "With many asterisks." She pointed especially to an upfront cost of $12,000-$15,000 an acre just to get a crop going.

"Growing malting grains is probably a larger area of expansion than hops for farmers in Vermont, especially as we have land coming out of dairy production," she said.

"It would be great to have Vermont brewers playing a significant role in the agricultural landscape."

Andrew Peterson, founder and owner of Monkton's Peterson Quality Malt, agreed.

"As more and more dairy farms close down, the farmers are still looking to continue their farms, and giving them the option of producing a higher-profit grain is really interesting to them," he said.

He estimated that 99 percent of the malted grain – overwhelmingly barley – that is used in Vermont comes from Saskatchewan, Idaho or elsewhere out of state.

But his start-up, now in its fourth year, is producing malts from grain grown in Vermont. His product costs 30 to 100 percent more than malts out of state, but for some Vermont brewers, the local origin of the grain, be it barley or wheat or anything else, is a big selling point. Once again, it's a matter of the Vermont brand.

"We want Vermont brewers to be able to use Vermont ingredients," he described his business's concept. By way of example he mentioned the Gingue family farm in Waterford, which began growing barley - 50 acres of it - this spring. The farm had been a dairy until 2015, more recently raising heifers in addition to growing corn. Reached by phone, Shawn Gingue explained that the decision to grow barley came after he'd been unable to find buyers for his silage corn.

"It was time to look into another market – a kind of niche market, something more sustainable," he said. "It might be a good option for other farms. Dairy's not doing too well right now."

Peterson himself is jumping into grain production, too, having signed a contract to purchase Charlotte's Nordic Farms, a dairy whose operator filed for Chapter 7 bankruptcy in 2017. As of press time, the sale had not closed, but Peterson had planted 250 acres of barley on the 570-acre property, with confidence that the deal would go forward.

"We're looking to move the malt house [to Nordic] and significantly expand," he said. "At this point we can't get any bigger here [in Monkton]. We're producing as much of the malt as we can in this facility. The demand is certainly there."

Darby estimated that, with Peterson's Charlotte facility operating at capacity, "he'll be looking at [malting grain from] upwards of 3,000 acres, which presents an opportunity for diversification of production on some of our farms."

Hops grown in Middlebury. CB Hall photo.

At the other end of the process, the integration again ties the brewers to the state's farmers, with whom the spent grains used in making the beer wind up.

"Every single one of our breweries has a relationship with a farmer, and it goes to feed for their livestock," VBA's Corbin said.

Aside from the integration of the beer business, the sector also nests naturally with tourism. The predominance of out-of-state visitors at the state's breweries is a point not lost, for example, on City Brew Tours, launched in 2008 in Burlington. Now based in Boston, the company continues to include Burlington-area itineraries among its tours. Indeed, the we-drive, you-drink excursions run twice a day, seven days a week, calling at a changing array of destinations.

Burlington is by far the smallest of the seven cities where the company operates.

Chief operating officer Barry Hansen rattled off five breweries as the tour's "go-to destinations, where we have fantastic contacts behind the scenes and can provide a real VIP experience," in addition to the libations themselves.

A good idea breeds new business, and beer is no exception.

For Vermont brewers, it seems that a fresh taste sensation is always waiting to be tried and is usually likely to get a positive response from the beer-loving legions. The sector brims with new ideas and originality, reflected even in the often-bizarre nomenclature of the products: Little Umbrellas, Chill Session, Heady Topper, Knockout Blonde – the list is long.

New ideas in beer take center stage at the VBA's annual Vermont Brewers Festival, whose 26th iteration will attract aficionados to Burlington's Waterfront Park July 20-21. The brewers themselves stage the event, proceeds from which fund the VBA.

"Specifically new beers are made and created by the brewers for the festival," Corbin said. "This is where they showcase their creativity."

While there may be course corrections in the form of where and how the beer gets sold, broad horizons thus continue to beckon Vermont's beer-makers and associated entrepreneurs.

The VBA study provided evidence: It put total new plant and equipment investment at nearly $10 million in 2014. The figure represented between 7 and 8 percent of total direct economic output – which, in the study's words, "places Vermont's brewers well ahead of the general investment rate of United States manufacturing industries."

Only the nation's electronics sector had an investment rate close to the Vermont brewing sector, the study noted, adding that the rate "portends high growth in the short-run."

In the words of VBA's Corbin, "We're all just trying to ride this wave right now."

But how far that wave will buoy the beer entrepreneurs remains as speculative as any prognosticating. Woolf used the analogy of wine from California's Napa Valley to illustrate the constraints he saw.

"There's only a certain number of people who would look at a wine list in a restaurant and know that that something's special," he said. "Right now I don't think that Vermont beer and Napa wine are in the same class."

But, he added, "Maybe I'm wrong."

CB Hall is a freelance writer from Southern Vermont.