REPORT FROM THE COMMISSION TO THE COUNCIL on the production and marketing of hops (1997 harvest)

CONTENTS

1. INTRODUCTION

2. 1997 HARVEST

2.1 World situation

2.1.1 Production

2.1.2 Market trend

2.2 Community situation

2.2.1 Production structure

2.2.2 Production

2.2.3 Sales and prices

2.2.4 Returns

3. THE COMMON ORGANISATION OF THE MARKET IN HOPS

4. SPECIAL TEMPORARY MEASURES FOR HOPS

1. INTRODUCTION

Article 11 of Regulation (EEC) No 1696/71 requires the Commission to present to the Council an annual report on the production and marketing of hops. The purpose of this report is to provide information on trends in production, prices and demand.

This report, the 27th such report presented by the Commission, outlines the main events of the 1997 harvest year, focusing on the salient facts.

2. 1997 HARVEST

2.1 World situation

2.1.1 Production

World-wide, the total area under hops was approximately 78 000 ha, of which almost 63 000 ha belonged to members of the International Hop Growers Convention (IHGC) and Member States of the Community (see Table 1). Production in China was also substantial, but can only be roughly estimated, as no precise figures are available.

The area under hops in IHGC and EC countries decreased on average by 9.14%. The decrease was most marked in the Ukraine (-46%), Russia (-39%), the Czech Republic (-25%), Bulgaria (-24%) and the Slovak Republic (-20%). France (+9%) and Australia (+ 3.5%) were among the few countries in which there was an increase.

At around 2 400 000 Ztr (1), the 1997 world harvest was lower than that in 1996 (-5.86%). Quality was a little better, with an alpha acid content of 7.75%; total alpha acid production fell (-395 t) to 9 300 tonnes.

(1) 1 ztr = 50 kg.

While the quantities produced in 1997 were close to the average of the last twenty years, the overall yield and the yield in alpha acid showed a marked increase.

Although beer production in Europe has fallen year after year since 1990, this is not so elsewhere, especially in Asia and particularly in China, which at present ranks as the world's second-largest beer producer after the United States.

World-wide, beer production is estimated at 1 300 million hectolitres for 1998. For the hopping of 5.8 g/alpha/hl beer, breweries require around 6.4 g/hl, the difference being accounted for by losses in storage and at the hop processing stage. Therefore 8 320 tonnes of alpha acid are needed for this volume of beer and the quantity produced during the 1997 harvest will therefore exceed requirements (by 980 tonnes). It should be added that less alpha is needed than previously as a result of a trend towards manufacturing less bitter beers, on the one hand, and of constant technological progress, on the other.

World-wide there is overproduction of hops in relation to the needs of the breweries. For this reason the member states of the IHGC have proposed that 30% of the area under hops in 1996, i.e. 18 000 ha, should be grubbed. 6 300 ha (10%) were grubbed in 1997. According to the forecasts, a further reduction of around 6 000 ha can be expected in 1998 in the members of the IHGC.

2.1.2 Market trend

Prices for German hops were down on the previous harvest, particularly on the free market where prices were significantly down on the average for the last twenty years. Average American prices also fell (USD 1.58/pound (453.59g), i.e. USD 174.17/Ztr, or ECU 156.88/Ztr), but with the yield being higher than in Europe (1.94 tonnes/ha as against 1.41 tonnes/ha), the average return per hectare was also higher (USD 6 775.64/ha, i.e. ECU 6 103/ha, as against ECU 5 528/ha in the Community).

Contracts signed in advance, which show a long-term downward trend in terms of quantity, duration and price, have proved after all to be a good system for ensuring income security because prices are fixed in advance for a number of years for certain varieties and quantities, while contract prices tend to be higher than spot prices (see Tables 2 and 5).

A point some members of the IHGC are particularly concerned about is the price-fixing procedure for aromatic varieties based on kilos of alpha rather than on the aroma itself.

2.2 Community situation

2.2.1 Production structure

As in agriculture as a whole, structural change in hop-growing has continued. There are now 4 123 farms growing hops in the Community (see Table A), a 10.68% fall over 1996. At the same time the average area under hops rose from 5.9 ha to 6.5 ha per farm. Almost 500 farms stopped growing hops in the Community.

2.2.2 Production

The area under hops in the Community was 26 786 ha in 1997, i.e. 545 ha (2%) down on 1996 (see Tables 1 and 6), most of it (21 381 ha, or 80%) in Germany and there too areas were 432 ha, or 1.98%, down on 1996.

At present, aromatic varieties account for 60.42% of the area, with Perle the most popular (25% of the aromatic area). Of the aromatic varieties for which there were large increases in area, the most significant are Hallertauer Tradition (+ 375 ha) and Perle (+96 ha). Bitter varieties accounted for 37.27% and other varieties for 2.31%.

The share of bitter varieties was slightly down in 1997 to the benefit of the other varieties. Of the bitter varieties, Hallertauer Magnum was the most popular (3 026 ha), followed by Northern Brewer (2 983 ha, which represents a fall on 1996 of 643 ha). Next in popularity were Nugget (1 329 ha), Target (1 137 ha) and Brewer's Gold (516 ha). The area under the latter two varieties also fell, by 250 ha and 323 ha respectively. For the bitter varieties the general trend is towards increased production of the super-alpha varieties, which are more in demand on the markets, such as Hallertauer Magnum and Nugget. The area under Nugget rose by 9.92% on 1996 and the area under Magnum by about 25%.

Quantitatively the 1997 harvest was significantly lower than the 1996 harvest (-11.48%). At 837 464 Ztr, average yield was 1.56 tonnes or 31 Ztr per hectare.

Quality was good and alpha acid content was around 8.75% on average for the Community as a whole for the three types of varieties, giving 3 662 tonnes, 137 kg per hectare, of alpha acid for beer production in 1998.

2.2.3 Sales and prices

Sales under contract

Overall, the average price for hops sold under contract was ECU 202/Ztr, ECU 8/Ztr more than for the 1996 harvest, ranging from ECU 143/Ztr in Spain to ECU 384/Ztr in Ireland. Both Spain and Ireland sold their entire production under contract (see Table 6). Contract prices in Austria and Germany were lower than the previous year (-ECU 5/Ztr and -ECU 13/Ztr respectively), but considerably higher in the United Kingdom (+ECU 88/Ztr).

A total of 73% of the 1997 crop was sold under contract (see Annex, Table 5), little change from 1996 (72%). Belgium was well below this average at 19%. No sales under contract were made in Portugal.

Highest average prices under contract were for the aromatic varieties (ECU 213/Ztr). The varieties fetching the highest prices were Bramling Cross, Challenger, First Gold, Fuggles, Goldings and Progress. The ECU prices of these varieties, chiefly grown in the United Kingdom, were higher than the average prices for the aromatic varieties. However, in national currency the British prices fell considerably. This difference can be explained by the substantial increase in the value of the pound sterling. Contract prices of ECU 279/Ztr were recorded for Strisselspalt, which is grown only in France. Hersbrucker, which accounted for about 19% of the area under aromatic varieties, was among the varieties fetching the lowest prices (contract price ECU 166/Ztr).

For bitter varieties, the average price for sales under contract was ECU 183/Ztr, the varieties that fetched the highest prices in this group being Buket (grown only in Austria), Target, Yeoman and Northdown. Contract prices for Nugget remained practically unchanged.

Sales on the free market

The average spot price for hops sold on the free market was considerably down on the previous year, at ECU 64/Ztr compared with ECU 98/Ztr in 1996, although here too prices differed markedly from one Member State to another, ranging from ECU 52/Ztr in Belgium to ECU 187/Ztr in France (see Table 6).

Spot prices were fairly similar for aromatic and bitter varieties (ECU 62/Ztr and ECU 66/Ztr respectively), but much higher for the other varieties.

Spot prices for Nugget fell from ECU 96 to ECU 62/Ztr (-35%). A fair number of growers were attracted by this variety with its high alpha acid yield, and this led to an abundant supply on the world market, mostly originating in the United States, where the area under Nugget is also on the increase (3 638 ha in 1997 as against 3 497 ha in 1996).

Spot prices fell steeply in Germany (-36%) and Belgium (-34%) and somewhat in Austria (-2%), but increased in the other countries, particularly France (+60%).

Of the widely-grown varieties, the one which fetched the lowest prices, as it has since the 1993 harvest, was the Hersbrucker aromatic variety, which was previously very popular with the Americans, but is now suffering from a definite slowdown in demand as American buyers move over to other varieties such as Spalter Select and Hallertauer Tradition. While Hersbrucker has been selling for only ECU 29/Ztr on the free market, the two new aromatic varieties have been fetching around ECU 38 and ECU 50/Ztr, respectively, which is still lower than the Community average for aromatic varieties.

Of the eight hop-producing Member States, three sold at prices below the Community average (all varieties taken together), i.e. Belgium, Germany and Spain.

The official figures indicate that, of the 837 464 Ztr produced in the Community in 1997, only 20 709 Ztr (2.47%) remain unsold. Ireland and Spain sold their entire production under contract for an average price of ECU 384/Ztr and ECU 143/Ztr respectively (see Table 5), followed by Austria, which sold 98% of its production under contract for an average price of ECU 250/Ztr.

2.2.4 Returns

These were down on 1996. The average return per hectare in full production in 1997 was ECU 5 528 compared to ECU 6 166 in 1996 (+10%).

At Community level, returns were highest for the aromatic variety group (ECU 5.955/ha in full production, 5.8% down on the previous year). However, France, Austria and the United Kingdom recorded increases for these varieties.

The most profitable aromatic varieties were, for France, Strisselspalt (return of ECU 7 926/ha in full production), and for the United Kingdom Challenger (ECU 10 157/ha in full production), Goldings (ECU 11 305/ha in full production) and Fuggles (ECU 10 053/ha in full production). Celia, which was grown only in Austria and entirely sold under contract, also produced returns of around ECU 10 746/ha in full production.

Returns also fell for the bitter variety group (-18%), reaching ECU 4 895/ha in full production, with returns in all producer Member States except the United Kingdom falling, particularly in Belgium (-26%), Germany (-25%) and Portugal (-49%). In Portugal, this drop in returns was due exclusively to the fall in the price of Nugget, the only variety grown there and sold entirely on the free market. Nevertheless, of the Member States offering Nugget on the free market, Portugal obtained the highest prices (ECU 93/Ztr as against the Community average of ECU 62/Ztr). Average returns for other varieties, principally grown in Germany (616 ha) and to a small extent in the United Kingdom (2 ha), increased by 13%. As these varieties are only cultivated on small areas, their impact on overall returns for producers was negligible.

3. THE COMMON ORGANISATION OF THE MARKET IN HOPS

In 1971 a common organisation of the market in hops was established by Regulation (EEC) No 1696/71. The aim was to improve product quality and safeguard the standard of living of hop growers. Since it was quite deliberately decided when the market organisation was set up to make no special arrangements for external trade or intervention, the Community hop sector is highly exposed to competition on the world market.

The essential aspects of the basic Regulation, which were dealt with in greater detail by subsequent, more specific Council and Commission Regulations, are rules for the marketing of hops via a certification procedure and a forward contract system, for the recognition and promotion of producer groups and for trade with third countries. The Regulation also lays down aid arrangements for Community-grown hops. The aid amounts to ECU 480/ha up to and including the 2000 harvest. It comprises two amounts existing under the previous scheme, i.e. aid to producers and aid for varietal conversion. Producer groups can decide whether to pay all the aid to its members in proportion to the area cultivated or only a percentage of between 80% and 100%, depending on whether there are still applications pending in respect of varietal conversion or possibly other measures to be implemented (see point (c) below).

When the basic Regulation was last amended in August 1997 - by Regulation (EC) No 1554/97 (2) -, the role of the producer groups was strengthened by introducing:

(2) OJ L 208, 2.8.1997, p. 1.

a) the possibility for members of recognised producer groups to market all or part of their produce themselves, without any penalty in the form of a reduction in the aid, where they are so authorised by the group. The latter has the right to monitor prices negotiated between producers and traders and can grant or refuse approval for the conclusion of contracts. In the event of disagreement on prices proposed, the producer group is under an obligation to take over the hops at a higher price and find another purchaser;

b) the possibility of varietal conversion on a permanent basis, i.e. with no limit in area or time, payment being covered by the flat-rate aid per hectare mentioned above. The funds allocated to that end will be decided by the producer group in line with its requirements and subject to certain limits (see point (c) below);

c) the possibility of withholding up to 20% of the aid to producers to implement special measures. Such measures involve the rationalisation and mechanisation of cultivation and harvesting, adoption of common rules on production (cultivation techniques, fertilisers, varieties, etc.), varietal conversion, promotion, measures to determine and improve quality, research and "intervention" as referred to above. The objective of the measure is to ensure the producer group has some latitude in managing the aid, with the option of using the full 20% of the aid for the purposes of varietal conversion. Should producer groups not market their members' whole production, this possibility becomes an obligation, the percentage in that case continuing to stand at 20%.

4. SPECIAL TEMPORARY MEASURES FOR HOPS

The Council recently adopted Regulation (EC) No 1098/98 introducing special temporary measures for hops.

The market in hops is currently in surplus, for both short-term and structural reasons. Production should therefore be curbed by reducing the area cultivated in the Community.

Measures adopted to rectify the situation over a period of five years, starting with the 1998 harvest, involve temporary resting and/or permanent grubbing-up.

To achieve this, producer groups are to be given greater latitude, without exceeding the current budget allocation.

Both measures are optional for Member States, producer groups and individual producers.

They will be implemented in the following ways:

- temporary resting and permanent grubbing-up are included among the special measures that may be introduced by producer groups in order jointly to match production to market requirements;

- producer groups will pay a financial contribution, to be taken from the amount withheld from the aid paid to producers (which may not exceed 20%). This contribution will partially offset the real cost of applying these measures and the loss of income;

- producers may be paid compensation, equal to the aid they would have received if they had cropped the area in question, for not more than five years for areas put into temporary rest or grubbed, subject to certain conditions.