Consolidation postponed
If industries were to follow textbook rules, consolidation in the hop industry should march on just to keep up pace with the brewing industry which is set to form ever larger units. However, were it not for the discrepancy between the hop trading companies’ high equity ratio (on average around 50 percent) and low EBITDA (about 2 percent), which prevents a straightforward valuation, the course of world would follow fiction. Alas, this is not to be and that is why Stephan Barth, hop trader and Managing Partner of Joh. Barth & Sohn in Nuremberg and one of the world’s leading hop marketers, at a recent press conference in Munich said that he expects no takeovers or mergers in his industry for the foreseeable future. “We are all family-owned. We are proud of our tradition. We do not give up easily”, he added.
That does not mean that all
is well in the hop industry. Far from it. According to Stephan Barth, hop acreage will continue to decline worldwide. In 2005 only slightly less than 50,000 ha were farmed, over 600 ha less than in the previous year. As stated in the 2005/2006 Barth Report, hop acreage in the world’s major hop growing country, Germany, alone fell by more than 300 ha to 17,161 ha, although the production volume of 34,466 mt was slightly positive. Nevertheless, the industry anticipates changes in the market situation in the medium term, which could lead to higher hop prices if the acreage continues to decrease by a further 400 ha in 2006. Add to that the – assumed – depletion of stocks held by the big brewing groups and there is no reason why prices should not go up. ”The market is getting tight”, Stephan Barth said.
Joh. Barth & Sohn, part of the internationally operating Barth-Haas Group, is one of the world’s two leading hop trading companies. With a market share of some 35 percent, the company headed by Stephan Barth, an eighth generation hop merchant, achieved group sales totalling EUR 150 million (2005), of which Joh. Barth & Sohn accounted for EUR 78 million.
For Stephan Barth, one way to deal with continuing decline in demand was to branch out into other industries. The use of hops in the food and food additives industries is gaining in importance for the Barth-Haas group. It already accounts for 5 percent of sales and is expected to rise to 20 percent in the medium term. Co-operation with Germany’s Wild group in certain business fields shall contribute to achieving this target. For example, water-soluble hop aroma products can be used as an additive to foods and also to drinks.
The main reason why the hop industry has managed to carry on, despite the odds, is that it
has reorganised massively over the past ten years. Barth alone has had to cut its workforce by 25 percent since 2000. As Stephan Barth dryly admitted: “We are very experienced at cost reductions. Honestly, it’s
no fun. But if you want to survive as a company there is
no way around cost reductions.”
