ESSAYS ON HOP PRICE FORMATION AND THE BREWING INDUSTRY

Abstract

This dissertation consists of four papers analyzing export price formation of U.S. hops, consumers' willingness to pay for sensory attributes in beer, beer extrinsic attributes that affect consumers' choice of beer, and the impact of hop quality on WTP. The first article analyzes the hop prices formation of U.S. hop exports. The U.S. plays a vital role in domestic and international trade of hops. It was the second largest producer of hops with 29.7% share of the world market in 2010. Given that hops are a primary ingredient in a favorite beverage of consumers across the world - beer, it is surprising to observe that the topic has not received nearly any attention in the economic literature. This study examines the export price formation of U.S. hops. An inverse demand system is used to test the above question. The important finding of the analysis is that there is a negative relationship between quantities of hop exports and prices to Brazil, Canada, Germany, and rest of the world. Due to Germany's large share in the world hop production, the country had the highest own-quantity flexibility among individual countries. The cross-quantity flexibilities between Brazil and Canada and between Germany and rest of the world indicating the substitutability of the U.S. hops for exporting countries. The second study examines consumers' willingness to pay for sensory attributes in beer. As microbrew beers have become more popular, the intrinsic characteristics of beer have become more important in consumer purchasing decisions. We identify sensory properties that influence consumers' willingness to pay for beer using a contingent valuation model that includes subjective sensory evaluations and socio-demographic characteristics of consumers. We find that overall taste and hoppiness of a beer have a significant and positive impact on willingness to pay. The third study examines extrinsic characteristics that effect consumers' consumption choice for beer. Consumers choose a beer based on extrinsic, intrinsic, and socio-demographic characteristics. They form quality expectations after the actual consumption of a beer. Although the intrinsic characteristics influence the repeat purchase decisions consumers make their initial consumption choice based on extrinsic characteristics. The objective of this study is to identify the factors that influence consumers' choice of beer. A conjoint analysis is performed using style, price, alcohol content, and place of origin as factors with various attributes. We find that while pale ale and stout styles, the local and PNW origin attributes increase the probability of choosing the beer there is negative relationship between prices and consumer's choice. The fourth article examines the effect of nitrogen fertilizer treatment of perceived hoppiness and its effect on willingness to pay for beer. The beer market, being the biggest alcoholic market in the U.S., has seen substantial market structure changes in recent years. Craft beers attract more and more consumers with various sensory attributes such as taste/flavor, hoppiness, aroma, and appearance that are valued by consumers. Hoppiness or perceived hop quality is one of the main attributes that microbrewers alter to differentiate their products in the marketplace. In this study we analyze the impact of different fertilizer treatments on perceived hop quality, identify sensory attributes and socio-demographic characteristics that impact consumers' willingness to pay for beer using contingent valuation analysis. The results indicate that consumer could identify the different fertilizer treatments and, thus, sufficient fertilizer is required to get satisfactory hoppiness that consumers are will to pay for.