Supply chain woes, inflation threaten to put craft beer makers out of business

Matt Bailey, co-owner of Odell Brewing in Colorado, says it’s never been harder to keep his beer from going flat.

An industry shortage has driven the cost of carbon dioxide — the gassy compound that keeps his brew bubbly — 40% higher than what the beermaker budgeted for this year. The price spike caused the Fort Collins brewery a 35% drop in beer production since June.

“It’s probably the worst we’ve ever experienced,” Mr. Bailey said in an interview. “It has the potential of bringing us to a screeching halt.”

The 41-year-old plant manager is substituting nitrogen for CO2 in the canning, kegging and packaging process. He is also selling more packaged beer, stored in coolers that he says will run dry in 2-3 months.

Odell is one of many small craft breweries facing extinction by the end of this year because inflation drove up the production costs of everything from grain and cardboard to cans.

According to the Brewers Association, the growing CO2 shortage stems from pandemic-driven supply chain issues — and from the recent contamination of an extinct volcano in Jackson, Mississippi, that contains much of the nation’s natural supply.

“While many of the specific issues in the market are new, CO2 has experienced various supply chain challenges since the beginning of the pandemic,” the small brewers’ trade group said in a statement. “This is one of many areas where small brewers are facing cost increases and availability issues.”

As CO2 demand spikes in the summer and production facilities shut down for routine maintenance in the fall, the Compressed Gas Association does not see any relief until at least October.

Meanwhile, Boston-area Night Shift Brewing announced on Facebook earlier this month that it’s planning for some layoffs in October as its CO2 shortage lasts “possibly more than a year.”

Jeff Ramirez, the co-founder of Denizens Brewing Co. in Maryland, says his two breweries in Silver Spring and Riverdale are also hurting. They have been unable to get the CO2 refills they require every two to three weeks to maintain normal production.

Denizens’ chief beer officer said the company is paying more for CO2 when they do get it, thanks to increased fuel costs and an 11-cent surcharge for each pound.

“Due to the increase in cost for CO2 and almost all other materials required for brewing we have to adjust the way we produce our beer,” Mr. Ramirez said.

Michelle Minton, a senior policy analyst at the free-market Reason Foundation, noted that small brewers are also competing with the fertilizer industry for CO2, which is widely used in food production.

“There is no simple fix for this or other supply-chain issues,” Ms. Minton said.

According to economists, some craft brewers may just have to raise beer prices to keep their bubbles — and their businesses.