Working Draft: Introduction
Recession, Recovery, and the Economics of the American Craft Beer Boom
We are currently at the tail end of a craft beer boom. In the last four decades, the total number of breweries in the United States has increased from less than 100 to nearly 10,000 with two-thirds opening in the last decade alone.1 The vast majority of these are microbreweries, small-scale operations producing a diverse range of styles and variations of beer, chipping away at the market share of the large legacy brewers. Simply put craft beer has gone from a hobby in the late 1990s to a significant market share, worth $28.4 billion in 2022 and making up a quarter of total US beer sales.2 Having levelled out and even slightly declined from its meteoric rise, craft brewing remains an innovative, dynamic, and increasingly competitive industry. It continues to be an economic force to be reckoned with, with small firms shaping consumer preferences and forcing major brewers to adapt to an evolving beer environment.
The emergence of craft brewing as a cultural-economic phenomenon is exemplified by the transformation of the 60-mile stretch down Route 100 from Warren to Greensboro, Vermont. Dubbed the “IPA Highway” this consists of ten major craft breweries (in addition to several smaller-scale operations) located across five small towns.3 The first of these breweries was The Shed brewpub and restaurant, started in 1995, followed by Rock Art, which began production in 1997, expanding to a new facility in 2001. Next was The Alchemist in 2003, with the others coming in quick succession over the following years, each receiving acclaim for their respective contributions to brewing, including the development and popularization of the distinctive New England IPA.
Despite a relatively low population of only around 30,000 and a fiercely competitive market, new breweries continue to set up shop, with two more opening in 2023 and another in 2024. All the while incumbent breweries continue to grow, building new facilities and expanding distribution, generating tens of millions in annual revenue. This kind of concentration of growth and innovation in narrow corridors of craft beer makers is a remarkable trend and is not unique to Northern Vermont. Although the national rate of growth dipped during the pandemic and has since begun levelling off. Outside the national trend, this kind of growing geographical concentration is reflected in other regions as well. Small and mid-sized cities in New England, the Pacific Northwest, across the South, the Sun Belt, and Midwest are still seeing an expansion of their respective microbrewery scenes, developing distinctive beer cultures and regional variations of traditional styles of beer.
Today these clusters of innovation can be taken for granted with previously limited and difficult-to-obtain craft beers expanding their radius of distribution, but what drove this cultural-economic shift and is it entirely unprecedented? On the demand side, why are consumers now willing to pay so much more for a hopped-up regional pale ale than the traditional light macro-lagers that dominated the market for the last century? On the supply side, what enabled so many small operations to continue to open and expand in a capital-intensive industry with growing economies of scale and rising input costs, all the while facing an increasingly competitive market? And above all else what was it about the economic environment of the early 2000s that set the stage for this transformation? This series is an initial exploration of the key developments in the recent history of American craft brewing, offering new insight into the relationship between the craft beer movement as a cultural phenomenon and the political, social, and economic conditions from which it emerged.
Key Industry Terms
For those less familiar the industry side of beer and brewing, there are a few key terms to keep in mind when defining the size and business practices of different breweries moving forward. A craft brewery as defined by the Brewers Association is one that is small: producing less than 6 million barrels annually, independent: less than 25% share is owned by non-craft industry members, and lastly has received a Brewer's Notice from the Alcohol and Tobacco Tax and Trade Bureau. Under the craft beer umbrella, there are microbreweries which produce less than 15,000 barrels annually (Hill Farmstead, Lost Nation, and Burlington Beer Company), brewpubs which sell more than 25% of their beer on-site at a restaurant or bar (Soulmate, Weird Window, and Freak Folk), and regional breweries which produce between 15,000 and 6,000,000 annually (Samuel Adams, Brooklyn Brewing, Sierra Nevada, and Yards). Each label encompasses a significant range of production and can be further broken down into more detailed categories based on relative size and distribution.
These all stand in contrast with macrobreweries, which produce more than 6,000,000 barrels annually and include the large legacy brands we are all familiar with (Pabst, Coors, and Anheuser-Busch). There are additionally nanobreweries, which are a subset of microbreweries defined by lower annual production thresholds that vary state by state, but they can alternatively be defined as producing fewer than three barrels with each batch.
Finally, international brewers make up roughly 22% share of the American beer market and contain any beer imported from abroad, but do not include foreign-owned breweries located in the United States (Guinness, Duvel, and Modelo). This series will focus primarily on domestically produced craft beers in comparative perspective and make distinctions between the relevant sub-categories as necessary.
Why Craft Beer?
The brewing industry crosses multiple distinct sectors, spanning agriculture, manufacturing, retail and services, as well as construction and shipping in addition to administration and regulation by designated state and federal government bodies. This is to say that beer is unique in that it both contributes to and reflects the economic health of a broad swath of industries, giving it unique explanatory power in terms of the health of the wider economy down to the narrow local level. As I will show, the location of brewing at the intersection of multiple sectors is particularly relevant to smaller, rural counties and municipalities.
First brewing intersects with public employment in the form of regulatory bodies at the state and federal level. Each state has an administrative body for licensing and overseeing the production, sale and distribution of alcoholic beverages. Beyond regulation these bodies can also act as a source of information and guidance for brewers and retailers in a given state may conduct research on health, taxation, and other facets that are relevant to the public interest. These agencies effectively set the ground rules for any firm operating in this sector and vary widely by state.
Starting from the beginning, beer of course requires agricultural inputs. Hops are an essential ingredient and the cornerstone of the brewing industry. Traditionally used as a preservative, hops give beer its aroma and taste profile, with different kinds of hops producing distinctive flavors. The growth in specialty beer has made hop farming a lucrative business with US farmers producing 104 million pounds of hops in 2023.4 These tend to sell at a market price of between $5.4 and $6.0 per pound, according to the USDA, with some specialty strains fetching far higher prices. The explosion of popularity in IPA’s and other intensely hoppy beers has increased demand for specialty hops drastically, since the quality of the beer relies heavily on the quality of the hops used.
Outside the US, the global market reached a total of 8.8 billion in 2024 with some projections estimating it will nearly double to $16 billion by 2034.5 Countries like Germany and Czechia produce for a large domestic brewing industry but still export millions of pounds of hops annually, meanwhile New Zealand and Australia are more recent entrants and growing exporters, with increasing renown for their tropical-citrusy hop varieties often used in double-IPAs. Regional variation in geography means that different areas have more suitable growing conditions for different kinds of hops, contributing to variation in the styles of beer popular in a given area.
Similar to hops, brewer’s yeast is another growing market, at $3.87 billion in 2024, with significant growth in the propagation of high-end and specialty strains for craft brewing.6 Yeast is what actually produces alcohol during the fermentation process and again contributes to the flavor of the beer, with different strains of yeast often defining the style of beer produced. For example, lager yeasts give lagers their crisp, clean flavor, while a darker Belgian ale yeast will produce a more fruity-spicy aroma. Additional malts, fruits and other adjuncts are added to beers, with many breweries intentionally sourcing local ingredients. Ultimately, brewing tends towards regional specialization in terms of beer styles and ingredients, meaning that craft breweries often end up closely intertwined with local agriculture.
Moving from inputs to production, setting up a small-scale home brewing operation is easy enough, requiring fairly limited space and equipment. Hand bottlers and fermenting vessels can be stowed handily in a garage or cellar, but increasing the size and capacity of an operation can be incredibly capital and labor intensive. The smallest microbreweries produce upwards of 15,000 barrels a year, requiring significant investments in overhead and brewing staff. This is also true for brewers that contract with larger existing firms to produce their beer, still needing storage capacity and brewers on staff, even if not on-site. According to the Brewers Association craft brewers directly employed 191,421 in 2023, breaking down to about 20 employees for each of the over 9,000 craft breweries.7 Even the construction industry comes into play as a brewery can successfully expand operations to the point of needing new or renovated facilities to meet their specific needs. In this regard, industrial brewing can be a significant contributor to employment and investment, especially when located in a small town.
Service, retail, and point of service more generally are the areas people are most familiar with and the main point of contact between consumers and the beer industry. Point of service ranges from taprooms to bars and pubs, restaurants, local suppliers and specialty retailers, as well as licensed grocery and convenience stores in some states; basically anywhere you can buy or consume beer. Breweries contribute most to local economic growth through job creation in these areas, encouraging the development of related point-of-service businesses.8 This is particularly true as the craft beer model shifts towards a greater focus on hospitality; building out restaurants and tasting rooms, we see an expansion in services employment tied directly to craft brewing.
Craft brewing, being definitionally smaller and more diffuse than the larger legacy brewers, is far more intertwined with local communities and economies. Craft breweries often focus on local sourcing, supporting nearby suppliers, and maintain relatively local distribution networks, supporting nearby retailers. This local emphasis not only bolsters the regional economy as a source of place-based development but also creates a sense of community and connection among local residents.9
In small towns, craft breweries can serve as significant economic anchors, but beyond attracting tourism, employment and investment, can create vibrant social hubs. Many craft breweries engage with their communities, hosting events, collaborating with local organisations, and work to foster a collaborative spirit within the industry.10 Research on beer festivals indicates that these events can provide a boost to local economies, attracting tourism and increasing local spending. This further supports local development through spillover effects to other firms in the hospitality industry. The craft beer industry is thus a model of how small businesses can drive economic development and community engagement, highlighting the importance of local and independent ownership in creating robust and thriving local economies.
On a more personal level, my interest in the subject comes from growing up in one of the areas transformed by craft beer. I am from a small town in the middle of the aforementioned cluster of craft brewers in North-Central Vermont, and between my graduate study I returned for a year and worked at a specialty craft beer retailer. This gave me the opportunity to not only try some of the best beer that the craft scene has to offer, but talk at length with brewers, distributors, industry groups, regulators, and consumers.
Next Steps
This is the first installation in a planned series of wide-ranging discussions on the economics of craft beer. Following sections will cover the history of brewing in America, key developments in the legal institutional environment, changes in the costs of brewing and starting a brewery, shifting consumer preferences and demand for beer, and finally an extended investigation of whether craft breweries were an effective indicator of economic recovery in the period following the global financial crisis.
Vermont Brewers Association. ‘Breweries Archive’. https://www.vermontbrewers.com/breweries/.
Bland, Alastair. ‘The “Haze Craze”: Beer Lovers’ Newfound Obsession With Murky IPAs’. NPR, 20 February 2017, sec. For Foodies. https://www.npr.org/sections/thesalt/2017/02/20/515799364/the-haze-craze-beer-lovers-newfound-obsession-with-murky-ipas.
Brewers Association. ‘National Beer Sales & Production Data’. https://www.brewersassociation.org/statistics-and-data/national-beer-stats/.
‘USDA - National Agricultural Statistics Service - Charts and Maps - Hops: Production by Year, US’. Accessed May 2024. https://www.nass.usda.gov/Charts_and_Maps/Specialty_Crops/hopsprod.php.
Global Market Insights Inc. ‘Hops Market Size & Share, Industry Forecasts Report 2025-2034’. https://www.gminsights.com/industry-analysis/hops-market.
Market Research Future. ‘Brewers Yeast Market Size, Share, Demand, Forecast 2034. ’ https://www.marketresearchfuture.com/reports/brewers-yeast-market-25090.
Brewers Association. ‘Brewers Association Releases Annual Craft Brewing Industry Production Report and Top 50 Producing Craft Brewing Companies for 2023. ’ Brewers Association (blog), 16 April 2024. https://www.brewersassociation.org/association-news/brewers-association-releases-annual-craft-brewing-industry-production-report-and-top-50-producing-craft-brewing-companies-for-2023/.
Miller, Steven R., J. Robert Sirrine, Ashley McFarland, Philip H. Howard, and Trey Malone. 2019. "Craft Beer as a Means of Economic Development: An Economic Impact Analysis of the Michigan Value Chain" Beverages 5, no. 2: 35. https://doi.org/10.3390/beverages5020035
Livability. ‘Economic Growth On Tap: How Breweries Impact Local Economies’. 15 May 2017. https://livability.com/topics/food-scenes/economic-growth-on-tap-how-breweries-impact-local-economies/.
Cabras, Ignazio, Marco Lorusso, and Nadine Waehning. ‘Measuring the Economic Contribution of Beer Festivals on Local Economies: The Case of York, United Kingdom’. International Journal of Tourism Research 22, no. 6 (2020): 739–50. https://doi.org/10.1002/jtr.2369.