Abstract

Climate change impacts caused South Africa to breed unique hop cultivars which are adapted to shorter and warmer winters and shorter day length in summer. However, climate change impacts in South African include further increases in temperature along with noticeable inter-seasonal variation in rainfall patterns. These changes have demanded a re-evaluation of the ability of South African hop farmers to adapt to climate change impacts. In order to assess the adaptive capacity of hop farming operations from a financial perspective, the study assessed the potential inflationary impacts of climate induced water related risk on the production cost of South African commercial hop operations. It was found that the South African hop price model is a cost-based model with fixed returns, which aims to maintain the gross margin above specified cost for hop farmers. This rather unique setup implies that returns on investment are fixed and that inflationary pressure cannot erode the profitability of hop farming operations. Climate induced inflationary impacts will therefore inflate the consumer price of hops since it is almost certain that breweries will pass on any inflationary impacts to the final consumer. We have distinguished between a temperature effect and a rainfall effect of climate change. Given an average dry yield of 1 739 kg of hops per hectare for the study area and a current market price of R51.39/kg for dry hops, the temperature effect will inflate the market price for hops with R1.03/kg, while the rainfall effect will inflate prices with R0.31/kg. The study found that a total increase of R1.34/kg (that is, a 3% increase) in the producer price of hops is therefore required to offset climate induced water-related risk on hop cultivation in the study area.

Key words: Climate change, hop farming, production cost model, South Africa.