Latest / No Dirt No Flowers Podcast / How We Got Here / Part 1

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How We Got Here / Part 1 · No Dirt No Flowers Podcast

0:01
Hello everyone and welcome back to No Dirt No
0:03
Flowers. First off we would like to thank you
0:06
all for the kind words and the listens on our
0:08
very first episode and for hopefully coming back
0:11
for our second. On today's episode Mike and Drew
0:14
will be taking a look at the current hop world
0:16
and how we both Roy Farms itself and the overall
0:19
industry have gotten to where we are today. We
0:22
hope you find the episode informative, open,
0:24
honest, introspective, insightful, and uh...
0:28
Whole bunch of other adjectives that I can't
0:30
think of right now. Thank you very much and enjoy
0:33
the show How's my voice right now Sounds good.
0:47
You feel good about this I do as long as you
0:50
don't go like this when you start like going
0:51
like that then it You know You don't need to
0:55
be critical of me and my talking into microphone.
0:57
I'm not a professional. I mean you're Becoming
1:01
one You know when you put it like that The second
1:07
episode of no dirt no flowers. Mm -hmm. We're
1:11
off and running we are Yeah episode 2 How we
1:17
got here? Yep episode 1 intro absolutely Got
1:24
some good feedback plenty of room to improve
1:26
there. Well, there's obviously plenty of room
1:28
to improve Feedbacks great. We know that we're
1:34
going to Probably stumble through this a little
1:37
bit start with Well, it's gonna it's got to hit
1:40
its stride. Yep. I mean we're running I'm not
1:45
sure it's like super smooth yet, but we'll get
1:47
there. Oh, yeah, I Do think it's important to
1:51
point out that we also want to have the freedom
1:54
to run a little bit within this conversation.
1:57
So that's why we've kind of targeted that 50
1:59
minute I don't know hour and 20 or something
2:03
like that gives us a little bit of room to be
2:06
us and explore maybe a little bit more of the
2:12
philosophical side of the conversation not just
2:15
only data driven conversation. Yeah, well you
2:19
gotta know for the there's like nuggets that
2:22
are gonna get dropped in here nuances Sometimes
2:24
you just got to cut loose in order to find those
2:26
nuggets. Absolutely. I Mean when Leslie gets
2:31
on here you think there's gonna be a lot of data
2:34
Yeah, yeah Are we gonna get it fact -checked?
2:41
Maybe I Like the mystery of it more I know All
2:48
right, let's get into it. Yep. How did we get
2:51
here? Because first we got to start with what
2:55
is here. Yeah, what is here? Well Yeah, if you
2:59
take a snapshot of where the industry is today
3:02
It's down As of last year's number 26 percent
3:09
of its acres are down The industry is still up
3:15
probably six or seven growers from where it was
3:19
10 years ago. Although we are losing growers.
3:24
It's well documented right now. There was an
3:28
article that came out about burlap farms. I'm
3:30
sure everybody's aware of that terrible situation
3:33
where burlap farms closed their doors after farming
3:38
for multiple generations. That won't be the last
3:43
one by any means. So the industry is down on
3:47
acres right now there are clear Circling of the
3:53
wagon actions happening in the industry right
3:56
now with I think everybody at every level yes,
4:01
I think you see where maybe five years ago seven
4:06
years ago, there was a ton of collaboration in
4:08
the industry and Growers were growing for you
4:12
know every merchant out there and they might
4:14
they might grow for five or six merchants and
4:17
then they might also grow you know a handful
4:20
of direct contracts to brewers and now there
4:24
are many growers that only deliver to one two
4:32
three entities at the most so we're down on acres
4:36
there are very little contracts that are coming
4:41
down the pipeline for merchants because the brewers
4:45
are not contracting at the same level as they
4:48
had historically. Crazy levels of spot buying
4:53
going on right now. You know, I mentioned earlier
4:58
before the show when we were talking that it
5:00
kind of feels like the end of a sports season
5:04
right now where a professional team is trading
5:09
players or they are not renewing contracts or
5:13
they're Cutting players and just letting them
5:16
go for a variety of reasons there have been several
5:22
separations that have happened in the last month
5:25
Roy Farms being being part of that where we've
5:29
separated out of necessity and you know, not
5:31
for any personal reasons or anything like that,
5:33
but there are definitely Lot of personnel changes
5:38
that are going on right now that that you didn't
5:40
see historically Farms are trying to figure out
5:46
how to get their operating lines renewed especially
5:49
if they are in if they're diversified into tree
5:52
fruit because the tree fruit thing is Way worse
5:56
than hops are mm -hmm Yeah, kind of the industry
6:00
kind of feels like it's almost just these camps
6:04
are getting Set up and everybody's going back
6:07
to their corners right now and kind of huddling
6:09
and deciding how to move forward Yeah, I think
6:13
everybody's taking a step back and looking at
6:17
their businesses and Fighting for their own survival
6:21
and in a lot of different ways That's my nice
6:26
way of describing it I had a thought when you're
6:28
talking about that and You mentioned that there
6:33
was a lot of collaboration You know a number
6:37
of years ago or over the last number of years.
6:40
I Think they were opportunistic transactions
6:43
disguised as collaboration You know as you say
6:46
that I think you're right. I think promises of
6:49
collaboration or maybe even intention of collaboration,
6:54
but it was Really capitalizing on opportunities.
6:59
Yeah, and you can see what did and didn't survive
7:05
and that's hard to see, but I think it will lead
7:10
to stronger collaborations. So you're seeing
7:16
similar things going on in the brewing industry.
7:20
There's way more breweries and it's way more
7:23
regionally diversified, geographically diversified,
7:29
where it's not really that, it's not that way
7:32
in the hop industry. There's only so many paths
7:34
to market. where a brewer can sell directly to
7:38
consumers through the tap room, or they could
7:40
sell to restaurants, distributors, obviously,
7:43
depends on the distribution model in that state
7:45
and everything. But, you know, in the hop industry,
7:50
not everybody has a pellet plant. Not everybody
7:53
owns intellectual property, so they can't just
7:56
grow what they want for whoever they want. And
7:59
so there's way more limited options in the farming
8:03
side, hop farming side. I mean generally speaking
8:07
I would say when we look at the industry and
8:09
where it's at today I think it's trying to find
8:12
out who it is and Individual actors are trying
8:16
to find out who they are and how they fit into
8:18
it Mm -hmm and not a lot of cash rolling around
8:21
no, which is gonna be really interesting when
8:24
we come out of this dip here Who has the cash
8:31
and the appetite to Supply some of the shortages
8:37
that are probably coming Yep, so yeah, I guess
8:43
we'll have to see how that unfolds Yep, I can
8:46
tell you what there's not gonna be any new harvesting
8:49
facilities put into No, I think you can pick
8:52
up some pretty nice harvesting facilities for
8:55
a reasonable Price and pick up really good talent
8:59
right now, too. Oh, yeah, by the way, if anyone's
9:02
looking for a Half functional harvesting facility.
9:05
We have one in top finish. Let the phone calls
9:11
begin. Hey, I want to keep that thing. Maybe
9:13
I do too, actually. We just need some hops to
9:16
run through. The half that works is really nice.
9:21
Yeah, it's like that that scene in Fast and Furious
9:25
when they bring in the Supra. They're like, this
9:29
thing's a piece of junk. Well, open up the hood
9:31
and see what's under there. Oh, I stay corrected.
9:35
Yeah. For those of you that don't know, as part
9:39
of all the fun downfall of the industry over
9:43
the last several years, Roy Farms also had a
9:45
fire in their Toppenish picking facility. Really
9:50
nice facility. And it's going to take some work
9:55
to get it functional again. When that happened
9:57
we Well, initially we trucked the hops from top
10:03
finish to mock see and then we ended up leasing
10:08
the farm out and Kind of reconsolidating some
10:12
of the acreage up here in moxy Which oddly enough
10:16
we are working on our machines this year we're
10:19
adding a third track on each side to our dawn
10:21
how our machine this year because we're trying
10:23
to Consolidate down to two machines and get better
10:28
picking efficiencies. Yeah more efficiency That's
10:31
something about you know, Roy farms and I'm sure
10:33
this isn't unique to Roy farms. It's also true
10:36
for I'm sure the industry but as as cash is not
10:42
Coming in like it used to or it had been for
10:44
the last several years We are finding all kinds
10:48
of areas to be more efficient on the farm irrigation
10:51
technology or doing a pretty decent investment
10:55
into that this year, partially because a lot
10:59
of these new varieties are just more sensitive
11:01
to different irrigation protocols, in my opinion,
11:04
and and we're staring down the barrel of a drought
11:08
this year. So having better control and feedback
11:11
loops on our watering is going to be nice. But
11:16
anyway, that's a that's a blip. on the radar
11:20
of where we're at right now. Not a lot of investment,
11:23
but it's happy to see some. Yeah, absolutely.
11:27
OK, so now the question is, so where is the industry?
11:30
So it's kind of in shambles. It's kind of it's
11:32
not in shambles. It's in limbo. It is very stressed
11:38
right now. The question is, how did we get here
11:41
from the, you know, the longest streak of prosperity
11:46
in the industry to Within a couple years. It
11:49
just flips over. Mm -hmm, you know here a few
11:53
interesting pieces of information wait Are we
11:58
gonna drop some data? Yeah, love it. Yeah all
12:04
publicly available information I'm actually pulling
12:06
this off of the American hop convention org website
12:10
This was presented at the hop convention this
12:13
year on the merchant panel, which I was actually
12:15
part of you did a very nice job, by the way Thank
12:18
you. I appreciate that. I think everybody did
12:20
a good job up there. Yeah, they did. I had a
12:22
good feel. I mean, it was sad, but it's the reality.
12:28
And I think people talked about what what should
12:30
be talked about as much as they can. But, you
12:34
know, when we look at, OK, here we are in twenty
12:36
twenty five. Craft has been down year over year
12:40
since twenty nineteen. Now there was a bump.
12:44
from 2020 to 2021 as we kind of pulled a little
12:49
bit out of COVID. But generally speaking, when
12:52
it rebounded, it only rebounded a partial way
12:55
back to where it was. And then it has continued
12:58
to decline. So we've seen those declining numbers
13:00
every year. Global beer has been down starting
13:05
in 2015. It's stabilizing now, but it was on
13:10
a steady decline. From 2015 it didn't start stabilizing
13:14
until a couple years ago and so We see these
13:18
issues coming but will craft and global beer
13:22
were declining We were still putting in acres
13:25
as an industry. I mean that the tea leaves were
13:29
in front of us. What happened? Yeah, that's my
13:32
biggest question. I Mean, I think there's a handful
13:36
of different things that that lead to that. Well,
13:40
what most people say is that craft beer declined,
13:44
and there seems to be a lot of fingers pointed
13:47
at COVID. And well, I don't know the numbers.
13:51
I do know that that wasn't the main driver. It
13:56
didn't help. No, if COVID wouldn't have happened,
14:00
we would probably be just getting into that period
14:02
of time right now where we're catching the sins
14:06
of our past. COVID helped us learn about it earlier.
14:12
Interest rates are significantly higher now.
14:14
So it's harder to carry inventory You know that's
14:17
pointed out part of the issue. But again, we
14:19
saw all of this coming We saw the hop stocks
14:23
on the reports steadily increase There was all
14:28
kinds of stuff published about that. This was
14:31
coming But nobody stopped it Why You can look
14:38
at symptoms or actions that happened. All right.
14:43
So we've always had direct relationships and
14:49
we've always sold hops through merchants. And
14:53
I don't think either one of those categories
14:56
has ever been a zero. It's just the percentages
14:59
of fluctuated through different market conditions.
15:05
And, you know, being a mostly HBC driven craft
15:13
beer boom, at least in focus. Across the industry,
15:19
it seems like I just don't know where it came
15:26
off the rails. There's a lot of different things
15:28
that that happened and it's hard to predict.
15:34
What the growth rate of a brand will be or what
15:37
the growth rate of craft beer will be or what
15:40
the yield will be But it just didn't seem like
15:44
much of anything got done with all the indications
15:47
And I think that answers the question that how
15:50
did we get here? Yeah, I've wrestled with that
15:53
quite a bit It's seemingly as far as I can tell
15:58
All hops proprietary and nonproprietary all got
16:04
overplanted and too much inventory is out there.
16:08
That doesn't seem to make a lot of sense to me.
16:11
It seems like that you would have seen a difference
16:15
there where proprietary corrected or caught it
16:20
earlier. Because the public side seems to make
16:23
a lot of sense to me, and there's probably truth
16:25
in both of these, especially with low interest
16:27
rates, but growers had, you know, for eight or
16:32
ten years every pound that they grew would find
16:34
its way into a brew kettle it seemed and they
16:37
had excess cash and so they could grow spots
16:39
and well I got that field there and I'll just
16:43
put alpha in you can always sell alpha and cover
16:45
your marginal cost you know Germany had I think
16:49
three out of five years they had lower than expected
16:53
crops which left opportunities to move alpha
16:57
into markets we had a Really big alpha market.
16:59
I think in 2019 or so 2018 2019 Where alpha prices
17:05
were through the roof? There's also the fact
17:08
that I don't think Hercules ever performed to
17:11
what its original expectation was so contracts
17:14
went out at an anticipated production level and
17:18
then there is a bunch of planting that had to
17:21
happen over Future years to try and cover that
17:25
original expectation, correct? I'm not enough
17:28
of an expert on that. But Les Roy, where are
17:31
you? He'll know anyway. Yeah, I mean, you can
17:35
see all of these little like, OK, that makes
17:37
sense. Germany comes in short a few years. We
17:40
can backfill with generic or with spot alpha.
17:44
That's one of the things that I'm really interested
17:46
in. How much did these temporary bleed off valves
17:51
contribute to the prolonging of the decision
17:55
making? It's a great question. because there
17:58
is what no less than two major column extraction
18:04
runs of inventory approaching COVID and through
18:08
COVID and so did that did those bleed -off vows
18:12
of generic alpha did that just prolong the decisions
18:17
that needed to be made oh that's a good point
18:19
if you add into that there was also the hemp
18:21
boom Well, was that really a boom or boom you
18:25
mean like boom nuclear bomb explosion? Yeah,
18:29
like the whole industry got leveled well, it
18:32
started with selling picks and shovels if you
18:36
had an extract plant and That was really profitable
18:40
for those that participated in Extracting hemp
18:43
for one or two years and that tied up the ability
18:46
to extract alpha. Mm -hmm. Everybody's balance
18:49
sheets look good because they had good Revenue
18:52
coming in on those things That's the other thing
18:54
you talked about interest rates and The ability
18:58
to carry inventory, but what about? Let's call
19:01
them higher than normal sales prices in the industry
19:06
or auxiliary revenue sources like extracting
19:10
hemp Providing some cushion to the balance sheet
19:14
and not having to make some decisions around
19:16
inventory. Yeah, that's a good point I think
19:20
you we could say the same thing for Roy Farms
19:24
as we could say for the industry as a whole where
19:26
Even when there were indicators that were there
19:30
that said there's trouble coming or we are already
19:33
in trouble there was always some kind of get
19:37
-out -of -jail -free card that came in and You
19:41
know could have been an alpha market could have
19:43
been a hemp market And the interesting thing
19:47
is at the end of the day could have been blueberries
19:49
away that never made money It could have been
19:56
blueberries, but it wasn't At the end of the
20:01
day if merchants were to look at how many hops
20:06
Actually shipped out the door and I'm sure that
20:10
they do to some degree, but you have you have
20:13
two competing interests you have this growth
20:15
mentality that's happened for this long period
20:19
of time where brewers are coming in and signing
20:21
these big contracts and then but the hops aren't
20:25
shipping as fast there's no way they're shipping
20:27
as fast as the contracts are increasing and so
20:31
you get stuck in this dilemma where you don't
20:34
want to be short because you have a contract
20:36
that you agreed to and in all likelihood they're
20:39
probably not going to take the hops and then
20:42
the market flattens out and even starts reducing.
20:47
And it doesn't matter what those contracts were.
20:50
It's what's going into a brew kettle in the first
20:52
place. And that leads back to, you know, the
20:57
spot activity that's happening in the market
20:58
right now. Why is that happening? Because brewers
21:02
had these big contracts that they signed for
21:05
varieties they may or may not have needed, let
21:08
alone They definitely didn't need the pounds.
21:11
And this is not true of all breweries, but largely,
21:13
you know, a large portion of the breweries found
21:16
themselves in this situation where they were
21:18
overcontracted. So they don't want a contract
21:20
because they know they can buy spots and probably,
21:23
in many cases, buy spots for less than what the
21:26
contract price is. There's a value proposition
21:29
that the merchants are supposed to fill. And
21:31
this is not to knock on. We're talking about
21:33
how we got here and where we're at. And again,
21:37
everybody made mistakes, right? But the merchants
21:41
are supposed to provide this value proposition
21:44
of being the conduit to get hops from a farm
21:49
to a brewery to brew with. But now we have a
21:53
situation where breweries are actually acting
21:56
as merchants because they have too many hops.
22:00
And so they're funneling hops to other brewers.
22:03
And it's creating this big cycle of Basically,
22:07
there's not a huge reason to contract if you're
22:10
a brewer and it's driving demand perceived demand
22:16
down But it's all because of the actions that
22:19
we have taken as an industry. It's really hard
22:22
to Understand completely understand the inventory
22:26
levels and who's drawing on them and because
22:30
they're sitting in these pockets Yes. So there's
22:34
more pockets and those pockets have grown bigger
22:37
over the last handful of years as breweries have
22:41
had to take delivery of those hops. Sometimes
22:46
they use them. Sometimes they get put in a warehouse
22:48
and you kind of don't know what's going on with
22:52
them. I mean, as an industry. Right. But they're
22:57
they've become a revenue stream for the breweries,
23:02
especially if you're a larger brewery and you
23:06
can use your size to get competitive prices and
23:11
sell them to a smaller brewery. Which I mean,
23:13
don't you think that was just kind of an outcome
23:14
of of them having to take delivery of them? I
23:17
mean, you can't blame them for that. It's, you
23:20
know. Yeah, I'd be curious to know. It'd be awesome
23:22
to get a brewer on here that that has participated
23:25
in that. I imagine it's a combination of both
23:27
where, you know, sometimes I can remember talking
23:32
to, I won't use names, but large brewers who
23:35
had friends that couldn't get their hands on
23:37
X, Y, or Z variety. And so the bigger brewer
23:42
in the neighborhood would just add on a little
23:45
bit extra for their contract. And then here I'm
23:47
going to help out my neighbor to get the hops
23:50
that they need. But that was kind of a more of
23:53
a community effort than a way to, yeah, than
23:58
a necessity. Yep. I mean, if I had to take delivery
24:01
of a bunch of hops as a business owner, I'd probably
24:04
look at selling them too because average my cost
24:08
of goods down. Oh, yeah. Well, it's not like
24:11
you can afford to have inventory on your books
24:14
that you're paying 8 % or whatever interest on.
24:18
It just doesn't work. So you've got to turn it
24:21
into cash as fast as possible. And I get to the
24:25
along those same lines. How do we get way down
24:28
on acres? We talked last time about how there
24:30
are less less acres in the ground than there
24:32
is demand right now, right now. And the biggest
24:38
reason for that is because of the inventory.
24:40
The only reason for that is because of the inventory
24:42
that exists and it's really, really expensive
24:45
inventory. And so. The only way to work through
24:50
that. to stop paying 8 % interest and sell it
24:56
or whatever interest I don't know what their
24:58
interest rates are but I know operating lines
25:02
are getting more and more expensive so do you
25:06
think we've covered how we got here as an industry
25:11
I think symptom wise we can see what happened
25:15
to your point the why is the is maybe the hardest
25:19
question to try to wrap your head around was
25:21
it Greed was it just blind trust was it? the
25:27
market signals were not as clear as what They
25:32
seem in hindsight, which I'm sure that's part
25:34
of it. I think it's all those things and While
25:38
I consistently push back on your comments about
25:41
you know, the industry has never experienced
25:43
this before There was that as well trying to
25:50
find a new norm, even though we're trying to
25:53
find it again. Oh, it's going to be a whole different
25:56
norm. Yeah. And I think how we got here so interesting
26:01
to me, because I don't want to repeat that, either
26:06
as an organization or an industry, quite honestly.
26:11
Absolutely not. And so, yeah, what can we do
26:14
differently or how can we learn from our mistakes?
26:20
Okay, stumped no, I'm thinking You know as we
26:25
talk through this in this particular platform
26:27
in this way, I just keep coming back to trying
26:31
to figure out Why it's happened across basically
26:36
every variety Across the globe Is it like just
26:40
we had this herd mentality and everybody thought
26:43
it was gonna be okay? I think there was some
26:46
of that there's Some of these hop brands are
26:49
heavily heavily managed In a way to protect against
26:52
this happening and they're doing like we talked
26:54
about last time. I think most of them are doing
26:56
a really good job Correcting the supply issue
26:59
It's just unfortunate it had to be so big of
27:03
a correction. Oh, yeah. I mean I talked about
27:06
that at hop convention Again, you could pull
27:08
up the math on this and the data on this on slides
27:11
at American hop convention org, but just using
27:16
publicly available numbers, which are debatable,
27:19
but we'll use them because that's what's available.
27:22
I mean, a full farm should have an all -in cost
27:26
per acre of about $13 ,000 an acre. And about,
27:31
you know, roughly half, it's, you know, depending
27:34
on the farm and whatnot, roughly half of that
27:38
is variable and half of it's fixed. And so when
27:43
you're down 26%, because of your overhead your
27:47
average cost goes up to over fifteen thousand
27:51
an acre and That's not really well, that's definitely
27:56
not sustainable, especially in a market where
27:58
prices are falling And interest rates are up
28:03
which makes it even harder but it like we have
28:05
just missed the mark so so bad I think that's
28:10
an important point is We're probably always going
28:14
to miss the mark. It's how far off the bullseye
28:21
we were on this one. Yep. And I think there's
28:25
going to be better ways to do it. So we are much
28:29
more narrow on missing the mark. I mean, the
28:32
variability on missing the mark should come in
28:35
the form of yield variability. That should be
28:38
our biggest issue. Ten percent up, ten percent
28:41
down. as an industry, something like that. But
28:44
hitting demand should not be that hard. It's
28:47
not like beer consumption is going to drop by
28:50
20 percent in a year, but acreage sure as hell
28:53
does or increases. We have to get away from that.
28:59
I don't know how possible that is. I believe
29:02
it's very possible and I think I think it's possible.
29:05
I think we just need to be open to. an ongoing
29:10
conversation and ongoing adjustments and not,
29:16
you know, let the problems get bigger than they
29:19
need to. I agree. All right. So how did Roy Farms
29:24
get here? A lot of change across the entirety
29:31
of the organization, the go to market strategy,
29:34
the partnerships, but probably more importantly,
29:39
All of that was born out of a year or two of
29:44
really fighting for survival. Talk more about
29:50
that. Yeah, the farm got to a place where it
29:59
really needed to make some material changes if
30:03
it was going to be a good industry partner and
30:11
There's other industries that we just needed
30:12
to exit Yeah, I mean three years ago four years
30:17
ago Roy farms had 3 ,600 acres of hops Mm -hmm
30:22
300 acres of apples cold storage a huge blueberry
30:27
operation Both on the ranch and a partnership
30:31
out in Othello, right? I mean how many acres
30:33
in general was Roy farms farming? I mean you
30:38
had producing acres and then you had and still
30:41
have you know idled acres or bare ground acres
30:45
and I mean I think I don't know I mean it was
30:48
a big number um including the what was it 1700
30:54
ish acre organic blueberry farm that we were
30:58
farming I don't know it's probably like over
31:01
7 000 acres or something like that um which is
31:04
a lot don't forget about the Little grapes. Oh,
31:09
yeah seven thousand and two acres Yeah, we're
31:18
still in grapes. Oh, yeah For those of you that
31:22
don't know there's a little side hustle that
31:24
that Roy Farms has with Are they organic grapes?
31:28
They're organic whether they're not being sold
31:30
as organic, but they are organic Yeah, just wine
31:33
grapes. Mm -hmm. They go to a brewery partner.
31:36
Yeah Well, I mean, that thing's fun and it breaks
31:41
even. I wouldn't want that at scale breaking
31:43
even. No, no, no. But so you you're at seven
31:48
thousand acres. Everything looks good. And then
31:52
fast forward to twenty twenty four. And there
31:56
are four hundred fourteen hundred and ninety
31:59
six acres of hops in. March of twenty twenty
32:05
four. and a handful of acres of grapes. And I
32:09
guess some blueberries, what, like 120 or something?
32:15
How did that happen? And that's like 70 % reduction.
32:21
Yeah, I mean, the funds that we were involved
32:24
in decided to get out of blueberries and we weren't
32:29
going to buy that project, so that went away.
32:32
And we had talked about it internally for a long
32:35
time about, you know, if and really how distracting
32:39
that project was to our core business, which
32:42
was hops. Hops has always been our core business.
32:46
We've been in and out of crops over the years,
32:49
cattle, sweet corn, green beans, hemp, cherries,
32:55
apples, blueberries. I mean, for the longest
33:00
time, diversification was viewed, talked about
33:04
and handled as a very strategic endeavor. But
33:08
when you look at our history, we never really
33:13
made money on a fully loaded model on anything
33:19
but hops. And you just keep plowing down that
33:23
road of this will pay off, this will grow into
33:27
something else. And at some point, you just got
33:30
to face the facts that we are a hot business.
33:37
That's what we do. That's what we've known. That's
33:39
what we've been successful at. So get rid of
33:43
all that other stuff. Get rid of the noise, refocus,
33:46
recenter. And that's what we've done over the
33:50
last two years, really. And I can't say that
33:54
it was a conscious decision. going into that
33:58
two year period, it was more of a call it a revelation
34:01
that was born out of the situation. Yeah, enforced
34:05
in many regards. Oh, yeah. I mean, it was a forced
34:08
revelation for sure, but I'm very grateful for
34:11
it. Yeah, I mean, like the campus here at Roy
34:15
Farms used to own used to be a bit bigger when
34:20
it owned CAs, cold storage. Those were divested
34:25
of. Out of necessity the apples were divested
34:29
of out of necessity while we're working on divesting
34:32
working on yeah, yeah Looks positive. Oh absolutely
34:37
Yeah, I I gotta imagine if you combine you know
34:43
a horrible hot market a horrible apple market
34:45
a horrible blueberry market and You know tie
34:51
that up with when you're that big and you have
34:55
those many different or that many different revenue
34:58
streams. It's probably a lot harder to see what's
35:01
coming. And when it all goes bad at once, who
35:07
doggy? Yeah, and we're not the only ones that
35:10
are experiencing that. It seemed like in this
35:13
kind of broader agricultural industry, the more
35:19
diversified you were the worst. You were slash
35:25
are yeah, and I think that's true for a lot of
35:28
ranches, which we'll talk about on the greater
35:30
when we talk about the broader piece of the industry,
35:33
but the hop industry specifically But yeah when
35:38
when you think of where Roy Farms is today so
35:42
a snapshot now is for all intents purposes we
35:47
raise hops and We have Plenty of empty trellis
35:53
out there. Not as much as we used to have made
35:56
good progress over the last year. Yep. But still
35:59
in no longer existential threat. But. So when
36:06
you look at it, Roy Farms is no longer. The size
36:10
that it once was and is diversified as it once
36:12
was. Our balance sheet. Is significantly stronger
36:18
than it was a year ago because of what we've
36:20
gotten rid of. and, you know, have taken a lot
36:25
of steps to stabilize the ranch, but it was a
36:30
free fall for the last, what, two to three years?
36:35
Yeah, two years. I mean, really, the issues were
36:37
there prior. Some of those hard realities and
36:42
the choices were there before, you know, the
36:48
last two years. Yeah, talk more about that. Yeah,
36:54
the other thing to add to that is that the downsizing
36:58
of acreage outside of the hop division is a very
37:02
strategic move for us. We see our role and our
37:08
trajectory in hops being good, even with all
37:12
the market corrections. And so I think it's important
37:15
to point out for our industry partners that our
37:20
hop division in essence hasn't shrunk much. We
37:24
still have idle trellis that we need to plant
37:27
out in the in the coming years. But that trellis
37:32
is essentially still. Still generally the same
37:36
amount. Absolutely. But, you know, I mean, we're
37:41
focusing on how much change has happened in the
37:43
last five to 10 years or even the last year.
37:48
What's really interesting to me is that You have
37:52
multiple generations and you might even still
37:57
have the patriarch involved to some degree or
38:02
the second generation involved. So you could
38:06
have two or three generations operating and giving
38:12
input and making decisions in these organizations
38:16
at any point in time. Which can be really challenging
38:21
because in a lot of ways the mentality doesn't
38:25
shift with the model or the industry Oh interesting
38:29
and on the flip side of that You have people
38:33
coming into the industry that Haven't lived it.
38:38
So where's where's the sweet spot in? changing
38:41
the mentality changing the approach and Being
38:47
open to new ideas new directions, new inputs
38:51
or embracing what these new generations can add.
38:57
It's really tricky. And in some cases, you have
39:02
the previous generation that's gone through hard
39:04
times and doesn't want to see that happen again.
39:08
But they may go about it in very confusing ways
39:12
for that next generation. It may come off as
39:14
a power play when really it's just fear and trying
39:18
to Preserve the farm because they've seen what
39:23
can happen I'm starting big picture and trying
39:26
to drill down. Yeah What's a good example of
39:30
where? One generation wanted to do one thing
39:34
and the next generation wanted to go a different
39:35
direction Hmm I've got an example that goes back
39:42
to the previous generation was just trying to
39:46
Secure the the long -term safety of the farm
39:49
And it's kind of interesting to look at in hindsight
39:53
now. So I've heard the story where you brought
39:59
to your dad and said, we need to be growing proprietary
40:02
hops. And you put on the table in front of him
40:05
how much money the ranch was giving up by not
40:09
agreeing to grow a larger percent of the portfolio
40:13
for other merchants. And it was a material number.
40:19
Yes, and so the ranch chose to start raising
40:24
proprietary hops Which for the record we did
40:28
have a quote -unquote proprietary hop program
40:32
Sure, there was a quasi private public program
40:37
and That's probably a whole nother conversation.
40:40
But yes growing other companies proprietary hops
40:45
was was the the challenge. And so the ranch pivoted
40:51
into that. Oh, you know, actually, interestingly
40:53
enough, I remember when there's there's a backstory
40:57
to that backstory. We went to the some of the
41:02
owners of the proprietary varieties initially
41:04
and wanted to grow them and we're told no, because
41:08
I'm sure that it didn't or it hadn't grown enough
41:11
to justify bringing on outside growers. Sure.
41:17
So we had gone and tried to grow them and we're
41:22
told no. And then we dug into growing public
41:27
varietals. And then there's a lot of things that
41:31
happened in that public variety space. There
41:33
is probably some bundling that happened along
41:38
the way of private public that put us at a competitive
41:44
advantage because we didn't have those publics.
41:47
And then there was also a buildup of inventory
41:52
in those publics as well. Sure. And so that's
41:56
about the time when that public portfolio, which
42:00
was our bread and butter, kind of crashed. We
42:03
had to look at crash for the for the time being.
42:08
We had to look at other opportunities and and.
42:12
The idea about growing these other proprietary
42:15
varieties had been percolating in my mind for
42:17
a while and then that led to the conversations
42:20
conversation that you're referring to Yeah, that
42:24
makes sense and then as the ranch Got deeper
42:30
and deeper in and more dependent on other organizations
42:34
hop varieties It was able to benefit financially
42:39
for several years from that until the retraction
42:44
happened, in which case Roy Farms did not have
42:47
the ability to react or didn't have a say in
42:52
the in the reductions because Roy Farms didn't
42:56
have any ownership in those varieties. And so
43:01
back to your point about about maybe the previous
43:04
generation, I would imagine your father wanted
43:10
to Keep a level of independence on the ranch
43:15
to make sure something like this didn't happen
43:18
and there was wisdom in that there was and I
43:23
don't know just seems like a good example of
43:25
where the identity of the ranch and what the
43:27
ranch was was focused on direct brewer and kind
43:33
of having more of a say in its own destiny, and
43:37
then it kind of gave that up. And that is also
43:40
how the majority of the rest of the growing industry
43:43
operates. But yeah, I can see how those generational
43:47
differences can cause some real challenges. You
43:50
know I wrote a dissertation about generational
43:52
differences. You did? How about that? You could
43:57
put Dr. Drew on the podcast. We don't need to
44:00
do that. Yeah, and I think it's important to
44:04
point out that there is no one thing that led
44:07
to The challenges that we've had over the last
44:11
couple of years it's all these things and Like
44:16
I said, it's not even just the fact that we got
44:19
our acreage hacked by 50 % You know or whatever
44:23
the number was during this market correction,
44:26
which thankfully we've grown that back up but
44:31
There's also the fact that our organization had
44:36
grown and did grow to the point where we needed
44:39
to start bringing on more senior management.
44:44
The farm had gone from an organization that took
44:50
most of its direction from family members to
44:53
an organization that took its direction from
44:57
a combination of family members and non -family
44:59
members. And that was a really tough transition.
45:05
Really tough transition. You know, we'd cycled
45:09
through people that the teams just didn't trust.
45:15
That was distraction on top of distraction. As
45:20
we're looking at some of these alternative crops
45:21
that we're trying to branch out into that was
45:24
a distraction to our hop business trying to Execute
45:29
on that with individuals that the teams don't
45:33
trust was another major distraction Do you think
45:39
that the my mind goes to the attempt to get into
45:43
or I mean was an attempt the ranch got into blueberries
45:50
and probably deployed a whole lot of capital
45:52
to get into that. Did that ever make any money
45:57
at all or did that suck a lot of wind out of
46:01
the sales? It sucked most of the wind out of
46:04
the sales. Do you think that's because of just
46:07
bad timing of the market? A lot of it was timing.
46:11
I mean, you could point at a lot of different
46:13
things. We tried to roll with the market and
46:18
the fact that blueberries were becoming a 365
46:21
day a year product in grocery stores, which meant
46:25
bringing in product from other regions of the
46:28
world, Peru, Chile, Mexico, Canada. And I think
46:39
one of the reasons that we stayed in it is we
46:41
could see some of the positives of what we're
46:44
doing, especially around organic blueberries.
46:47
But That industry still hasn't Quite found its
46:52
new norm in my opinion And just kind of the the
46:56
time clock was up there for us Did apples apples
47:01
had to have made money in many years? I would
47:04
think apples made money in years for sure it's
47:09
just that We probably rightfully so put most
47:15
or all of our attention on the hop portion of
47:17
our business. But there was a point there where
47:20
we needed to start reinvesting back into the
47:23
Apple orchards in a proud in a material way to
47:26
be a relevant producer, because we don't have
47:30
a packing. Actually, we did have a packing house
47:32
at one point, but it was really small. And and
47:35
we just never put the intention behind apples
47:38
that we did behind hops. I think had we we might
47:42
still have an Apple division, but I mean, it's
47:47
tricky because that would have amplified the
47:50
issues that I just talked about, you know, adding
47:53
on more non -family member management. And I
47:57
think it would have just exposed some of the
48:00
things that we really needed to dial in. Like,
48:02
I mean, at the end of the day, communication
48:04
and trust internally, a lot of those things we
48:09
were working through as we were. Trying to execute
48:14
on things and it was it was really challenging
48:17
So a whole lot of combination of Trying to do
48:23
the best by the ranch but in doing so Best by
48:28
the ranch and best by the people too. I think
48:30
that's a Roy trait that can be really positive
48:34
and it can be really negative to where And I
48:39
put a note down here family first organization
48:42
and for a while still to this day we like to
48:48
Try and be people first But there's a fine line
48:52
there between family first and people first Being
48:56
a good thing and that being a bad thing. Yeah,
48:59
and When it's people first with no accountability
49:04
or it's family first without Smart business decisions.
49:11
They're bad things. Yeah, and they become bad
49:14
really fast That's another thing we've worked
49:17
through over the years Being more of a business
49:21
first company and not just a family first company
49:24
My opinion is if you take care of the business
49:27
the family's taken care of if you take care of
49:29
the family the business might not be taken care
49:31
of And probably isn't That's a very good point
49:36
Well, and it's a lot easier to blur those lines
49:39
when you have three to five different divisions
49:44
of the company and there's the warehouse division.
49:48
They're all man. The cherry division, the blueberry
49:51
division and the hop division. And there's a
49:54
lot of revenue coming in that are all managed
49:57
by different family members at one time. Not
50:02
to say they did anything wrong. I mean, I think
50:03
in hindsight, they actually were trying and did
50:06
a lot of things well. It just the the pieces
50:11
were never joined in a way that there was real
50:16
business efficiencies or you know, it was it
50:22
I think they could have been combined over the
50:24
years to where you know, one plus one equals
50:26
three, not one plus one equals 1 .5. There's
50:37
a lot of that. Yeah. I think also too, you know,
50:41
in these kind of fat hop times in the last handful
50:45
of years, we just didn't make the changes that
50:48
we needed to in terms of becoming more efficient.
50:51
And a lot of that is because we're trying to
50:53
figure out all these other things that I was
50:55
just talking about, you know, generational transitions
50:59
and, you know, communication strategies and tactics.
51:04
internally and externally marketing. That's something
51:08
that that was never, I don't think, completely
51:12
understood or or focused on the way it should
51:15
have been having having a sales division. Because
51:20
for the longest time, we didn't talk about what
51:22
we're doing. Well, it's like, how are you supposed
51:24
to sell product if you don't talk about what
51:26
we're doing? Yeah, that's problematic. And then
51:30
the narrative in the industry was that There's
51:34
a lot of different narratives. One of the narratives
51:36
is that Roy Farms is a competitor, which just
51:39
drives me crazy. I mean, which is and it's one
51:42
of the reasons that we're where we're at is,
51:44
you know, we had a few different masters to serve,
51:48
we had the direct sales, we had our merchant
51:51
relationships, and there was some other things
51:54
sprinkled in there, maybe processors and, and
51:58
what have you. But without very clear communication
52:02
and intention there, stories can get written
52:05
and I mean I can just tell you and everybody
52:09
else listening that we have never wanted to compete
52:14
just to compete or to prove how much market share
52:18
we can have. At the end of the day all we're
52:20
really trying to do is just sustain the farm,
52:23
sell the product that we have and do a good job
52:27
and have fun while we're doing it. I mean that's
52:30
it. And we've been ping -ponged around in this
52:36
thing for a while, kind of not really knowing
52:39
where to go, too. It's like, well, who do we
52:43
put more attention to? Do we put more attention
52:45
to our brewing customers? Do we put more attention
52:48
to our merchant customers? Where do we put the
52:52
attention? And you kind of get paralyzed because
52:57
you feel like... Well, if I do this then they're
53:01
gonna react this way and then they may not like
53:05
it and what does that mean? What are the ramifications
53:08
and and so then you just kind of end up being
53:12
stuck in the middle unable to make really clear
53:16
and intentional decisions and these You know,
53:20
you don't get there You know that discussion
53:25
about how people force you into a corner or force
53:29
you into a box or a description of who you are,
53:32
your competitor. But you're big, so we need you
53:36
when we need you. And then the second you do
53:40
anything that could be perceived as competition,
53:42
when really you're just, like you said, taking
53:45
care of the farm, a lot of that has led to, that's
53:49
not unique to Roy Farms. I mean, Roy Farms certainly
53:52
is... Because of the size and capabilities with
53:57
warehousing and processing and logistics and
53:59
sales and all of that sort of stuff We certainly
54:02
have more of an element element that could be
54:06
perceived as We take some arrows. Yeah, we take
54:10
some arrows but trying time and time again to
54:13
try to figure out how to find our niche in our
54:19
area of alignment and that is quite a challenge.
54:24
But it goes back to the discussion about, you
54:28
know, the entire industry right now is circling
54:31
the wagons, and it's forcing these discussions
54:34
to happen, right? And people are going to have
54:40
to find who their tribe is in this industry moving
54:46
forward, out of sheer necessity right now. Yeah.
54:52
And I think at the end of the day, that's probably
54:54
a good thing It's gonna lead to some casualties
54:58
and it's gonna lead to some new Alliances and
55:02
teams and I guess tribes as I put it That exists
55:06
that didn't exist before but I think it's gonna
55:08
be better for customers and it's gonna be better
55:10
for Family farms back to something that I'm sure
55:17
we said in episode one The Phantom Menace. What
55:28
I was saying was, yeah, I mean, you're just talking
55:33
about collaboration and encircling of the wagons
55:37
and having the conversations. That's one of the
55:44
things I'm very grateful for right now is while
55:49
it's not as widespread as I had hoped, we are
55:54
experiencing, we Roy Farms are experiencing a
55:57
very collaborative time right now. And to your
56:04
point about this is going to be better, I do
56:07
think it's going to be better. It's going to
56:09
take a while for the dust to settle. But I think
56:11
some of these partnerships that are being formed
56:12
right now will be better for the supply chain,
56:16
for the industry, for the parties involved. because
56:20
we're stronger together. And that's one of the
56:23
realizations that I've had over the last year
56:26
or two is that we are stronger together. Whoever
56:29
the we is. Mike and Drew. No way bigger than
56:36
that. Bigger than that, buddy. Way bigger than
56:38
that. Yeah, because for a long time, independence
56:43
can be independence with others. Independence
56:46
doesn't need to be independence, me and myself.
56:53
Right. Sounds lonely. It is. It's really lonely.
56:59
And this industry has felt really lonely for
57:01
me. Really lonely for me in the last couple of
57:05
years, especially as some people have walked
57:10
away from partnerships. It's made me pretty sad.
57:14
But then the flip side of it is, is that we're
57:17
also seeing great collaboration in some areas
57:20
and and. I mean, it's even you coming on board.
57:25
It was a game changer. We used to be alone wolves.
57:31
Now we're a pack to. I think our pack's getting
57:35
our packs getting bigger. Oh, yeah. Which, you
57:39
know, to that point. Well, one more thing. Go
57:43
ahead. Thank you. I'm grateful for me personally
57:50
the realization and I'm grateful for the company
57:53
and I'm grateful for this collaboration because
57:57
for a long time we have had this internal saying
58:01
well we just don't play in the sandbox well with
58:03
others and I think that that has been one of
58:06
probably the biggest limiting narratives well
58:10
thoughts and and mental states because Like we
58:16
can. We are. I think. We're kind of forced into
58:22
it to some degree, but that's been one of the
58:25
gifts. Yeah. No, we like to have people in our
58:31
sandbox. We don't want a sandbox. We want a beach
58:34
where there's a big ocean out there in front
58:35
of us. So. Yeah, we got some exciting stuff to
58:42
share on collaboration. So we've talked about
58:45
what this podcast is, and why we're doing it.
58:50
We've talked about where Roy Farms is at, and
58:55
where the industry is at, and how we got here.
58:59
So we've set the table now for the future fun
59:05
discussions, fun guests. And as the next podcasts
59:11
roll out, we're going to see or talk a lot more
59:17
specific about different examples. On our next
59:21
episode we'll be talking about some of these
59:25
projects that we're working on and what we see
59:28
as examples of how the future of the hop industry
59:32
is going to go and our place in it and bringing
59:36
on some guests that we think will be really interesting
59:39
as we talk through where this fun ride is going
59:46
to take us. Mm -hmm. Also, you know, as we're
59:53
circling around some of these broader topics,
59:57
if they want more information on, want us to
1:00:00
go deeper, let us know in the comments and we
1:00:05
can try and fit that in. No dirt, no flowers.
1:00:09
Episode two in the books, baby. Done. See you
1:00:14
next time.