NEW YORK (MarketWatch) -- Ask about hops at the American Flatbread brewpub in Burlington, Vt., and you're likely to find yourself in cold storage, in the cellar, with brewer and co-owner Paul Sayler.

Cloistered toward the back, a dozen or so half-full foil bags of hop pellets, hoarded last year, sit on a shelf. Sayler opens a bag, cradles the hops in his hands and takes a whiff of the signature fragrance that microbrew aficionados crave.

"This is my little meager trove of hops," mourns Sayler, glancing at what's left on the rack: some German Spalt and Tetnang varieties, a half-pound of Fuggles, and a few boxes of Simcoe.

As of the middle of March, his distributor hasn't been able to deliver any of this year's contracted hop supply. The short supply has affected Sayler's choice of brews and forced some ingredient substitutions.

"We're down to the last of what we've got. This will be maybe three or four brews' worth of hops, and then I'm done," he says quietly.

If you love craft beer, that's not something you want to hear.

To make beer, you need water, malted barley, yeast and hops -- the dried female flowers, also known as cones, from hop vines. When you crush a hop cone, you get a yellow pollenlike powder on your fingers called lupulin. That's the zing brewers get from hops.

Without hops for bittering, there would be no way for brewers to temper the roasted sweetness of the malt. Hops also provide aroma -- that burst of floral, spiciness you might get in the head of an American-style India pale ale. Hundreds of years ago, British brewers sending IPAs off to India also appreciated the natural preserving qualities of hops.

"Hops are the balance of a beer; malts are the heart, and the hops are the soul," muses Morgan Wolaver in Middlebury, Vt., snowflakes falling quickly but silently outside the window behind him. "They are that finishing touch."

Wolaver, the CEO of Otter Creek Brewing Co., may produce 32,000 barrels of beer this year, an artisanal drop in comparison with the mass-market bucket, he says, noting that annual production runs to the hundreds of millions of barrels at Anheuser-Busch.

It's more than a microbrewer's poetry that's lost without hops; indeed, there would be no beer as we know it. It's the reason brewers worldwide have been desperately searching for enough hops to make the varieties of beer their loyal drinkers have grown accustomed to, from the more highly hopped, so-called extreme brews to traditional European-style beers made with noble German and Czech hops.

How badly have brewers been hurting for hops? Some in the industry suggest the shortage has reached levels the likes of which haven't been seen since the late 19th century, when a blight on England's hop crop put a super-premium price on hops grown in the northeastern U.S., especially in the state of New York, which at its high point produced 80% of the country's crop, agricultural records show.

And those days would seem to be back, only this time there have been two years of poor yields in the hop-producing U.S. and Germany.

Around the world, flooding and drought have hurt crops. And some brewers blame the allure of corn-based ethanol production for luring farmers away from hops and other grains.

Meanwhile, hops inventories have waned as consumers thirst for flavorful, traditional brews. Craft-beer sales jumped 16% last year, according to the Brewers Association, compared with single-digit percentage growth gains for makers of noncraft beer.

Amid the current supply-and-demand dynamic, prices for hops have surged, even among the small brewers lucky enough to have secured multiyear hop contracts from distributors.

"We saw [price] shifts in some varieties of hops of as much as 300%" in the past year, Wolaver says.

Those less fortunate have to scrounge for hops at the spot price. Hop pellets at the end of 2007, one supplier in Yakima, Wash., says, had been selling for up to five times what they would go for in normal years.

So how are the big brewers handling the hops shortage?

"We grow a small percentage of our own hops; Anheuser-Busch BUD, -0.18% has a sufficient supply of hops to meet our brewing needs," reports Michael J. Owens, vice president of business operations for the maker of Budweiser and other brews.

According to a statement from Molson Coors Co. TAP, -0.14% , the brewer of Molson Golden, Coors and other brands, "the hops shortage doesn't impact Molson Coors. ... Over time, the shortage may increase our internal costs, but we don't necessarily pass that along to the consumer."

Nor do there seem to be any worries at SABMiller. A spokesman for the U.K.-based brewer (SAB) says, "We feel we're in fine shape at this point. We have enough raw materials."

So while costs have risen even for big brewers -- they won't say by how much -- it's clear they're not hurting as badly for hops as the small guys are, thanks to inventory-management and cost-savings programs, as well as crucial long-term contracts with growers.

Bigger craft brewers likewise have fared better than their smaller brethren. Boston Beer Co. SAM, -2.16% had enough hops to spare that its sharing program was able to dole out 20,000 pounds of English East Kent Goldings and German Noble Tettnang Tettnanger hops, via lottery and at cost, to fellow brewers.

“ 'It certainly is going to limit growth. I think that some companies are not going to be here.' ” — Morgan Wolaver, Otter Creek Brewing Co.

With purchasing power in the hands of big brewers and bigger craft brewers, the competition for hops at any price has been so intense that some fear there could be a shakeout among the small operations, which also face rising prices for other materials, including glass bottles.

"It certainly is going to limit growth. I think that some companies are not going to be here" due to rising costs, says Wolaver. He has been staring down a 40% jump in barley prices linked to lower supply, a result in part of the shift to more lucrative crops for use in biofuels.

There's also less incentive to grow high-quality barley for malting, since farmers can get decent money now for barley sold as animal feed, notes Otter Creek brewer Steve Parkes, in an email message.

For beer drinkers, higher costs involved in making beer mean higher prices per pint and six-pack. How much higher, though, brewers can't tell.

"That's one of the hardest questions for me," American Flatbread's Sayler says from behind the long, gleaming bar. "We're going to have to see just how big an increase settles out over the next year and make some adjustments." See video report on the hops shortage.

Even so, higher prices for hops should be easier for a brewpub to swallow than for bottlers, Sayler says. Profit margins aren't as tight, since it's only the rising price of ingredients that factor in; no glass or cartons are needed when you sell by the pint, nor is there pressure to compete on price, as is typically the case on six-packs sitting side-by-side at the store.

Otter Creek, meanwhile, has been forced to push up its price per six-pack by about a dollar. Make that $1.25 to $1.50 more for the organic line. If prices keep rising, beer drinkers may find it hard to stay true to their favorite craft brew.

"We can only absorb so many inflationary price increases. We've seen it in gasoline, milk, all these different foods that are out there. And after a while people are just going to get concerned about what they can pay," observes Wolaver. "But I think there's enough loyalty where they're not going to go back to the bland beers. Once you've had a taste of heaven, why would you want to go back, right?"

One positive that brewers say may yet emerge from the hop shortage: a renaissance of more inventive beers, and styles that play down the hops.

Paul Sayler may substitute for Tetnang hops with other varieties and still get an authentic German-style lager. He's also toying with the idea of year-round production of gruit ale, an herby brew dating back to the Middle Ages that's made without hops.

At Otter Creek, there's a low-hops Kolsch-style beer for spring. With Cascade and Centennial hops in short supply, some beers will get a blend of hops. The brewer is also testing out in its home state what it calls an American pale ale, with organically grown fresh hops and barley sourced from a farm in Oregon.

The hops "are not aggressively aromatic varieties (Fuggle and Golding), but they do offer great depth of character and a very subtle combination of oils and other compounds," writes Otter Creek's Parkes. While the taste defies categorization, there's a smoothness and balance in the brew. "The resulting beer is very English in approach, if not in flavor."

The hop shortage, experts say, may be with us for years to come, as new hop crops take at least a few years to ramp up in yield. That's led small brewers to turn to local farmers in hopes of striking future supply deals, much as they did in the 1800s, when central New York and New England were prominent growers of hops and small family farms did a lot of the heavy lifting.

“ 'We have to think proactively about how we relate to the farmers.' ” — Paul Sayler, American Flatbread

"Just last week I was talking to a farmer [about growing] organic hops for us. He was talking to some of his colleagues. They see opportunities, and they're going to start planting more acres of hops," Wolaver says.

That's already happening in New York's Finger Lakes region. Brewer Jeff O'Neil at Ithaca Beer Co. has been buying several varieties of hops from Pederson Farms in Seneca Castle -- about 500 pounds of hops last year. The local hops turn up in his Double IPA, which actually uses triple the amount of hops that go into O'Neil's regular IPA.

"I think it's a real wake-up call for the industry," says Sayler of the hop shortage. "We have to think proactively about how we relate to the farmers. To take them for granted is always a big mistake."

In the meantime, American Flatbread's brewpub will make do with the hops it can get for the Zero Gravity beers it can brew and put on tap.

"I have nine beers on tap right now, and maybe five beers aging. I think somewhere in the late spring the last pint would be served," Sayler estimates. After that, his brewpub would become just another taproom serving beer produced beyond its own walls.

"It would be a pretty disappointing moment for me as a brewer. I don't expect to see it come to pass.

"I might have to travel some distance, but I'll find the hops and the malt to brew the beer I need to brew."