Three year malt contracts a recipe for successCombine a California brewery, one of Canada’s leading maltsters, 12 Alberta barley growers and a three-year growing contract, and you’ll get a new recipe for barley marketing that’s turning the heads of growers and brewers alike.
Two years ago, Lagunitas Brewing out of Petaluma, CA, contacted Rahr Malting Company to arrange a meeting with some barley growers. After observing the price volatility in the commodity markets, the company was looking to build relationships with growers who could ensure a secure supply of quality malt barley. Six growers participated in the initial discussion, and eventually worked together to develop the first contract.
“Barley is not a commodity for us, it’s a value-added input. It’s the first ingredient in our product,” said Leon Sharyon, chief financial officer for Lagunitas. “Sustainable economic pricing programs are a way for us to take the volatility out of the game and make it work for our suppliers and the brewery.”
“The growers I picked were top quality growers who would be willing to come to the table and talk,” said Kevin Sich, grain department manager for Rahr. “They were growers with good business sense, who would share their views and opinions, and describe what was going on with barley markets.”
When the conversation started, the Canadian Wheat Board (CWB) still controlled grain marketing in Western Canada, preventing this type of direct marketing relationship. When the CWB was devolved, opportunity met preparation, and the Chinook Arch Barley Grower Program was born. The first contracted crop went in the ground in 2012.
Under the program, growers are guaranteed a base price of $300 per tonne over three years. The contract includes an input rider to account for increases in input costs, and full Act of God coverage in case of weather-related losses in yield or quality. It also includes a price premium for barley that meets quality specifications for plumpness and protein levels.
“Alberta is a beautiful growing region for barley. We’ve tried other malts from other regions, but they don’t produce the same quality as Alberta,” said Sharyon. “Higher quality barley goes through the brewhouse better, so growers get paid for the effort to produce high-quality malt instead of pushing for yield.”
Brent McBean was one of the first growers to sign on to the pilot program. He likes the stability of the three-year contract, and the sense of connection and community that comes from working so closely with the end user.
“I have a lot of commodities to market, so when I can hedge one commodity at profitable levels, it certainly helps,” said McBean, who grows durum, spring wheat, canola and malt barley, in addition to raising cattle. “It’s all about fairness with this group, and that’s totally different than anything we’ve ever seen coming from the commodity market.”
Earlier this year, McBean flew to the company’s headquarters in Petaluma to meet with the Lagunitas marketing team, and to thank them for selling his barley.
“It incents the marketers to go out and do a better job. It’s not just about them, it’s all of us,” he said.
Lagunitas buys 16,000 tonnes of malt per year, roughly 90 per cent of the total malt requirement from their contracted growers. With a new brewery planned in Chicago, their demand for quality malt will continue to grow.
“This whole craft brewing market is a huge story on the malt side,” said McBean. “Craft brewers in the U.S. use a massive amount of our malt. When you get a chance to be part of something like this, it makes life interesting.”
Two years in, Sich said the program has been attracting a lot of interest. Rahr is working to bring more brewers online so they can engage more growers in the program and spread out across geographic areas to help manage risk.
“We’re being watched closely from all three sides to see if this works,” said Sich. “From what I’m seeing, so far it does.”