Malt Sourcing for Brewers

Value creation is on the mind of every brewer.

How do you optimize your current malting allocation? How do you balance stability with the lowest long-term malt pricing? Are you the best ‘parent’ to run your own malting plants most efficiently? Can you be a low-cost quality malt producer?

Let First Key help you answer these questions. We review, plan and implement competitive malt strategies that create real value for our clients. Our services include:

Review of Existing Situation

Malt from own malting plants:

• A technical audit of existing malting sites, costs and conditions, KPIs.
• Benchmarking with other malt plants in the same market and with industrial maltsters. Identification of constraints.
• Evaluate quality of local barley purchase or need to import
• Review of agreements with traders and specific agreements with farmers, cooperatives, merchants.
• In-house and external storage, financing (cash management).
• Determine availability of (quality) local barley and does it represent good value for beer marketing
• Determine if there is a need for a specific internal structure devoted to malting activity
• Determine any gain in synergies, such as sharing utilities, use of steam, people (maintenance)

Malt from local/regional suppliers (we will get answers to the following questions):

• Is it worth reviewing existing contracts and the conditions for renegotiation?
• How expensive compared to present market price conditions?
• What additional values do the industrial suppliers bring just in time deliveries, but security of supply?
• Quality (how much can it be justified in the whole chain)?
• Better cash management (no financing of stocks)?
• Guarantee of price volatility?
• Hedging tools?
• Lower TCO (total cost of ownership)?
• Ability to bring new barley varieties, a better malting process, a better fit to brewers’ requirements (higher DP, if more adjuncts, higher level of FAN, and their consequences in terms of brewers’ benefits: higher extract, better filtration, improved fermentability, etc.)?

What is the supply & demand situation?:

• Evaluation of brewers’ total requirements for malt (how many kg malt per hL of beer for competitors?) — in the country, in the region (neighboring countries, if getting malt from these countries make sense from a logistic/delivery point of view (total cost delivered).
• Historical data of barley production in the different countries.
• Existence of (barley) seed breeders, seeds multiplicators at farmers’ level.
• Capacity of local farmers to address quality requirements and meet them.
• Who are the largest players locally? What are their respective strategies?
• Who would be able to challenge them (any other small/middle size maltster)?
• Do they have strong links with competitors?

Development of a Procurement Strategy

Building own malting plants:

• Can you be a quality malt low cost producer?
• Do you have the production costs to become a low-cost producer?
• Recommendations on what should be done/invested to achieve these costs objectives. Economic and financial consequences if recommendations are implemented.
• If achievable, do you want to invest in a non-core activity?

What are/would be the benefits of stopping malting activity:

• Focus on core business.
• No cash in agriculture (barley pre-contracting, storage, etc.).
• Lower total cost of ownership?
• How to identify/measure (brewing yield? cost of raw material per hL of beer?).
• Reducing head count?

What are the risks of stopping malt activity:

• Security of supply should be guaranteed.
• What if the only producing plant of the supplier fails (for whatever reason)?
• Volatility of prices: How to fix it.
• What is the malt supplier’s policy in this area?
• Long term agreements with fixed price, based on local barley contracted price – but what about crop failure?
• Has the malt supplier a really dedicated team to agriculture?
• How do they advise in advance of any potential mishaps?

Establishing your requirements:

• No limit in requirements is the base for discussion… but secure the supply chain.
• How are you regarding decreasing malt usage?
• And if less malt, then what should this malt be (higher FAN, higher diastatic power, other)?
• Identify future quantities required based on you long range plan.
• Can the quantity be flexible (will it depend on malt price)?
• In case of abundant crop, where is the lowest level?
• What is the interest for adjuncts and enzymes?
• What is the vendor’s malt storage policy at brewery’s gate?
• Transport specs (food safety).
• Request for competitive information on barley and crop prospects.
• Competition clause? Other clauses?

Evaluate supply and procurement trends:

• What are the leverages that you can negotiate to bind a malt supplier who is retained for short term (transactional relationship) purchases to a long-term commitment?
• How do you estimate the future local/regional supply and demand situation?
• Evaluation of (all) brewers’ total requirements for malt.
• How many kg malt per hL of beer for competitors in the long run — in the country and in the region (neighboring countries)?

Risk analysis:

• How secure is the malting barley cultivation locally?
• What are the competitive crops?
• How sustainable is the existence of the present maltsters in the region, mainly those with financial problems, or stand-alone structure (no backing), small-size family or individual business?
• What is the capacity of local farmers to address quality requirements and meet them?
• Who are the largest players locally: what are their respective strategies?
• Who would be able to challenge them (any other small/middle size maltster)?
• Do they have strong links with competitors (global players, local brewing companies)?

Implementation

We will review alternative procurement strategy models and prepare discussions with suppliers and make recommendations:

• Transactional: annual contracts; depend on market conditions – volatility risk; quality of product is no compromise
• Collaborative: closer relationships with supplier(s); tailor made product – consideration of crop fluctuation; hedging tools to be negotiated; security of supply – long term agreement to be considered; value added partnership to demonstrate; benefit of new technology developed by supplier(s)
• Strategic Partnership: total outsourcing of non-core business; supplier to take care of your maltings; buys the assets / rents the assets; can decide to close; “buy” the capacity against secured sale of same (or bigger or lower) quantity of malt; supplier to originate malt from best located production plant; commitment by supplier to deliver the highest value, i.e. the lowest total cost delivered.