UK: A further step to combat malting overcapacity, MAGB comments
The significant rises in energy costs are having a drastic effect on maltsters costs, as they impact on all aspects of the business – most notably raw material and finished product haulage, barley drying and malt production, Euan Macpherson, MAGB Chairman, said in its statement on November 14.
“This impact is despite the fact that UK maltsters are at the forefront of energy conservation and continue to use less energy than the sector targets set under the UK Climate Change Levy for malt production, which shows the investments they are making in this area.. In practice, the escalation in energy prices has far outstripped maltsters’ energy saving capacity, with resultant substantial cost increases. Maltsters cannot absorb these increases and they must ultimately be recovered through higher prices.
Our lead on malt assurance and brand protection should help us to address some of the difficulties of making sales on the world malt market. However, I wrote last year that the minimal margins, or even lack of profit, that can arise from having to sell malt in an oversupplied market place is not healthy for any part of the supply chain in the longer term. The new malting plants coming into production, have worsened that supply position. and additional production capacity in Russia has resulted in that country moving from being an important customer for UK malt, towards becoming a potential malt exporter in the near future.
EU malt exporting countries have also had some of their important markets threatened by their overseas competitors setting up Bilateral Trade Agreements, a proliferating trend, which could effectively close EU maltsters out of important world markets. EU maltsters are urging the EU Commission to address this issue through the WTO. If multilateral trade arrangements are stalled, then the EU should consider the bilateral route, before we are further disadvantaged.
Surplus malting capacity is a serious problem, and UK Maltsters were not pleased to learn that the Dutch Government was proposing to subsidise the building of a new malting plant at Eemshaven, which would give it a capacity of 120,000 tonnes. Along with other EU maltsters the MAGB wrote to the EU Commission complaining of the problems that this subsidised increased EU malt capacity would cause. The MAGB letter stated that continuous reinvestment in existing maltings is required, but Europe definitely does not need additional new capacity. Any ‘new’ capacity coming onto the market immediately adversely impacts on the commercial sustainability of the European malting industry. Under these circumstances, we strongly believe that any state aid for malting must be expressly prohibited.
UK maltsters have been addressing the issue of world malting overcapacity in a difficult but practical way. Since October 2004 UK Maltsters have responded by closing around 160,000 tonnes of UK malting capacity. This lead has been slowly followed elsewhere in Europe, where a further 200,000 tonnes of malting capacity has closed, but further rationalisation is required.
The UK closures are directly linked to lost export sales, and losing 160,000 tonnes of malt exports will mean a reduction of over 200,000 tonnes of UK barley purchases for malting this year. Lost sales of this magnitude means a reduction of overseas earnings of around £28 million. Even after these closures are taken into account the UK remains the second largest malt-producing nation in the EU, and UK maltsters will still require about 1.7 million tonnes of UK malting barley from the 2005 crop.”
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