UK: Returns for Maltsters and Growers to Improve as Market Balance is Restored

The past two years have been two of the most difficult ever encountered by British maltsters, according to MAGB Chairman’s statement from November 7th 2006.

"Malt prices have been driven down to historic lows as a result of global overcapacity and sustained downward pressure from buyers. The UK, however, faced up to this challenge and led the industry by making the difficult decision to close malting capacity in the UK. We have seen Continental and North American maltsters follow our lead with further closures being announced in the past year. Rather sadly we also had the high profile collapse of one of Europe’s largest malting companies, which left some breweries without the malt they thought they had secured", MAGB Chairman stated.

"As supply and demand comes back into balance nature reminds us that we can never take for granted an adequate supply of quality raw material. European malting barley crops were looking promising as we approached the summer, but persistent rains during harvest led to crop failures in some key producing Northern and Eastern European countries. At the same time Australia has experienced a drought which has affected its malting barley. Fortunately the UK avoided the worst of the weather, but malting barley prices have increased dramatically as a result of the European supply situation, and there is the very real possibility that some malting plants will be unable to produce at full capacity in 2007. This in turn is likely to mean that not all breweries or distilleries will be able to secure their full raw material requirements".

"Not surprisingly raw material security is now at the top of the agenda for many malt buyers. We will increasingly see a greater focus on longer-term supply security throughout the whole supply chain. This should bring with it better returns for both maltsters and growers which will put the industry on a sustainable footing for the future. There is a historic recognition that UK malting barley growers can deliver consistent quality barley, even during times of adverse growing conditions".

"With regard to this topic our Cereals Committee has recently issued a statement calling on growers to plant malting barley to ensure future supply. As an industry we want to assure farmers that we will do our utmost to ensure that they receive an attractive price for their crops, so that we can both share in the benefits of the changed market position".

"Despite the commercial difficulties faced by the industry UK maltsters have continued to work together to improve their services to their customers. Assured UK Malt remains the only malt assurance scheme in the world, and last year UK maltsters overcame their modesty to publicise that fact. As food safety and traceability becomes an increasingly important aspect of brand protection brewers and distillers can source malt from the UK satisfied that they are purchasing from the most highly integrated and robust assurance system in the world today".

"An indication of the scale of UK capacity reduction can be seen in the return from members of the steeped tonnage at the end of the MAGB financial year each July. In July 2004 1.854 million tonnes were reported as steeped in the previous 12 months. In July 2005 this figure was down to 1.703 million tonnes (down 8%) and in July 2006 the figure was 1.672 million tonnes (down 9.8 % on 2004)".

"Not surprisingly UK total malt exports dropped from 403,882 tonnes in the year ending December 2004 to 287,907 tonnes in the year ending December 2005. A further reduction is expected in 2006. Nonetheless, exports remain an important market for UK malt and The Malt Exporters Group through their Chairman, Tim Stonehouse, has been most active in our EU trade association, Euromalt, lobbying to protect EU access to the important Asian market. The EU Commission and UK Government’s attention has been drawn to the potential risks arising from the bilateral trade agreements being achieved by our competitors in that part of the world. Such arrangements could disadvantage EU maltsters’ exports, through import tariffs that competitors with bilateral trade agreements do not have to pay. Any such ‘extra’ cost can be a serious barrier to trade".

"Maltsters, in common with other industries, have experienced very large cost increases for energy and have continued to make enormous efforts to control their usage. This is shown by the fact that the industry energy use per tonne of malt made is already less than the targets agreed with the UK Government, under the Climate Change Levy scheme. However, maltsters cannot continue to absorb the massive increase in energy costs that have arisen over the past year".

"The collaborative approach that MAGB members have adopted in respect of the sector’s energy efficiency is also mirrored in other industry initiatives. For example the review and updating of the MAGB Guide to HACCP in malting to a Protocol, strongly linked to the Assured UK Malt Standard, was delivered by a workgroup from the MAGB Technical Committee".

"The Technical Committee continue to consider all aspects of the malting operation, and another workgroup worked with Brewing Research International to produce a new industry-wide sampling and testing scheme. This new scheme will check that the 2006 crop malting barley meets the legal requirements for mycotoxins, and that agrochemical maximum residual levels are not exceeded. This new scheme has been designed based on risk assessment, and will ensure better checking for industry ‘due diligence’ throughout the year. The results will be published on the MAGB website, www.ukmalt.com. A team of industry experts commenced a review of The Assured UK Malt Standard in September 2006, and the new testing system is one of the modifications to be incorporated into the Standard".

"Another example of how UK maltsters have worked together to deliver a benefit to all has been in the production of the MAGB Guide to DSEAR (Dangerous Substances and Explosive Atmospheres Regulations) legislation requirements. Whenever barley or malt is moved, dust can be formed. In certain circumstances admixtures with air can produce the potential for an explosive mixture, if an ignition source is present. Maltsters have always known this, and have operated to prevent this possibility for many years. However, new EU legislation requirements have resulted in the UK DSEAR. To assist the industry a MAGB Technical Committee work group produced a detailed guidance document for all MAGB members, which help to ensure their full understanding of the new requirements, and how to comply in the most cost effective manner. This MAGB initiative has made a complex task much easier for malting sites to deal with, and ensured that excess expenditure is prevented".

"Supply chain communications is another area that the MAGB continues to try to improve. Linkages between AUKM and the assured grain supply schemes have been strengthened during the year through the MAGB secretariat’s efforts. The MAGB also reached many growers who attended the Cereals 2006 exhibition and 26 different beers provided by 14 UK brewers, plus demonstration on tasting from brewers, helped to emphasise the importance of the malt supply chain and its requirements".

"The MAGB members’ achievements this year are cause for satisfaction and some industry pride. My thanks go to all the Cereals, Technical and Malt Exporters Group members, and the work groups they have appointed, who have worked together to our industry’s benefit throughout the year".

"Ivor Murrell, Director General of the MAGB for the past 13 years will be retiring at this year's AGM. Ivor has worked tirelessly for the industry and the reputation in which the Association is held both within the UK and Europe is in no small part due to his dedication and professionalism. The efforts of Ivor and his small team have allowed the MAGB to “punch above its weight” and be a well regarded and respected voice of the industry. I would like to take this opportunity to wish Ivor and his wife Jean a happy and well-deserved retirement".

"The Association is pleased to welcome Colin West as Executive Director of the MAGB. Colin has significant industry knowledge and experience and we are confident that he will continue the excellent work previously led by Ivor".

"There can be no doubt that the industry continues to live in challenging times. However, recent events and the proactive approach taken by UK maltsters have presented us with an excellent opportunity to benefit from our strong market position. Now is the time to consolidate our achievements, and to work with all those involved to ensure that UK malt is recognised as the premium product in the world market for malt. By working together with growers, and brewers and distillers, UK maltsters can ensure that a sustainable supply chain is built for the future, delivering security and profitability to all those involved".

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