Contracted for $300 per tonne | California company reaches agreement with Alberta growers to produce custom crop
On May 8, Ross Keller seeded Meredith barley, the first crop in the ground. He already knows what he will be paid for the crop and where it will be sold.
The New Norway, Alta., producer is one of 12 farmers who have contracted to sell malt barley to a California brewery for three years.
In exchange, the farmers know what they will be paid, know they have a guaranteed sale, will receive a bonus for better-than-spec barley and will receive extra money if the price of fertilizer, diesel or pesticides jump.
“The main benefit I view is we have a set price for our commodity we are producing,” said Keller.
“Yes, Mother Nature still plays a role in that, but you have a better idea of what kind of potential returns you have and it gives you a better handle on how many dollars per acre you want to put into the investment,” said Keller, who has been growing malt barley consistently for almost 20 years.
Lagunitas brewery of Petaluma, Calif., Rahr Malting of Alix, Alta., and the 12 farmers have formed the Chinook Arch Barley Grower Program to find a better model for growing, pricing and buying malt barley.
Leon Sharyon, chief financial officer of Lagunitas, said he wanted a way to encourage farmers to grow malt barley.
“What I am looking for is long-term availability of supply,” said Sharyon, who based the malt barley contracts on a similar hop-buying program the company created in 2008 to help smooth out price spikes.
“What I want is to always make sure there are economic reasons to have us in their rotation. Maybe we aren’t their most important crop, I’ll take second best, but I want to be second. Maybe in some years I’ll be the best,” said Sharyon, who is concerned malt barley production will decline unless it is competitively priced with canola.
Kevin Sich, manager of the grain department for Rahr, said the program has been a success for the brewery, farmers and Rahr.
The barley is malted in Alix and shipped to California.
“Lagunitas adopted this group of growers that basically grow exclusively for them and in turn they gave financial rewards,” said Sich, who introduced brewery officials to some of their top malt producers.
“These guys are serious barley growers,” said Sich.
Strathmore farmer Brent McBean said the project is unique and exciting.
“It’s completely alien to what we’re used to in Western Canada.”
The three-year contract with the farmers would not have been possible without changes to the Canadian Wheat Board in 2012 that ended the board monopoly on sales of export barley.
With the wheat board out of the picture, Lagunitas could sign contracts directly with six growers last year. This year the program expanded to include 12 growers who are supplying Lagunitas with 16,000 tonnes of barley, about 90 percent of its malt requirements.
Lagunitas has always bought malt from Rahr, but now it has gone a step further and met the farmers.
The growers were chosen because of their ability and commitment to growing malt, and because of their locations across the province. They farm from New Norway in east-central Alberta and south to Strathmore near Calgary. The geographic diversity reduces risk in case of poor weather.
The contract also has an Act of God clause that releases farmers from their contracts if they are hailed out, or their barley doesn’t make malt because of poor weather.
Sharyon said when writing the contracts, he wasn’t sure what a fair price would be, but he knew he has bought malt from $210 to $390 per tonne.
They settled on a base price of $300 per tonne for the barley. The contracts also contain a formula to account for increases in input costs based on Alberta Agriculture’s Average Farm Input Prices list.
Sharyon also wanted a way to encourage growers to strive for the best quality malt.
The farmers were offered an extra premium if the protein is less than 11 percent. It wouldn’t amount to an extra cost for Lagunitas because higher quality malt means brewers can use less of it to produce higher quality beer.
The next milestone of the program is expected in two years when the next three-year contract is negotiated. The contract will need to take into account the price of competing crops, inputs and other factors that will encourage the farmers to continue with program.
“We haven’t figured out what the mechanism is going to be. It was never about what the current barley price is, it was about what was fair. What would make you want to put it in the ground for your farm.”
McBean said the contract’s design speaks to the integrity of Lagunitas and its desire to work with farmers.
“They make us feel like this is a partnership and we’re here together,” said McBean.
For Keller, having the security of good price and a guaranteed market is important.
“Are we always going to be guaranteed to get the best price? No, but we always have a home for our commodity that we produce. Rather than grow it and find a place for it, that isn’t always the best way to do it.”