Cuthbert is the senior barley marketing manager for the Canadian Wheat Board.
Despite the assertions of John De Pape (Malt plants a lost opportunity, April 10), the malting industry in Western Canada is quite healthy.
The industry has shown tremendous growth over the past 25 years, despite several lean years due to world overcapacity and low margins. Malting capacity has almost tripled in Western Canada over the past two decades and nearly doubled across the entire country. In 1985, about 50 percent of Canada’s total malting capacity was located in Western Canada; in 2007 that figure had risen to over 75 percent.
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De Pape’s own figures from the Malting Industry Association of Canada (MIAC) clearly show that the industry is strong and viable. De Pape wrote that MIAC members export $200 million in processed malt each year. Not to mention that malt exports have more than doubled in the past 15 years, and that exports to the United States have doubled in the last 10 years.
In contrast to the growth in Western Canada, U.S. malting capacity has declined by about 20 percent over the past decade. Canada’s malting capacity is 0.035 tonnes per capita, compared to 0.01 tonnes per capita in the U.S. In other words, Canada processes 3.5 times more malting barley per capita than the U.S.
Canadian malt exports are also significantly higher than those from the U.S. In 2006-07, Canada exported 795,000 tonnes of malt, more than double the U.S. exports of 370,000 tonnes.
The Canadian Wheat Board’s single desk isn’t responsible for these achievements of the malting industry, nor is it to blame for the industry’s competitive disadvantages in many markets. The CWB is neither the deal maker nor the deal breaker when it comes to creating new malt plants.
Surely, Mr. De Pape knows that decisions on where to locate a business are based on a number of factors.
In the last three years, two malt plants have located in the U.S. and not in Canada. The International Malting Company (IMC) located a plant in Great Falls, Montana, and Grupo Modelo opened a facility in Idaho Falls, Idaho.
The Great Falls plant replaces older, inefficient facilities in the U.S. Midwest and the second phase expansion, which was to service offshore malt markets, has yet to be announced. Despite Mr. De Pape’s assertions, these plants overwhelmingly service the southern U.S. and Mexican markets.
Factors involved in the decision to build in the U.S. include:
- Transportation costs. It is cheaper to transport to the domestic U.S. and Mexican markets from the U.S.
- Government support. The IMC plant received more than $10 million in subsidies for water, sewer, road, rail spur and tax breaks.
- Location. The plants are closer to the U.S. two-row malt barley acreage base, much of which is irrigated.
- Supply. A consistent supply of malting barley from Canada, particularly from Alberta, has been a concern in recent years due to weather-related quality concerns and domestic feed demand. In fact, Lethbridge was home to the highest-priced feed market in the world for several years until the recent livestock crisis.
- Environmental concerns. IMC had considered two prairie sites, at Camrose, Alta., and Kindersley, Sask. Concerns over water supply were present at each, while Camrose also posed effluent concerns.
- Costs. Maltsters have expressed concerns over energy and labour costs in Canada compared to other locations.
It’s obvious that many factors came into play as these companies decided to locate in the U.S. rather than Western Canada. Any company doing due diligence would weigh all these various factors in making a decision. They wouldn’t, as De Pape claims, take their ball and glove and go home because they don’t like one of the players.
Offshore malting capacity has been on the rise due to factors unrelated to Canada’s barley marketing system. Expansion has been occurring in Russia and South America due to growing demand for beer in those markets.
Australian capacity is growing to serve the south Asian market, where Australia enjoys significant freight and cost advantages over Canada. By comparison, the U.S. and Canadian beer markets are experiencing very slow growth.
Contrary to the impression that De Pape leaves, the CWB is a strong supporter of value-added processing for both wheat and barley. The CWB’s Value-Added Incentive Program (VIP) pays a premium to farmers who make deliveries directly to a mill or malting company in Western Canada, benefitting farmers and processors.
The CWB’s New Generation Co-operative Program is designed for farmers involved in a processing co-op and the Field to Plate program enables small, niche prairie processors to source up to 500 tonnes of grain directly from farmers.
The CWB is also a major supporter of the Canadian Malting Barley Technical Centre, which provides technical assistance to the malting and brewing industries, and the Canadian International Grains Institute, which runs technical and educational programs.
The main economic factor that will spur even greater processing growth is increased consumer demand for value-added products. The CWB is promoting consumption of grains through such initiatives as branding partnerships, the CWB’s national consumer site at www.prairiewheat.ca, and participation in the national campaign Grains They’re Essential!
Mr. De Pape paints a pessimistic picture of Western Canada’s processing industry but the plain fact is that processing of both wheat and barley is on the rise. The CWB is committed to working together with farmers and processors to encourage continued growth and expansion.
