The malting barley challenge
GroundCover™ Issue: 12 | 01 Sep 1995
Concerns about the future of Australia's malting barley industry - especially, the need for new varieties - were voiced at the Grains Council of Australia's Grains 2000 Conference in 1991. A 1992 GRDC study of plant breeding needs was followed by the establishment of the National Malting Barley Research Agenda in 1993.
Supported by growers through the GRDC, the Agenda's main aim is to fast-track the development of malting barley varieties to meet regional needs - a high priority issue emerging from the GCA's industry-wide Malting Barley Strategic Planning Unit.
Following is an edited version of the current situation from the GCA paper Barley: Strategies to improve industry profitability. Unless otherwise attributed, the findings come from the Boston Consulting Group study.
"The Chinese market is expanding at around 20 per cent a year and it is already the second-largest producer of beer in the world, and a major export market for WA barley."
- WA Grain Pool Chairman Robert Sewefi
The Boston Consulting Group (BCG) has completed an eight-month study for the GCA's Malting Barley Strategic Planning Unit. The aim: to develop a strategic plan for the industry. The study was funded by the Grains Research and Development Corporation (GRDC).
The BCG found that Australia is successful in 'developing' markets and is now heavily reliant on China for sales of high volumes of malting barley. At the same time, it is losing market share and attracting low prices in complex markets such as Japan and Korea.
The consultants say that this is related to three important factors: the varieties of malting barley produced, the consistency of grain produced, and the customers' perception (on the basis of malt supplied) that the process control in Australian malt houses is not sufficiently sophisticated to get the best out of the malt. There is still debate over the weightings each factor should be given.
Australia and competitors
The Australian malting barley industry differs from its main competitors, Canada, Europe and, to a lesser extent, the United States, in three significant areas: comparative industry costs, breeding programs, and grain consistency.
The need for new and improved barley varieties is a priority for the malting barley industry. Factors such as protein content, grain consistency and germination significantly affect the value of malt to the brewer.
Australian barley breeding programs have not resulted in the recent release of many varieties that have been accepted by growers, maltsters and brewers. Schooner, Grimmett and Stirling, which were released over 10 years ago are still the main varieties. Although not yet widely grown, Franklin is an exception.
Past breeding programs have focused on growers' requirements for superior agronomic performance, particularly yield, but did not adequately address maltster and brewer needs.
These problems have partly been addressed through recent efforts by the GRDC and other industry players to increase control and nation-wide coordination of breeding activities.
Grain consistency important
The quality of barley produced varies significantly by region. This is due to weather and soil variation. It also varies by grower within any region, due to differences in farming practices. Grain consistency is important not only for grower activities but also to produce parcels of grain that are reliable in physical characteristics and grain biochemistry.
Barley growers need to understand how grain biochemistry affects end-use and customer requirements.
While Australia's growing costs are lower than those of its major competitors, farm input costs can vary significantly, and there may be savings for the industry in this area.
Understanding the beer market
Vital to marketing success is an understanding of the beer market. BCG found that beer markets evolve over time and become more complex and competitive. This evolution is driven by brewers.
Markets with a high degree of brewer influence, such as Japan and Europe, tend to buy malt rather than maltingbarley. They desire specific malt quality characteristics for their brewing processes and the beer types and brands produced.
In very complex and competitive markets brewers work directly with all parts of their malt supplying industries to ensure that they receive highly-consistent malt with the desired properties.
Brewers in less complex beer markets such as China's do not need to influence the quality of malting barley supplies as long as there is sufficient malt of a general quality that works for the narrow range of beers they produce.
Australia is performing well in the less complex malting barley market, in China in particular and less well in complex major malt markets, e.g.: Korea and Japan.
Australia's own beer market is relatively mature which means (due in part to changing consumer preferences in favour of wine) a static total market, and this trend is likely to continue. The only opportunity for significant growth is in malting barley export markets.
The importance of China
The Boston Consulting Group predicts that within the next five years China's sophistication of malting and brewing will increase considerably. This, inevitably, will bring with it a demand for malt and malting barley characteristics determined by individual brewers' needs.
The Australian industry can look forward to substantial rewards if it can keep pace with and even assist China's development into a complex beer market.
However, if Australia cannot meet China's developing needs, it could face a substantial negative impact. The importance of this finding is emphasised when the opportunities to capture new markets are considered.
Vietnam, Thailand and India are potential growth markets for Australia in the longer term but no significant opportunities for new markets are seen in the short to medium term.
Focus on the future
According to the consultant, for Australia's malting barley industry to flourish and develop, individuals who form the industry must understand and satisfy their customers' needs. While this may seem obvious and is perhaps an oversimplification, in the GCA view to ignore this would be to ignore the major cause of the problems that have continued to plague the industry.
In this context, the consultants say downstream investment is an important issue for growers who wish to maximise returns. Growers may want to assess opportunities to invest in Chinese maltings and, in some circumstances, to evaluate investment in domestic maltings.
Strategic market direction
Among the recommendations, Australian industry should:
- provide excellent technical and sales liaison to maltsters in existing and potential markets;
- breed varieties with the functional properties required by customers in each significant market segment;
- provide good quality grain with consistent protein levels to maltsters (both local and export) for maximum malt functional in line with customer demands; and
- provide industry participants with economic incentives that reflect the price differentiation available for grain that meets the requirements of each important market.
A meeting of the GCA Coarse Grains Committee in early September agreed on a vision and objectives for the malting barley industry. The vision was defined as "an integrated, agronomically sustainable industry which is a world leader in meeting customer requirements for high quality, differentiated malting barley product."
The committee also identified key marketing issues arising from the consultant's report and agreed that the industry should maximise grower control.
Contact: Ms Linda Botterill GCA 06 273 3000
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