Benchmarking of Brewing Raw Materials

Global Market Outlook on Benchmarking of Brewing Raw Materials 

Portfolio Analysis for Brewing Raw materials

• Malted barley – In developed countries, the buyer power is high for malt as there are many designated third party commercial maltsters. Most of them only produce brewing malt and depend on large-volume contracts from well established breweries
• Adjuncts – Availability of adjuncts is limited in developed countries. Corn and wheat are mostly used as adjuncts and its supply is moderate to the Brewing industry as major volumes are used in food, bio-fuel and feed.
• Enzymes & Yeast – Enzymes and yeasts are generally customized for each brewer and hence the buyer does not have the upper hand. Higher supplier power is seen and also buyer tend to carry longer contract periods to ensure uninterrupted supply of both.Yeast suppliers fetch higher returns from other industries, thus breweries hold relatively lower bargaining power
• Hops – With dwindling supply of aroma hops already and increase in beer production every year, the hops prices are  on the rise. Thus, supplier power is high

Portfolio Analysis of Brewing Raw Materials in Developing Countries

• Malted barley – In developing countries, the buyer power is high for malt due to the presence of in-house maltsters. The need for third-party commercial maltsters become less essential.
• Adjuncts – The availability of different adjuncts are high in developing countries. Maize/Wheat, Rice and Cassava/Sorghum, although all being adjuncts are ranked at different quadrants due to the fact of their different supply-demand situation. Rice and Maize/wheat are cultivated largely in Asia-Pacific and has enormous supply. However, rice is exhausted by demand for food from these countries but Maize/Wheat has enough stocks to be used in brewing industry. Cassava/Sorghum are primarily grown in African countries and they are staple diet for people of Africa, this means the buyer power is less for Cassava/Sorghum and Rice compared to Maize/Wheat.
• Enzymes & Yeast – Enzymes and yeasts are generally customized for each brewer and hence the buyer does not have the upper hand. Higher supplier power is seen and also buyer tend to carry longer contract periods to ensure uninterrupted supply of both.
• Hops – With dwindling supply of aroma hops already and increase in beer production every year, the hops prices are  on the rise. Thus, supplier power is high

Global Malting Capacities

Global Malt market weights at 25,800 Thd T and The total in-house malting capacity of the leading 12 brewing companies total at 5,573 Thd MT which are distributed globally. However, developing countries hold major share of 63%.

• All the top brewing companies have their own in-house malting locations. The establishment of in-house maltster is a very calculative decision and is periodically analyzed for its necessity. At decreased utilization, the maltster would be susceptible to closure and in need of more volume the maltster would be increased for capacity.
• Malt occupies the major spend in the Brewing industry and implementation of strong strategic procurement objectives will essentially save huge spend and also ensure sustainability in the long-term.
• Developing countries lead in the number of in-house malting capacity accounting for around 63% of the global share. This clearly indicates that the procurement process varies hugely between developing and developed countries.

In-house Malting Capacities of Top Brewers

In-house malting capacities of ABInBev and SABMiller are focused on developed and developing countries respectively. Hence their acquisition of the latter by ABInBev will be very effective in the coming years in managing and understanding the dynamics of Brewing industry.

Plant Closures and Expansions

• ABInBev have their in-house malting plants in regions focused to the Americas as they are well established there. Compared to 2013, in 2016 they have increased their total malting capacity by 3% from 1,896 Thd MT to 1,952 Thd MT.
• SABMiller has been an established brewer in developing and under-developed countries of Africa and South America. They have decreased their malting capacities by 45.5% in 2016 compared to 2013. The company shut its European and US malting capacities which comprises to a total of 453 Thd MT owing to high operating cost.
• In comparison to 2016 with 2013, in-house capacity of Heineken remains largely unchanged which is pronounced by its effective operations. However, Carlsberg had to shut down its two plants with a capacity of 227 Thd MT in Denmark and Poland due to availability of cheaper malts from commercial maltsters in EU.

Global Scenario of Malt Procurement

Parameters In Make/Buy Decision Making

• Dependency – Brewers in developed countries are completely dependent on third-party maltsters primarily aiming for cost effectiveness and lower lead times. It is comparatively expensive to setup and run malting units in-house in developed countries.
• Better Contract Period - Brewers opt for longer contract periods to get better rates and sustainable supply of malt. Typically when a maltster has a longer contract with brewers, they can plan their capacities, cost and raw material sourcing effectively
• Regional Dominance - Regionally established companies in general are vertically integrated to in-house malting. For example, ABInBev's major regions of operation are US and South America. 80-90% of the total malt used here are produced at their in-house malting facilities as it is very efficient in terms of cost and brewing.
• Self-sustainable – Brewers in developing countries need to have their own in-house malting units and/or import malt from other countries to satisfy their malt requirements due to no or very limited number of local commercial maltsters. 70-80% of the malt used in developing countries are in-house made. The setup of in-house maltster is cheaper and incurs low running cost in developing countries. The volume required above locally produced malts are sourced from countries offering at cheapest price.
• Malt and Adjuncts – Beers in developing countries are often tailored to match the global flavor with usage of less malt and more adjuncts compared to developed countries. This way the brewers are able to incorporate more of local grains (adjuncts) which can be procured at cheaper price. A typical beer in developed country would use 60-75% of malt and 20-30% adjuncts, the same beer in developing country would only use 40-50% malt and 30-40% adjuncts.

Grain Substitutes in Brewing Industry

Ingredients of an identical branded beer in different countries vary in their ratio of Malt to Adjuncts used but has same signature flavor profile. Adjuncts are cheaper and abundant in certain regions and improves the cost-effectiveness and competitiveness of the beer

SABMiller (2011)

First ever commercial scale of cassava-based beer was launched in Mozambique in November 2011. Brewed by SABMiller's local subsidiary called Cervejas de Mocambique (CDM) the brewed beer is called Impala. It uses 70% cassava and has undergone several years of research to come out as a successful product. The product is assumed a hit as the sales of Impala beer is increasing rapidly. A pint of Impala is brewed using roughly about 54% cassava and 42% malt which has been more cost-effective to SABMiller due to cheaper price of adjuncts and good availability locally.

Regional Adjuncts

Brewers from developing countries generally use more adjuncts than breweries in developed countries.  Usage of adjuncts to replace malt is very cost effective and is easily available in respective local countries. Different regions use different adjuncts based on its availability as mentioned below.

USA – Buck Wheat, Venezuela – Rice, Brazil – Maize and Cassava, France – Wheat, Germany – Wheat, Finland – Rye, Russia – Wheat, Malawi – Sorghum, Nigeria – Sorghum, India – Wheat, Mozambique – Cassava, Papa New Guinea – Cassava, Tunisia – Cassava, Myanmar – Rice, Thailand – Rice and Cassava.