Boortmalt speaks out…expansion to go ahead…despite unrest

Boortmalt is ploughing on with its expansion. The company, which is in constant negotiations with the Irish Farmers’ Association (IFA) over price in recent times, says it is investing in the future of the malt industry here in Ireland.

Ensuring a transparent pricing structure that farmers can track throughout the season will contribute to some security in the industry, according to Boortmalt. It stated that if the pricing structure presented to farmers this season isn’t perfect, it can be improved in 2020.

AgriLand sat down with Peter Nallen (chief operations officer in Ireland), Koenraad Dumont (group chief commercial officer) and Pierre-Eric Souplet (group barley procurement and risk manager) at the company’s Athy plant this week. The three were united in their belief that there is room for expansion in the industry here in Ireland.

The trio also agreed that they want this expansion to come from Irish malting barley. This is despite the on-going struggle over price with the IFA and the fact that many farmers have stated that they are reducing the acreage of malting barley on their farms.

Material for the new plant sitting in the current site in Athy

Peter Nallen has seen many price negotiations throughout his career and commented on the fact that things have come a long way from deciding on a price after the harvest, but also acknowledged that current negotiations have been “dragging on too long”.

The improvement he sees is linking the price to a transparent market – previously the MATIF wheat price and now FOB (Free On Board) Creil.

Why FOB Creil?

FOB Creil is a French malting barley market trading six million tonnes of malting barley – that’s half of the European malting barley market. Approximately 10% of the barley traded in FOB Creil is traded by Boortmalt.

Pierre-Eric Souplet (Group barley procurement and risk manager) described why FOB Creil was chosen.

“It’s the main reference for the European market – the main one in France and Belgium. It’s also looked at by the Germans because Germany is the main importer of malting barley in Europe and so the German market is looking at what’s happening in France.

We use that reference to buy from our suppliers and to sell to our customers. That market reference is really the key element in all the pricing discussions in the entire supply chain.

He also commented on the fact that the MATIF was used in previous years as there was more liquidity in that market, but the fact that it wasn’t a malting barley price caused problems in years where wheat was in greater supply.

“Malting barley markets can follow the trends of a commodity if all goes well, but if something goes wrong – a problem with quality or production – like last year, which was a typical example where there were problems everywhere except France, more or less. There were issues with quality or quantity. From planting to mid May the market followed feed.

Malting barley follows its own life and detaches itself from the rest of the market. It acts as a speciality crop.

“We think reconnecting the Irish farmers to a proper malting barley market, which is the main reference in Europe, is clearly making sense because the malting barley market in Ireland is too small in itself. There are not enough players.

Material for the new plant sitting in the current site in Athy

“What is important, and a strong message, is that clearly we want to price Irish malting barley on a malting barley market,” Pierre-Eric added.

“Our customers here in Ireland are international customers. We are dealing with them from other locations where we operate today. They are buying malt from FOB Creil already and so it fits in their perception of the market, that they don’t have a pocket in Ireland that is based on wheat.”

A good deal

Koenraad described the “constant battle” that Boortmalt faces in relation to a premium for Irish barley. He went on to describe the premium that is currently being paid.

He described how FOB Creil in France is a delivered price at 14.5% moisture content. Here in Ireland, farmers will be paid the reported FOB Creil price at 20% moisture content and those who were traditionally being paid transport subsidies will continue to be paid those subsidies.

“FOB Creil is screened barley, dried barley – barley that is ready to steep, ready to process.

We’re allowing the farmer to deliver 5.5% more water for the same price; the same value.

“So we are already giving a premium for the Irish barley versus the French barley because we have to buy it anyway.”

When everything is added in Pierre-Eric estimates that premium to be €35-40/t above what the French farmer is getting.

We think we are paying a very good and large premium for Irish malting barley to the Irish farmers.

“We truly believe that model is clearly bringing two important things, reconnecting the Irish farmers to a proper malting barley market and giving the Irish farmer a proper premium from his colleagues all across Europe. We think this rewards the true ‘Irishness’ of his barley because he’s getting an ex-farm price for wet barley – the market reference.”

Koenraad went on to describe how Boortmalt is owned by Axereal – a French farmers’ co-op owned by 13,000 farmers.

“The owners of this business are getting €40/t less for a dry product, compared to what the Irish farmer is being offered for a wet product.”

Is that premium realistic or will customers turn to imported product?

Peter explained that in the season gone by when yields were down and the availability of Irish malting barley was reduced the product had to be imported. That imported product performed better than the Irish grain in the season gone by.

AgriLand did point out on the day that consumers are becoming more aware of where their drinks ingredients come from as could be seen from a recent poll carried out on our site.

“We do seem to have a disconnect between what customers and ourselves feel is an appropriate premium versus what the IFA seems to be hinging on – getting a utopian price based on ‘Irishness’ only.”

However, Peter explained: “That French barley is outperforming Irish barley; it’s like chalk and cheese.”

He described that if the premium was to be paid on extract and if the Irish product was delivering more points than European barley there would be merit in paying that premium. It should be noted that this is based on 2018 quality – an exceptional year for Irish malting growers.

Koenraad added that the company does not base its decisions on one year and he did admit that there is value in the marketing of these products through their ‘Irishness’.

“This is on one single crop year, so we don’t make any deductions or conclusions on one crop year. Quality is valuable. The point is, on product quality, it’s very hard to make a statement that the ‘Irishness’ is better. It’s commercial. It’s potentially a marketing item, but on the product itself you cannot distinguish.”

What barley will supply the new plant?

Speaking and listening to malting barley farmers AgriLand understands that many traditional growers are reducing the acreage of the crop they sow and are moving to crops such as winter barley, which they see as more profitable. This is even true in areas near the main plant in Athy – the home of the company.

Boortmalt has stated that it wants 100% Irish barley to supply its plant and to account for the increased capacity when the expansion is complete. In order to do this, it is looking at growing winter malting barley in trials at present.

Boortmalt also believes that securing this new pricing model will work as part of a plan to future proof the industry in Ireland.

This is a welcome move by the company which, having cut growers contracts when they first took over the business in 2009, now want to increase grower numbers.

“It’s the ones [growers] who have been very loyal and steadfast who are maybe wavering a little bit and we need to do something to reinforce that confidence and we think we’re doing that by putting together a strong financial model,” Peter explained.

We’re interested in securing local sources of grain. I can’t guarantee that to be fair. I don’t know whether that capability is in the current areas or whether we have to increase our reach or put a different footprint down.

The company is reaching out to areas which traditionally grew malting barley many years ago to increase tonnage and to ensure continuity of supply and achieve differing protein contents across the country.

“We will explore all avenues possible to try and secure that on the island. We really are determined that we would like the new bigger Boortmalt in Ireland to be 100% locally sourced under a sustainable pricing model which we believe is fair for the grower and fair for the customer.”

Where to next?

Boortmalt has said that the channels of communication are open with the IFA and while March 15 was the intended deadline to sign a contract that is now extended. But the clock is ticking as those who wish to sign up to the average FOB Creil price arrangement will have to sign contracts before the middle of April.

“We [Boortmalt and the IFA] haven’t found a common ground yet. I think we’re close, but it needs a nudge to get across the line,” Peter added.