May 15 – Are Beer Companies Changing How They Buy Malt Barley?

AB InBev has proposed new changes to their malt barley pricing formula in South Africa. What are the effects and could the same thing come to North America?

AB InBev, the brewer behind popular international brands like Budweiser and Corona, has proposed new changes to their malt barley pricing formula in South Africa.

In a letter to farmers, the beer giant stated it was going to change its pricing formula from 102% of the price of second-tier barley (B2) to 97% of market price for top-grade barley (B1).

The company’s proposed changes would result in a price reduction by 100 rand per tonne, or about 17¢ USD or 21¢ CAD / bushel.

As one of the largest global buyers of malt barley, AB InBev’s pricing changes will be felt by producers around the world.

If such a change in pricing formulas caused a fall in prices in North America, it would be bad news for an already depressed barley market. The combination of shifting consumer preferences and the declining popularity of beer in America could depress barley prices further.

Changing consumer preferences in alcohol have already begun to alter the North American barley market. The recent closure of a Cargill malt barley factory in Spiritwood, North Dakota, was blamed on shifting demand away from 6-row barley towards 2-row barley, which is preferred by craft brewers.

Multinational brewers are feeling the loss caused by decreased American demand: AB InBev, Molson Coors Brewing Co., and Heineken all reported lower beer volumes sold than this time last year.

A South African farmer’s collective has complained to the country’s competition watchdog, stating that AB InBev is not honoring one of the conditions set when the country’s competition tribunal approved its acquisition of rival beer maker SABMiller.

If the Competition Tribunal finds in favor of the farmers, South African barley producers could see some relief.

But, if South African pricing formulas are altered, North American pricing could follow suit. How changing consumer tastes will affect global demand for barley is a situation we will continue to monitor closely.


South African farmers take AB InBev to competition watchdog

Farmers in South Africa have filed a complaint with the country’s competition watchdog about Anheuser-Busch InBev’s (ABI.BR) decision to change its pricing formula for buying malt barley, a key ingredient in beer making.

View of the Anheuser-Busch InBev logo outside the brewer’s headquarters in Leuven, Belgium March 1, 2018. REUTERS/Francois Lenoir

The farmers’ lobby group Grain South Africa believes AB InBev, the world’s biggest brewer, has contravened one of the conditions set when the country’s competition tribunal approved its $106 billion acquisition of rival beer maker SABMiller.

“We are aware of the complaint lodged by Grain SA and have formally responded to the Competition Commission,” AB InBev Africa spokeswoman Robyn Chalmers said. “We have, at all times, conducted our operations in compliance with the conditions imposed by the Competition Tribunal.”

In a letter to farmers in the barley growing region of Western Cape province, AB InBev said it was changing what it will pay for the 2018 crop to 97 percent of the price for top grade wheat (B1) from 102 percent of second-tier wheat (B2).

“We are of the opinion that they are not sticking to what was agreed at the Tribunal,” said Jannie de Villiers, chief executive of Grain SA. “AB InBev has refused to engage any further. The Competition Commission is the only avenue we can use. As the biggest buyer of barley, this a competition issue.”

In the final approval here for AB InBev’s acquisition, South Africa’s competition tribunal said the merged entity had to comply with the terms and conditions of SABMiller’s existing supply agreements with suppliers.


Farmers also worry the new formula will leave them worse off. On May 7, B1 wheat cost 3,910 rand ($311) a tonne and B2 cost 3,814 rand, taking into account a fixed discount of 96 rand per tonne this season. That would mean the price of barley would be about 100 rand a tonne lower under the new formula.

AB InBev said in its letter dated Nov. 8, seen by Reuters, that the new formula ensured the average gross margin for malting barley was competitive versus wheat in all South African growing regions.

It said would review the crop pricing formula and the amount of barley it would buy in South Africa on an annual basis.

“We believe AB InBev is in contravention of one of the conditions set by Competition Tribunal when they approved the merger with SAB,” said one farmer, who declined to be named.

AB InBev, which sells local brands such as Castle Lager in South Africa as well as pricier international brands including Budweiser and Corona, buys 85 to 90 percent of the malted barley grown in the country.

The Competition Commission investigates cases before deciding whether to refer them to the Tribunal for adjudication.

The Commission’s spokesman Sipho Ngwema confirmed the farmers had written to the watchdog complaining about AB InBev’s new pricing formula.

“We are interacting with Grain SA about this issue. No decision has made about the merits of the complaint. That’s all I can tell you at the moment,” Ngwema said.

The pricing formula AB InBev wants to change was set by SABMiller in 2009. Previously, the barley price was set each year but farmers found it difficult to plan production and mitigate risk. So in 2009, barley prices were tied to the price of wheat futures on the Johannesburg Stock Exchange (JSE).

As part of the merger approval, AB InBev has agreed to increase the amount of barley it buys in South Africa to 475,000 tonnes from the 415,000 it hopes to get in 2018.

The brewer said that meant the industry would have to increase production in drier regions and the new pricing formula rebalanced the competitive position of barley versus wheat in all growing regions.

South African farmers are expected to have harvested about 300,000 tonnes of barley in 2017. When there have been shortfalls, South Africa has imported barley from countries such as Australia and Canada.

“Our goal is to ensure that beyond 2021, South Africa remains self-sufficient in malting barley production through establishing a competitive, robust and thriving local malting barley industry,” AB InBev said in the letter.

With operations in more 20 countries and output of more than 600 million hectolitres, AB InBev is among the world’s biggest buyers of barley.

About the Author
Sarah Bader

Sarah Bader is a science communicator, dedicated to cutting through jargon and getting to the heart of the matter. A lifelong nerd, communications allows Sarah to share her love of science and tech with a wider audience. Sarah has a BA in Communications and Sociology from the University of Ottawa.