Since maltsters will also need a global footprint to capture this new demand, Rabobank predicts malted grain production (where cereal grain is soaked in water then dried) will move to emerging regions.
“India offers locational advantages, an established barley production base and an opportunity to capture domestic and nearby offshore demand, and could emerge as a potential investment destination for global maltsters,” Rabobank’s analysts write.
With the beer industry center of gravity shifting to Asia (36% of world beer consumption in 2012) Africa (7%) and Latin America (16%), Rabobank notes that the bulk of world barley production remains in Europe (68%) and North America (10%)
Malting barley prices rise
Global barley production grew only 1.4% between 1998 and 2013, according to USDA data, but during the same period global beer demand rose 53%.
Until a few years ago, a supply glut and use of alternative ingredients in brewing meant this was not a problem, Rabobank says, so despite being a “prime necessity” to produce quality beer, malted barley remained a non-strategic raw material for brewers, at least from a fiscal standpoint.
But Montana malting barley prices leapt by $1.97 per bushel (bu) in December 2007 and the price has since stayed at $3.5+/bu, a fact that reflects increasing global demand and tightening supply.
The pattern of emerging market growth and developing market supply repeats itself in the malting sector, where Europe and North America account for 60%+ of the world’s malt production capacity of around 24.5m tonnes.
Asia Pacific has just 21% of world malt production – 80% of this is concentrated in China – and with malt demand from Indian breweries growing strongly Rabobank says both brewers and other malt users will likely need additional malting capacity by 2016/17.
India’s strategic importance
This evolution in the supply chain has long-term implications for both malt buyers and maltsters, Rabobank explains, with the firm’s analysts suggesting that both brewers and maltsters may look to India as both a buyer and supplier of strategic importance in the evolving global malt supply chain.
“For maltsters, a shift in malt demand to the Asia Pacific and a reduction in excess Chinese malt capacity [alongside greater domestic use of malt] will create the necessary conditions for establishing a malting footprint closer to the end-user demand base,” Rabobank’s analysts write.
With its strategic role in the Asia Pacific malt industry – due to a local demand base and domestic barley production – Rabobank pinpoints the strategic potential of India as a malt producer, and the nation’s long coastline that allows for exports to South Asia, Southeast Asia and the Middle East.
The entry of brands such as Heineken and Budweiser into India will also increase the malt inclusion rate, Rabobank added, pointing to growing local demand that it recommends maltsters serve.