Business

So you want to...Start an on-farm brewery

Tuesday 12 September 2006 10:57

An increasing number of barley growers are being tempted to add value to their crop by turning it into beer. Johann Tasker asked the experts to whet his appetite.

This seems like fun - why didn't I think of it before?

Starting your own brewery might sound like a hedonistic mix of business and pleasure, but it's certainly not for the faint-hearted.

Micro-brewing - brewing and selling beer on an artisan scale - can be hard work. It involves long hours and, when a brew fails, sometimes spectacular disappointment.

But it can also be immensely rewarding and brewery start-ups have a considerably better-than-average survival rate compared with other diversification enterprises.

Sounds great. Where do I start?

Not so fast. First you must decide whether there would be a market for your beer, what sort of beer you want to brew and what unique quality will make it stand out from the competition.

You might decide to produce beer using malting barley grown on your own farm. Or you might be lucky enough to have your own pristine water supply ideal for brewing.

Whatever decision you reach, serious market research is vital. And, yes, that means more than visiting all the pubs in the vicinity and sampling their finest ales. Neither is it enough to ask a few local landlords whether they would buy beer from you if you made some.

Your best bet is to join the Society for Independent Brewers (SIBA), which compaigns on behalf of microbreweries as well as providing them with advice. 

Membership costs £66.50 for those producing up to five barrels a week rising to £172.50 for those turning out up to 30 barrels a week.

Is my farm a good place for a microbrewery?

A farm might seem an unlikely location for a microbrewery. Transporting vast quantities of beer is expensive and the country's biggest brewers tend to be based in larger towns and cities close to the motorway network.

But this is exactly the reason why locating a microbrewery in the countryside has its advantages. According to SIBA, small brewers do best where the distribution networks are weakest, precisely because larger brewers dominate the outlets nearest to their own distribution systems.

Even so, it is important to realise that you will not be competing directly against the big brewers. SIBA suggests competition is likely to be stiffest from other small local brewers, some of whom will already be selling first-rate brands with a strong local following.

How much will I have to invest?

It is possible - but not necessarily advisable - to set up your own microbrewery for as little as £40,000.

But capital expenditure up front will pay huge dividends later in terms of labour savings and quality control. So £150,000 is a more realistic investment, including fitting out a building.

Money can be saved by using reconditioned plant and equipment, so it is possible to set up a decent working microbrewery for about £100,000. There is a thriving second-hand market for plant and equipment, and SIBA can provide details of reputable dealers.

A number of on-farm microbreweries, such as Steven and Sally Urwin's High House Farm Brewery (see case study), have been set with the help of grants from DEFRA's Rural Enterprise Scheme.

The scheme closed in June 2006, but a new rural development programme administered by the Regional Development Agencies starts in January 2007.

In addition, brewers face a unique challenge when it comes to cash flow because beer duty must be paid up front monthly, regardless of whether customers have settled their invoices. This could be as much as 45% of turnover.

Output is measured in 1650-litre (2900-pint) brews. Depending on ingredients, each 1650-litre brew will cost about £650 to make. Of this, £350 will be duty, which should be factored into cash flow budgets and financial forecasts.

You will also need a generous budget for casks, which can easily surpass the investment in the brewery plant itself.

This all sounds a bit serious. Surely, brewing beer is as easy as drinking it?

You might consider yourself to be an expert on real ale, but it does not follow that you will be able to brew beer to perfection, at least not at first.

Spending time gaining technical and practical experience in brewing will pay off later. It will also help you decide whether hands-on microbrewing is for you, or whether it would be better to recruit a trained brewer while you manage the sales and marketing side of the venture.

Educational and training establishments such as BrewLab, based at Sunderland University, offer courses ranging from one-day workshops to residential courses as well as a three-day Start Up Brewing course, which provides a realistic introduction to the brewing process and the requirements of commercial brewing.

What about red tape?

The statutory obligations are fairly simple. You will need a licence to brew, which can be obtained from your local Customs and Excise office.

Although simple to acquire, the boom in microbrewing means HMCE is taking a tougher line on conditions and licence restrictions. But farmers used to the vagaries of agricultural red tape should find this no problem.

Microbreweries are also classed as food manufacturing facilities and must, therefore, be registered with your local Environmental Health Officer. If you intend to bottle or package beer, you should also inform Trading Standards.

Invite all three of these organisations to your premises at the earliest opportunity. This will save time and money in the long run.

How do I sell my beer?

Making beer is one thing, selling it quite another. Competition is stiff; 80 microbreweries start up in the UK every year. Many of them fall by the wayside, not because their beer tastes bad, but because they have not marketed it properly.

Then there are the big brewers, who increasingly produce their own versions of traditional regional beers.

The best way to sell your own beer is to buy a pub. Many small brewers own at least one outlet as a secure base for their operation. It is an expensive option and certainly not essential, but today's marketplace is becoming harder for standalone brewers.

As with other businesses, 20% of customers often account for 80% of sales. It is worth concentrating on developing a strong relationship with a few key customers that will form the microbrewery's core regular business.

The best way to do this is to think local and stay local, says SIBA. Local and regional loyalty is one of the small brewers' biggest trump cards, and it also makes sense from the point of view of distribution, customer relations and cask recovery.

It is likely that your customers will be free-house pubs and hotels within a 50-mile radius, rather than pubs owned by large brewery chains that refuse to stock beers other than their own.

Farmers' markets are another possible outlet, although you will face licensing restrictions. Selling beer in bottles is much less profitable than casks, although doing so will raise the profile of your beer even if it doesn't generate much income.

Selling beer through a wholesaler is not advisable, especially for novice brewers. In any case, a reputable wholesaler is unlikely to be interested in distributing your prize ale until you have been trading for at least six months.

Only entertain the ideal of supplying a wholesaler once you can demonstrate that you have a consistent product and are likely to stay in business. Even then, the best advice is to deal only with firms which pay on invoice.

Think twice if you are contacted by unscrupulous wholesalers offering to pay in cash. It might be tempting, but it is likely they will soon be asking for credit, which you will have to give them if you ever want to see your casks returned.

Will I get rich?

There are easier ways of becoming a millionaire, but a successful microbrewery will provide the farm with a useful source of extra regular income. It is important to remember that you will be supplying a niche market which could become quickly saturated.

Even so, interest in real ales is growing and you should see a return on investment within five years. There is also the satisfaction to be gained from the fact that you have added value to a crop worth little more than £70/t and turned it into a product worth anything upwards of £2.50 a pint.

Some of the most successful on-farm breweries have gone on to scoop regional and national awards, courtesy of the Campaign for Real Ale. Income can be boosted further by opening a visitor centre, or even hosting your own beer festival.

Case Study

High House Farm Brewery

Matfen, Northumberland

 

Steven and Sally Urwin launched High House Farm Brewery in 2002 with the help of a grant from DEFRA's Rural Enterprise Scheme. Initial investment was roughly £100,000.

Like many farmers, the couple, who farm at Matfen, Northumberland, were looking for a new project after the 2001 foot-and-mouth epidemic, which started a stone's throw away at Heddon-on-the-Wall.

Today, the farm produces four beers, which are all made using the farm's own malting barley and English hops. Ales include Black Moss, named after one of the farm's sheepdogs. Weekly output is now 20 barrels (3300 litres/720gal).

Mr Urwin says: "We're unique in the area, as we use the farm to provide ingredients for our beers and we help the environment by returning all brewery waste products and water to our land."

The brewery sells its ales in casks and bottles to pubs, shops, restaurants and cafés in the north east, Cumbria and North Yorkshire. It also hosts brewery tours for visitors and holidaymakers to the area.

A new visitor centre opened on 1 September, offering tourists and real ale drinkers the chance to sample beers. A café alongside serves home-cooked local food and the shop stocks beer-related items and gifts by local artists and craftworkers.

Case Study

Ramsbury Estates

MARLBOROUGH, WILTSHIRE

Ramsbury Estates manager Alistair Ewing opened his own microbrewery in a converted grain store almost two years ago.

"It was a logical step because were already growing barley," says Mr Ewing, whose farm stretches across the Wiltshire border into Berkshire. "As a malting variety, Optic is slightly outdated in farming terms, but it is still good for brewing."

Today, the Ramsbury Brewery produces about 2500 litres of beer each week, delivered to more than 70 mainly local pubs.

"There are more and more microbreweries out there - it's getting tougher and tougher," he says. "But we stand or fall on our own merits. We think our beer tastes good and our sales figures show that our customers do, too."

After concentrating on brewing traditional beers with names such as Flint Knapper and Ramsbury Gold, the latest project is to develop a lager-style beer aimed at 20-25 year olds.

"Our biggest challenge is that we can only sell to free houses, and most pubs are owned by companies," says Mr Ewing. "But, as farmers, this is the first time we have sold a product on the open market and it's refreshing to be able to do that without worrying about subsidies."

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