27 March 1999

Opening Chinas door

By David Millar

THERE is real market potential for UK malting barley in China but the door may only open first for big EU shipments, and only when buyers have confidence quality and supply can be maintained.

The message from the HGCAs malting barley outlook seminar was generally upbeat but qualified by a number of ifs.

Yes, the Chinese are starting to cast aside the memory of UK feed barley shipped in 1995 as malting specification but quite unsuitable for brewing; yes, they are beginning to accept some of their perceptions of UK-produced barley and malt are irrelevant to making good beer; and yes, there are at least three British barleys which will suit their system.

These are, in likely order of preference: Chariot, Optic and Regina. Mr Wang Zhibin, deputy director of Chinas second largest brewery group, told the Southampton seminar that Optic and Chariot were his top UK barleys but Alexis – mostly sourced from Denmark – and Regina were also good. Along with three other brewery officials from China, he has been working for 10 weeks at Heriot Watt University in Edinburgh on an HGCA/British Cereals Exports training course which looked at 12 barley varieties from the UK, France, Denmark and Australia.

Under the guidance of Prof Geoff Palmer, the Chinese brewers were able to research and assess six UK varieties – Halcyon and Gleam were adjudged least acceptable – alongside examples of non-UK barley they were already using for brewing.

Their research indicated that UK barleys developed higher yields of extracts than non-UK barleys, thanks in part to the more mealy nature of UK-grown barley which meant it malted faster and modified more readily than grain grown in hotter, drier climates. It also became clear that the prejudice in China against using dark coloured malt to brew light beers was unfounded and that the colour of worts made from UK-grown and non-UK grown barleys were similar, suggesting that natural differences in husk colour had no influence on wort colour.

"At the moment there is no major block to British malting barley exports to China," said Mr Wang.

Prof Palmer, head of Heriot Watts International Centre for Brewing and Distilling, said it was vital to understand customer requirements for barley and malt and to meet those needs with a homogenous product that gave the brewers or maltsters fewest processing difficulties. While it is possible for breweries to adapt to differing quality of barley or malt, it involves extra processing expense.

The need for standard quality shipments was underlined by Cargill trader Chris Toft who said Chinas traditional suppliers were Australia and Canada, although some Danish Alexis and French Prisma has gone there in the last two years. Freight costs are a major issue in making UK grain competitive and it might be necessary to ship it in conjunction with other EU grain in the first instance to get the economy of scale from loading the largest ships.

To ship malting barley in a 5,000-10,000t vessel imposes a freight charge of $US35/t, but fill a 50,000t ship with grain and the charge drops to $14-15/t. To send UK grain at the higher shipping costs would eat into the $25-40/t premium for malting barley on the world market, leaving very little extra for the grower over feed.

Mr Toft said there were pluses and minuses in world demand prospects. There were high old crop stocks, particularly in Australia, Argentina and Denmark, but new crop plantings were likely to be down because of grower dissatisfaction with historic low premiums. To be successful in markets such as China, the UK needed to demonstrate long-term commitment and continuity of supply – possibly of a branded EU variety, "the son of Triumph".

Bob King, commercial director of Crisp Maltings, agreed ready supplies of a single variety would reduce costs. With all the winter or spring varieties currently available, there is considerable cost in keeping them separate. Among the spring varieties in 1999, Optic is expected to account for about 70% of plantings. Whether it becomes the one single variety may depend on trials going on with Optic in other EU member countries.

Budget briefs

&#8226 Fuel

Tax on red diesel goes up to 3.03p/litre from 2.8p/litre, which pushes up costs by 27p/ha, according to accountants Grant Thornton. The increased fuel duty will cost agriculture and horticulture an additional £13m plus £2m in insurance premium tax, according to the NFU. Green diesel up nearly 5p and petrol 4p/litre. Diesel goes up 6.14p/litre.

&#8226 Employment

The blackspot in the Budget, according to Morison Stoneham, is the increase in National Insurance for self-employed. Although from April 2000 class 11 NI will be less, class 1V is being increased to 7%. This will affect those in the middle and higher bracket incomes. For a contractor on £25,000 a year, additional NI will cost £150. Deloitte Touche point out that there are new employment issues such as increased leave for parents, which will ultimately affect casuals.

&#8226 Energy tax

With fuel taxes higher in Britain than elsewhere in Europe, the NFUs Tony Pexton says of the chancellors proposals: "It will undermine our ability to compete, and impact on every aspect of operations within our industry and the rest of the rural economy."

&#8226 Inheritance

The nil rate band for inheritance tax goes up in line with inflation to £231,000. Agricultural property relief remains the same.

&#8226 Landfill tax increased from £10/t a year to £15 until 2004.

Company news

&#8226 COUNTRYWIDE Farmers Limited (CFL) will be the new company name for a proposed merger of Midland Shires Farmers (MSF), AF plc and WMF.

If the merger is backed by MSF members in July, Countrywide Farmers Limited will become the biggest farmer-owned agricultural supply business in the UK.

It is expected to have a turnover of £250m, assets of £40m, and over 1,000 employees. "Its becoming more difficult for small companies to meet the demands of legislation today," says Ian Smith, managing director of MSF and MD designate of CFL. He believes the new company wont get out of touch with its shareholders, and is keen to point out that on-farm representation wont be reduced.

CFL will be able to compete with companies now dominating the supply industry, says Mr Smith. It will trade over 400,000t grain, and sell 200,000t fertiliser, 20,000t seed, and £8m worth of crop protection products.

&#8226 INDEPENDENT Agriculture and Willmot Pertwee have completed their merger. They now operate as United Agri Products (UAP) and claim to be the leading agrochem distributor in the UK. The company has 152 agronomists nationwide, carries out 5,000 replicated trial plots a year and typically evaluates new products up to five years before MAFF approval.

&#8226 CHICHESTER-based Bartholomews have acquired the Kent agchem business of John Bourne.