Problems Brewing as EU Farmers Switch to Biofuels

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http://investing.reuters.co.uk/news/articleinvesting.aspx?type=consumerProducts&storyID=2007-04-05T190341Z_01_L05176522_RTRIDST_0_SP_PAGE_016-L05176522-OISCP.XML

INTERVIEW-Problems Brewing as EU Farmers Switch to Biofuels
Thu Apr 5, 2007 7:03 PM BST143
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By Michael Hogan

HAMBURG (Reuters) - European beer brewers may face increasingly tight
malt supplies later this year as farmers switch to grains for biofuel
production, the head of a leading German malt marketing company said on
Thursday.

"Malt producers will have to change their thinking and accept that
sufficient supplies of malting barley are not going to be automatic and
that they will face increasing competition from biofuel producers,"
Jochen Mautner, head of Jochen Mautner GmbH, told Reuters.

A survey undertaken by his company estimates that European Union farmers
were this year likely to plant two percent less spring barley, which is
used for malt production which in turn is a key ingredient in beer brewing.

This is despite current high spring barley prices caused by last
summer's poor crop which would normally have encouraged farmers to
expand spring barley plantings.

Instead farmers were believed to have planted more grains for biofuel
production.

"This trend is understandable as farmers do not have such quality
concerns with grains grown for biofuels," he said. "Poor weather at
harvest time can substantially reduce the quality of spring barley and
so hugely cut farmers' earnings."

"With biofuels this risk is much lower, they can sell grains for
biofuels even if it is poor quality following bad weather."

The move away from spring barley plantings is especially expected in
countries with large biofuel programs, said Mautner.

DENMARK, AUSTRIA PLANTINGS ALSO DOWN

He estimates German plantings will fall by five percent this year,
Denmark's by 11 percent and Austria's by 14 percent.

The fall in Denmark was of special concern as the country is generally a
major exporter to the rest of the EU.

"Brewers and malt producers are already facing competition from biofuels
for their raw material supplies and this will get stronger as biofuels
are expanded," he said.

"Malt producers and even beer brewers will have to change their thinking
as there may not be enough spring barley for them to buy in the
commercial market. They may have to agree more advance contracts with
farmers to compel them to grow spring barley."

"This process is starting but it will have to be expanded."

Brewers and malt producers are already struggling with malting barley
prices which have risen as much as 50 percent in the past year, while
powerful supermarket chains and other big buyers are refusing to accept
higher beer prices.

Old crop spring barley is currently quoted at around 240 euros ($320) a
tonfor April delivery in Germany. Despite mild weather so far this year
which could herald a good harvest, new crop prices are also high at 195
to 200 euros a tonne.

"I have the impression much more of the new crop than usual has been
bought in advance this year," Mautner said. "The spring barley supply
outlook for the new crop this year is tight despite the good weather and
some malt producers have decided not to get caught out by scarce spring
barley again and have decided to secure supplies in advance."
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