Agriculture continued
Availability
2006 was not a good year for the production of barley, our most important agricultural ingredient. Adverse weather conditions in Europe, specifically a hot and a dry month of July and an extremely wet month of August, significantly lowered both the quality and the total quantity of the barley harvest. In addition, the poor harvest in Australia compounded the problem, which resulted in significant higher barley and malt prices. Another factor also started to influence the price and availability of barley – the growing demand for biofuels. Tax relief and government subsidies have made the cultivation of agricultural products for biofuels an interesting proposition for arable farmers. In addition, quality demands for grains grown for fuels are less stringent than when grown for human consumption, offering farmers the advantage of achieving a good price for lower grade produce.
Obviously, we share concerns about global warming, CO2 emissions and fossil fuel depletion, but we are worried about these developments. The surface areas of agriculture currently in use in moderate climates continue to be reduced by urbanisation and growing infrastructure. Significant increases in demand for certain crops will increase pressure on their price.
In the longer term, we anticipate an increase in partial crop failures due to climate change along with continuing price increases due to demand for biofuels, the growth in world population and continuing economic development.
Through our own maltings and suppliers we stimulate the increase of yields in developing countries. We know that geographically there are significant differences in yield: one hectare of land in France typically delivers approximately 6.5 tonnes of barley, whereas one hectare in Russia only yields approximately 1.8 tonnes. This means that there are significant opportunities for improvement in this area. Investing in the production of better yields outside Western Europe will better balance the risk of partial crop failures.
To reach our objectives, a professional and well-developed malting sector is of key importance: the maltster is the link between the agricultural sector and our company. In Russia and Romania, where well-developed malting sectors were originally unavailable, we have entered into discussion with our local business partners. As a result, state-of-the-art malting plants have been established to support local farmers by providing training and assistance in the selection of the right crop varieties. We have also agreed to temporarily increase financial support for local maltsters involved in these projects in order to co-finance their activities.
