As we promised in our last article, we are continuing to detail the crop domains we are prioritizing for our interim trade-facilitation efforts: this one is on barley, a crop we have always grown and exported, but one that has traditionally not been paid enough attention. In recent years, we made significant strides increasing yields and introducing new malting-grade varieties, but producers could not access the export channels necessary to reap the full benefits of growing these higher-quality varieties.
In this article, we start with an overview of production and export shares of leading barley producers around the world. Before last year’s drought, Canada ranked 5th in both production and exports, and with this year’s harvest it is expected to produce around 10 MT. This would leave at least 4 MT, perhaps as much as 4.5 MT surplus to export after looking after domestic needs, making us world’s 3rd largest exporter. But what share of the export-proceeds will be left in the hands of barley-producers?
Then we turn to the types of barley we produce, general-purpose or malting-grade. In recent years, we made significant strides to improve the crop-quality and malting-attributes of the malting-barley varieties we grow. Producers embraced the newly advanced seed varieties in the hope of getting higher prices for what they grew but could not reap the benefits. Malting-barley reached 50% of our total barley output, but in the last 5 years the share of land-area seeded with it has been declining.
Producers used to get a premium for malting-barley over feed-grades, enticing them to grow more, but premiums dwindled with increasing volumes. Domestic demand for malt was stagnant, thus the surplus shifted to domestic-feed or exports. Malting-barley is in demand in overseas markets at higher prices than what producers get domestically, but like in most crops, exports are captive to bulk-channels. Bulk-traders have little incentive to pay any more for malting-barley than feed-barley.
The solution to this dilemma, a market failure, is not to cut back on malting-barley production, but to open direct-sales channels to export more to overseas. To this end, we turn to global demand for beer, the principal end-use for malting-barley. Beer consumption may be stagnant if not declining in North America, but it is on the rise globally, particularly in Asia Pacific where China has become by far the largest beer-market. Also, there is a shift to craft-brewing, not just in China but also Japan and Korea, boosting demand for high-quality inputs, raw or already malted barley.
In the last section, we turn to our own efforts in facilitating the development of direct-sales channels to export much larger volumes of malting-barley or already processed malt. In this vein, we are initially focusing on China, followed by Japan and Korea, as well as 5 other beer-markets in the region. We are already getting an enthusiastic response from barley-growers, which we hope to galvanize with our market-facilitation efforts. We are also making a pitch for support from public agencies already active in this domain, as well as the barley-grower-associations.
Global barley profile and our position
Barley is an ancient crop with evidence of it growing in the wild from North Africa to the Middle East to Central Asia, and with first signs of its consumption dating back to 23,000 BCE around the Sea of Galilee. First evidence of its cultivation was found in Mesopotamia going as far back as 9,000-7,000 BCE, soon spreading across the Fertile Crescent and many parts of Eurasia. By 2,000 BCE, its cultivation had spread east through Persia, India, and all the way to the Korean Peninsula, and west into Europe, with evidence of it in both Greece and Italy. By 4,000 BCE, barley-bread was eaten across Mesopotamia, with evidence of malting in Egypt and barley-beer in Sumer.
This vast footprint across 3 continents attests to barley’s adaptability to very different weather and soil conditions, in the wild and in cultivated forms. After spreading across Europe, during the colonial era through the 16th and 17th centuries, barley was introduced to South America by the Spanish, and to North America by English and Dutch settlers. To our time, barley remains an important source of both human-food and animal-feed, as well as leisure (or intoxication!) through malting-brewing and even distilling – whether grown locally or imported from elsewhere.
Though grown in much smaller quantities than the 3 leading crops – corn (1200 MT), wheat (780 MT), and rice (510 MT) – barley still ranks the 4th largest volume crop, with 160 MT grown annually across most grain-growing countries. To avoid the most recent year, 2021, when North America was stricken by a severe drought, it is best to look at the global production profile of barley for 2020. Russia was the largest producer with 20.5 MT, followed by France 13.6 MT, Germany 11.6 MT, Canada 10.4 MT, Ukraine 8.9 MT, Australia 8.8 MT, Spain 7.7 MT, Turkey 7.6 MT, UK 6.5 MT, and Argentina 5.1 MT, with 7 others producing more than 2 MT, and 10 more than 1 MT.
Despite this widely distributed production pattern, significant volumes of barley are traded, 40-45 MT annually. Rather than volumes, however, let us look at the dollar value of raw barley exports in 2021. The largest exporter was Australia with almost 20% share, followed by France at 16%, Ukraine 11%, Russia 9%, and Canada also with about 9% ranking 5th. These leading 5 exporters represented about 65% of global exports. The next 5 – Germany, Argentina, Romania, Denmark, and UK – represented another 20%, thus the top-10 accounting for 85% of global exports.
In the 2020 calendar-year our barley exports were 2.8 MT, and despite the severe drought increased to 3.6 MT in 2021. These were significant increases from the decade before when annual export volumes were in the 1 to 1.5 MT range. We anticipate this year’s harvest to yield about the same as 2020, around 10 MT. Even with very low stocks carried over from the previous drought-year, after domestic uses, our export volumes in the 2022-23 crop-year could be above 4 MT, perhaps as high as 4.5 MT. There are already indications in the 2022 calendar-year that our exports are above Russia, and even Ukraine, elevating us to 3rd in export-ranks.
The main driver of our export growth has been increased production in the face of stagnant domestic consumption, leaving more surplus to export. In the last decade land-area planted with barley expanded significantly: in 2021, 3.36 million hectares, 10% more than in 2020, and 23% above the 10-year average. This expansion was particularly evident in Western Canada, especially in Saskatchewan and Alberta (not as much in Manitoba or British Columbia). Expanding as much as 50% in the last 5 years, the region now accounts for 97% of barley-seeded land across the country.
This trend was driven by yield increases, giving incentive to growers to switch from other crops to barley. Measured in bushels per acre, from 2011 to 2020, yields increased from 55 to 70 in Saskatchewan, 65 to 75 in Alberta, 45 to 80 in Manitoba. With the 2021 drought, however, yields dropped to as low as 35 in Saskatchewan, 45-50 in Alberta, and 55 in Manitoba – the lowest yields in a decade in all three provinces. Before the 2020 drought, total production in Western Canada was 25% above the 10-year average, as much as 37% in Saskatchewan, 26% in Manitoba, and 16% in Alberta-BC. After much lower levels of output in 2021, this year’s harvest, is expected to yield comparable if not higher levels of output per acre than in 2020.
As impressive as the yield increases of the last few years have been, let us try to put them in an international perspective. The two major Western European producers, France and Germany, achieve 80% more, but we are 60% above Russia, the largest producer, and 10% above Ukraine that produces comparable volumes to us. The two other producers in the Americas, Argentina, and the US, are 10% above us, but our principal export competitor, Australia, achieves only half the yields we do.
In drawing such comparisons, we must bear in mind that the differences are more due to weather and soil conditions than science-and-technology. While our climatic conditions limit us primarily to one harvest, France and Germany squeeze two, thus achieving higher yields. Advances in agronomy may hold more surprises to boost yields, but we cannot expect more of the same as the last 10 years. Instead, we must focus on the type of barley we produce and how we export to get more value.
Feed-grade barley, classified in Canada as general-purpose, is on our radar screen but in a very different way than how barley has been exported in the past, mostly in bulk, originally by CWB and now through private trading channels. We see a huge potential in containerized exports of feed-mixes (barley and other grains, with additives and nutrients) directly delivered to feed-lots – customized to individual buyer’s (feed-company or end-user) needs, be it for cattle, hogs, chicken, or dairy.
Here, however, we focus on malting-barley, in our opinion a grossly neglected or underserved crop domain from a sales-marketing angle. At the production end, in a region where most of our barley is grown, the Prairies, 50% is malting grade, and in Saskatchewan as much as 60%. In 2020 this would have been more than 5 MT of malting-barley, but we estimate that no more than 3 MT was purchased as malting-barley from farms that year, the rest going into feed-chains. We also estimate that Canadian maltsters purchased no more than half this amount to produce malt, the rest being exported but not clear whether used for malt or feed in end-markets.
These numbers clearly suggest that there are two problems in the barley domain. The first is that as the world’s leading malting-barley producer in quality as well as grading-standards (which we will get into in more detail next) only 60% of all the malting-barley we grow is bought as such, the rest obviously going into feed-chains. The second is the price farmers get for what they sell as malting-barley – what overseas buyers are prepared to pay for quality malting-barely is much higher than the meager margins that domestic maltsters pay to compete with feed-barley prices.
Shift to malting-barley and the export-dilemma
Though an ancient crop and widely grown under various soil and climatic conditions, barley had posed cultivation challenges. In addition to its structural flaws like weak straw and easy shattering, it had been known for its proneness to bacterial blight, fungal and viral diseases. All these factors contributed to poor crop quality and unpredictable yields, but it did not seem to matter as long as barley grew and met basic on-farm feed needs, with limited trading scope, particularly across the Prairies.
With advances in agricultural sciences, all this changed later in the 20th century. Like most other crops, barley ceased to be a creature of nature and became a cash-crop that could be engineered by improving its agronomic traits and resistance to disease, while achieving higher yields to make barley more attractive to farmers with much better revenue prospects. Not too long-ago farmers used to keep half the barley they produced to feed their own animal-stocks, but now barley is widely traded commercially as a premium source of feed with high protein and starch content.
Two-thirds of the barley produced worldwide is used for feed, but this is still a small share among other staple crops that make up the world’s feedstocks. We use more barley than most countries to feed hogs, cattle, and dairy cows, but in the aggregate, this is still a small volume. Given the quality of grades and varieties we grow, there is a much greater value proposition in malting-barley. Though a higher-share of what we produce is malting grade, only about a third of our output ends up being used for malting, about the world-average. We do not market effectively and fail to open the necessary sales-channels for producers to realize the higher prices they deserve.
Across the Prairies, in 2021 malting-barley represented 50% of all barley-seeded area – close to 60% in Saskatchewan, only 39% in Manitoba and 43% in Alberta-BC. The regional average had declined from 56% since 2016, but now in total with more land seeded with barley (25% increase from 2.6 to 3.3 million hectares) the land-area seeded with malting-barley remained the same. As a result, with yields remaining steady, total malting-barley output was the same in 2020 as 5 years earlier. With next year’s drought, output dropped 40%, but this year we expect a return to 2020 output levels, about 10 MT, evenly split between malting and other types of barley.