Farexchange

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Farexchange
Brewing/Distilling Raw Material Supply Chain

• Guy Newsam
• Muntons plc
• October 2008

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• Muntons plc background
• How Malt is Produced
• Market Drivers
• Challenges Facing Supply Chain
• Supply Chain Solution
• Supply Chain Initiatives

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Muntons plc Background
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Muntons plc - Plant locations
Main barley growing regions of the UK
Muntons sites Bridlington Malt Stowmarket
Malt and Malted Ingredients
Bridlington 95,000 tonnes pa
Stowmarket 80,000 tonnes pa malt 40,000 tonnes pa
Ingredients
London
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Muntons plc - Markets
Muntons position as Europes largest malted
ingredient manufacturer and one of the top five
UK maltsters, places us in an ideal position to
serve a number of diverse markets
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• Muntons plc background
• How Malt is Produced
• Market Drivers
• Challenges Facing Supply Chain
• Supply Chain Solution
• Supply Chain Initiatives

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How Malt is Made

• Range of specifications
• Entirely natural process
• Air, water and energy. No chemicals
• 1 tonne malt

• 15,000 pints beer
• 415 litres cask strength whisky

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• Muntons plc background
• How Malt is Produced
• Supply Chain Drivers
• Malting Production Capacity
• Malting Barley Availability
• Challenges Facing Supply Chain
• Supply Chain Initiative

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UK Malting Capacity Maltings Recently Closed in UK

• Simpsons, Pontefract 9,000
  tonnes
• Greencore, Ipswich 36,000 tonnes
• Greencore, Carnoustie 37,000
  tonnes
• Coors, Burton on Trent 33,000 tonnes
• Muntons, Kirkcaldy 35,000 tonnes
• Kirkliston maltings 10,000 tonnes
• Wolverhampton Dudley 8,000 tonnes
• TOTAL 168,000 tonnes
• Future Expansion Planned though

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UK Malting Capacity - Distilling Growth
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Malting Capacity - World Beer Growth
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Malting Barley - World Requirement
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Malting Feed Barley World Availability
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UK Malting Feed Barley Acreage
Source HGCA
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EU Malting Barley Tonnage
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Malting Barley Market Drivers

• World population growth Growing wealth in
  developing countries increase in demand for all
  commodities
• Energy crops for biofuel production
• Climate change Crops, water and fertility.

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Malting Barley - World Population Growth
Source Worldwatch Institute
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Malting Barley - Growing Wealth in Developing
Countries

• As the economies of Developing Countries grow, in
  particular India and China, the demand for meat,
  feed, bread and beer (grain) is rising
• In China, in 1985 per capita meat consumption was
  20kg a year, today it is 50kg a year extra 250
  million tonnes grain.

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Malting Barley - Biofuel Impact

• UK Renewable Transport Fuel Obligation
• 2.5 April 2008
• 3.75 2009
• 5 2010 (could be delayed 3 years)
• Phase 2 ?

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Malting Barley - Biofuel Plants Existing and
potential
SourceHGCA
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Malting Barley - Biofuel Impact

• UK
• To meet 5 target, use exportable wheat surplus.
  Increased competition for land.
• USA
• 2000 15 million tonnes of maize was used to
  produce Ethanol in the USA, this year it will
  rise to around 85 million tonnes.
• The maize from Iowa will end up inside Buicks
  rather than Bullocks

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Malting Barley - Climate Change

• Unusual climatic conditions compromise crop
  quantity, quality, water availability
  fertility.
• Does it really exist?

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• Muntons plc background
• How Malt is Produced
• Market Drivers
• Challenges Facing Supply Chain
• Supply Chain Solution
• Supply Chain Initiatives

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Supply Chain Challenges - Changing Market
Dynamics

• Since the 2006 crop, the world has seen a seismic
  shift in the World cereals markets
• SD balance has changed, shortages of some
  cereals, volatile prices
• Malt and brewing Industry finally recognise need
  to re-establish broken Supply Chain

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Supply Chain Changed Dynamics

• There will be a collapse in our Industrys supply
  chain unless the chain works both ways

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Supply Chain Challenges Farmer Perspective

• With market price fluctuations
• When to market their grain?
• What is best price?
• How much to sell?
• Who to sell it to?
• Recognise market demand, crop accordingly
• Keep abreast of seed technology and agronomic
  best practice
• Climatic uncertainty

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Supply Chain Challenges Maltster Perspective

• Securing sufficient malting barley, when
  competition for land is strong and Farmers have
  more choices
• Climate change bringing variable harvests with
  effect on quality,quantity and prices
• Securing sufficient margin to allow for
  re-investment
• Rising raw materials and energy

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Supply Chain Challenges - Brewer/Distiller
Perspective

• Brand Protection - Continuity of Supply (volume
  and quality) for Hops and Malt
• Barley risk moving from Maltster to Brewer.
• Declining sales in developed countries
• Rising Input Costs raw materials, energy,
  packaging and people

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• Muntons plc background
• How Malt is Produced
• Market Drivers
• Challenges Facing Supply Chain
• Supply Chain Solution
• Supply Chain Initiatives

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Supply Chain Solution Availability of Quality
Malting Barley

• MB is a marginal crop in terms of volume, so it
  should not be squeezed
• MB is a specialist crop.Farmers sacrifice yield
  for premium and it requires skill and experience
  to grow
• Brewers/Distillers, through the Maltsters, must
  pay a sufficient premium to the farmer over
  competing crops to protect and service this
  growing demand.

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Supply Chain Solution - Action

• Set up long term malt supply contracts with
  Brewers/Distillers
• Security of malt supply on a transparent cost
  basis with margin
• Malting Barley secured on a combination of
  contracts, fixed price, premium over feed barley,
  spot harvest, price to be agreed, Branded
  Contracts

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• Muntons plc background
• How Malt is Produced
• Market Drivers
• Challenges Facing Supply Chain
• Supply Chain Solution
• Supply Chain Initiatives

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Supply Chain Initiatives

• New Barley Intake Facilities
• Grant
• Muntons Malt Supply Chain Ltd
• Branded Barley Contracts
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• New Barley Intake Facilities
• 24,000t storage
• Intake, pre-cleaning, drying and dressing
• Vehicle marshalling
• Total Capital Investment 3.9m

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Supply Chain Initiatives

• New Barley Intake facilities
• Grant
• Muntons Malt Supply Chain Ltd
• Branded Barley Contracts
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• Grant
• Yorkshire Forward, 20 of spend - 723,000
• Deliver Yorkshire Farmer Benefits
• Performance Milestones
• Build Facility
• Enter in land lease agreement
• Barley contracts - 24,000t/yr from 2009 crop
• Employ 1 additional person
• Comply with publicity
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• New facilites
• Grant
• Muntons Malt Supply Chain Ltd
• Branded Barley Contracts
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• Muntons Malt Supply Chain Ltd
• Registered in Yorkshire
• Land leased from Muntons plc
• MMSC owns all assets
• A Shares owned by Muntons plc
• B Shares owned by Centaur, GrainCo and
  GrainFarmers

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Supply Chain Initiatives

• New facility
• Grant
• Muntons Malt Supply Chain Ltd
• Branded Barley Contracts
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• Branded Barley Contract
• Customer specific provenance
• Pay reward for hitting specification
• Guaranteed harvest movement
• Element of future pricing
• Premium over LIFFE feed wheat
• Ability to fix against LIFFE base price
• Potential benefits to all partners

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Supply Chain Initiatives

• Branded Barley Contract Benefits
• Growers
• Reward for hitting specification
• Guaranteed harvest movement with element of
  forward price, i.e. free storage and drying
• Avoid need for on-farm drying and storage
• Reduced risk of spoilage in store
• Repeat business
• Identify with Brewer/Distiller brand

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Supply Chain Initiatives

• Branded Barley Contract Benefits
• Muntons
• Grower commitment to malting barley (availability
  and quality)
• Grant
• Supply chain innovation publicity and enhance
  reputation with customers
• Potential to grow further
• Cash flow

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Supply Chain Initiatives

• Branded Barley Contract Benefits
• Customer
• Brand protection through increased security of
  supply availability and integrity
• Brand promotion through provenance
• Opportunity to work with Growers/Muntons to
  improve brewhouse performance

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Supply Chain Initiatives

• New Barley Intake Facilites
• Grant
• Muntons Malt Supply Chain Ltd
• Branded Barley Contracts
• MMSC Malting Barley Forum

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Supply Chain Initiatives

• MMSC Malting Barley Forum
• Aim is to maintain and develop the growing of
  world class malting barley through the regular
  involvement of Growers, Brewers, Distillers and
  Industry Experts exchanging information and
  determining best practice.
• Regular meetings, customer visits, etc

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Supply Chain Initiatives

• End