USGC trade team paves way for barley malt sales to China

U.S. Grains Council
Farm Forum

U.S. malt is headed to the Chinese brewing industry, thanks to the collaborative efforts of the U.S. Grains Council and an importer who participated in a 2019 trade team to secure a tariff exemption for U.S. barley malt.

“While malt products were not included on the list of products eligible for tariff exemptions published by China to comply with the Phase 1 agreement, there was an opportunity to get them included,” said Bryan Lohmar, USGC director in China. “The Council worked with our new contacts in the microbrewing industry in China to petition for malt exports to be included in the list of products eligible for tariff exemptions, which was approved. This provides another export destination for U.S. barley farmers and malt producers.”

China is the world’s largest beer producer with a small but rapidly growing craft beer industry. A significant share of China’s barley malt used to brew that beer is produced from imported barley from Australia, Canada and Europe, but importing raw barley makes it more difficult to control the quality of the barley and resulting quality of the malt. This has led to increased demand from brewers in China for imported malt that has a more consistent quality – something the U.S. barley industry can provide.

“China’s domestic malt does not have the same quality characteristics as imported malt,” Lohmar said. “Maltsters in China often buy barley on the global market, much of which may not meet the quality standards that U.S. maltsters have for barley used in their operations, resulting in lower germination rates and lower quality malt. Because U.S. malting barley is grown under contract to meet specific quality characteristics, U.S. malt is higher quality, giving a competitive advantage.”

U.S. barley producers currently supply barley for malt under a production contract, but individual craft brewers or importers from China are not well-positioned to offer these types of contracts. U.S. malt producers can, however, contract with farmers and then sell the malt to importers directly or through beer ingredient supply companies that already import to China.

“We determined last year that a primary constraint to malt exports is a lack of knowledge of the U.S. malt industry,” Lohmar said. “As a result, the Council organized the first team from China to look at U.S. barley malt, which traveled in October 2019.”

The team of craft brewing stakeholders traveled to North Dakota, Idaho and Colorado to visit small, medium and industrial-sized malting operations, barley farms and research operations. Throughout their tour, members of the team learned about the quality characteristics and marketing practices for U.S. barley, as well as the intricacies of U.S. malt production.

Following the team’s visit, the Council continued to explore import prospects. Supplying malt to China is easier for the U.S. barley industry than exporting grain. U.S. barley as a raw grain does not have an import protocol with China, although negotiations for the needed protocol are in process as part of the Phase 1 trade deal.

U.S. malt does not require an import protocol to the country. Despite this advantage, however, barley malt was subject to the 25 percent retaliatory tariffs imposed by China in response to the U.S. Section 301 tariffs, limiting exports.

“Most small beer producers in China are fairly price sensitive, so the 25 percent tariff made it difficult for U.S. malt to compete with exporters in Europe and Australia,” Lohmar said.

As part of the Phase 1 implementation process, China announced in February 2020 a list of agricultural products eligible for Section 301 tariff exemptions. Malt was not included.

“We immediately reviewed the list and noticed barley malt was not on it,” Lohmar said. “However, it did include language that if there are agricultural commodities not included on the initial list but might be imported, importers could petition to have them included.”

The Council reached back out to one of the importers on last October’s team who had been enthusiastic about selling U.S. malt to Chinese customers. The importer then submitted the petition to allow for the barley malt exemption, which the Chinese government approved. After applying for the exemption, the importer has already started to purchase U.S. malt.

“These barley malt sales to China are noteworthy,” Lohmar said. “Even though the sales are small in comparison to the size of the overall market, they have already exceeded U.S. malt exports to China in the last 10 years, noting demonstrative progress in gaining access to the Chinese brewing supply chain.”

The Council will continue to assist craft brewers in China by providing market and other information through seminars on malt quality and malt characteristics and by participating in upcoming craft beer trade shows, when such activities resume.