Tester wants answers on beer giant's contract cuts

by David Murray, Great Falls Tribune

Timely rains and adequate sunshine combined for a better-than-average barley crop in Montana last year. The same could be said in Idaho, Colorado and Wyoming – and Americans seem to be drinking a little bit less beer of late.

That’s about all that can be agreed upon when it comes to explaining the depth of cuts in production contracts offered to Montana barley growers this year. Montana Sen. Jon Tester wants a more detailed explanation.

Both MillerCoors and Anheuser-Busch InBev began telling Montana barley growers last fall that an excess supply of grain in 2016 meant they would not buying the same quantities of barley in 2017 as they had the year before.

“The past two growing seasons have resulted in large volumes of high quality barley, which has more than met the requirements of barley users,” Russ Harville, vice president of raw materials for Anheuser-Busch said in a letter issued to growers near the end of 2016. “As a result, for 2017, we are modifying our barley procurement to accurately reflect our needs.”

Anheuser-Busch, Miller Coors slash contracts for malt barley
MillerCoors told its growers much the same thing. The difference is, MillerCoors began negotiating with its growers last October for a modest 10 percent decrease in orders. Anheuser-Busch InBev’s cuts are about six times that.

The question is, how could two brewers who both procure the large bulk the barley they use from the same geographic region under similar market conditions be so far apart?

According to statistics from the National Agricultural Statistics Service, barley yields in Montana were up 4.7 percent in 2016 over 2015 and by 7.6 percent in the combined growing regions of Idaho, Montana, Colorado and Wyoming, where both AB InBev and MillerCoors obtain most of their U.S. grown barley. Overall production of barley was down in the U.S in 2016, with a nearly 19 million bushel decline from the prior year.

So how does an 8 percent increase in high quality barley equate to a 60 percent cut in production contracts? Tester, D-Mont., would like to know.

“I am requesting a conversation with appropriate representatives to discuss this issue, including the following questions,” Tester wrote in a Jan. 27 letter to AB InBev’s chief executive officer, Carlos Brito. “How many Montana producers does this impact? At what point did AB InBev make this decision? At what point did AB InBev notify impacted producers? Is AB InBev increasing its procurement of wheat or barley ingredients from alternative sources within the United States or abroad? Does AB InBev anticipate a change in its demand for barley following the merger?”

Tester’s reference to “the merger” refers to the recent creation of a new beer brewing super-corporation, with its headquarters in Belgium. In July 2016, the U.S. Department of Justice approved a $107 billion merger between Anheuser-Busch InBev and SABMiller, the world’s two largest beer companies.

The merger was controversial, not just in the U.S. but in the European Union as well, because AB InBev now controls about 29 percent of all the beer sold in the world, including popular U.S. beers such as Budweiser, Bud Light, Busch, Corona, Lowenbrau, Michelob and more than 200 other brands worldwide.

Industry analysts warned that such a merger was anti-competitive and would put smaller brewers of high-end craft beers and imports at a distinct disadvantage.

The Department of Justice only approved the merger after Anheuser-Busch InBev (headquartered in Belguim) agreed to spin off all of its MillerCoors holdings in the U.S. and all of its Miller holdings globally.

In a letter dated Jan. 14, 2016, Tester sought assurances from Brito that the proposed acquisition of SABMiller would not have a significant impact on AB InBev’s purchases from Montana grain growers.

Anheuser-Busch, Miller Coors slash contracts for malt barley Wochit

“It is important to my constituents to better understand the potential impacts of this proposed acquisition in their longstanding relationship with Anheuser-Busch InBev,” Tester wrote. “With that in mind, do you expect there to be any measurable effect on the company’s current or future grain contracts in Montana?”

“The simple answer is, no, this transaction will not change that,” Brito wrote back. “…our footprint in the U.S. beer market will not change as a result of this transaction, nor should our procurement of barley, wheat or any other ingredient used to brew our beers.”

Less than a year after Brito drafted his response, and only a few months after the AB InBev acquisition of SAB Miller was finalized, the corporation slashed its contracts with Montana barley producers by more than half.

In a statement received by the Tribune on Feb. 2, Harville said the following:

“Today, just as has been the case for Anheuser-Busch’s 165 history, nearly all the barley we purchase each year comes from American growers, including Montana farmers. We are not changing where we get our barley, in fact 99.5% of the barley we purchase this year will come from the U.S.

“In addition, Anheuser-Busch’s footprint in the U.S. beer market has not changed as the result of our combination with SABMiller, nor has our procurement of barley, wheat or any other ingredient used to brew our beers. Further, the changes to our barley purchase volumes has nothing to do with global markets.”

Tester is not yet fully satisfied that AB InBev has maintained the good faith relationship with its Montana growers.

“I think they’re being less that straightforward – and I’m probably being generous in the way I put that,” Tester said during an interview Jan. 31. “That consolidation actually happened in earnest in October. The harvest in Montana was done in August, so they knew what the hell their production was. We’re talking less than half a year later, basically three-and-a-half months, and now they say we’re going to cut – not 10 percent or 15 percent, but 60 percent? My letter is about holding them accountable to what they told me.”

Tester made it clear he does not in any way blame the Anheuser-Busch employees in Montana for the current situation.

“This thing is being driven by folks way above them,” he said.

But he takes exception with what he described as a broken promise to Montana farmers.

“I know that farmers are very resilient,” the senator added. “They’ll put in pulse crops and they’ll put in oats and all sorts of other things. But I’ll also tell you that they told us this wasn’t going to impact their people at the farm gate and it has, so we’re holding them accountable.”