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Meet me in the boardroom

How can this handful of Prairie farmers win, and keep winning, the contract to supply the malt for world-renowned Lagunitas?

Drive by any of your wheat or canola fields; what you’re seeing is probably going to end up in a loaf of bread or a bottle of oil. But which loaf or bottle? Where? That’s an entirely different question.

When Sterling Hilton looks out at his malting barley fields near Strathmore, Alta., he can tell you the exact route his barley will take on its way to becoming the chief ingredient in a Lagunitas Brewing Company beer.

That’s because Hilton and 13 additional farmers have formed Chinook Arch Growers, colloquially known as CAG, a farmer-driven co-operative group that sells its malt barley on contract to Rahr Malting and on to the award-winning beer vats at Lagunitas, one of the world’s top breweries, which began in Petaluma, California, and now boasts multiple breweries across America.

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But let’s start at the beginning.

It was November 2011. The leaves had already withered and the air at Hilton’s farm was decidedly crisp and looked to stay that way until the following spring. Hilton, then 38, was busy cleaning up the yard and servicing equipment in preparation for winter. He was dreaming of the next getaway he and his family will take.

But before he could get too far ahead of his own daydreams the phone rang. It was Kevin Sich, his malt buyer at Rahr two hours north in Alix, Alta. One of Sich’s American customers wanted to visit Alberta for a chinwag with local farmers about barley. Slightly puzzled but undaunted, Hilton agreed, and Sich rounded up four other quality farmers to meet Tony Magee, the founder of Lagunitas, one of the most popular beer brands in the world.

A meeting was scheduled with Magee, Sich, Hilton and a few others in the brewing industry. Given the time of year, they’d have to be satisfied with talking, due to snowy fields and an otherwise barren landscape.

Not long after arriving at Hilton’s farm, dubbed Hilton Ventures, the conversation took a turn that nobody really saw coming. Magee pitched the farmers on the idea of growing barley specifically for his brewery.

Not only that, he wanted to lock it down with a three-year growing contract — an unheard-of concept in the barley industry at the time. Lagunitas needed to nail down more predictable input costs for its beer, and Magee’s thinking was that by rewarding these farmers with a consistent price, he could secure their supply.

“Lagunitas wasn’t afraid to take a chance,” agrees Sich. “They wanted everyone to make money in the supply chain, that’s right down to Rahr. They had a firm belief that everyone had to make a profit to stay in business.”

One problem. The Canadian Wheat Board was a still-throbbing thorn in the side of western Canadian farmers and, enticing though operating outside the single-desk system sounded, the idea was academic.

When that first day wound to a close at Hilton’s farm, the group stepped outside where Magee was struck by a strange marvel taking shape to the west.

“As we came out of the shop about three hours later, it had warmed up considerably and there was a huge chinook arch overtop of us,” says Hilton. “Magee saw that and inquired about that and was fascinated by it.”

Accustomed to seeing and experiencing the warming effects of a chinook, Hilton explained to Magee what he was seeing. The transfixed American couldn’t pull his eyes away.

“That’s kind of how the name formed — this phenomenon of the chinook arch,” says Hilton.

The next day in Drumheller, Alta., Magee pitched the idea to everyone, including the farmers, at once.

“It was something that our farm has never experienced before, an end-user wanting to deal with us,” says Barry Tebb, CAG chair and Olds, Alta. farmer. “You could tell Lagunitas was a brewery that likes to think outside the box.”

The idea seemed crazy enough to work.

photo: Kaycee Ann Photography

Old dog, new tricks

On a hot and sunny August 1, 2012, the Saskatchewan town of Kindersley’s motto of “Experience Our Energy,” had never been more apt. A denim-jeaned Stephen Harper made an historic announcement as his majority government hammered a symbolic final nail into the CWB’s coffin. In one blow he simultaneously dissolved the monopoly and pardoned 13 convicted farmers of illegally moving grain at different points in time, including one who donated a 25-kilogram sack of barley to a Montana 4-H club.

While scores of farmers cracked open their Pilsners and toasted the day away, the CAG farmers were finalizing details on their own significant moment in time with their first three-year pact.

At the outset, the group didn’t have much of a formalized feeling and most of them had never met before. It was taking time to form bonds. However, the nuts and bolts of their work were familiar enough: grow malt barley, harvest the crop, deliver it and return home.

Now they would also know, however, that their malt would go on to become Lagunitas beer.

“We were able to grow our business and invest in infrastructure.” – Barry Tebb, CAG chair
photo: Kaycee Ann Photography

The CAG members travelled down to California that same summer to tour the brewery for an education on Lagunitas’ growth plans and to talk dollars and cents. “They wanted to make sure we didn’t over-leverage our farm,” says Hilton of the meeting.

At the time, commodity prices were farmer friendly and CAG was apprehensive at the thought of leaving money on the table. However, the multi-year structure’s novelty was not to be trifled with.

“When you look back on it and where our costs were versus secured price, that was great,” says Hilton, now 46.

Another issue was the crop itself. Despite being in a near-perfect location to grow barley, thanks to cool nights that relieve stress on the plants, and less variability over a larger landscape, concerns lingered.

Malting barley has a finicky reputation and all the farms were in areas where hail, late-season rain, snow or frost occurred with enough regularity to make them a little leery.

Fears were allayed with Rahr adding routine clauses such as the act of God, and all the farmers agreed the presented terms were reasonable. They signed on the dotted line.

“That takes some of the risk off the table for us,” says Hilton. “It seemed like there was a lot of upside, the only downside being if we didn’t negotiate a good enough price and the markets went higher by the time that three-year deal was up.”

In fall 2012, the farmers managed to successfully supply Lagunitas with its scheduled tonnage and their contract price was higher than marketplace offerings when they delivered the grain. Everyone involved breathed a collective sigh of relief after that first year was in the books.

The brewery’s gambit worked; Magee’s desire to pay everyone a fair price was a success.

“One of their main focuses was they wanted to have a crop for us to take the price risk out for both us and them,” says Tebb. “They had seen prices spike and prices go low.”

Each year the program has operated, the contracted price has always beat the market average on delivery day, save a few spot prices.

An added benefit of the three-year contract was that true long-term planning, a first for these farmers, was within reach. This helped everyone and smoothed irritating market vagaries as a bonus.

“We were able to grow our operation and invest in infrastructure that would help gain quality on our farm and do that with confidence with a price locked in,” says Tebb.

For Chinook Arch, the most crucial step was also the first — selecting producers with a shared attitude to business and life.
photo: Kaycee Ann Photography

As beer drinkers continued to slake their thirst on new and funky suds from Lagunitas, the company’s explosive popularity continued and, as a result, the partnership grew. It quickly jumped up to 12 producers, then 15, and, following one farmer’s retirement, settled in at 14.

Those handful of farm fields supply Lagunitas its malt and today the barley tender has quadrupled, which is music to the ears of CAG members. Currently, 13 of the 14 farmers reside within Alberta alongside a single Saskatchewan-based grain operation. All are strategically selected based on geography to mitigate the chance of not being able to deliver on the contract due to weather or other unforeseen circumstances.

Further down the draft line the business changed as well. With two separate 50 per cent sell-offs, Lagunitas became wholly owned by Dutch beer juggernaut Heineken. The structure remains largely unchanged, however. Overall, the group is now into its third three-year deal, currently running from 2018 to 2020.

It takes all kinds

When Sich handpicked the group, it was a natural selection of malt barley farmers known to be meticulous in agronomic detail and keen to push the limits of productivity at their operations.

“I wanted guys that saw the big picture, that understood things and could be fierce negotiators, and then have a beer and a laugh with them,” says Sich. “Those are the traits that I like. You can have business and still have some fun at the same time.”

He worked hard to find a group of farmers who would gel, despite not knowing one another. These days, when Sich spots them at farm shows, two or more will be gathered, having a drink and chuckling, underscoring to him that his draft picks panned out.

At a farmer level, the camaraderie is there, but it’s not as though it happened overnight, Hilton points out.

“I’ll jump on the next opportunity, especially now we have some experience,” says CAG member Scott Keller. “We kind of know what works.”
photo: Kaycee Ann Photography

“We’re all fiercely independent, that’s the way that farmers in general are,” Hilton says. “They don’t like to have to rely on others, but once that trust is built up, once you see others trying to accomplish a common goal, you can open up to a certain goal.”

The group eventually did open up to one another, and board tables become a progressively chattier locale. All were honest about their farm situations and other contracts with companies to guarantee nobody would be put into a tight financial spot.

Such simple acts were critical first steps to build into a more formal, business-minded partnership. The Heineken sale proved a watershed moment, meaning the group needed at least a suit-and-tie tone with meetings, conference calls and reports to its partners.

“It’s part of the whole growing and maturing thing,” says Scott Keller, a CAG member in New Norway, Alta. “If you want it to work you have to have a structure for decision-making. If we didn’t go this route of better organization, it probably would have blown up in our face. You have a multinational company; they don’t want to deal with a contract with each of our individual farms.

“For them to have to do one negotiation to secure their barley for one brewery, that’s massive.”

Keller was on the pricing sub-committee to renegotiate the group’s newest rate for its current three-year term during the winter of 2017-18. What may seem simple — decide on a number and present it to Rahr — was “a big deal with lots of time involved,” according to Keller.

Over the course of the next five months, Keller and four others logged “hours and hours a day” to determine an equitable figure for the new deal.

“If there was a concern, or one ripple, you’d almost have to talk to every other farm,” he says. “You have to keep everyone in the light. It’s not like new ideas are a bad thing, but you get overwhelmed with it. When you’re one of those central hubs hearing those new ideas or concerns, it never seems like you have a rest. There’s always something. I had no clue it would be that much work being on that committee. The work we’ve put into it… the passion we’ve had for the program, it wasn’t like I was going to throw it away because it got hard for a while.”

Finally, a deal was brokered, signed and delivered. But there was one more critical item on the beer farmers’ collective checklist: form a legitimate board.

“It provided a little more structure at meetings and maybe showed we’re a little more professional when negotiating,” says Tebb. “Having a board provides a path forward and a way to come to agreement.”

Today, the incorporated board has roles of chair, vice-chair, secretary-treasurer, three directors at large and multiple sub-committees such as buying, communications, events, marketing, pricing and sustainability. Tebb says having different spokespeople on sub-committees streamlines operations and allows dialogue to occur much more easily than before.

One new proviso the group manages is cross-coverage, where one or more members may be approved to fill the malt barley tonnage if another member’s farm has an unexpected crop loss.

Passing the test

In its current structure, the 14 successfully meet the malt demands of Lagunitas, critical to upholding the unique deal.

“No supplier is going to take you seriously unless you can guarantee them supply,” says Keller.

Now, CAG’s monthly email updates and conference calls, in-person sessions and an AGM keep Lagunitas and Rahr in the know on farm-level operations. The farmers stay connected to one another too, with pings in their inboxes plus messages in a WhatsApp group chat that help the crew stay as close as possible despite being siloed by geography.

Lagunitas Brewing Company beer.
photo: Kaycee Ann Photography

“You feel like you can throw a question out or an update (on WhatsApp),” says Hilton. “You’re kind of rooting for everyone. There’s definitely a feeling of support that you can get.”

Likewise, Keller approves of the all-for-one, one-for-all approach to a successful partnership, and eschews a go-it-alone mentality.

“If you’re only in the group for the pure benefit of your own farm, that won’t work,” Keller says. “That will erode the stability of the group. There’s give and take.

“To me, if you don’t want to share what you know, you shouldn’t be part of anything because then you’re just a leech. You’re drawing information from people that you don’t want to put back.”

Even Keller, a skeptic by nature, admits the deal has been good. “If it sounds too good to be true it usually is,” he says. “It wasn’t the case for this.”

Risks and rewards

Throughout the years as the farmers have gotten to know each other better, there have certainly been new-found upsides to collaboration.

The familiarity and comfort of eight years running has created open dialogue and trust. Now, the group is beginning to talk about business opportunities through its collective acumen gained via its unique arrangement.

“We’re starting to open the door to look at supplying more than just malt barley to an end-user,” says Hilton, who adds nothing has yet been decided. “We’ve all seen how successfully we can work together.”

One unique play in the test phase is early-stage compliance within the SAI Platform, a global sustainability metric designed to showcase sustainable agricultural practices. Three CAG farms are currently being put through an SAI audit. If the reviews are positive and more join, it may represent yet another way CAG could position itself as a sharp, focused group.

“For the barley we produce, we think we can provide a little value to the brewer as well as our own product by doing that,” says Tebb. “Lagunitas will use that as marketing: the barley they use is sustainably grown.”

While recognition through SAI would be a net gain, the group’s humble tack suggests it feels otherwise about such worldly labels.

“We’re doing nothing different on our farm, we’re just documenting it,” says Keller. “It’s not like we are changing our farming practices completely around. (Record-keeping is) a need for Heineken and we’re helping to fulfil that goal.”

Meanwhile, CAG members find they’re more curious about direct marketing crops now and are likelier to pounce on business deals thanks to the barley success.

“I’ll jump on the next opportunity, especially now we have some experience,” says Keller. “We kind of know what works. You need the people that are looking for something mutually beneficial.”

For Hilton, nothing has brought greater satisfaction than having his quality grain go to a grateful end-user. Better yet, it’s changed the way he feels about the typical nature of production agriculture.

“The pride you get from being in a group that supplies a high-quality product… you really get a feeling that it doesn’t just have to be a commodity business,” he says. “It can be a relationship business and that’s what it’s been with Lagunitas and Rahr. It definitely felt different than being a number at a driveway at a big terminal.”

His top advice for farmers wanting a similar co-operatively minded partnership is to be amenable.

“Go in with an open mind, nothing ventured nothing gained,” he says. “To get something out, you have to put something in. You are not going to see any change if you are not willing to look for it.”

About the author

Contributor

Trevor Bacque

Trevor Bacque is a freelance writer and journalism instructor. He has written extensively about agriculture since 2012 and is the current president of the Canadian Farm Writers’ Federation.

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