The Effect Of Value Adding

[crozdog]

Guys,

What follows is a very very rough analysis of the power of value adding. Note this looks at the sale price only; doesn't consider the input costs; transport; retailer margins; the cost of capital etc etc. Simply put it isn't a gross margin analysis.

Scenario 1. Farming. According to the NSW Agriculture "budget" for malting barley here, the grain farmer gets $175/tonne at the farm gate.

Scenario 2. Malting. A 25kg bag of malt for the brew day i just held cost $58. As there are 40 bags in a tonne, the maltster has effectively turned 1 tonne into being worth $7000!

Scenario 3. Brewing. In rough terms, the 25kg bag I bought made 150l. Assuming a commercial brewery gets the same 1:6 output (in real life they would get more due to efficiencies; scale and the use of adjuncts like sucrose <_< ), 1 tonne of grain will therefore produce 6000l of beer. As a typical case holds 24 x 375ml bottles (9 litres), 666.66 cases can be filled with the 6000l. At a retail price of $39/case, the sale of that beer generates $26,000.

Therefore by malting the grain, the maltster has turned something worth $175 into something worth $7000 (a 40 x increase on the farm gate price)! :blink: By further processing /value adding, a brewery converts the value of 1 tonne of grain to be worth $26,000 (a 148.57 x increase on the farm gate price)! :excl:

The killer is that at the end of a hard days work the poor farmer has to get off his tractor and pay through the nose out of his meagre pay cheque to buy a (crap) beer to quench his thirst. Maybe we'd better start educating the masses.....OK then, how about the farmers first B)

 

[Hashie]

Nice bit of work there Crozdog.

Is it any wonder the farmers are walking away from the land.

If only we could get them to malt and brew on site...

 

[Cummins]

I think you need to think a bit harder...
The brewery is buying grain cheaper than that...
What about the $12,000 excise going to the government when they sell the beer...
And the brewery isn't selling the cases of beer, an independant retailer is...
There is way more steps in the chain!

But yes, farmers are getting shafted.

 

[crozdog]

I think you need to think a bit harder...
The brewery is buying grain cheaper than that...
What about the $12,000 excise going to the government when they sell the beer...
And the brewery isn't selling the cases of beer, an independant retailer is...
There is way more steps in the chain!

I agree on all those points, that's why I said I was looking at the sale price only not the gross margin.
Besides it's too early & I'm sober, so there's no way I'm going to consider a complete gross margin analysis anyone anyone

 

[glenos]

do the same analysis for any processed food product it is always very frieghtening.

KFC and chips is a good one.

 

[Cracka]

crozdog. Sydney Inner West. :huh: I'm impressed

Some of you do exist in the big smoke

 

[crozdog]

crozdog. Sydney Inner West. :huh: I'm impressed

Some of you do exist in the big smoke

lol. had to move to the "big smoke" for work 20+ years ago - haven't escaped yet - mind you there are some great brewers in the ISB

 

[paul]

I heard on the talkback today that the cocky only gets 46 cents per litre for milk and has gotten this price for years. Yet at the shop the price is always going up.

 

[tangent]

teaching the masses how to malt is the hard part too.

a chef mate of mine was a food-costings genius. he walked me through a big hotel he was working for and broke everything down into the hotel cost and retail price.
the biggest surprises were the stale bread sold as garlic bread and the post-mix machines.
ever since then, i will never ever pay for a cup of expensive post-mix softy or stale bread with margarine.

 

[Randall the Enamel Animal]

1 tonne of malt. Yep, about 60hl at 5% abv.

Lets suppose youre a 60hl brewlength brewery; MSB size. A tonne of malt plus everything else that goes directly into a case of beer (bottles, glue, hops, etc) will set you back perhaps $10.50. This is called the cost of goods and services, ie, $10.50 worth of stuff in each and every carton. Add onto this your fixed manufacturing overheads, and this will depend on the volume youre producing, but it may be as high as $1 per litre. Includes salaries, depreciation on plant, rent on property all the stuff you have to pay for regardless of whether your beer sells or not. So, were up to twenty bucks now. To this, Johnny Pull The Other Worm Howard levies excise which, at the current rate, would add another $11.65 to the carton (24x330ml@5%). Not looking so cheap now. Brewer may wholesale the carton at $38, making a grand total of $6. Not a lot.

 

[tcraig20]

Nice bit of work there Crozdog.

Is it any wonder the farmers are walking away from the land.

If only we could get them to malt and brew on site...

Looking at it the other way, it seems to me to show that its really not worth worrying about increasing malt prices. They compose such a tiny proportion of the cost of beer that they are negligible.

Much the same as bread, only about 2% of the cost of bread is grain. The price of wheat doubles, it adds 10 cents to a loaf (or at least it SHOULD).

Hate to run against the grain (edit: oh boy that's really awful), but farmers sell their products for what the market is willing to pay. Just like everyone else. Its unfortunate that hard work doesnt always translate directly into financial reward.

 

[domonsura]

Yes Randall, dead right. Funny how when people want to do "costing", they often conveniently forget about the cost of the equipment used to do the job and associated wear & tear & depreciation, taxes, wages, super, work cover, excise, rent, electricity, gas....and on and on and on......and it happens in all areas too.....

Like the guy the other day who balked my $30 to TIG weld a 1/2" socket into a pot. "But the socket only costs $5!!! It's only a 5 minute job!!!" he exclaims...........so I handed him a socket fitting and said "OK then. You put it in."
...
...
...
"but I don't have a welder....or a grinder.......or............ahhhh ok, you better put it in then........"

(and I'm thinking "That's what I thought"...)


But yes, on the other hand, the farmers are getting screwed as always. I wonder every day how the hell they get up in the morning and do it all over again, pretty special people the farmies.

 

[kirem]

I heard on the talkback today that the cocky only gets 46 cents per litre for milk and has gotten this price for years. Yet at the shop the price is always going up.

Try about 26cents/L that includes all the fat and protein that they remove to sell as cream etc.

 

[kirem]

1 tonne of malt. Yep, about 60hl at 5% abv.

Lets suppose youre a 60hl brewlength brewery; MSB size. A tonne of malt plus everything else that goes directly into a case of beer (bottles, glue, hops, etc) will set you back perhaps $10.50. This is called the cost of goods and services, ie, $10.50 worth of stuff in each and every carton. Add onto this your fixed manufacturing overheads, and this will depend on the volume youre producing, but it may be as high as $1 per litre. Includes salaries, depreciation on plant, rent on property all the stuff you have to pay for regardless of whether your beer sells or not. So, were up to twenty bucks now. To this, Johnny Pull The Other Worm Howard levies excise which, at the current rate, would add another $11.65 to the carton (24x330ml@5%). Not looking so cheap now. Brewer may wholesale the carton at $38, making a grand total of $6. Not a lot.

Now look at the excise on something like VB at 5% and remove 0.2% alcohol and work out the savings made by Fosters.

It still amazes me that wine and beer do not play on a level playing field, especially at the small end of the market. A lot of small wineries would not exist if it wasn't for the rule allowing the 'refund' of WET.

 

[Randall the Enamel Animal]

Now look at the excise on something like VB at 5% and remove 0.2% alcohol and work out the savings made by Fosters.

Assuming VB is about a 3 million litre per day brand, ballpark, shave .2% off the etoh and their looking at a $200k per day tax saving (depending on percentage pack/tap). And remember, the tax is paid on the actual alc%, not what's on the label (which can be +/- 0.2%). You can be certain then that the real alc% is EXACTLY 0.2% less than that stated.

 

[discoloop]

You can be certain then that the real alc% is EXACTLY 0.2% less than that stated.

I hadn't heard this before. What's the story there?

 

[microbe]

Sounds a little like a conspiracy theory to me. But what I think they're saying is that -

1. Legally a beverage labelled as 5% ABV can be as high as 5.2% or as low as 4.8% without having to change the label.
2. Breweries pay alcohol excise on measured alcohol not labelled
3. Economically better therefore to brew your beverage to 4.8% ABV, label it legally as 5% ABV but only pay the rate for the 4.8%.

Now that I've put it like that it sounds less like a conspiracy theory and more like good business practice.

Cheers,

microbe

Edit - fixed codes

 

[Randall the Enamel Animal]

Yeah, that's it Microbe. Only you don't brew it to 4.8%, you brew it to 6 or 7% and then cut it with de-aerated water at the filter back to 4.8%. Or in the case of 'Old', you brew it to 8% and cut it back to 4.2.

 

[captian black beer]

If I recall with the VB % abv drop, CUB would end up saving $20M per year on Excise by droping it 0.1% to 4.8%, they do this regularly, as I'm sure VB was once 5.2% (Correct me if I'm wrong here - it was way before I started drinking - not that I ever did VB to often). It's like reducing the size of the bottle only less obvious.

 

[Adamt]

I'm fairly sure breweries would not get away with putting 4.8% beer in 5.0% labelled bottles. I think you find this "0.2% out" bit would be the tolerance allowed on the AbV measurement.