Grain futures

Lagunitas Brewing Co. is headquartered in Petaluma, Calif., an hour north of San Francisco and 2,100 kilometres from Calgary. So last May, when thirsty patrons at the Calgary International Beerfest came upon three burly, middle-aged men pouring glasses of Little Sumpin' Sumpin' IPA from the iconic Lagunitas brewery, they were surprised and impressed at their commitment.

"You came all the way to Calgary from California?" one festival-goer asked.

"Nope," answered Doug Herman, a man with a Tom Selleck-like mustache, "we're just down from Drumheller."

Herman is a member of the Chinook Arch Growers, a group of 15 Alberta and Saskatchewan farmers that grow about 95 per cent of the 30,000 tonnes of barley that the California brewery uses each year – and they're damn proud of it. Their farm gates hang signs that read "Growing Barley for Lagunitas" and similar signs are taped up at their local beer stores. One grower even wants to wrap his grain truck in the brewery's iconic shade of green.

It's not surprising that the growers feel so connected to the Lagunitas mothership, since the brewery gives them the kind of star treatment most companies reserve for their top salespeople. Each year, they are flown to either Banff, Alta., or Petaluma for an annual general meeting. Brewery founder Tony Magee always makes sure he is there – and after a brief state of the union and some business talk, everyone asks after each others' families and drinks a lot of beer.

That personal connection is just the cherry on top of a sweet deal. The real draw is that growing for Lagunitas provides economic stability combined with a zealous commitment to quality that many of these farmers have never felt before.

Herman is a fourth-generation farmer.

Up until 2012, he was bound to the Canadian Wheat Board (CWB), a federal marketing agency that paid every farmer the same price for their malting barley based on what it could negotiate that year. Since everyone got the same price in the end, growers weren't that invested in which brewery their crop ended up.

Herman sells his barley to Rahr Malting, which malts the grain, then sells it to brewers. Under the CWB system, Rahr had a contract with the Japanese brewery Sapporo, which Herman says was very discerning. "We had to keep lots of logs and diaries and go through field inspections," Herman says. But although he says he was growing some of the highest-quality malting barley in Alberta, he was always paid the price that CWB had set for malt barley that year. "It didn't matter if you grew a premium product. The value got diluted when the sales were pooled in the system," he says.

In 2012, the Harper government, believing that farmers should be free to market their own grain, revoked the CWB's single-buyer power, which opened new doors for growers, brewers and maltsters such as Rahr. The middleman between growers and brewers, maltsters take raw barley and using air, water and heat, transform the grain so it's perfect for brewing. Rahr started to identify the best growers and persuade them to grow barley specifically for North American craft brewers.

Meanwhile, Lagunitas, one of the United States' fastest-growing craft breweries, had just finished negotiating long-term hops contracts and was looking to do the same with barley from the Canadian Prairies. The region's barley is a crown jewel for many brewers. Its arid climate, highly experienced growers and investment in R&D yield top quality, says Peter Watts, managing director of the Canadian Malting Barley Technical Centre.

Still, long-term grain deals are a highly unusual move, since barley is much more plentiful than hops. But in 2011, Lagunitas was experiencing gangbuster growth: Its original brewery in Petaluma had just expanded by 60 per cent, and a second brewery was planned for Chicago. The eventual increase in capacity would catapult Lagunitas into the top five craft breweries in the United States by volume. Barley is the second-highest cost for breweries, after bottles, and Lagunitas needed long-term price stability.

It also needed to maintain the high quality of its ingredients. "We recognized that what we were getting from Rahr was really the best malting barley that we could get our hands on," Lagunitas chief financial officer Leon Sharyon says. "We wanted to figure out what could we do to ensure that those farmers would always want to be growing our crop." So on a frigid evening in November, 2011, Sharyon and Magee flew with Magee's wife, Carissa Brader, and brewmaster Jeremy Marshall to Strathmore, Alta., to meet six barley growers on a family farm.

Having sold their crop in a volatile commodity market for generations, the farmers were a bit skeptical about the idea of locking into a three-year fixed price contract. Sharyon explained that the proposal could ensure economic stability for both parties. "What keeps you up at night?" he asked. When the farmers talked about costs they couldn't control, such as the price of diesel, Lagunitas offered to take some of that risk off the table. The long-term contract includes a risk-sharing index: seven major farm inputs, such as diesel and fertilizer, are tracked by the Alberta Farm Bureau monthly, and each year Lagunitas adjusts their price paid per bushel to the farmers based on the change in the value of the index.

"We'd never dealt with people like this before," Herman says. "Later, we figured out they were mavericks."

When the group left the farmhouse, the outside air was warm, and Magee asked where the frosty weather had gone. "It's the chinook arch cloud formation over the Rockies," a grower explained. "It means good weather is coming."

"Why don't we call the crop Chinook Arch Malt?" Magee suggested. Rahr ended up trademarking the name, which is listed on the Lagunitas bottles as an ingredient. The farmers later branded themselves the Chinook Arch Growers. The drafted contracts were officially signed when the CWB lost its status on July 31, 2012, now known to Herman and the other growers as Barley Freedom Day.

Since 2012, the Chinook Arch Growers have gone from six to 15 multigenerational barley farms across Northern Alberta, with one in Saskatchewan. "Not all of the new guys get it at first," Herman says, "but once they go to Petaluma for the AGM, they're all in."

For his part, Sharyon is always trying to persuade other brewers to go the same route. "Trying to determine a sustainable price for malting barley is very hard to do, and most breweries would rather play the game of picking off the valleys when the price drops," he says. But the concept is catching on, especially with expanding breweries that have the buying power to contract from large-scale Alberta farms. Last winter, Colorado-based Oskar Blues locked into its own long-term contract with Rahr.

Herman's entire operation now revolves around growing quality malting barley, which is a finicky crop. Only half of the malting barley grown in the Prairies each year gets "selected" for brewing – the rest gets sold off cheaply for animal feed. To make the cut, Herman has to meet strict quality standards: hitting the perfect moisture and protein content, and delivering living barley that's germinated to 95 per cent.

Most growers sell their barley annually, often getting a lower price than the CAG farmers are paid. Herman's neighbour, Doug Lowen, a 53-year-old third-generation farmer, sells his malt barley annually to Canada Malting. "Once we deliver it, we don't know what brewery it ends up with," he says. He'd be keen to try out a longer-term contract with a brewery and maltster: "The market's changed and this is something new. It would be nice to be more involved and to know where your product is going."

Herman says that if it weren't for the stability and goodwill provided by the Lagunitas contract, he wouldn't have put his heart into the tricky process. "We go to great lengths to maintain the quality they need," he says, "If we don't, we feel like we're letting the family down."

This past spring, Crystal Luxmore was paid to host a series of tasting events for the Barley Council of Canada. They did not review or approve this article.