Back in 1759, Arthur Guinness rode through the gate of an old, dilapidated brewery on Dublin’s James’s Street. He had just signed a lease on the property for 9,000 years at £45 per annum. Today, the site covers 55 acres.

Brewhouse No.4, which opened this week, is only the fourth brewhouse since 1759. At a cost of €169m, it is the largest stout brewery in the world.

Paul Armstrong, supply director brewing, said this investment shows a commitment to the future of brewing in Ireland and will bring together all manufacturing and production operations across Europe to produce over one billion pints of beer every year.

Guinness for export

35% of global beer for Diageo is now produced at St James’s Gate. Currently Diageo exports more than €1bn from the site to over 130 countries.

In the 1960s, with the UK market becoming dominated by keg beers, Guinness introduced draught Guinness. At the same time, the company expanded in overseas markets by brewing in those countries rather than by exporting to them.

For a brand so clearly linked to Ireland, this was a revolutionary move. Today in Africa, Guinness is seen as a local beer – because that’s what it is. Because of the innovation of Guinness flavour essence (GFE), Guinness is now exported for further brewing in 50 countries.

Dublin will make the high-strength Guinness syrup that gets exported and then mixed with lager to make stout. This had previously been made at the Waterford site, which ceased operations last year.

Diageo and Beer

Diageo, with sales of £10.3bn last year, has less than a 2% share of the global beer market.

Beer gives scale to Diageo and accounts for 20% of net sales. The company, which spends £1.6bn every year on marketing, had net sales of £10.3bn last year. Dublin is important, accounting for £1.7bn of sales.

This brewery is effectively a scaled-down version of the expansion plans announced in 2008 before they were mothballed.

Back then, Diageo said it was going to renovate St James’s Gate and build a new 73-acre brewery in Leixlip, Co Kildare, for a combined investment of €650m.

Following the collpase of the economy, the company changed tack and decided to develop the St James site. It did, however, continue its plan of closing Dundalk, Waterford and Kilkenny.

According to Armstrong, this allowed them to “compete with the big boys” such as Heineken and Miller.

Largest buyers of Irish malting barley

Although they have not purchased barley directly from farmers since 1997, they remain the largest buyers of Irish malting barley, purchasing 80,000t per year. A further 40,000t of barley is bought for brewing and roasting.

Boortmalt, the second-largest producer of malt in Europe, is by far their largest supplier, delivering an estimated 100,000t from their Athy site ever year.

The Malting Company of Ireland, the joint venture between Glanbia and Dairygold, has also supplied them with malt.

Comex-McKinnon, one of Ireland’s largest grain traders, run by the Hunt family, supplies barley for roasting and brewing through the Cooney Furlong Grain company in Wexford. Glanbia also supplies barley to the company.

Armstrong said: “We have a strong track record of working with Irish farmers and businesses.” He said that the Irish agri sector must remain competitive with the rest of the world on price and quality. “Once conditions are in place, we will continue to be proud Irish buyers of barley.”

Guinness is 96% water and barley makes up a very small proportion of the pint. On price, he says: “We are buying a global commodity and Irish barley must be competitive.”

He said that one of the key challenges in buying grain is volatile markets. However, they are managing this with mechanisms and tools in conjunction with Boortmalt. This has taken some of the emotion out of pricing barley and reduced risk earlier in the proccess.

Armstrong says that they are running at only about 85% capacity. He says it is his job to fill the brewery and is actively trying to bring as much beer home. This means that as they fill the capacitiy it provides an opportunity to use more Irish barley.

Quality

“We must remember this is a natural product impacted by the seasons each year,” he says, opening the conversation on quality. Last year, even though barley left the fields dry, this was unusual and the brewing yields were affected.

He says to achieve a high extract, which is a function of carbohydrates and starches, they require a plump grain. Low proteins are important, ideally in the range 8-10%. Too high and it clouds the beer, too low and there is not enough nutrients for yeast to perform the fermentation process. This then affects head formation and retention in the pint of Guinness.

They have switched a lot of their roasting barley to winter varieties, having learned it performs better. He added that this season’s crop is looking good, with strong colours and flavours.

Challenges

Drawing similarities to the dairy industry, he says both products are difficult to ship to foreign markets due to high water content. The product needs to be concentrated and only the bits that are really valuable should be shipped, similar to GFE. He sees success in taking natural ingredients and transforming them down into less bulk.

Commenting on the agri food industry, he acknowledges that Ireland has a fantastic image with a reputation of clean and green. He says that the challenge will be how to maximise this reputation while being conscious of costs and remaining competitive in global markets. He concluded that consumers around the world will pay some premium for brand Ireland, but not any premium.

Comment

It is great to see Diageo’s commitment to continue to want Irish barley, especially at a time when tillage farmers struggle to make a profit with green prices of €130/Tonne.

As Diageo strive to compete in global markets, they have refined their processes to become more efficient by reducing waste (anything that doesn’t add value) and increasing output and extract yield.

This, however, has led to the specifications required to supply narrowing for growers. It must be remembered this is an added value market for grain.

Our slow and long ripening season provides us with a great competitive advantage. Tillage farmers have been flexible and accommodating around the new specifications to ensure Diageo becomes more efficient. In return for the risk of growing to such an exacting specification, the tillage farmer must be rewarded fairly.