Does the SF Bay Area Economy Encourage the Use of Artisanal Malt?

I spent the early morning of Memorial Day on an hour long listening to an interesting Beervana podcast on Mecca Grade Estate Malt, an artisanal malt house in Central Oregon. What really got my attention was towards the end of the podcast, beer writer Jeff Alworth and Oregon State Economics Professor Patrick Emerson noted that much of the malt created in Oregon wasn’t being used by local breweries, but was shipped down to Southern California where beer prices are generally higher. Mecca Grade’s malt was more expensive than mass produced malt, adding about 15 more cents per pint to the ingredients cost of brewing a pint of beer. Both Emerson and Alworth noted beer prices per pint on draft in Oregon is typically around $5.50 a pint, where in Southern California, a pint of beer usually costs more than than that. Apparently, the higher beer prices in Southern California support the use of more expensive malt.

This got me thinking about Admiral Malting’s, a malt house scheduled to begin production this summer. Will the local Bay Area brewing economy support the effort? Or all that malt also go to Southern California or elsewhere?

It’s a good bet there will be local demand for the malt. Around here, pints of beer on tap typically go for $7-$8 per pint which ought to be conducive for local brewers to use more expensive malts . I’m not an economist, so I can’t really go into a deep economic analysis of the cost of brewing beer and how the Bay Area economy affects beer pricing. However, doing some simple back-of-the-envelope calculations, we can make some reasonable estimates of the cost of malts in brewing beer and what affects the price of a pint of beer. Then, we can make some reasonable assumptions to see if it’s reasonable to expect people to pay more for beer made with artisanal malt from Admiral Malting, or any other supplier.

First, let’s look at the cost. A recent Huffington post article suggests the typical local independent brewer pays a little less than 1 cent for the malt to brew an ounce of beer. This probably varies a lot by style, but let’s go with a 1 cent per ounce figure, which means a 16 ounce pint requires 16 cents of malt to brew.  It’s not too far-fetched to expect artisanal malt from a floor house malting facility to cost twice as much as malt produced in a modern high-volume malt house, so the extra cost 15 cents per pint when brewed with artisanal malt seems valid.

The next question is, why does beer cost so much in the San Francisco Bay Area and could that change? There are lots of factors that go into the cost of beer pricing, such as taxes, competition between breweries, labor costs. But the high cost of Bay Area real estate is a big factor, arguably the biggest and that’s unlikely to change anytime soon. When you buy a beer at a restaurant or bar, you really aren’t paying much for the ingredients used to brew it. You’re paying a significant amount for the establishment to pay for the space you’re sitting in and have someone serve you a beer.  High Bay Area real estate prices, and the labor costs associated with the high cost of living in the Bay Area inflate beer prices. Fifteen extra cents per pint is pretty small in the context of the $7-$8 pints, and if fifteen extra cents of artisanal malt adds an extra dollar in value to a pint of beer that legions of beer aficionados will pay for, using artisanal malt for specialty beers is easily justified.

Most likely you’ll see beers brewed with specialty malt in places specializing in craft beer full of patrons willing to spend more for local malt, rather than at your local Safeway or liquor store, which rely on a high volume/low margin business that more expensive artisanal malt will disrupt. Since the ingredient cost of hops is roughly the same as malt, we’ve already seen exotic hops, which can often costs 2-3 times more than conventional hops, in plenty of tap rooms and speciality beer establishments, but rarely elsewhere. We can expect about the same with artisanal malt, especially since the increased cost per pint is similar.

You might be asking yourself, if the Bay Area is so conducive to artisanal malt, why is Mecca Grade selling malt into Southern California instead of the Bay Area, which is closer? I dunno, maybe a brewery in Southern California caught wind of Mecca Grade, while Bay Area breweries are waiting for Admiral Maltings to go online.  And trust me, plenty of brewers are looking forward to Admiral Maltings to go online.

Expensive Bay Area beer has a silver lining, as long as there’s plenty of people willing to pay high end pricing for beers brewed with novel ingredients.

 

 

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ramblingsofabeerrunner

Writing about beer from the California's Silicon Valley.

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