Skagit Valley Malt Abruptly Closes; Is Craft Malt in Trouble?

Skagit Valley Malting is no more. Last Thursday afternoon, the Board voted unanimously to file for bankruptcy. Word leaked out over the weekend, but information is precious scarce. The causes and conditions that led to that moment were concealed from employees, who knew things were a little rocky, but had no idea this was in the offing. “We had no heads up that this was coming,” Marketing Manager Eric Buist told me this morning. “I knew things weren’t 100%, but to fully close down the business like just ‘Hey, 15 minutes, we got an all-company meeting’—that was definitely a surprise.”

This came as a huge shock to people who follow the brewing industry. Skagit Valley was one of the success stories. It was a fully integrated component of growing, researching, malting, and brewing that put cool valley barley into millions of glasses of beer every year. I visited two years ago and was incredibly impressed with the scope of the business and how holistically it seemed to integrate into the valley’s lush and productive agricultural landscape. Skagit Valley hadn’t achieved the kind of scale national maltsters enjoy—Eric laughed and said of in-state giant Great Western Malting: “when they do two batches of malt, that probably equals our yearly output—but they were making millions of pounds a year and serving as a key supplier for a number of breweries. Given Skagit’s scale and integration, I wondered if this has larger implications for craft malting in general. My discussion with Eric didn’t allay that anxiety.

Skagit Valley’s Success

Skagit Valley was a serious operation. They developed and engineered large drums that could complete the process of steeping, germination, and kilning raw barley in the same vessel. Each one could turn out 20,000 pounds of malt in about ten days. They had eight installed, with another on the way. They had situated themselves in one of the lushest valleys in the world, and partnered with local farmers to ensure they would earn enough to produce barley, which in agricultural terms, is not a big money-maker. They worked with local researchers to develop new varieties, and acted as a clearinghouse for people who wanted to experiment with old heirloom or landrace varieties.

“Everyone I’ve talked to in craft malt is trying to play a similar game where you have to expand. You have to get to a certain scale for the volumes to make sense. At a small, craft scale, your margins are pretty rough. But once you get over a certain size, it gets a lot easier.”

And at least outwardly, it looked they they were selling a lot of the malt. Even more than beer, malting is a scale business, and little malthouses have a hard time competing because their malt is just so expensive. Skagit Valley was at a scale where they were beginning to push prices down toward those of imported malt. “We are definitely small players on the overall malt scene,” Eric told me, “but as far as craft malt as a whole, we were one of the bigger craft maltsters. We were starting to bump up against the Craft Maltster’s Guild’s definition of what makes a craft maltster.”

Toward that end, Skagit Valley was planning on a large expansion that would get them over the hump. The plans, which were designed but as yet unfunded, would have built a base-malt facility and increased their overall production by six-fold. They would have converted their current nine-drum malthouse into specialty-malt production.

Uncertain Future

Two years ago, the Northwest was thick with craft malt options. That’s all changing. “With us going under, and Mainstem [Walla Walla] not up and running with their new facility, Gold Rush [Baker City], he’s retiring, and Mecca Grade, with Seth moving—we went from this super awesome craft malt scene to just LINC Malt over in Spokane.”

Brewers love craft malt, but in many beer styles, the impact is fairly subdued. That’s especially true in IPAs, where malt character, if it exists, is overwhelmed by hops. Because of their small scale, craft maltsters have to charge a huge premium. Brewers can buy small amounts for part of a grist or a specialty beer, but the price is too high for everyday use—which craft maltsters couldn’t supply in any case. Their prices put a damper on demand, but that low demand puts a damper on profits that might fund the kind of expansions Skagit Valley had hoped to complete. It’s been a catch-22 no one seems to be able to solve.

I don’t know what this means for the larger industry, but it’s an ominous sign. If you were going to place a bet on one malthouse that might escape craft malting’s catch-22, Skagit Valley would have been the odds-on favorite. The company had $3.4 million in sales last year, and was selling everything they could malt. With this abrupt news, it leaves one wondering whether small-scale malting is a viable business in an industry built on economies of scale.