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Barley growers have stake in battle for Anheuser-Busch

Friday, June 27, 2008 | 1:19 a.m. CDT; updated 8:17 a.m. CDT, Tuesday, July 22, 2008

HELENA, Mont. — The prospect of Anheuser-Busch being taken over by a brewing company with roots in Belgium and Brazil has made some Northern Plains barley growers uneasy.

Budweiser is king in Idaho, Montana and North Dakota, where nearly three-fourths of the nation's barley is grown. Fairfield, in north-central Montana, even touts itself as the "Barley Capital of the World." Malt barley from the region also finds its way into beers brewed by Coors, Miller and international companies that include Grupo Modelo SA, a Mexican producer that recently built an Idaho Falls, Idaho, plant to process barley into malt.

News that InBev SA, formed in 2004 from beverage companies in Belgium and Brazil, made an unsolicited offer of roughly $46 billion for Budweiser brewer Anheuser-Busch Cos. unsettled some barley growers because many sign preseason contracts with the St. Louis company. Under those contracts, farmers sell their best barley to Anheuser-Busch rather than chance selling it on the open market.

The prospect of a hostile takeover remained Thursday after Anheuser-Busch, brewer of Bud Light and Michelob as well as Budweiser, unanimously rejected InBev's offer of June 11. Anheuser-Busch Chairman Patrick Stokes said the proposal undervalued the company. In what could be the first move toward a hostile takeover, InBev announced Thursday that it had filed for a court judgment that Anheuser-Busch shareholders can remove the company's board without cause.

Efforts to buy the company have farmer Mike Hager wondering "who we'll be working with, who we'll be dealing with and if they'll still have contracts."

Hager grows barley near Fairfield, a community of about 600 residents that lies west of Great Falls in what Montanans proudly call the Golden Triangle, considered the state's premier grain-growing area.

Grain-storage bins made of gray metal tower over Fairfield, where farmers swap stories at the Cozy Corner Cafe. They buy barley seed from Anheuser-Busch and receive advice from company agronomists. Bankers are more willing to lend money for operating expenses if they know farmers have a contract for grain sales, said Jay Ratliff, another Fairfield-area farmer.

"I'm assuming that if someone takes over Anheuser-Busch they would continue making the quality of beer that Anheuser-Busch is famous for, and to do that they would have to have quality barley," said Evan Hayes, an American Falls, Idaho, grower and chairman of the Idaho Barley Commission. Still, he said, "there is obviously a concern because it is such a large portion of our marketplace."

InBev spokeswoman Marianne Amssoms said only that the company would have "a strong commitment to the communities in which Anheuser-Busch operates." Anheuser-Busch responded to questions about barley contracts only with a statement that the company does not "confirm, deny or speculate on rumors of potential investments, acquisitions, mergers, new business partnerships or other transactions."

The stability that Anheuser-Busch has brought to Montana towns such as Fairfield definitely has been an asset for the communities, said Sen. Jon Tester. The Montana Democrat, who has raised barley in the past on his farm 80 miles northeast of Great Falls, said he will join Sen. Claire McCaskill, D-Mo., if she finds congressional grounds to challenge a takeover. McCaskill has said she will work to prevent one but is uncertain what she could do.

Barley growers probably have nothing to worry about, according to James Wetzel, an economics professor at Virginia Commonwealth University. He said InBev likely wants to boost U.S. market penetration by the beers it already produces, brands that include Beck's and Stella Artois. The company might end up brewing some of its foreign beers in the United States, requiring more barley from U.S. producers, Wetzel said.

"If I had to bet $10 one way or the other, I would think the barley growers in America are going to come out ahead," he said.

Agricultural economist Gary Brester of Montana State University said that who manages a company is often more important than who owns it, and there is no indication that InBev would change managers or direction if it acquired Anheuser-Busch. Yet the proposed takeover does pose some risks for growers.

"Suppose InBev decided malting barley was less important than hops (for research and development) and they put their R&D into hops," Brester said. "They might not think Montana malting barley is as special as A-B thinks it is."

Although Anheuser-Busch may seem like family in some grain communities, there is no question the company is in business to make money. Each truckload of barley is sampled and tested at delivery. If it fails to meet company standards for quality, the barley is rejected and likely becomes cattle feed, said Fairfield grower Tom McInerney. That brings about half as much money as malting barley.

Some growers grumble that the company has taken advantage of volatile grain markets, contracting for lower prices than farmers would have received on the open market, McInerney notes. Still, he sees more pluses than minuses with Anheuser-Busch.

"Historically, they've been good for this area and they've offered some stability with a decent contract program," McInerney said. "I'd like to see them stay. We have a known entity in them."


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