NGP-backed Proximity Malt building two regional plants

The company hopes to cash in on the US craft beer explosion, by providing specialised local malts to small regional brewers.

Private equity backed Proximity Malt has started construction on two regional craft malting plants in Colorado and Delaware.

Proximity Malt partnered with NGP Global Agribusiness in October 2015, securing $60 million in capital to bring the two malting plants into operation. NGP GAP is an affiliate of NGP Energy Capital Management with portfolio companies in the commodity storage, fertiliser, agri transport, and other midstream agribusiness sectors. The firm was carved out of NGP Fund X and reached a $402 million close in April of 2014, exceeding its target of $320 million.

The company aims to provide craft brewers with locally-sourced specialty malts, offered in smaller quantities than the macro-brewer operations that dominate the market. Craft brewing has experienced tremendous growth in recent years. Since 2010, craft beer has doubled as a share of US beer production from 5 percent to 11 percent in 2014.

Proximity Malt hopes to tap into this growing market by serving as a responsive supply partner for brewers within about a 250 mile radius of the company’s Monte Vista, Colorado and Laurel, Delaware facilities, chief financial officer Dale Bugajske told Agri Investor. The company will cater directly to this geographically consolidated group of smaller breweries, he said, by using brewer feedback to develop custom malts, structure small-scale purchase agreements and working with local farmers to obtain uncommon strains of barley. Bugaijske added that the company’s Delaware facility will be the only US malting plant east of Milwaukee.

“The real benefit is you have a shorter, more responsive supply chain,” he said. “When you purchase malt from the other side of the country, its kind of hard to sit down with your malter and have a conversation.”

Despite the growth in craft brewing, the US malt sector has yet to see large-scale realignment toward small brewers, says Bart Watson, chief economist at the Brewers’ Association. But few distributors will provide long-term contracts at the volumes most craft brewers need.

“The malt system is not built around the needs of small brewers at all,” Watson told Agri Investor. “The malt industry has never really scaled down to craft brewers. So unlike the hop market where you can call a distributor and arrange a contract, you’re most likely going to be dealing on the spot market [for malt].”