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Colorado State Project Aims To Connect State's Microbrewers With Barley Growers, Micromalting Plant Planned For San Luis Valley

Thursday, July 2, 1998

FORT COLLINS--The idea seemed simple enough: grow wheat and barley in Colorado's San Luis Valley, build a small micromalting plant there and sell the results to the state's famed microbrewers.

A Colorado State University team worked for about a year on the Colorado Micromalting Project, and it looks like a winner. Farmers in the high, fertile valley in south-central Colorado will have a steady purchaser for their crops. Microbrewers along the Front Range and in towns off Interstate 70, nationally known for their craft brews, will be assured of a steady supply of high-quality malt that can be shipped inexpensively and quickly, reducing costs and enhancing freshness.

And the state would have an economic development project in the form of a small-scale, environmentally responsible micromalting plant that would provide some needed non-farm jobs in the San Luis Valley.

Stephan Weiler, assistant professor of economics at Colorado State and the man behind the idea, says the key to the project is the role of information or lack thereof.

"These kind of market failures, where the market steers resources away from their best, most profitable uses, can occur for many reasons," he said. "Among them are a 'spillover of costs,' where expenses aren't borne by those who incur them but by someone else. For example, a mining operation makes profits, pollutes a river and ruins recreation for fly fishers downstream. That's a spillover where costs are borne by people fishing, other people like suppliers who depend on their trade, and so on.

"Benefits can spill over, too. For example, I can get a flu vaccine shot. I pay the $10, but all my students who don't catch the flu from me benefit.

"Poor information itself can be a market failure, too," he said. "For example, a potentially wonderful micromalting plant that doesn't happen because no one realizes its potential is a market failure based on a lack of information."

A micromalting project was never initiated because there was no previous link or clear business rationale for bringing together microbrewers and San Luis growers, Weiler said, both of whom could potentially benefit from each other's business. It's a gap that Weiler's team sought to fill.

The results are encouraging, except that Weiler overlooked one thing: just how good the idea, in a business sense, really was. He hoped to encourage state aid, justifying it as a social good for the area's economy as well as demonstrating the valley's investment potential. The project, it turned out, may not need much public money. Private sector investors are already showing interest based solely on the project's increasingly obvious private returns.

"The project is moving quickly because it's attractive," Weiler said. "We've done a viability study and it's feasible, no question about it."

Key consultants and co-authors of the viability study include Madeleine Pullman, a Southern Methodist University business professor, former Colorado State faculty member and former brewer and microbrewery owner; and Stephanie Shwiff, a Colorado State economics graduate student and the project's research assistant.

"This is an excellent opportunity to include Colorado grown and produced malt in Colorado craft-brewed beer," said Doug Odell, president and brewmaster of Odell Brewing Co. in Fort Collins. "We feel it is important to support local operations as Coloradans have done for us from our beginnings."

Weiler's team bowed out with a presentation June 26 to brewers, growers and potential investors attending the annual Colorado Brewers Festival June 27-28 in Fort Collins. Having bridged the information gap, Weiler is turning his efforts over to the market. Meanwhile, the project's potential social returns to the region and state will be the subject of continuing academic research by him and his colleagues. This scholarly work should motivate and coordinate potential state financial support and add to the understanding of how information flows affect the market economy.

"We have done our part," he said. "What people do with a viable proposal like this is up to them. The next step is a business plan by those who will both directly contribute and benefit financially from the project. That business plan is not what we're here for."

Weiler visited the San Luis Valley as an undergraduate and fell in love with the landscape and people. He'd worked on regional economic development projects in Europe, Africa and West Virginia, and he wanted to help the Valley in regional and state efforts to provide jobs that build upon its economic base of agriculture. He joined Colorado State in 1996 as a regional economist to study the state and found in the university's strong, land-grant tradition of outreach a ready source of experts willing and able to help.

An aficionado of craft-brewed beers, Weiler had noticed in his travels that microbreweries tended to start up in older, run-down portions of inner cities where space was available, infrastructure present and real estate cheap. Those pioneering entrepreneurs took great economic risks. If they succeeded, others who followed - eateries, retail operations and eventually residents - reaped many of the rewards without having faced any of the financial downside.

Using an economic tool known as game theory to understand potential investor's decisions, Weiler wrote about the phenomenon, specifically crediting the legendary entrepreneurial venture, the Wynkoop Brewery Co., with sparking the comeback for LoDo, Denver's hip "Lower Downtown" district that is now the envy of cities across the country.

"The information gap, specifically the uncertainty of opening up in a previously undesirable business location, is solved by helping out pioneers," he said. Recently, for example, he helped generate city support for another brewpub-led downtown revival effort in Torrance, Calif.

In the end, however, Weiler is an economic development facilitator, not a business person. He and his colleagues hope the information transfer among microbrewers, San Luis Valley growers and state and private officials bridges this apparent gap in the market.

"It's been a privilege working with brewers, growers, state and local officials and colleagues at Colorado State," he said. "It's been an education. And, good as Colorado's microbrews are, I think we can ensure their future quality by providing state-grown, locally processed malt."

"If that means we can keep more money in the state and provide jobs, I'll be satisfied."

In other words, he'll drink to that.

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