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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