Strategic and financial analysis of malt by-product valorisation comparison of texturized vegetable protein with current cattle feed production

Abstract

Being the masters of malt is the goal of the biggest malting company in the world, Boortmalt. Boortmalt is located in the port of Antwerp where barley is imported by barge and train. After the conversion of barley into malt by a four-stage process, the malt is exported by truck or ship. The malt can be used for different applications: for whiskey or beer production or for the production of malt flour for baking applications. The malting process generates different by-products being the broken and small barley grains, husks and the rootlets. In the light of circular economy, more and more waste streams are being valorised. Today, Boortmalt mixes all these by-products to produce pellets for cattle feed. The rootlets contain 30% of protein, and with the rising demand for plant-based products as sustainable alternatives for meat, Boortmalt wants to understand if the rootlets can be processed into a more high-end product for human consumption. After a first market scouting by ShakeUp Factory, a consultancy company, an idea was to valorise the rootlets into texturized vegetable protein (TVP). TVP can be used in different vegan or vegetarian applications, as texturization gives plant proteins a meat-like structure. As such, the goal of this in-company project was to answer the following research question: “What creates more value for Boortmalt: using the malt rootlets in the pellet production for cattle feed, or to use these to produce texturized vegetable protein?” TVP is only one of the possibilities for the valorisation of rootlets, and other by-products should then also be further processed into new applications. This means that other markets, in which the different by-products can also find their application, should be investigated as well. This in-company project includes therefore a guideline on how to do an in-depth market research. By way of illustration, the market research has been applied on the pellet market and the market for TVP to be used in meat alternatives. Practically, market research has been tackled by answering different questions using specific frameworks. A first aspect that has been investigated was the market attractiveness, which can be assessed by using the five forces of Porter. To understand what factors shape a market and which the minimum criteria are for a company to play in that market, the key success factors analysis has been done. For a company, it is then also interesting to understand where – compared with competitors – it has competitive advantages, parity or competitive disadvantages. This is analysed by performing a VRIO analysis as this shows a company where to give attention to, or in which resources or capabilities to invest in. Macro events however might change the market shape and outlook in the future. PESTEL investigates potential political, economic, social, technological, environmental and legal factors that might influence the market, and your business, in the future. As such, a company can anticipate on these events and maybe even adjust its strategy. To complete these frameworks, mainly secondary resources have been consulted on search engines such as Google, Google Scholar but also in databases such as Bel-first, MarketLine and Euromonitor International. Besides, a customer interview which is a primary resource, was conducted for the pellet part to understand Boortmalt’s competitive advantages. Next, also internal information from Boortmalt and its employees has been received. The market research data has also been supplemented with a financial profitability assessment for both markets. The profit and loss statement (P&L) for the pellet production process aimed to understand how profitable this business actually is. Therefore, cost and revenue information has been gathered via Gert Van Laer, projects and asset care manager of Boortmalt Europe. He provided us with all cost information such as electricity, power, labour cost, depreciation, etc. related to every machine of the pellet production process. To draft a P&L for the TVP production process, some general numbers were received from a Swiss start-up, with which Boortmalt is considering to partner up for the TVP production. The numbers gave an overview of the profitability when Boortmalt would outsource this process to a third party. The results of the market research for pellets showed that the market is not very attractive. Also the future outlook shows that the need for cattle and pig feed will decrease. This trend is fuelled by legal regulations such as the nitrogen decree in Belgium, that aims to scale back the amount of livestock. More specifically, the market for cattle feed in Europe even decreased with -0.16 % between 2020 and 2021. However, Boortmalt delivers pellets as ingredient to compound feed producers, and several reasons contribute to the expectation that Boortmalt might keep its position in the market longer compared to competitors. First, as a customer says, Boortmalt provides pellets that are sustainable as the ingredients are coming from waste streams. Second, Boortmalt is known for its accurate filling and buyer orders, which is a competitive advantage. Third, if Boortmalt would not be able to deliver the promised amount of pellets, the company will always communicate this well in advance. These are seen as advantages, and should keep Boortmalt in a good position for the future. Besides this market research, the profit and loss statement also showed that the pellets have an operating margin of 91,8%. This high margin is mainly due to the low costs related with the production of pellets. The low costs are among others due to the absence of any depreciation costs for the machines. That these machines are so old and the fact that there are rising trends in plant-based products for human consumption, were the main reasons for Boortmalt to start discovering new applications for the valorisation of its rootlets. One such a potential application is the production of texturized vegetable protein. TVP is now mainly used for the production of plant-based meat alternatives. The demand of these meat alternatives is booming since recent years due to consumer awareness about health, animal welfare and sustainability. The meat industry is under pressure due to its extensive land, water and energy use but also because of the enormous contribution to global greenhouse gas (GHG) emissions. The market for TVP production is attractive, and competition is not really fierce yet. TVP today is mainly made from soy, wheat and pea. Still, there are some technical barriers to overcome and no company has found the ideal recipe for TVP production yet. Boortmalt fulfils all minimum requirements to play in that market. Competitive advantages are the fact that Boortmalt has direct access to lots of protein, and that the company is as such supplier independent. There are two other factors that could give Boortmalt interesting competitive advantages. First, plant-based meat alternatives today try to imitate the meat taste. Boortmalt however would produce TVP with a malty taste, which would result in malty tasting meat alternatives. If customers would like that, which first should be investigated by product testing, then this could be a first point of differentiation. Moreover, the rootlets are quite bitter which is also a barrier for the meat alternative producers, as only a small fraction of bitter TVP can be added without influencing the burger taste too much. Second, studies at the University of Eastern Finland have shown the presence of phytochemicals in malt rootlets from barley. Phytochemicals are said to be healthy. This has not yet been confirmed for Boortmalt’s rootlets, but if that would be true, Boortmalt could use this together with the malt taste in marketing campaigns to distinguish itself from the competition. Besides, confirming this would also answer to the health halo challenge. This challenge is born from the fact that meat alternative burger producers claim that its products are healthier than meat, while there is no evidence for this. The trend for plant-based foods will keep increasing in the coming years and will be supported by legal actions such as the nitrogen decree that will limit the meat availability. Moreover, the idea of implementing meat taxes is rising and more and more European advisory bodies that give feedback and recommendations regarding plant-based diets are founded. The first financial calculations for TVP production shows profit potential, and the margin would be 69,5% on TVP. However, these calculations are based on the scenario where Boortmalt would outsource the TVP production. The long-term goal is to invest in an own production facility, where it also expected that the product margin for TVP will increase due to scale of economies, just as is currently the case with pellets which have an operating margin of 91,8%. The general conclusion for Boortmalt is to go into the production of TVP due to the attractive market outlook and the new plant-based food trend. Diving into the TVP market would diversify Boortmalt’s business and enable the company to create more strategic value by expanding its product portfolio in the food market. Boortmalt has already a potential partner for it, a Swiss start-up, of which they can use the experience and knowledge needed to dive into this new market. Products for human consumption can create more value than animal feed, however the pellets are still very profitable at this moment. That is why the pellets can be used as back-up or as cash cow while Boortmalt is in the transition phase of scaling-up the TVP production.