Benjamin Franklin is purported to have observed, "Beer is proof that God loves us and wants us to be happy." Brewers would say that sentiment extends to livestock as well, since the brewers ship spent grains to farmers who use them as feed. The teetotalers at the Food and Drug Administration, however, are ready to enact a Prohibition-style rule that would prevent farmers from using the grains and force brewers to dump them instead.
For years, smaller craft brewers have sold or even given "spent grains" to farmers to feed their cows, pigs, and other livestock. Since the leftover barley, wheat, and grain that are steeped in hot water would otherwise end up in a landfill, the two sides mutually benefit from the relationship while doing much to reduce pressure on the solid waste system. The Beer Institute says that in 2012 alone, U.S. brewers produced about 2.7 million tons of spent grain, which accounts for some 85% of the byproducts produced by brewing.
I'm from the government and I'm here to help
The government, though, is never content to leave well enough alone. It proposed new regulations last year to require brewers to meet the same standards as livestock and pet food manufacturers by making them establish written food safety plans, hazard analyses, monitoring, sanitary handling procedures, record keeping, testing, and packaging processes.
The FDA says it's just looking out for the health and welfare of the animals and the food chain, but as the Brewers Association notes, it starts off with the wrong premise. According to the food agency, brewers "may be manufacturing beer and animal feed simultaneously for at least part of the brewing process," which the association says shows a profound lack of understanding (and common sense), in that "the goal of brewing is not to manufacture beer and animal feed simultaneously. The goal of brewing is to manufacture beer." The spent grain is merely a byproduct of that process, and using it as feed is simply a smart alternative for something that would otherwise go to waste.
There are a lot of uses for spent grains beyond animal feed, including as an energy source, making bricks and paper, as a substrate for biotechs cultivating microorganisms and enzyme production, and even in the production of clothes and cosmetics, a usage Anheuser-Busch InBev (NYSE:BUD) is currently exploring.
In 2008, Molson Coors (NYSE:TAP) began an initiative that set a goal of sending to landfills 0% of the 1,800 tonnes of waste it produced in the U.K. by 2012. It said it achieved that goal by using about 90% of the excess yeast it produced to make Marmite, a popular spread overseas, with the final 10% used as animal feed and spent grains also being passed on to the agricultural sector for use as feedstock. It says the industry sends about 150,000 tonnes to feed cows each year.
That same year, Coors also hooked up with Colorado's Division of Wildlife to donate more than 100,000 pounds of spent grain to help feed hundreds of deer in the Gunnison Valley that were having difficulty foraging for food because of a difficult winter, and Heineken (NASDAQOTH:HEINY) has apparently processed the spent grains further to make both a nutritious feed and an energy source, as have others like Sierra Brewing.
Despite the FDA's health concerns, studies have found spent grains are actually an excellent feed ingredient, particularly for ruminants, since it can be combined with inexpensive nitrogen sources like urea to provide all of the animal's essential amino acids. And better than the antibiotics the regulator allows farmers to bulk up their livestock with to fatten them and boost milk production, spent grains naturally increase milk production without affecting fertility. Researchers have also found numerous other health benefits associated with ingesting spent grains, and not just for animals, but humans, too.
As is usual with these types of rules, the largest brewers will be able to comply more easily with the regulations while smaller craft brewers will find it burdensome. The comment period closed yesterday, and now it's up to the regulatory agency to decide whether it carves out an exemption for the brewery industry or dumps on craft brewers and burdens the solid-waste stream with new rules.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Molson Coors Brewing. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.