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Summary of Report

Economic Implications of Cleaning Barley in the United States

AER-745, December 1996

Contact: Mark Ash, 202-694-5289.

The costs of cleaning barley beyond the current level of cleanliness would outweigh the potential benefits. There is little commercial interest in the cleaning of barley moving into domestic malting and feed barley markets. The export market demand is primarily for feed barley.

Dockage (matter that can be removed by screening) is not a major concern for foreign feed barley users, but buyers need an accurate certification of how much dockage is present so they can properly value the grain.

The various handlers in the barley-marketing process (farmers; country, terminal, and export elevators; feed processors; and maltsters) have opportunities to perform cleaning services, contingent on customers' requirements and market-determined quality premiums and discounts. The estimated net economic costs (cleaning costs minus benefits) of cleaning total U.S. barley production at country elevators in the 10 major barley-producing States ranged from $3.9 million to $7.2 million, or from 1 to 2 cents per bushel.

Studies of grain cleanliness were mandated by Congress because of concerns about the quality of grain exported from the United States. The studies did not estimate the costs and benefits of cleaning barley at export elevators. Such cleaning would be more costly than cleaning at country elevators because of higher labor costs and property values at ports, and the need to install high-capacity cleaners to match load-out capacity. In addition, higher prices of barley at ports due to additional transportation and handling costs would increase the value of barley loss during cleaning. Value of barley loss accounts for up to four-fifths of the estimated costs.

Selling cleaner barley in international markets might help maintain U.S. market share but would not likely result in premiums paid by foreign buyers for cleaner barley. Nor would it likely expand U.S. barley exports. Most exported barley is of feed quality, for feeding livestock and poultry. Feed manufacturers in those markets, like their counterparts in the United States, are satisfied with the current cleanliness of U.S. barley.

Only a combination of lower barley prices, higher screening prices, higher transportation costs, and higher initial dockage levels would lower the net cost of cleaning to the point where a positive net benefit would be possible.

Dockage levels in U.S. barley exports have not significantly improved or worsened in recent years. Most export barley is purchased on the basis of grade U.S. No. 2 or better. Barley dockage seldom has an explicit market price premium or discount, which is often in effect for other quality characteristics, such as protein, test weight, foreign material, and thin barley. Dockage is not a grade-determining factor in the U.S. grades and standards for barley.

Maltsters, who process barley to obtain malt intended for human consumption, routinely clean all barley they use to obtain a product free of dust, insect parts, and other materials that would affect the taste and sanitary quality of the malt. Feed manufacturers, in contrast, are likely to run the barley only through a rock catcher, to remove stones.

Some maltsters do not deduct for dockage less than 1 percent. This practice is followed to encourage farmers not to skin malting barley in harvesting and elevator operators not to overclean, which can result in skinning the kernels. Maltsters' cleaning operations are more carefully tuned to avoid skinning the barley hull. Skinned kernels either do not germinate or germinate too quickly, which lessens malting quality.

Without price discounts for dockage, farmers have little incentive to remove dockage. Farmers are able to minimize dockage content through closer monitoring of combine settings; timely harvest; planting certified seeds; using herbicides and tillage practices to minimize weeds in fields; and cleaning of storage, handling, and transport equipment that is also used for other crops.

Alternative policy options were considered for improving the cleanliness of U.S. barley and for better meeting the needs of foreign buyers: (1) change the FGIS dockage reporting/recording methods, (2) change the U.S. grades and standards for barley by including dockage as a grade determining factor, and (3) include grain cleanliness as a tertiary objective of the Export Enhancement Program.

Foreign buyers rely heavily on the accuracy of FGIS inspections. Accurate measurement and recording of dockage can only help enhance the reputation of U.S. grain standards as being objective and fair, although such a rule change might make only a minimal change in the actual dockage content of U.S. barley exports. An accurate reporting of dockage may help U.S. barley compete with foreign barley exporters and against competing feed grains by providing buyers with information on the portion of the nongrain material that could be easily removed with simple screen cleaners (dockage) and what portion could not be removed easily (foreign material).

Making dockage a grade-determining factor would not necessarily result in a significant overall improvement in barley cleanliness or a higher price except for the export markets that bought the top grade exclusively. Cleanliness would improve only to the extent that the new standard facilitated the exchange of information between those better able to supply clean barley and the importers more willing to pay for it.

Making the export bonus payable on the basis of the grain weight net of dockage rather than the gross weight may remove any incentive for allowing dockage to reach its maximum contract limit and may encourage more cleaning, although its trade benefit could be countered by other exporting countries through higher subsidies or lower prices.

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