As craft beer booms, first East Coast malthouse starts production in Sussex County

A lot depends on a gray factory covered with barley dust beside the Sussex County countryside.

Delaware's economic development office has sunk $1.7 million in taxpayer grants into it. The former Laurel Grain Co. facility cost its new owners nearly $1 million, and they have invested a portion of $60 million in private equity financing into its transformation.

Now, it's time to see whether those bets pay off.

Despite still being under construction, Proximity Malt produced its first batch of malt at the Bi-State Boulevard facility in January.

When the final touches are completed, possibly as early as this summer, the company plans to churn out 25,000 tons of malted grain per year, giving Mid-Atlantic breweries a local source for a key ingredient.

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Craft beer is a big business on the East Coast, with most states boasting dozens of breweries. But the closest sources of malt — the root of beer's color and flavor — are halfway across the country and beyond.

That is, until Proximity Malt came along.

"If you can name the brewery, we're trying to get them as a customer," said Matt Musial, a regional manager for the Milwaukee-based startup.

The company has established a test lab in Wisconsin and a malthouse in Colorado — both hubs in the brewing industry. Proximity decided to build its other malthouse in southern Delaware because of its access to nearby seaports and closeness to cropland that could be converted to barley, Musial said.

He hopes to contract with grain growers up to 50 miles away from the Laurel facility. Barley is typically grown in the winter on Delmarva. Many farmers receive state subsidies to plant it as a so-called "cover crop" that helps prevent nutrient-laden soil from washing away into nearby streams.

Delaware farmers harvested 16,000 acres of barley last year — about a tenth of what they reaped in corn and soybeans. But even that barley won't do Proximity Malt that much good; the type grown for animal feed is different than what is used to give beer its toasty taste.

Barley used in beer fetches about $4.25 per bushel, about twice the price of feed barley. That, Musial said, is one of his biggest selling points with farmers.

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Proximity Malt was launched in early 2015 by a pair of former executives from Malteurop, one of the largest malting operations in the world. (Malteurop is suing Proximity Malt, alleging its former employees started their new business on company time.)

The company is making inroads on Delmarva, turning several breweries into buyers. Backshore Brewing Co. in Ocean City is one of them.

"I’m really excited to have locally grown and malted barley and to be able to offer beers made with locally grown ingredients," said Mathew Shockley, one of its brewers. "Proximity’s malts are high-quality and taste delicious. Being a native of Delmarva and the son of a farmer, the opportunity to hand-craft a beer with locally farmed and malted barley is amazing, and I take pride in it."

The malthouse employs nearly two dozen people. From the highway, it resembles a cluster of giant, shiny tin cans.

Turning barley into malt uses swimming pool-size vats of water to cause the seeds to germinate. Then they are quickly dried using a warehouse-size ventilation system. Some are roasted to provide a toasty flavor.

As a former gramary, the defunct Laurel plant presented an ideal setting for the business, Musial said. The silos are still standing and in use. Grain trucks still pull into the facility as before, but now they offload barley instead of corn and soybeans.

In its first few months, the company is still relying on barley shipped from the Midwest and Canada. But as soon as the Mid-Atlantic's barley crop is ready to be harvested in June, it will switch over to locally sourced grain, Musial said.

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