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brewery efficiency

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Effectively, it refers to how well your "brewery" (or in most cases, your brewing setup) converts grain starch into sugar. As such, it doesn't apply to extracts, since they have already been converted.

Higher efficiency allows you to use less grain for more beer, basically. However, it's worth noting that in a very generalized sense, as the OG of your recipe goes up, your efficiency is likely to go down, particularly with beers that use a lot of varied or specialty grains.
 
Your "brewhouse efficiency" is the % of the sugars extracted from the grains during mashing and lautering, after the boil, and into the fermenter. This percentage is an estimate, based on the potential amount of fermentables from the grain. You'll never get 100%, but many of us homebrewers will get 70-80% of the potential amount.

For example, if you had 10 pounds of US 2-row, you may have a potential of 1.070 in a 5 gallon batch. Realistically, you'd get more like 1.050.

Brewhouse efficiency is not the same as mash/lauter efficiency.
 
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