E-Malt.com News article: Africa: Beer industry keeping farmers busy growing local ingredients

Ugandan farmer Ephraim Opusi had managed to make ends meet growing corn on his 5-acre plot in the hilly Kumi district in eastern Uganda. But now that he cultivates white sorghum, a grain used in beer brewing, Mr. Opusi has struggled to feed his six children, The Wall Street Journal reported on March 12.

“It has been a bad season,” says the 52-year old farmer, who is under contract with beer maker SABMiller PLC.

During his first season in 2010, Mr. Opusi harvested three tons of sorghum. It earned him $750, one of his best seasons. An average Ugandan makes $510 a year, according to World Bank data.

Encouraged by the earnings, Mr. Opusi ditched other profitable crops to concentrate growing sorghum. But he didn’t count on many other farmers doing the same, leading to a 20% increase in the price of corn and beans in his district.

Brewing giants such as SABMiller and Diageo PLC have invested millions of dollars into African farms, providing a guaranteed market—and better returns—to smallholder farmers as they look for more locally sourced materials such as sorghum. Food staples cassava and yams are also being supplied to brewers.

Under agreements with multinational brewers, farmers grow beer-making ingredients in return for credit to buy seeds, pesticides, fertilizers and other farm needs. The farmers also supply certain quantities of the crops at prices fixed by the particular brewer.

“The farmer has no commitment whatsoever to sell,” said Anna Swaithes, SABMiller’s head of livelihoods, land and food security.

The brewers’ investment in Africa farmland reflects a strategic shift in the pursuit of cost-conscious consumers who favor cheaper beer brands made from homegrown crops. Beer from local ingredients usually costs around 40% less than brands brewed with imported barley.

African beer sales are climbing fast. Sub-Saharan Africa will make up 40% of global profit growth—or about $5 billion—for beer companies over the next decade, according to Deutsche Bank, overtaking China as the industry’s main engine for growth.

Tax breaks are helping to support the rise of African beer sales. Governments in Africa have been providing tax breaks to brewers to encourage the use of more domestic ingredients—part of a strategy to wean people away from home-brewed concoctions that can pose health risks.

SABMiller, the world’s second-biggest brewer by sales after Anheuser-Busch InBev SA, now operates either autonomously or through partnership in 37 African countries. It sells 20 million hectolitres of lager a year, the equivalent to 800 Olympic-size swimming pools. In 2013, Africa for the first time contributed more to the company’s profit than Europe.

The investment program has had clear benefits.

Ugandan farmer Alex Isiagi has used proceeds from sorghum sales to SABMiller to buy 64 acres of extra farmlands in the past five years. He now has a house with plumbing and electricity, unusual for the impoverished part of eastern Uganda where he lives.

“I don’t have to grow corn. I plant sorghum twice every year and I use earnings from sorghum to buy food,” says Mr. Isiagi, who has cultivated sorghum for six years.

Overall, the shift to sorghum is taking a toll on the country’s food production.

Until 2011, Uganda was the largest supplier of corn and beans to the U.N. World Food Program in sub-Saharan Africa after South Africa. But over the past four years, Uganda’s food sales to the World Food Program, the largest buyer of locally produced grains and cereals, have dwindled.

And soaring demand for crops like yam and cassava for use in beer production is driving prices higher across Africa. Last year, sorghum prices were up to 80% from a five-year average in East Africa, while cassava prices rose more than 33% in Central Africa, according to Famine Early Warning Systems Network, a U.S.-government funded research group.

Brewers say there should be enough flexibility in their investment programs to ensure farmers are able to grow enough food to eat.

“In most markets, farmers do not supply us their entire harvest, they keep some for their own consumption or for sale in local communities,” Cecilia Coonan, a Diageo spokeswoman said. The company said it aims to improve yield and quality on smallholder farms by encouraging techniques like crop rotation and soil management. It tracks results by employing local businesses to conduct soil tests on farmers’ fields.

Emily Hallie, a spokeswoman for SABMiller, said its contracts with smallholder farmers don’t contain obligations for the farmers to sell, rather for the company to buy a certain quantity at an agreed price. But SABMiller “has a level of expectation” that farmers deliver on agreed contracts, said a person familiar with the company’s negotiations with farmers.

In Mozambique, the number of farmers contracted to supply cassava to SABMiller for brewing Impala beer, the world’s first commercial beer from the root tuber, increased tenfold in the past three years, reaching 10,000 in 2014. In Uganda, more than 20,000 farmers have signed contracts to supply SABMiller’s unit with sorghum, compared with less than 10,000 three years ago.

Ghanaian farmers have doubled farmlands for cassava used by Diageo to brew a local beer known as Ruut over the past couple of years.

SABMiller’s unit in Uganda now has a stockpile of sorghum to last 10 months, according to Joseph Kalule, the local sourcing manager with SABMiller.


13 March, 2015