Saving money and making friends: Why SABMiller is engaging local farmers

By sourcing raw materials directly from farmers in Africa, beer producer SABMiller is cutting costs while also winning the support of local communities.

SABMiller's Impala beer is brewed from cassava.

“Our view is that to operate effectively in Africa, one needs to work with local stakeholders … The biggest impact we can have is through the localisation of our supply chain … It will save us money over time, it will localise our costs and it will win us friends,” said Mark Bowman, managing director for Africa at SABMiller, the world’s second largest brewer, at a seminar in London yesterday.

SABMiller has launched a programme to locally grow barley in Zambia, instead of importing the grain for Europe. “Barley is not considered suitable for African environments, but we are starting to find that you can grow barley in Africa with the correct agricultural husbandry and processes. We are now self-sufficient, and this is saving us US$3m a year,” Bowman explained.

In 2009 a trial was carried out consisting of 200 hectares split between four farms in two distinct agricultural areas – Lusaka and Mpongwe. Two varieties of barley that have been successfully grown in Zimbabwe for some years were selected. The season proved successful with an average yield of 6.33 tons per hectare.

In 2010 the first full commercial crop delivered around 12,000 tons of malting barley, which effectively made Zambia self-sufficient in terms of barley supply for the first time ever. “Before we started with our malt growing project in Zambia, we imported all our barley. We have gone through a process where we engage with local commercial farmers to produce barley in Zambia. Right now we are completely self-sufficient,” said Anele Malumo, managing director of Zambian Breweries.

As there is currently no malting plant in Zambia the barley is being shipped to Kwekwe in Zimbabwe and then returned to Zambia for brewing. Bowman estimates that $2m can be saved annually by malting barley in Zambia.

Robin Goetzsche, managing director of Tanzania Breweries and operations director of SABMiller East Africa, commented that by using local raw materials SABMiller is protecting itself against currency risks. “In many African countries, currency is a big issue and having to use foreign currency, be it euros, dollars, etc., to buy commodities is a big stress on our business.”

By sourcing barley locally, SABMiller is guaranteeing Zambian farmers a market for their crops, allowing them to plan for the future.

The brewer also has local sourcing programmes in other African countries. In Uganda, Eagle Lager clear beer, based on sorghum supplied by local smallholder farmers, has become a major business and agricultural development success since its launch in 2002.

In Mozambique, the company last year launched Impala, the world’s first commercial cassava-based beer. Cassava is one of the most widely grown crops in Africa, planted largely by subsistence farmers. However, the root crop, which looks like a large sweet potato, hasn’t been a great commercial success. One of the reasons for this is because around 70% of the root consists of water, which makes it uneconomic to transport over great distances. While the cassava root can stay in the ground for many years, once it is harvested, it needs to be processed very quickly before it goes bad.

To overcome the challenges associated with commercial cassava production, SABMiller has partnered with Dutch company DADTCO, a manufacturer of mobile cassava processing equipment. DADTCO’s simplified process, which is inside a 40-foot container, allows for basic cassava processing to be done in the growing area. Impala is aimed at low-income consumers and priced at around 70% of the price of mainstream beers.

A significant percentage of alcohol consumption in Africa is still in the form of home-brews, on which governments can’t collect any tax. By creating opportunities for local farmers, SABMiller has also managed to negotiate lower tax rates with governments. These savings are then used to reduce the price of entry level beers, which draws more consumers into the formal beer market, increasing tax revenues for the government. “What we do is we negotiate with governments to try and persuade them to drop the excise regime for a product that is made with local grains, which most governments are quite supportive of. The idea here is to create a win-win proposition,” Bowman explained.

Sourcing from small-scale farmers is, however, not without its challenges, especially in terms of matching farmers’ yields with the requirements of the brewery. There is a need for good forward planning when working with smallholders.

Although Bowman admits that it is still early days for the localisation of the supply chain, SABMiller is proving that sourcing raw materials in Africa can not only grow the incomes of farmers, but also boost the brewer’s own bottom line.