There is a growing trend towards contract farming of cassava and other inputs to the brewing industry across Africa, where seven governments have established special tax regimes to stimulate the use of local crops in beer production.
In Uganda, contract farming of sorghum for brewing purposes was first pioneered in 2008 by SABMiller. According to press reports, contracts negotiated with beverage producers are yielding farmers far better returns than traditional marketing channels. It is reported that “contract farming has helped increase acreage under cultivation, improved farmers’ bargaining power and also widened access to credit for farmers organised in groups.” Total annual sorghum purchases in Uganda are estimated at US$11.3 million, with some big farmers registering incomes of up to US$18,914 per season and small farmers around US$1,891 per season. Some 16,000 farmers are now involved in contract farming of sorghum for the brewing industry. However, land and input constraints are reportedly holding back smallholder participation in the supply of sorghum to brewers. Sorghum-based beer now accounts for half of SABMiller’s 55% share of the Ugandan beer market.
In Mozambique, Cervejas de Moçambique now produces its Impala beer largely based on cassava (60%). According to the company CEO, “using locally produced cassava reduces the costs of importing malt, hops and other ingredients in beer production, by avoiding costs related to import and bureaucratic processes”. The number of farmers contracted to supply cassava have increased from 2,000 in 2011 to 10,000 in 2014, with some 10,000 tonnes of cassava purchased annually for use in the production of 30 million small bottles of beer, valued at 14 million meticais (€356,000).
While using sorghum and cassava in Africa reduces the import bill for barley by up to 40%, the special tax concessions negotiated have proved critical to the launch of these new beers, which are priced at around 70% of the cost of mainstream beers. According to the industry market research company Canadean Ltd, the beer market in western Europe is flat, estimated at –0.6% a year, while “the volume of beer sold in Africa is expected to grow 4.6% per year on average from 2012 to 2016, faster than any other continent and nearly double the global rate.” Accessing this growing market potential in Africa, through the production of lower-priced beer capable of attracting consumers away from traditionally brewed alcoholic beverages, is a critical part of the corporate strategies of companies such as SABMiller and Diageo.
In Mozambique and countries such as Uganda, Zambia and Zimbabwe, SABMiller has secured a 75% rebate on the standard excise tax charged on beer. Diageo has secured a similar deal in West Africa for its Ruut beer, which is produced from yams. These tax concessions have been granted on the basis of two arguments:
- their impact on local agricultural production; and
- the less damaging impact of commercially produced beer on public health, compared to traditionally brewed beer.
It is noteworthy that where less favourable tax concessions have been granted (e.g. Tanzania), the growth in consumption of sorghum- or cassava-based beers has been less pronounced.
There can be little doubt that in countries such as Uganda, the rapid growth of sorghum-based beers has stimulated contract farming of sorghum, injecting substantial funding into the farming community. However, questions have been raised as to the extent to which this benefits smallholder farming as whole. Often it is larger-scale farmers who are better placed than smallholder producers to meet contract requirements. More broadly, while a growing number of smallholder farmer households may be involved in contract sales, other smallholder farmers households may see their incomes from traditional brewing activities being reduced, as low-priced commercially produced beer draws customers away from traditionally brewed alcoholic beverages.
This suggests that the growing number of African governments that are seeking to promote the use of traditional crops in commercial beer production should undertake regular cost–benefit analysis of the development gains accruing from the tax concessions granted.
The tax concessions negotiated often provide governments with minimum income guarantees, which ensure that tax revenues are not dramatically diminished by the tax concessions granted. But there have been questions over the relative costs (to the public purse) and benefits (to the private companies) arising from such schemes. This is particularly the case given the health concerns arising from increased alcohol consumption. Press reports have cited a study published in The Lancet which “deemed alcohol use the top risk factor for death and disease in the southern countries of sub-Saharan Africa”.