Developing local cereals supplies for value-added products
09 December 2012
SABMiller’s managing director for Africa, speaking at an SABMiller divisional seminar in London in October, has highlighted the importance of local sourcing of grains for the company’s operations in Africa. Since 2009, SABMiller, the world’s second largest brewer, has been developing barley production in Zambia. In 2010, around 12,000 tonnes of malting barley was produced, making SABMiller’s brewing operations in Zambia self-sufficient in barley supply. The next stage is the development of a malting plant in Zambia. Currently, Zambian barley is shipped to a malting plant in Zimbabwe for processing and then re-exported back to Zambia.
SABMiller is also implementing local sourcing programmes in other African countries. In Uganda, production of Eagle Lager is ‘based on sorghum supplied by local smallholder farmers’, while 2011 saw the launch in Mozambique of ‘Impala, the world’s first commercial cassava-based beer’. Significantly, in Mozambique the development of cassava-based beer production involved SABMiller cooperating with a Dutch ‘manufacturer of mobile cassava processing equipment’, with the simplified process ‘[allowing] for basic cassava processing to be done in the growing area’.
At present, cassava-based beers are aimed at lower-income consumers, ‘at around 70% of the price of mainstream beers’. These products are aimed at drawing consumers away from traditional ‘home brew’ and into the mainstream beer market.
A significant component of SABMiller’s strategy has been to use their evolving local grain procurement programmes and product development strategies to negotiate lower excise duties for products made with local grains. A number of governments in the Southern and Eastern African regions have responded positively to such approaches. This can provide significant assistance while local supply relationships are being developed with smallholder producers: SABMiller notes that ‘matching farmers’ yields with the requirements of the brewery’ is ‘not without its challenges’, and that advisory support is required to assist smallholder farmers in the forward planning of their production processing and supply arrangements.
Editorial comment
The use of local grains in beer production is an example of how corporate social responsibility can move beyond simply funding local ‘good works’. The more that local production of inputs can be stimulated, the greater will be the ultimate development impact of foreign investment. The scope to stimulate internal (and regional) agricultural trade in this way is particularly marked.
Where local governments give a helping hand through lower domestic taxes, it is important that such developments are not undermined. There is a theoretical danger that in cases such as the introduction of a two-tier system of excise taxes, based on the level of local grain procurement, such measures could be seen as discriminatory and fall foul of EPA commitments on ‘national treatment on internal taxation and regulation’.
For example, provisions in the SADC EPA state that ‘Imported products originating in the other Party shall not be subject, either directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like national products.’ In legal terms, the critical issue is whether the imports against which discrimination is alleged is a ‘like product’. While it is perhaps unlikely that an EU firm would export cassava beer to an African state, it might export barley beer with very similar technical characteristics. In practical terms, a complaint would be likely only if the competing imports were marketed by a rival company. Further complications would however arise if the complainant were an independent regional brewer and the beneficiary of the tax break a giant global multi-national brewing company.
According to press reports, the EC has already objected in the case of the Philippines to graduated tax schemes that allow higher tax on foreign alcohol products, if there is no clear rationale for such tax treatment.
Given the potential complexities, the approach taken in some EPAs (Pacific, Ghana, EAC and ESA) would allow the adjudicators in any complaint to take account of local specificities. These allow exceptions to the provisions on national treatment on internal taxation and regulation. In the ESA interim EPA, for example, reference is made to taking into account the development needs of signatories and the special needs of LDCs, with a list of exceptions being annexed to the agreement.
The ESA text would appear to set a precedent for departures from the principle of national treatment (under which EU companies are treated the same as national producers, paying the same taxes as producers of the same products), where this is to promote the establishment of domestic production, protect infant industry and accommodate the development needs of ACP countries. This would provide a ‘clear rationale’ for the adoption and implementation of such measures.
