Tax on beer hit my firm, I’m scouting for new markets

Ruth Ireri (centre) with award sponsors from the Netherlands. The teacher-turned-social entrepreneur, who Shalem Investments together with her husband. PHOTO | COURTESY 

In Summary

• Apart from beer sellers and consumers, whose parties were cut short as a new tax hit cheap liquor business in 2013, a group of sorghum farmers in Meru were also hit hard.
• The government’s plan to encourage production of low-cost beer made Senator Keg the second-most popular beer in Kenya with a market share of 15.3 per cent. But with the new tax, farmers’ stores began swelling with sorghum.
• To augment their earnings, she is urging them to diversify into sunflower farming with oil maker BIDCO providing the market. She is also encouraging farmers to venture into bee keeping.

By YVONE KAWIRA
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Shalem Investments, a Meru-based entity that brings together 7,000 sorghum farmers bore the brunt. The group had found a ready market for the crop at the East African Breweries Limited (EABL).

Shalem Investments partner Ruth Ireri, who recently won the European Marketing Research Cooperation-Rabobank Project Incubator Award in Kinshasa, says the government did little to weigh the effects the tax would have on the thousands of sorghum farmers.

Money met the teacher-turned-social entrepreneur, who runs Shalem Investments together with her husband.

“I started by supplying maize and beans to schools when I was a teacher using my salary as the seed capital. The demand grew and when I finally resigned and registered Shalem Investments in 1998, the plight of many farmers touched me. I organised them into groups, bought their sorghum, which EABL bought in big volumes,” said Ms Ireri.

MUTED SALES

With support from her husband, the mother of two says the business was booming.

Farmers trusted her due to the assured market she provided thanks to the brewer until the government hit low-cost beer business with tax in 2013. The value chain was disrupted and the brewer failed to continue buying sorghum in huge volumes starting January, last year.

“We were stuck with about 3,755 tonnes in the second season of 2014. This was the hardest moment for the farmers,” she said.

EABL had been making Senator Keg beer since 2004 as a drink for consumers wanting to shift from use of home-made alcohol.

The cheap drink was enjoying a tax break until 2013 when the government imposed excise duty hoping to generate Sh6.2 billion.

As a result, the price of Senator Keg rose from Sh20 to between Sh45 and Sh50 per 300ml glass bringing down sales by 80 per cent according to EABL.

The government’s plan to encourage production of low-cost beer made Senator Keg the second-most popular beer in Kenya with a market share of 15.3 per cent. But with the new tax, farmers’ stores began swelling with sorghum.

“If only Deputy President William Ruto, who I have known to be an ardent defender of farmers, knew of the full impact the taxation caused on thousands of farmers, who had invested in sorghum. What is the benefit of cheap fertiliser when there is no market for the harvest?’’ she said.

In many parts of semi-arid Igembe North, Meru County, farmers had embraced sorghum in droves. And with the coming of a ban on miraa (khat) in European markets, Ms Ireri believes sorghum will be the best alternative.

“There was total transformation in lifestyles. We wrote many cheques to secondary schools. Youths were employed in spraying, harvesting and they had even formed groups through which they saved, and women groups leased land to farmers, transforming many lives. If there is an initiative of meeting all the Millenium Development Goals in totality, it is in agribusiness,” she added.

At the moment, the enterprise has over 2,000 tonnes of sorghum in its stores.  Muted sales have affected over 20 per cent of the firm’s annual turnover.

WALK THE JOURNEY

However, encouraged by last month’s social agribusiness award, which includes a cash prize of $15,000 (about Sh1.4 million), the former teacher says there is no giving up yet. She plans to mobilise at least 15,000 farmers in 1,500 groups in the next five years.

The pain of a reversed breakthrough in sorghum farming has made her to start thinking beyond the market chain that has since been interrupted.

She has turned to food and feed millers across the country including Unga limited as the main market for her group of farmers.

To augment their earnings, she is urging them to diversify into sunflower farming with oil maker BIDCO providing the market. She is also encouraging farmers to venture into bee keeping.

Asked about the money she won. “I want to set up a small fund to help farmer groups access input loans and depending on how it goes, I will woo more investors to grow the fund bigger. I feel for the poor farmers, who did not even know what the sorghum was being used for but all they knew is that life was being transformed. We have to complete the journey.”

In a deal with 2 SCALE, an agribusiness incubator in Africa, Shalem Investments trains farmers on the best farming practices. This is achieved in cooperation with the ministry of Agriculture and the European Cooperative for Rural Development.

Under Shalem Investments, the annual income for the farmers had hit over Sh400 million. There are plans to raise it to Sh1 billion in the next five years.

The highest earning farmer now makes Sh750,000 per year.

EYE ON THE MONEY

Ms Ireri says the main motivation for farming is money and not food.

A ready market is therefore as crucial just as the resources dedicated in research for other aspects of good production.

“Policies have to be well thought out. Before looking at any policy, the government ought to look at the entire value chain. Farmers need cheap loans and a reliable market. Every farmer will tell you how much they intend to make, not how much food they expect,” she notes.

She has plans to explore new markets  in China and Dubai for sorghum, green grams and other grains.

The International Crops Research Institute for the Semi-Arid Tropics says sorghum is widely grown as a food crop in sub-Saharan Africa, but commercialisation has proved difficult as growers prioritise household food security.