Case Study: Private Sector Supply Chain Development for Launch of New Ugandan Beer infoD v INNOVATION & ENTREPRENEURSHIP Case Study: Private Sector Supply Chain Development for Launch of New Ugandan Beer © 2018 The World Bank Group 1818 H Street NW Washington, DC 20433 Website: www.infodev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG This work is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the donors of infoDev, the World Bank Group, its Board of Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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License: Creative Commons Attribution CC BY 3.0 Photo Credits: Cover Photo: id-art/AdobeStock Case Study: Private Sector Supply Chain Development for Launch of New Ugandan Beer infoD v INNOVATION & ENTREPRENEURSHIP Case Study: Private Sector Supply Chain Development for Launch of New Ugandan Beer Acknowledgements This case study was developed by the infoDev and Industry Solutions Units of the Finance, Competitiveness & Innovation Global Practice of the World Bank Group with technical support from Agland Investment Services and J.E. Austin Associates. Other contributors include the International Finance Corporation and the Agriculture Global Practice of the World Bank Group. The study team included Anupa A Pant, Blair Edward Lapres, Ellen Olafsen, Loraine Ronchi, and Peter A Cook of the Finance, Competitiveness & Innovation Global Practice, and William Mott, Martin Webber, Stephanie Haile, Madeleine Nelson, William Scott, Gareth Smail, Donald M. Taylor, and Laya Hess-Skinner of a consortium of Agland Investment Services and J.E. Austin Associates. The team received guidance from a decision review panel chaired by Ganesh Rasagam and consisting of Dietrich Fischer, Milaine Rossanaly, and Christopher Ian Brett. The paper benefited from discussions with and guidance from numerous World Bank colleagues, Bradford Roberts, Parmesh Shah, Selchuk Tanatar, Bas Rozemuller, and Sarah Ockman. This study was made possible through the support from the governments of Norway, Sweden, Finland, and the UK’s Department for International Development (DFID). Table of Contents Synopsis 1 Introduction: The Launch of a New Product 1 Establishing the Sorghum Supply Chain: The Critical Role of Grower Associations and Agro-Processing Small and Medium Enterprises (SMEs) 1 Afro-Kai Ltd: 2 Farmer Associations: 3 AgroWays Ltd.: 4 Nile Breweries Ltd: 5 BRANDING AND MARKETING OF EAGLE LAGER 6 RESULTS 6 Lead Firm: Growth of Nile Breweries Ltd. 6 Growth of SMEs 7 More Opportunities for Women in Management 8 Expanding Corporate Social Responsibility 8 Rising Government Tax Revenues 8 Looking Forward 9 Replication and Knowledge Spillovers 9 Linkage Lessons Learned 9 Lesson 1: The relationship functioned best when the farmer associations functioned as SME processors. 9 Lesson 2: Public policy can facilitate win-win situations for public and private benefit. 9 Lesson 3: Each raw material supply chain must be evaluated to develop an optimum organization. 9 Lesson 4: Demonstration and replication of success. 10 Lesson 5: Local market opportunities can be more attractive than export opportunities. 10 Lesson 6: The Role of Social Responsibility. 10 Bibliography 10 1 Synopsis Introduction: Nile Breweries Ltd. (NBL), the leading producer and The Launch of a New Product marketer of beer in Uganda, wanted to develop a competitively priced beer for the local market. Using local grain rather than imported malted barley, NBL saw an opportunity to produce and market a new low-cost, sorghum-based beer. Pilot trials showed that brewing using the local sorghum produced Nile Breweries Limited (NBL), a leading Ugandan a high-quality, clear beer. To achieve their ends, brewery within the global SABMiller beverage company, NBL developed a supply chain through strategic wanted a lower-priced product to sell within the partnerships with small and medium enterprises local market. NBL had been importing most of the (SMEs) that could reliably deliver a consistent quality ingredients for its beers, including expensive malted of raw material. The resulting success created barley. High production costs, coupled with an excise benefits throughout the value chain, fostered tax of 60 percent, made the import-based products too knowledge spillovers and replication on a pan- expensive for many local consumers. In contrast, home- African scale, and improved grain yields and farmer brewed products were priced at 10 percent or less incomes. than NBL’s import-based brewed products. In the early 2000s, NBL started the search for local ingredients NBL faced the challenge of developing a scalable that could be substituted at a lower cost. local supply chain, in which thousands of small farmers, aggregators, and processors would collect There is a tradition of home brewing in Uganda, though and prepare grain and deliver a uniform raw material the quality and hygiene of the product is inconsistent. to the brewery. The 2002 launch and subsequent The traditional red and yellow varieties of local success of Eagle Lager was carefully built on a sorghum often produced a bitter-tasting product, combination of product research, institutionally which did not meet the company’s standards. With backed plant breeding, government support, seed the expertise of researchers at the National Semi-Arid production, an active crop extension program, Resources Research Institute (NASARI), a new variety farmer associations, and SME processing and drying of white sorghum, Epuripur, was identified as having capacity, all within the supply chain to support a the right characteristics for producing beer. market and brand development program. From its Epuripur-type sorghum proved to have excellent origins of importing 100 percent of raw material brewing qualities, and pilot brewing using the sorghum requirements, NBL now sources 70 percent of raw produced a high-quality, clear beer. These trials gave material locally, and is aiming for over 95 percent in rise to a new product, Eagle Lager, a flagship product the near future. for what would eventually become the best-selling An Eagle-branded beer is now the highest-selling brand in the Ugandan market. beer product in the country,1 with Eagle beers contributing substantially to NBL’s 60 percent Establishing the Sorghum Supply market share. Last year, the company reported it had acquired 12,000 tons of sorghum from Chain: The Critical Role of Grower SME agro-processors and farmer associations Associations and Agro-Processing representing approximately 20,000 smallholder farmers who received total revenue of US$4 million. Small and Medium Enterprises (SMEs) The evolution of the program to produce and utilize local raw material in NBL’s products created two supply 1 Weston, Shaun, “SABMiller opens new Nile brewery in Uganda,” chains: one for sorghum, and eventually, one for barley. FoodBev Media, August 22, 2013, http://www.foodbev.com/ The program was initially self-financed from NBL’s own news/sabmiller-opens-new-nile-brewery-in-ugan/ revenue streams. 2 FIGURE 1: NILE BREWERIES LIMITED (NBL) TIMELINE (1995-2015) 1995-1998 2001 2002-2003 2003 2006 2008 2015 NBL Product Research with Collection and Epuripur (AgroWays) 30 SME 12,000 Tons Epuripur Epuripur Crop in 4 (Afro-Kai) The sourcing of Epuripur sorghum by NBL had a supplied grain to NBL through Afro-Kai. Most of the modest beginning. The sorghum supply chain started grower associations that supply NBL are not agro- with small groups of farmers loosely organized into processing SMEs; rather, they are primarily product associations focused on four geographic locations. aggregators. As grower associations became stronger, This clustering facilitated the aggregation of crops and even started processing grain, AgroWays, a local produced by numerous small farmers, and the SME grain-trading firm, took over most of the sourcing. provision of extension services and training to farmers. NBL contracted Afro-Kai Ltd, an SME input distributor with some exposure to grain trading and processing. Afro-Kai Ltd The company was responsible for supplying seed, as In 2003, NBL contracted with a local SME, Afro-Kai, well as purchasing, aggregating, cleaning, grading, to develop a reliable supply chain for a new variety of drying, and storing the sorghum prior to delivery at sorghum. While farmers were used to growing sorghum the brewery. Through its relationship with Afro-Kai, in the initial four target locations, the challenge was NBL offered a supportive sorghum production and keeping the production and harvest of the Epuripur off-taking program, which was welcomed by farmers variety separate from the traditional, common affected by falling global demand and prices for varieties. NBL required a partner with direct ties to cotton, the principal cash crop in the targeted growing production communities in order to overcome this areas for the initial supply program. Sorghum became obstacle. a much-needed substitute cash crop. Afro-Kai was incorporated in 1984 as a local With the beer’s commercial success, production and agricultural service SME. In the 1990s, the company sourcing volumes grew, drawing new actors into was active with donor and aid agencies in procuring the supply chain. The loose associations of farmers grain for famine relief. Additionally, Afro-Kai was one of received sufficient revenue to invest in their operations the earliest suppliers of agricultural seed and inputs in and organize, developing formal organizations Uganda. As an input distributor with grain aggregation with business charters. Some of these entities also and trading experience, Afro-Kai was well positioned to purchased grading and drying equipment to take on distribute the new seed variety and organize farmers some processing activities, though they still sold and for collection during the early days of the project. 3 Afro-Kai built cereal collection and storage facilities in Farmer Associations the initial four districts, and established cereal grain cleaning and processing facilities. The contract with Initially, the associations were loose groups of 50 to 60 NBL allowed Afro-Kai to finance the crop aggregation. farmers who would join together to market their crop. In the initial pilot, 350 farmers from the four districts After several years, culminating in the bumper harvest grew and sold Epuripur sorghum to Afro-Kai. Farmer of 2006, NBL found procurement to be too centralized participation increased to 1,133 the following year, and around one SME (Afro-Kai), with both NBL and farmers again to 8,326 farmers in 2006. wanting more decision-making power. Furthermore, as NBL’s demand for sorghum grew, the sourcing program This considerable growth can be attributed to several needed to support expansion into the major production factors. Epuripur-type seed, the most expensive areas beyond the four pilot districts. production input, was heavily subsidized by NBL through Afro-Kai. In addition, Afro-Kai’s reliable off- Historically, the primary buyers of grain from farmers taking had a “demonstration effect,” attracting other were the so-called “middlemen” who offered prices with a farmers in the community who were anxious to have “take it or leave it” attitude. NBL did not want to be seen a secure cash crop. Most importantly, Afro-Kai had as a middleman or to rely on such sources, yet the firm the ability to organize sufficient seed production and also wanted to avoid direct sourcing from the thousands ensure its full and proper use. Thus, the sorghum of smallholder farmers. As a result, NBL decided to production package offered by NBL—including a evolve its sourcing program by supporting the formation guaranteed price, improved and subsidized seed, of formal farmer associations. and access to NBL extension services—caused many Developed without financing from NBL, these formalized farmers to switch to the new sorghum variety. associations provided the structure necessary to deliver In 2006, NBL was then a victim of its own success. certain supply chain program functions, particularly Without participation caps or direct control by NBL, for farmers distant from the initial four pilot districts, the reach and appeal of the sorghum production and allowed NBL to engage more directly with farmers program resulted in a harvest more than double NBL’s on pricing and crop contracts. The associations would needs. The company honored their contracts, as NBL deliver training and support programs for farmers, serve knew that this was a pivotal point in the development as collection and processing points for farmers, and of its sorghum supply chain. If NBL rejected excess deliver crop payments initiated under NBL’s contract supplies, it would likely tarnish the good reputation of farming scheme (i.e., with the purchase price determined the program as a reliable buyer, discouraging farmers before planting). The associations might also handle from future cultivation. maize, an important food crop in Uganda, for their members. A traditional supply chain management approach was applied in the early years, where Afro-Kai NBL employs a technical agricultural manager who purchased grain as the agent of NBL, and NBL left the develops contracts with farmer associations, and procurement management to Afro-Kai’s staff. After supervises the company’s support of the production the oversupply of the 2006 harvest, NBL realized that program through the provision of regional extension it required greater control over procurement, and that services and the subsidized seed distribution system. NBL extension staff should be directly involved with Farmers also learn best farming practices through the pricing and contract decisions with farmers and farmer associations. associations. In addition, the company protected Currently, the associations are legally registered entities, against further gluts by encouraging diversification. incorporating the best elements of a cooperative and The following season, NBL distributed other seed, such commercial business structure. Each association has as rice and maize, that had a local market or could be a board of directors and designated management, all consumed by the family, as no sorghum was purchased controlled by the farmers. The larger associations have in 2007. While NBL’s relationship with Afro-Kai was processing and storage facilities and sell $600,000 initially fruitful, it eventually turned to organizations to $700,000 of grain annually, but most are smaller with more experience in the collection and storage of organizations without processing equipment. As of 2016, grain at a larger scale. 4 FIGURE 2: NILE BREWERIES LIMITED (NBL) SORGHUM SUPPLY CHAIN, UGANDA Distributors National Semi-Arid Resources Government Licensing, Research Institute Regulations, and Excise Taxes 30 farmer associations are selling to NBL, although about 10 of these associations provide over 80 percent FIGURE 3: AGROWAYS CORN AND SORGHUM of the raw material. MILLING FACILITY, JINJA, UGANDA The emergence of associations as processors broadened NBL’s sourcing options. However, the brewery still required an intermediary to acquire and process the grain from the smaller, non-processing associations, as well as to store and deliver the grain from the processing associations to NBL. AgroWays, an experienced SME grain trader, served as this link. AgroWays Ltd. AgroWays possesses a nationwide footprint of facilities to clean, dry, bag, and grade sorghum to NBL’s specifications. AgroWays was the first of only a few grain procurement companies to receive a license from the government of Uganda to issue warehouse receipts; Afro-Kai was not licensed. AgroWays’ government- licensed receipts allow its clients and suppliers to use their storage documents as security to obtain bank financing. AgroWays is also developing facilities to market bulk grain in order to become more efficient and reduce logistical costs. 5 FIGURE 4: AGROWAYS GRADING AND MILLING FACILITY With these resources, AgroWays became the primary With cooperation from its supplying farmers and aggregation and processing SME supplying NBL farmer associations, NBL initiated a contract farming with sorghum. The company buys sorghum from up scheme to support and sustain this trust, involving to 30 farmer associations. The firm is also a buyer an open and transparent method for calculating each and marketer of maize, working with 142 farmer seasonal price (given two crops per year). In partnership associations for this crop. with the grower associations, NBL calculates the cost of production, marking up the cost by 15 percent to Under contract with the brewery, AgroWays pays the determine the seasonal price offered. If farmers accept farmer associations for grain received, then processes, the price, it becomes a contract between NBL and the warehouses, and delivers the crop to the brewery with association of farmers. Thus, the farmers know what its fleet of trucks. Approximately 80 percent of the they will receive from their crop in advance of planting. sorghum that arrives at their facility requires further processing (i.e., cleaning, drying, and bagging). Much For NBL, contracting with AgroWays is important to the of the grain is delivered to AgroWays in used bags of financial side of their beer business, as well. AgroWays various sizes, while NBL seeks a uniform 50-kilogram shoulders the significant working capital requirements bag for delivery to the brewing facility. The remaining necessary to receive and carry seasonal grain inventory, 20 percent comes from SME grower associations thereby keeping the capital off of NBL’s financial that have their own equipment to process the grain to statements. This location of working capital enhances approved specifications. cash flow and the return on investment, an important factor for NBL as part of a public corporation. This structure also allows the brewery to do what it does Nile Breweries Ltd best, produce and market beer, while providing a flexible Sorghum-based beer production required an structure for NBL to link with the farming community. investment in new equipment, including a mash press and different operating procedures. Securing a reliable supply of raw material was important in order to support the company’s investment in new equipment. Building trust between NBL, as an off-taker, and the farmers was essential to achieving stable sourcing of raw material. 6 BRANDING AND TABLE 1: PRICES OF SELECTED NILE BREWERIES PRODUCTS MARKETING OF Brand Price/Bottle (Ugandan Price/Bottle EAGLE LAGER Schillings) (US$) The introduction of NBL’s lower-cost Eagle brand Eagle Lager 1,500 0.50 beer attracted considerable attention, as it continued to grow its market share. The Economist commented in a July 2003 issue, “In Uganda, a Eagle Extra 2,200 0.75 cold lager after work is an expensive luxury. Until recently, the main alternative was a cloudy, foul- Nile Special 3,000 1.00 smelling and sour brew made by local families. But now, an innovative new local lager is challenging Source: The Beer Frontier, The Economist, May 31, 2014 these rivals—leading some to wonder if it will change the way that beer is made everywhere.”2 RESULTS The Economist was not far off in its early prognostications. The objective of producing the sorghum-based Eagle brand was to provide a reasonably priced beer The development of the sorghum-based Eagle Lager and to compete with the wide variety of home-brewed its related products under the Eagle brand has been a products available to Uganda’s consumers. The tremendous commercial success. Additionally, it has had price structure is as follows: positive impacts up and down the supply chain. This structure is a product of the 20 percent excise Lead Firm: Growth of Nile tax on sorghum beer, in comparison to the 60 percent on beer made from imported raw material. Breweries Ltd. Eagle Extra is a sorghum-based variant of the The introduction of Eagle Lager has had a dramatic original Eagle Lager, while Nile Special is produced impact on the growth of NBL and the demand for local with imported malted barley. When NBL wanted agricultural products, particularly sorghum. A little to establish a low-price, local sorghum-based beer, over a decade ago, NBL imported all the raw materials the government cooperated by reducing the excise for its brewed products from South Africa, Europe, and tax, first through an excise tax holiday and then Australia. Now, NBL sources 70 percent of its brewing by maintaining a rate of 20 percent for beer made raw material locally. The company has also initiated from domestic sorghum. a program to reduce the import of malted barley by sourcing from Ugandan farms located above 1,500 Sales of Eagle Lager and Eagle Extra have soared meters (the microclimate needed for barley production). from one million cases per annum in 2003 to As local barley production increases in the next few years nearly 10 million cases in 2015. However, NBL with NBL’s support, the company plans to be able to management feels there is still a large domestic market to capture. The company estimates that procure 97 percent of its raw material locally. formal beer products are only capturing 4 to 5 The lower-cost, local raw material decreased overall percent of the total alcoholic beverage market, with production costs, and much of the raw material home-brewed products and various hard alcohol cost savings were passed on to the consumer. These drinks dominating the remainder of the large lower-cost products of more uniform quality were informal market’s consumption. able to compete with the traditional low-cost choice: homebrews. Nile Breweries’ gross income has increased 2 “The Eagle Has Landed,” The Economist, June 10, 2003, steadily since the introduction of Eagle beer, primarily http://www.economist.com/node/1915350 due to the sales of sorghum-based beers. In addition, 7 FIGURE 5: NILE BREWERIES’ ANNUAL Growth of SMEs SORGHUM AND BARLEY USAGE & VALUE Without the agro-processing SMEs to reach and organize 2002/03 TO 2011/12 farmers to supply the required raw material, NBL would still be a brewer of beer dependent on imported grains, junior to the leading brewer in the Ugandan market. Afro-Kai and AgroWays both played a key role in linking the sorghum farmers, and their eventual grower associations, to NBL. The majority of grower associations operate as crop aggregators, with a few emerging as separate agro-processing SMEs. The expansion of the sourcing program beyond the target region and the growth of grower associations has allowed for specialization among NBL’s SME partners. Afro-Kai now focuses primarily on seed and input distribution for participating sorghum farmers, while AgroWays is the lead grain collection, processing, storage, and delivery entity. Nevertheless, NBL still maintains direct contact with the grower associations, meeting annually to establish quantity and pricing Source: George Mbogo, Local Enterprise Manager, Nile contracts, and to determine the extension services Breweries, March 2013 needed. the company’s market share has risen from below 50 Increasing Farmer Income percent several years ago to 60 percent today. Based on these products’ success, NBL rolled out additional The backbone of the program and the primary products in the Eagle brand family, such as Eagle Dark. beneficiaries are the 20,000 farmers who have a reliable contract buyer for their production. Many farmers now The increased demand for their products prompted rely on Epuripur production as their principal cash crop, an investment in 2013 of $90 million to build a new an important source of funds to pay school fees. The brewery with increased plant capacity. This investment production of a cash crop for NBL is important to the created one hundred permanent factory jobs, and farmer. Furthermore, the knowledge gained from the numerous indirect jobs in construction, transportation, Epuripur production package, such as good farming distribution, and retailing. A 2015 independent study practices and the proper use of inputs and seed, can also conducted by the U.S.-based Beer Institute, an be applied to corn and sorghum as a staple food. industry association, found that for each job created in beer manufacturing, 34 indirect jobs are created in Farmers are reaping additional benefits from the overall wholesaling, retailing, and other manufacturing and increased demand for sorghum, and seeing higher prices farming activities. Since beer manufacturing is more paid. Last season, the price per kilogram was 1,090 automated in the United States than in Uganda, the Ugandan schillings, while this season, the price is 1,240, job multiplier effect is probably closer to 50 to 60 jobs representing a 12 percent price increase over a six-month per beer employee in Uganda.3 Additionally, the new period. Still, NBL is finding it hard to obtain all the factory’s increased capacity has further expanded the supplies they want at this price. demand for sorghum and barley. NBL would like 10,000 metric tons of sorghum this season, but may only obtain 8,500 metric tons due to competition from other buyers. With NBL’s successful support of more organized, higher-quality grain production, buyers from surrounding countries 3 John Dunham & Associates, The Beer Industry Economic and humanitarian aid groups are offering Epuripur Contribution Study (Washington, D.C.: July 2015), www. producers even higher prices than those negotiated beerinstitute.org/assets/uploads/general-upload/BSA-2015- with NBL for their high-quality grain. The World Food Report.pdf 8 Program is reported to be one of the largest single buyers The company believes these initiatives represent good of grain in Uganda. Sorghum, independent of variety, is corporate citizenship, but also have long-term payoffs a staple food crop, which humanitarian groups prefer in the form of building trust and commitment between to purchase locally. The net impact is that demand the company and its supplier-farmers. By providing is outstripping supply. funding for secondary school, NBL is increasing the likelihood that rural children can access university education, which would not happen in rural areas More Opportunities for without external assistance. In addition, the company Women in Management is in a particularly advantageous position to deliver The Epuripur production program also encouraged social programs because of their direct, established women to form and lead farmer groups and associations. relationships with farmers and exposure to the needs of Information published by NBL indicates that: the community. • Women lead half of the top 10 farmer associations Rising Government Tax Revenues supplying sorghum. The government of Uganda played an important role • 30 percent of the sorghum supply chain’s farmer- in the introduction of Eagle beer through the reduction suppliers operate under women-led groups. of excise taxes on NBL’s sorghum-based beers. At this • 26 percent of income paid by NBL goes to women-led lower tax point, the price of Eagle beer is closer to groups. that of homebrews, and thus more competitive with home-brewed products. Due in part to this lower price point, Eagle beer sales have been immense, generating Traditionally, women managed the local trade and considerable tax revenues for the government, with sale of foodstuffs, while men typically managed the an estimated $70 million in excise and value-added production activities. A number of women affiliated with taxes paid by the company. This figure makes NBL the the sorghum supply chain had been educated in schools. second-largest Ugandan taxpayer. This combination of education and a background in sales Onapito Ekomoloit, corporate affairs director at Nile provides an opportunity for women to become staff or Breweries, describes the company’s relationships: “Nile managers in the associations. NBL has devoted additional Breweries is in partnership with both small farmers and resources to investing in the education of individuals, as the government. … It is a win-win situation: We provide well as providing extension and other capacity building a reliable cash market for grain coupled with technical services. assistance for the farmers, and the government receives ever-increasing tax revenue from our success.” Expanding Corporate Social The government is also anxious to bring the informal Responsibility home-brewing and synthetic alcohol market into the NBL has initiated social responsibility programs in the formal economy, where it can be monitored and provide farming districts that improve the lives of small farmers. tax revenue. Since the government receives little to no The actions generally fall into three categories: taxes from the informal market for alcoholic beverages, any capture of that market by sales of Eagle beer • Health: HIV/AIDS education in concert with USAID gives the government the opportunity to collect tax programs revenue on previously untaxed activities. In addition, there can be serious health problems associated with • Clean water: providing village wells the consumption of home-brewed products sold in • Education scholarships: NBL has granted 63 all- markets and on the street, including recent reports of expenses-paid scholarships to gifted primary school fatalities in Kenya from consuming such products. The students from poor farming families so that they may government understands this situation and is eager study in prestigious secondary schools, which would to support NBL as it seeks new markets and sales have otherwise been too expensive. opportunities for its beverages. 9 Looking Forward associations functioning as SMEs carried out light or more extensive processing, which provided a variety of benefits within in the value chain: Replication and Knowledge Spillovers • An SME often has lower overhead and can provide a Two significant impacts have emerged from NBL’s service at a lower cost than the lead firm. successful sourcing of Epuripur, a new variety • An SME better understands the local environment and of sorghum. its potential pitfalls, particularly in rural areas. While there have been other efforts to utilize sorghum • SMEs expand and create jobs to support an agro- as a raw material for beer and other alcoholic drinks, industry supply chain in related fields such as the commercial success of Eagle Lager at Nile Breweries warehousing, transportation, retailing, finance, is reinvigorating the development of similar products in and banking. A consumer product, such as Eagle- other parts of Africa. NBL’s parent company, SABMiller, branded beer, creates numerous jobs in the retail and a leading global brewer and marketer, has initiated entertainment sectors. sorghum beer development projects in Zambia, • An SME can provide specialized services that a lead Tanzania, and Swaziland, using the Ugandan model to firm prefers not to handle itself. Early in the project, source local supplies of sorghum and barley. Heineken Afro-Kai served as a seed supplier and grain buying Breweries is reported to be initiating plans for sorghum service, without direct involvement by NBL in the beer production in Ghana and Sierra Leone. Diageo (the procurement process. The 2006 harvest and the distributor of Guinness throughout Africa) is pursuing growth of formal farmer associations prompted NBL to locally sourced raw material through the production of contract AgroWays to provide buying, processing, and a cassava-based beer in Uganda and the acquisition delivery services, while Afro-Kai continued its input of rivals specializing in local product-derived beers.4 provision role. This allowed NBL to focus on developing Success in these initiatives will drive increased revenue in direct contact with grower associations on contract rural agricultural production and in agro-processing. negotiation and the provision of extension services. Lesson 2: Public policy can facilitate win-win situations for public and Linkage Lessons private benefit. Learned In this case, government tax policy (i.e., a reduction of the excise tax for the introduction of a new product) was a useful tool for creating new markets for the private sector. If the new markets expand, governments can see Lesson 1: The relationship functioned long-term benefits through significant increases in tax best when the farmer associations revenue. functioned as SME processors. The farmer associations tended to be loose groups, Lesson 3: Each raw material supply aggregating product from a large number of producers. chain must be evaluated to develop an However, some of the associations became strong optimum organization. organizations and built processing facilities to clean and store grain, functioning as full SME processors. These Working with a network of SME farmer associations, aggregators, and processors is a lower-cost model for sorghum production, and more efficient than the 4 Biryabarema, Elias and Duncan Miriri, “Global vertically integrated hub and spoke system utilized brewers push local beers to quench African palates,” for barley. The barley supply chain was approached Reuters Africa, July 15, 2016, http://news.trust.org/ differently due to the need for large up-front item/20160715131643-x0qwt/ investments in barley malting facilities, coupled with 10 Bibliography the fact that barley was a new crop for local farmers. Training programs and a demonstration farm were required to attract farmer interest and bridge the information gap. In contrast, while Epuripur was a new Balya, Chris. 2006. “Supporting Smallholder Farmers to sorghum variety, farmers in a number of regions of Grow in Uganda: The Story of Eagle Lager.” Afro-Kai Ltd. Uganda have experience growing sorghum. World Bank Group. 2011. “Case Studies: Upgrading for the Domestic Market and for Traditional Export Markets.” Lesson 4: Demonstration and Making the Grade: Smallholder Farmers, Emerging Standards, and Development Assistance Programs in Africa: replication of success. A Research Program Synthesis. Washington, DC: World Bank. siteresources.worldbank.org/INTARD/Resources/ Opportunities to transfer a successful crop or product CH6_example1.pdf model to another country or region is one of the easiest ways to create new enterprises and industries; indeed, “How the Launch of a New Beer Brand Impacted a this is now occurring with the development of sorghum Country.” SAB South Africa. June 12, 2015. http://www. sab.co.za/prosper/how-the-launch-of-a-new-beer-brand- and other local crop-based beers in a number of impacted-a-country/ African countries. John Dunham & Associates. 2015. The Beer Industry Economic Contribution Study. Washington, DC: Beer Lesson 5: Local market opportunities Institute and National Beer Wholesalers Association. www. beerinstitute.org/assets/uploads/general-upload/BSA-2015- can be more attractive than export Report.pdf opportunities. SABMiller. 2016. “Locally Grown Livelihoods.” http://www. Producing consumer products that satisfy existing sabmiller.com/home/stories/locally-grown-livelihoods domestic demand and taste preferences can become Mbogo, George. 2013. Impact of Local Sourcing Initiatives: more important to an economy than export markets. A case of Nile Breweries Ltd’s (SABMiller) Sorghum and Domestic markets in Africa are expanding, and will be Malting Barley Programmes in Uganda. www.ibdafrica.co.za/ important as incomes increase and demand expands for wp-content/uploads/2013/05/Mbogo-manuscript.pdf processed food products designed to meet local tastes. Mbogo, George. 2013. “Impact of Local Sourcing Initiatives: A case of Nile Breweries Ltd’s (SABMiller) Sorghum and Malting Barley Programmes in Uganda.” Presentation on Lesson 6: The Role of Social March 5, 2013. Responsibility. Biryabarema, Elias and Duncan Miriri. 2016. “Global brewers push local beers to quench African palates.” Reuters Since NBL works at the village level with farmers Africa, July 15. http://news.trust.org/item/20160715131643- through farmer associations, the company is aware x0qwt/ of farm family needs. NBL initiated an independent social responsibility and support program. Founded on “The Beer Frontier.” The Economist. May 31, 2014. http:// www.economist.com/news/business/21602999-long- specific knowledge of local needs, such programs can established-african-firm-went-global-only-find-fastest- be effective in providing direct, responsive support and growing-market-was-its sustaining the long-term relationship between the lead company and the farming communities. Although it is “The Eagle Has Landed.” The Economist. June 10, 2003. http://www.economist.com/node/1915350 not a substitute for a strong commercial link, a modest amount of funding goes a long way in strengthening the Weston, Shaun. 2013. “SABMiller opens new Nile brewery supplier and buyer relationship and reducing conflicts. in Uganda.” FoodBev Media, August 22. http://www.foodbev. com/news/sabmiller-opens-new-nile-brewery-in-ugan/ 11 Interview List Organization Interviewee Name(s) Date of Interview Nile Breweries & SABMiller Anna Swaithes March 31, 2016 Nile Breweries, Public Affairs Onapito Ekomoloit May 10, 2016 Nile Breweries, Technical Joseph Kalule May 9, 2016 AgroWays, Bus. Devel. Richard Ibengo May 11, 2016 AgroWays, Manager Herbert May 11, 2016 Case Study: © 2018 The World Bank Group Private Sector Supply Chain Development 1818 H Street NW for DC Washington, 20433 of New Ugandan Beer Launch Website: www.infodev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG infoD v INNOVATION & ENTREPRENEURSHIP