“Local sourcing is not an easy journey”
Heineken set the ambition to locally source 60% of their agricultural raw materials in Africa by 2020. Thanks to their partnership with 2SCALE in Nigeria, local Heineken subsidiary Nigerian Breweries are starting to use local ingredients as a substitute for importing sugar from Brazil. We talked to Paul Stanger, Heineken’s Local Sourcing Director, to learn more about Heineken’s experiences in 2SCALE.
Why is Heineken working with the Dutch government in projects such as 2SCALE? Why do you need them?
It is tempting to think that local sourcing only requires that you open the doors of a brewery and say: ‘’we’d like to buy some rice, or maize or barley’’. The reality is that most smallholder farmers need support to get connected to commercial supply chains.
Working together in public private partnerships (PPP) with the Dutch government and strong NGO partners allows us to support farming communities to improve their livelihoods and secure local supply for our African businesses. PPPs lets us all to go much wider in scope, much larger in scale and greatly increases the likelihood of delivering sustainable value chains that benefit all actors for the long-term. They help connect partners with the right skills and experience to do the work to identify, organize and train groups of smallholder farmers and other value chain actors and to connect them to the Heineken value chain.
In the March 23 broadcast of Dutch television documentary program Zembla on Dutch trade there were some questions raised about the cooperation between Heineken and the Dutch government in Ethiopia. What are your views on this?
Heineken are committed to sourcing 60% of our agricultural raw materials for our African breweries within the continent by 2020. We do this to support the long-term development of local farming communities and to secure local supply for our breweries in Africa.
For example, we have a barley sourcing PPP with the Dutch government and NGO partner EUCORD in Ethiopia. Barley has been grown in Ethiopia for hundreds, if not thousands of years, but the problem was that poor varieties and farming methods were resulting in extremely low productivity, with little or no marketable surplus. Through the PPP project, and with support from the Ethiopian government, we have been able to; test and introduce two new high yielding barley varieties from Europe, multiply the new varieties, supply seeds to 10,000 smallholder farmers in the 2015-16 season, organise and train these farmers in improved farming practices, support them with access to finance and connect them to the Heineken Ethiopia value chain. As a result of the PPP collaboration, we are helping thousands of smallholders take the step from subsistence farming to small scale commercial farming and we hope to buy close to 20,000 tons of local barley in 2016. So, by joining forces, we can have a much bigger impact.
The partnership with 2SCALE and Heineken is carried out in Nigeria together with your subsidiary Nigerian Breweries. What is the added value for Heineken to work with 2SCALE?
The 2SCALE PPP is effective because it brings together partners with the right skills to establish a sustainable cassava value chain. The partners have complementary roles, with Nigerian Breweries investing in new equipment to convert cassava starch into maltose syrup, while the NGOs in the project work with our local SME partner Psaltry International to organise and train cassava farmers and to link them with transporters and other value chain actors. We need 2SCALE’s help because we don’t know how to do this ourselves. Our different skills and perspectives allow us to do much more than we could on our own and to do it faster.
Another positive is that, in addition to the extension dimension, IFDC brings extensive soil fertility and fertilizing knowledge, which is extremely valuable in an agriculture PPP. They also play a key role in coordinating activities between the many actors in the chain to ensure that the cassava tubers from the farmers eventually make it to Nigerian Breweries as starch.
How many farmers are participating in this partnership right now?
The number of farmers has increased from 500 to 750 and our goal is 2,000 by the end of 2017. The big challenge we had in 2015 was a shortage of rainfall. We were expecting the yield of the cassava tubers to grow from 14-15 tons per hectare up to 20 tons per hectare, but the drought conditions meant that we could not get there. To be sustainable, the cassava value chain needs a steady supply of tubers to keep the processing plant running efficiently. Unfortunately, the dry conditions have resulted in Psaltry operating significantly below full capacity, which puts a lot of pressure on the system. In order to try to get enough tubers, we expanded our initial 50km radius from the plant to work with the farmers up to 70kms away. The supply shortage changed the normal market dynamics by bringing new buyers into the area, which put further pressure on supply and increased prices to the point where Psaltry were paying more to buy less!
How do you make sure that the farmers involved in PPPs are being linked to the market in a sustainable way?
When a large company like Heineken works together with the Dutch government to develop an agricultural value chain in a country, the project has a lot of credibility with the local government and other actors. Farmers have seen many projects come and go over time, so if they see a committed private sector off-taker like Heineken collaborating with a committed European government, it gives them confidence that we are going to be there for the long term.
NGOs can do fantastic projects to organise, train and develop farmers, but without a committed off-taker, the market connections are often not strong enough to sustain the value chain for the long term when the project ends and the NGOs pull out.
Another challenge is to try to make sure that these emerging supply chains have a number of markets to sell to. Farmers need help to diversify their customers, in the same way that buyers like Heineken need a range of suppliers to secure the supply of the quantity and quality of raw materials we need.
Often when I tell people about the work of 2SCALE and the partnership with Heineken, they are a bit surprised. They want to know why we are helping Heineken to sell more beer. Do you get that question as well?
Sometimes. Most people know that beer is made from barley, but not so many know that some of that barley can be substituted for other grains like sorghum, or rice, or maize. These grains grow in different parts of Africa and Heineken, as a long term buyer, can be a catalyst for developing sustainable agricultural value chains.
Home brews made from sorghum or banana have been consumed in African for centuries. Economic development across the continent is allowing more consumers to trade-up to drinking brewery produced beer, which is a tremendous growth opportunity for Heineken. Current consumption of official beer in Africa varies between 5 -10 liters per year, compared to 70-80 liters in northern Europe.
We have to recognize that many of the ingredients used to make beer can also be consumed as food. As a result, we work hard to try to ensure that the raw materials we buy are not having a negative impact on local food security. We do this by focusing on yield and productivity improvements to help farmers produce a surplus that they can sell to generate cash income, without reducing the food supply. For example, the barley value chain we are developing in Ethiopia has seen average yields increase from around 2 tons per hectare to more than 4 tons per hectare. This gives farmers the scope to feed themselves and to sell the surplus to buyers like Heineken. The success of the first farmers encourages their neighbours to follow suit and we can already see that Ethiopia has the potential to become self-sufficient in barley – and possibly even a barley exporter in the long term.
Except for the yield challenges, are there other challenges you face in 2SCALE in Nigeria?
The current yield challenge in Nigeria is partly weather related, but another emerging challenge is to get the training out of the classroom and demonstration plots and into everyday use by farmers. It takes time to change farming practices learned over many generations. You need some visible successes to create confidence among the farming communities that the new approaches are worth the effort.
There are also several macro level challenges across Africa and two of the most important are access to finance for farmers and getting enough good quality planting material.
In Nigeria the banking system is more developed and there seems to be more interest in investing in agriculture. The 2SCALE project has been able to secure financing for farmers at around 9% annual interest rather than the usual 20%. Unfortunately, this is not the case in many other parts of Africa. Even when bank financing is available, the perceived risk means that interest rates can be very high.
The capacity to produce the required quality of seeds (or cassava stems) is often lacking and is very difficult to multiply seeds with smallholder farmers. This is a challenge right across Africa and the continent desperately needs well organized and professional seed multiplication systems. Again as an example, although we started by multiplying seeds with smallholder farmers in Ethiopia, with help from the ATA, we are now collaborating with Oromia Seed Enterprise to do this important work.
How do you deal with that?
Like I said before, local sourcing is not an easy journey and you have to persevere. If you give up when things get difficult, then you won’t get very far. The recent lack of rainfall is an excellent example. You think you put everything in place to achieve success and then there isn’t enough rain. You need to be able to rationalize that and keep going.
When we first started establishing local sourcing initiatives in Africa, we thought it would be possible to develop an operational value chain in three years. We know now that it takes a minimum of 5 years and, in some cases, much longer than that. This was one of the big discussions that we had at the start of the cassava project with 2SCALE in Nigeria. We established the project in early 2015, which was already partway through the wider 2SCALE program. 2SCALE officially ends in December 2017 and we all agree that this will not be enough time to develop a sustainable cassava value chain. As a result, we continue to look for ways to continue the project, rather than taking the risk of pulling away the support before it is properly embedded.
A positive challenge in Nigeria is that this cassava model seems have the potential to work if we can get enough tubers. The next question is how do we scale-up Nigeria? And then, how do we scale it across the rest of Sub-Saharan Africa, where cassava also grows very well?