East African Breweries (EABL) has extended its commercial sorghum growing project to Siaya in an effort to secure more supplies for its low-cost beer brands.
The project is expected to boost earnings of farmers in the region as the company provides a reliable market for their crop.
“Farmers will benefit from a 30 per cent purchase price increase that will see them earn Sh30 per kilogramme of sorghum delivered to Nakuru depot, up from Sh23 last year,” said Sylvester Ndeda, EABL’s sorghum project manager.
“Our demand for sorghum is huge,” he added. The company will buy Gadam and Sila varieties of sorghum, with other varieties still on trials.
EABL has in the past few years increased its partnership with sorghum growers in various parts of the country as it seeks to reduce reliance on the relatively expensive barley, part of which is imported.
Last year, for instance, it launched a similar sorghum-growing scheme in 17 districts in Eastern Province as part of an overall plan to have more arid and semi-arid areas grow the plant to supply its demand for raw materials.
The international price of barley stood at $212 per tonne last month compared to $190 per tonne in December 2010, representing an increase of 11.5 per cent.
The price of the commodity is expected to remain high due to increased demand from rival brewers.
The growth of products made from local sorghum means the company will have access to cheaper raw material whose supply can be better managed.
The company is betting on growing consumption of its Senator beer brand to expand market share in the low-end segment where increased competition is expected from new laws legalising traditional, often cheap, liquor.
Its middle and high-end beer markets has also come under threat from the expansion of rivals such as SABMiller who have launched several new brands in the past six months.
The new alcohol laws, popularly known as the Mututho laws, have slowed down overall beer consumption by reducing the number of hours bars can operate.
Rising taxes and operational costs have also eaten into the brewer’s profit margins.
Ugandan subsidiary
This contributed to a near-stagnation in EABL’s net profit at Sh7.3 billion in the year ended June last year, compared to Sh7.1 billion a year earlier.
The company’s sales grew 16 per cent to Sh44.8 billion, helped by a turnaround of its spirits business and improved performance by its Ugandan subsidiary that cushioned it from the effects of the Mututho laws.
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