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Keg excise tax costs sorghum farmers, transporters Sh258m

A sorghum plantation in Athi River, Machakos: Agriculture policy research institute says duty on Senator  Keg beer has  resulted  in low sales. PHOTO | FILE
A sorghum plantation in Athi River, Machakos: Agriculture policy research institute says duty on Senator Keg beer has resulted in low sales. PHOTO | FILE 

Sorghum farmers, transporters and other players in the value chain have lost Sh258 million following the government’s introduction of tax on Senator Keg beer, think tank Tegemeo Institute says.

The Egerton University agriculture policy research institute says the Treasury’s 50 per cent excise duty on the EABL beer has resulted in low sales, resulting in the brewer buying less sorghum from farmers.

“Farmers have forgone revenue from the sale of sorghum to EABL (of) Sh180 million. Assemblers have forgone revenue from bulking and sale to EABL of Sh78 million,” said Joseph Opiyo, a researcher at the Tegemeo Institute, in a presentation.

The assemblers include the EABL agents who collect and store sorghum, transporters and related players. The low sales have also seen some 5,000 keg outlets close shop.

Tegemeo’s findings are for the 2013/2014 fiscal year but the lost opportunities are bigger after EABL cancelled contracts for 20,000 farmers mostly in the western and eastern parts of the country. EABL had contracted some 60,000 farmers to grow the crop.

The Alliance for Green Revolution in Africa (AGRA) says the loss in investment could be in the billions if all research and other investments done by government, NGOs and other parties are accounted for.

“The total investment by all players including the government of Kenya can easily total to more than Sh10 billion, with estimated farmer losses standing at close to Sh3.4 billion,” said AGRA chief executive Anthony Kioko.

EABL said it could no longer buy the raw material since sales of Senator Keg had dropped by 75 per cent following the introduction of the tax.

The Treasury removed excise on the beer in 2006 to enable drinkers in the low end of the market get a safer and affordable alternative to illicit brews.

Tegemeo says between 2009 and 2012 EABL increased sorghum buying from 474 tonnes to 12,715 tonnes, a 26-fold increase.

The brewer has now cancelled contracts with farmers and at the moment is stuck with 13,000 tonnes of sorghum. While releasing the 2014 full-year results, the company said low sales from the beer partly caused its slow revenue growth in 2014 by four per cent to stand at Sh61.3 billion from Sh59.06 billion a year earlier.

The listed brewer has since said it will bank on sales from spirit brands to make up for the lost revenues. The tax re-introduction was meant to help the government collect Sh6.2 billion.

Tegemeo recommends that the government looks afresh at the tax policy since the decline in sorghum use by EABL has a bigger effect than government and EABL revenues.

“Policies and investment strategies should be designed to exploit the competitive advantages of poor people living in marginal areas in the production of sorghum,” said Mr Opiyo.

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