Wednesday February 22 2017
SABMiller plc, which combined with AB InBev in October 2016, has been a pioneer in promoting local sourcing in Africa. Many of the company’s subsidiaries in Africa have created new brands and brewing processes which incorporate locally grown crops such as sorghum and cassava. This is based on a win-win-win model where:
- Local businesses can source quality local raw materials and benefit from favorable excise rates recognizing their investment in the local economy. This helps drive growth through the creation of new, affordable beer brands for new customer segments
- Smallholder farmers can access a secure market for their crops and benefit from support to enhance productivity and improve their livelihoods
- Local stakeholders, such as the government, benefit from greater economic development in agricultural communities and increased overall tax revenues
While these local supply chains have a long history of successfully generating shared value for both smallholder farmers and the business, they still face challenges. With support from the Ford Foundation, the company partnered with TechnoServe to analyze those challenges and design solutions for two African subsidiaries. Nile Breweries Limited (NBL) in Uganda sources barley and sorghum from local smallholders, and Cervejas de Mocambique (CDM) in Mozambique sources cassava and maize from local smallholders. Each company faces challenges unique to their local markets and structures, but there are many common opportunities for strengthening local supply chains across both companies.
Addressing low yields and quality
Smallholder yields are often relatively low compared to large, commercial farmers. This was the case in NBL and CDM’s supply chains, despite the company having made investments in training and other services. In Uganda, NBL and TechnoServe identified the opportunity to expand and deepen the extension services it provided to farmers by implementing a farmer field school model, leveraging lead farmers from local communities who could support their peer farmers in understanding and adopting best agronomic practices for improving yields and quality. We also found opportunities to strengthen the business and management operations of the organizations that aggregate production from smallholders and supply it to NBL. In Mozambique, the project identified opportunities to strengthen smallholder access to improved cassava stems (which result in higher yields and quality) and facilitate more effective training on agronomic practices by supporting the development of formal farmer producer groups.
Improving transparency across the supply chain
Companies frequently struggle to receive accurate and up-to-date information about their smallholder supply chains. This makes it harder for companies to track the business performance and social impact of various parts of the supply chain. In response, TechnoServe identified opportunities for NBL to collect and digitally record data from farmers on production levels and other key metrics. This also looked at how technology platforms can enable NBL to share data back with farmers on pricing, production and business requirements. In Mozambique, TechnoServe developed a set of key performance indicators which CDM can collect from its intermediate suppliers. This will enable farmers and suppliers to better understand and meet CDM’s expectations for quality, quantity and smallholder impact, and provide an evidence base of CDM’s impact.
Reducing risks for smallholders
While participating in commercial supply chains presents new opportunities for smallholders, it also creates new risks--for example, failure to meet company specifications for reasons outside of the farmer’s control, such as climate-related factors. This can serve to disincentivize farmer participation in these markets, so reducing risks is also a business imperative for companies. At NBL, increased access to financial services was seen as an important way to insulate farmers from risks related to weather and crop disease. At CDM, which is the only significant formal-sector cassava buyer in Mozambique, the lack of diversified markets for the crop was considered a risk to both farmers and the company. CDM and TechnoServe, therefore, identified opportunities for the company to support the development of additional market channels by contributing to industry platforms.
Replicating improvements to mature value chains
This partnership has highlighted a number of important learnings for SABMiller / AB InBev’s subsidiaries and other companies sourcing from smallholders:
- Integrating local smallholder sourcing as a core part of emerging market business strategy can unlock significant commercial and social value – doing so requires strong leadership and cross-functional engagement from many parts of the business;
- Developing a concrete business case for local smallholder sourcing initiatives helps to bring in internal stakeholders and facilitate required investments;
- Systematic data collection from local supply chains is key to enhancing value;
- Initiatives to improve smallholder livelihoods should aim to reduce farmers’ risk, as well as increase their incomes; and
- Improvements to local supply chains can be made by corporates even when they do not source directly from smallholders by adopting an “ecosystem” approach and working in partnership with governments and civil society organizations
The full case study was prepared as part of the TechnoServe Initiative for Inclusive Agricultural Business Models and is available here.
Thanks Urvi and Samantha for sharing this interesting story about inclusive supply chains. From your experiences, it seems that supply chains of large corporations, and possibly small and medium enterprises (SMEs) can indeed accommodate smallholder suppliers. My question is how many of them are included? What are the contractual arrangement for facilitating these supply chain? Does these arrangements include community based processing enterprises? and it seems (from my experiences working in Cassava and other agricultural commodities) that success is hard to achieve (on inclusive supply chains), then what are the factors that can guarantee success in your case?