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BARLEYReport
Grappling with price risks in South Africa’s barley industry
by Shem Oirere, Freelance Journalist
or many decades South Africa has recorded a deficit in its barley production volumes, despite government projections of an increase in area under production by 16.2 percent to 106,150ha. Minimising the barley production deficit in South Africa would require an improvement in the quality of the produce to ensure more sales to the country’s new beer brewing monopoly, Belgian-based multinational beverage and brewing holdings company, Anheuser-Busch InBev (AB InBev). In addition to the unpredictable weather in the primary barleygrowing areas of Northern Cape, Southern Cape and the North West Province, which have recently produced devastated cereal crops with record yield reductions, concerns have also been raised by the country’s grain producers on the likely impact on production of a review of the barley pricing structure by AB InBev. These concerns came to public attention in May 2018, when the local farmers voiced their concerns over the adverse impact of AB InBev’s proposal to review the nine-year-old barley pricing structure that has been tied to the wheat futures, at the Johannesburg Stock Exchange (JSE). Before the merger with SABMiller in South Africa, AB InBev was supplying beer products, such as Corona Extra, Stella Artois, Beck’s Blue and Budweiser brands, largely imported and distributed via DGB (Pty) Ltd (DGB), a global distributor of alcoholic products. A reviewed pricing structure for the 2008 barley crop, according to Pretoria-based Grain SA, a non-profit organisation that champions interests of grain producers of South Africa, would 66 | October 2018 - Milling and Grain
result in farmers earning less than initially projected. The grain farmers’ lobby has sought for the intervention of South Africa’s Competition Commission after AB InBev’s new pricing structure resulted in barley growers being paid 97 percent of the price for top grade wheat (B1) for the 2008 crop, down from the 102 percent of second tier wheat (B2). SABMiller had linked the price of malting barley to the wheat futures price at the South African Futures Exchange (Safex), a futures exchange subsidiary of Johannesburg Stock Exchange Limited, exposing the barley producers to a huge price risk. “We are of the opinion that they (AB InBev) are not sticking to what was agreed at the Tribunal,” said Jannie de Villiers, chief executive of Grain SA told media in South Africa in mid 2018. “AB InBev has refused to engage any further. The Competition Commission is the only avenue we can use. As the biggest buyer of barley, this a competition issue,” he said. Grain SA is invoking a section in the AB InBev/SABMiller agreement under which the former committed, “to source its inputs from local suppliers and comply with the terms and conditions of SABMiller’s existing supply agreements.” In 2016, South Africa, one of the top barley producers in Africa alongside Morocco, Tunisia, Algeria, Egypt. Kenya, Zambia, Zimbabwe and Libya, produced an estimated 354,000 tons of barley although the country’s department of agriculture and forestry says the production was less than the national consumption estimates. “Barley in South Africa is produced only for malting purposes where there is only one buyer - AB InBev and farmers consider it too dangerous to participate in such a market, as they are aware that failure to meet AB InBev quality requirements would mean no or narrow market for their produce,” the department adds in its 2017 ‘Profile of the South African Barley Market Value Chain.”