APPROACH AND METHODOLOGY
Heineken works together with specialist NGO partners, like EUCORD and Winrock International. These NGOs have technical agricultural competence, project management experience and know how to organize and train smallholder farmers. Heineken makes funds available to these NGOs and guarantees the market for selected grains.
The training approach differs per country/market and per crop, but in general, all projects share the same objectives: to increase agricultural sector productivity and profitability, to increase the agricultural quality and to limit the countries' and thereby Heinekens' dependency on imported products.
The following activities are examples of intervention that help reach the general objective of building local competitive supply chains:
A. Increasing agricultural sector productivity and profitability:
1. Recruitment and training of field extension agents
The first step in the process is to recruit potential agents. These are lead farmers or local facilitators who locally organized farmer groups and serve as liaison between the project and the farmer communities. Once those are found they enter a training process that will train them to becoming village extension agents. The training involves:
(a) Good agricultural practices through demonstration plots and farm field days
(b) Training in meeting quality requirements and good post-harvest treatment (including storage)
(c) Facilitation in commodity collection and transport
2. Conduct on-farm demonstrations on improved sorghum production practices
In the next step, the village extension agents give on-farm training and demonstrations on how to best grow sorghum. Together with the farmers, they discuss and demonstrate best practices, and most productive agricultural practices to participating farmers. In some countries this approach is referred to as Farmer Field Schools.
3. Improve access to agricultural inputs (e.g. seeds, fertilizers and credit)
- Three way agreement between credit provider (Bank or MFI), brewery and farmer groups
- Project (or Brewery) arrange for the multiplication and distribution of improved seeds. The cost of these seeds (sometimes augmented by fertilizers costs) is charged to the account of the farmers. At the end of time of sale the - Brewery pays the farmer groups via the credit provider in order to assure timely repayment of the credit.
B. Limit dependency on imported products:
1. Facilitation of contracts and/or memoranda of understanding with commercial and social partners
For example the credit arrangement described above which also involves seed multipliers and fertilizer providers. Local NGOs may participate and assist in the training activities.
2. Organizing collection points and identifying reliable intermediate service providers
The cost of transactions is always a huge problem of small farmers. Therefore they need organizing in one way or another. It is always very important to minimize the cost of commodity collection and transport. The first step is for farmers to determine where they will collect their bags in order for long distance transporters to minimize the number of stops they have to make before hauling their trucks to the delivery point (brewery)
3. As described above, the NGO's train farmers and organize them into groups in order to reduce transaction costs. Heineken does not buy from individual farmers; as such process would be too costly. By following these training courses and information sessions, farmers can start growing their new crops, with the security of fixed prices. The contracts between the Heineken and the farmers provide security to the banks to lend short-term credits to the farmers.
IMPLEMENTATION, TIMELINE, AND DELIVERABLES
By 2020, Heineken wants to have increased the level of local sourcing needed to produce their local beer up to 60% in their African markets. They are now around 48%, so they are aiming at a 2% growth per year. In order to meet that objective, they need to invest in agricultural knowledge and projects. The harvests that Heineken focuses on are barley, sorghum, rice and maize, depending on the country and need.
The percentage is measured by at the one hand looking at the total spending on raw materials that are used to produce the African beer brands. On that total spending on raw materials, at least 60% needs to be locally grown/produced on the African continent.
At the other hand, to avoid discrepancies in measurements, which might arise because of fluctuating prices for raw materials and volatile changes currencies Heineken measures the percentage in tonnages.
African agriculture is caught in a vicious circle of low inputs and low productivity. This is especially true for food crops. Food producers in turn are caught in a subsistence production trap. The lack of a commercial market for these crops encourages farmers to maintain a subsistence level of technology and production.
Yet the development of a commercial market is greatly discouraged by the lack of a consistent marketable surplus. The lack of a reliable market for the commodities provides the farmers little or no incentives to buy inputs such as improved seeds and fertilizers. Consequently these inputs are generally not available in rural areas. As with cash crops like cotton, coffee and tobacco, markets are most likely to be built on the foundation of a demand for the product.
Traders and grain processors first need to contribute to the improvement of food crop production incentives. Farmers will then respond by shifting resources to expand production of these crops. Heineken is a major agro-processor in Africa. The key question is if Heineken is willing to source their raw materials locally and thereby providing a reliable local market for food crops such as sorghum, maize and rice or if the company will continue purchasing and importing their raw material from abroad at generally cheaper prices and without unwelcome quality variations.
Heineken recently committed to a strategy of local procurement. Through partnerships with international NGOs Heineken seeks to use its commitment as a tool to actively improve the agricultural productivity in the country where the company has subsidiaries. Its objective is to make the agricultural sector more competitive in order to lower the cost prices of local grains - both as source for the agro-processing industry as well as source for local food consumption. Higher yields and lower local grain prices are the common interests of Heineken and national food security policy makers.
By working together with NGO's Heineken is leveraging their agricultural experience and capacity to train and organize smallholder farmers in order to integrate as many rural families in their supply chain as possible.
Heineken is working to establishing two new projects. In South Africa, to develop barley growing with emerging RSA farmers and have applied for PPP grant funding from the NL Government's 2014 FDOV call, a decision expected in April/May 2015. In DRC, it is seeking commercial partners from the Sugar cane sector to develop local production.
