Business case #1 - Sierra Leone

Sorghum beer: a sustainable brew

In Sierra Leone, a poor post-conflict country, a PPP - which started as a social experiment - has resulted in a sustainable business: brewing. Before 2005, the local subsidiary of Heineken in Sierra Leone, Sierra Leone Breweries Ltd (SLBL), used 100% imported malted barley from Europe. Sorghum was a minor subsistence crop and rarely available on the markets. Facing a rising cost of barley, Sierra Leone Brewery is now the supporting local production of sorghum, and is buying the grain directly from farmers. Substituting the imported malted barley with more of the local sorghum is bringing money in the pockets of both farmer and brewer.

Sorghum is used in brewing the beer that is consumed at many African weddings. But until recently, it has not been the grain of choice for international breweries such as Heineken International, a Dutch company, and the third largest brewery in the world. In all the 170 beers that Heineken produces and sells for national and international markets, the key ingredient is malted barley. However, in Nigeria, Ghana and Sierra Leone, barley is now being supplemented by sorghum.

Locally produced sorghum shortens the supply chain and diversifies the sourcing of raw materials, both beneficial to local farmers and SLBL. Reducing grain imports leads to savings of scarce foreign currency for Sierra Leone. More importantly however, hundreds of local smallholder farmers in Sierra Leone now have a cash income. This all hopefully leads to the creation of solid relationships and trust between all stakeholders in the new supply chain.

The five-year project in Sierra Leone began as a corporate social responsibility initiative, with Heineken supporting farmers to grow the high quality sorghum required for brewing. Linking up with the European Co-operative for Rural Development (EUCORD), funding was provided by the Common Fund for Commodities (CFC), as well as by Heineken on a 1:1 basis.

Since 2006, EUCORD has trained farmers and organised them into groups, as the drinks company does not buy from individual farmers. Heineken has supported the supply of inputs at discounted rates and bought the sorghum produced at a guaranteed price. During the pilot phase in 2005, the Sierra Leone Brewery Limited (SLBL), bought local sorghum from 1,500 farm families, who delivered their grain to central collecting points. Since then, the project has expanded across the country and the number of farmers involved has more than doubled.

In collaboration with the Sierra Leone Agricultural Research Institute (SLARI) the project introduced best agricultural practices among farmers networked into the new supply chain. A key intervention has been the identification and training of nucleus farmers who have organized the collection of sorghum from village-level farmer groups. The majority of these nucleus farmers are females. Presently these nucleus famers are arranging the long-distance transport from the provincial capitals to SLBL by themselves. Two important interventions were (a) the facilitation of credit for nucleus farmers in order to pay cash to smallholder farmers; and (b) micro-credit to farmer groups in order to provide assistance during the growing season when food and cash resources are very scarce. As the delivery contracts with the processing companies maximize the probability of cash earnings among farmers, financial institutions have proven to be willing to provide short-term credit for the purchase of improved seed and fertilizers.

Sierra Leone's sorghum farmers have been benefiting from the Heineken and EUCORD partnership. Already hundreds of thousands of dollars worth of grain have been bought, and as farmers realise that the market for sorghum is secure, more and more are planting the crop. Profits are leading to investment, with one farmer group planning to buy a cleaning facility for their grain.

At the end of the five-year project, the partners believe the sorghum supply chain in Sierra Leone will be sustainable. Indeed Cor Honkoop, general manager of SLBL, reports that some of the farmer cooperatives are already self-sustaining and no longer require seeds on loan. Within the next two-to-three years, he expects most groups to be self-sufficient.

In less than three years, the economic impacts of the project have been impressive. Almost a quarter of Sierra Leone's population is defined as food-poor, surviving on less than US$0.35 per day. For farmers involved in the project, receiving up to US$15 per 50kg bag of sorghum, has brought about significant improvements in livelihoods. In 2005-6, the 1,500 families involved in the project received a total of US$210,000 for their sorghum. Because farmers spend most of this additional income, the payments have an even larger impact on local economies. A recent study showed that the average dollar paid to a small farmer changes hands five times a year.

For Cor Honkoop, these figures are particularly encouraging, as they indicate that wealth is being transferred from the non-poor, who buy the beer, to the food-poor who have an opportunity to improve their lives. And he admits that SLBL is also benefiting, particularly as the cost of imported malted barley has recently doubled. Malted barley is still an important constituent of its beers, but with local sorghum now providing a greater proportion of the grain used, the company is looking to expand its activities into other sorghum-producing countries, including Rwanda, Burundi and the Democratic Republic of Congo.

Due to the success of substituting barley imports with locally grown crops, Heineken has adopted an Africa-wide strategy to procure at least 60 per cent of their raw materials from local sources. In 2010 Heineken received the World Business Development Award from the UNDP and the International Chamber of Commerce in New York for its groundbreaking sustainable local supply chain initiative in Sierra Leone. Key to the success of this project is a demand-led approach and the identification of stakeholders in the value chain that directly trade with consumer groups. It has the advantage of a shorter supply chain, diversification of sources and hence reducing risk, the saving of scarce foreign currencies and the stimulation of the local economy.