The value chain for sorghum beer in Kenya. Socioeconomics Discussion Paper Series 16

Abstract

This discussion paper analyses the value chain for sorghum beer in Kenya, from growing Gadam sorghum to the production and retailing of Senator Keg. The business model developed by Smart Logistics Solutions Ltd. was used to analyze social inclusion in the value chain. A stratified random sample of 300 members and non-members of Smart Logistics groups in eastern Kenya was sampled in the main growing season for sorghum in 2012-2013. Based on interviews with major actors, the Value Links methodology was used to map the value chain and quantify value addition at different stages of the value chain. Analysis of value addition showed that growers received 4 % of the retail price of sorghum beer, Smart Logistics 1 %, EABL 81 %, Senator keg distributors 5 % and Senator keg retailers 9 %. No information was available on intermediate costs or value added for sorghum brewing. Profitability for Smart Logistics depended on volume while, following the imposition of excise duty in 2013, profitability for retailers was negative. The average member of a Smart Logistics group planted 1.71 acres to sorghum and harvested 483 kg per household of which 305 kg (63 %) was sold. Shortage of land, shortage of labour, and low profitability were reported as the most important constraints on sorghum production. Bird-scaring and threshing were the two most important labour constraints. Ninety percent of group members sold their sorghum to Smart Logistics. The main complaint by members was the time spent waiting for payment. The average time waiting for payment was 4.5 weeks. Only 5 % of growers were paid within the 1-week target set by Smart Logistics. On average, members selling to a Smart Logistics collection centre in 2012 sold 342 kg of sorghum at a price of 25 KES/kg, earning KES 8,550 from sorghum sales. Most income from sorghum was invested in children’s education. Members of Smart Logistics groups spent an average of KES 32,000 on education per year, of which KES 18,000 went on university education. Income from sorghum (KES 8,550) was equivalent to one quarter of annual investment in education. A significantly higher share (83%) of the members of Smart Logistics groups reported an improvement in their economic position since 2009 compared to non-members (70%).Members of Smart Logistics groups were significantly more likely to be headed by women, have high dependency ratios, and own less land per adult family member. Membership was not significantly related to income per head. The main reason given by non-members for not joining a Smart Logistics group was that they did not have time to attend group meetings and meetings at demonstration plots. The price of sorghum beer depends on the level of excise duty. From 2004 Senator Keg enjoyed zero excise duty, making it competitive with illegal brews. As a result, Senator Keg became EABL’s best-selling beer by volume. However, a sharp rise in public expenditure and domestic debt has increased the need for government to raise tax revenues. Following imposition of a 50 % excise duty in 2013, sales of Senator keg have fallen by an estimated 80 %. In the long-term, the future of sorghum beer in Kenya depends on growth in income per head. In the short term, it depends on lower excise duty to make it more affordable for low-income consumers