• Tuesday, June 25, 2024
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Nigerian brewers double down on local inputs amid FX crunch

Nigerian brewers in a race for survival as macroeconomic pressures, competition bite harder

Nigerian brewers are turning to sorghum in place of barley for brewing beer and malt drinks to reduce their foreign exchange exposure following the FX crisis plaguing Africa’s most populous nation.

BusinessDay learnt that aside from mopping up a larger percentage of available sorghum in the country, the brewers are also directly investing in sorghum cultivation, with some billed for harvest in two to three years. The move is seen helping the beer makers to save millions of dollars they would have spent on the importation of barley malt and concentrate as well as drive down their cost of production.

Joshua Adedeji, chairman of the Sorghum Farmers Association of Nigeria, South-West, said there has been an increase in the demand for sorghum from the brewery industry, especially since the beginning of the year when the FX crisis worsened.

According to Adedeji, Nigeria is presently unable to meet the demand of brewers, noting that some, including the Nigerian Breweries, are heavily investing in backward integration to ensure a sustained supply of the grain.

“Presently, only seven major northern states produce sorghum in large quantities and that has not been able to meet the needs of manufacturing companies that use the crop.”

Data from the country’s foreign trade report shows that barely malt importation declined 52 percent from N178.5 billion in 2019 to N85.5 billion in 2023.

Hans Essaadi, managing director of Nigerian Breweries Plc, at his organisation’s 2023 pre-annual annual media briefing, said NB has continuously expanded its sorghum sourcing areas to new communities.

Consumer analysts, who spoke to BusinessDay, attributed beer manufacturers’ move to increase local sourcing to the mitigation of the impact of FX risks on their businesses and ensure optimal production amid rising costs.

“Brewers are sourcing locally because they have no option as a result of FX volatility and high inflation which creates opportunities for the farmers of the sorghum and other local inputs,” Uchenna Uzo, professor of marketing at Lagos Business School.

A survey by the Manufacturers Association of Nigeria shows that the manufacturing sector’s local raw materials sourcing increased by 7.3 percent year-on-year to 55.3 percent in the first half of 2023 from 48.0 percent recorded in the corresponding half of 2022.

While commenting on the increase, Segun Ajayi-Kadir, the director-general of the Manufacturers Association of Nigeria, said, “The increase in the local raw materials utilisation in the sector during the period is due to increased difficulty in sourcing forex which compelled manufacturers to look more inward for raw materials notwithstanding the associated huge cost.”

Ajayi-Kadir said it was, therefore, important for the government to re-evaluate its role in local development and production of raw materials in terms of funding.

For several years, Nigerian Breweries has been working with the research institute mandated for sorghum to boost the country’s wheat production.

Through its partnership with the Institute for Agricultural Research, Zaria, the SR03H and CSR04H varieties have been developed with high malting properties for sorghum farmers across the country.

Nigeria is the natural habitat for many varieties of sorghum and the world’s second-largest producer and supplier of the crop, churning out 11 million metric tonnes per annum while demand is put at 12.5 million metric tonnes, leaving a gap of 1.5 million metric tonnes, according to data obtained from the Federal Ministry Agriculture.

In a further hunt for local sourcing, experts say Nigerian beer makers can emulate Mozambique, a South-Eastern African country that uses cassava for the production of one of its biggest beer brands known as ‘Impala’.

According to data from the Federal Ministry of Agriculture, Nigeria is the world’s largest cassava grower, and analysts that brewers can look at the possibility of using cassava as their key input.

Also, Budweiser, an American top beer brand, uses rice for its beer production. Brewers in Africa’s most populous nation can turn to rice as a raw material for beer, especially with an increasing number of local rice growers across the country.