Farmers abandon sorghum as beer tax shrinks market

Kenya: When the number of sorghum farmers increased in Lower Yatta, Kitui County, about four years ago due to overwhelming demand for the crop, Silas Mutinda saw an opportunity that knocks only once.

He borrowed money from a local bank and bought a sorghum threshing machine.

The idea was to thresh the crop for farmers who were struggling to process thousands of tonnes of sorghum in good time for the market.

He imported the machine at the cost of Sh3 million and for some time drew a steady income from the high demand for his services.

“I had employed 10 people to help with the work, and I paid them about Sh300 a day,” he said.

But then things took an unexpected turn for the worse in 2013.

“They are all jobless now because sorghum is not being grown here any more since East African Breweries Ltd [EABL] no longer buys the crop,” said Mr Mutinda.

His million-shilling threshing equipment now lies idle under a large polythene bag.

“I am worried; Sh3 million is a lot of money to waste on a big machine like this.

“We are told the brewer stopped buying sorghum because of a tax problem with the Government, but we are not sure. Which Government allows its people to suffer because of a misunderstanding over tax?”

Stranded with harvest

Another farmer, Mutiso Kaloki, uprooted sorghum from his farm and now grows other crops, though he is not sure they will do as well in his dry part of Kitui. He said he would never grow sorghum again because of the losses he has been saddled with.

“The Government sent its officers here to convince us to grow sorghum, but just when the project was beginning to pick up, we started experiencing problems,” Mr Kaloki said.

“EABL has stopped buying from us and several people in Mwingi and Kitui are stranded with their produce. We don’t know what to do.”

He is not sure what caused the problem, but suspects it is because the region largely voted for the Opposition.

Farmers in Kitui and Mwingi are among an estimated 60,000 spread across areas such as Tharaka Nithi, Meru, Homa Bay, Kisumu and Siaya who were contracted by the brewer to grow sorghum for the manufacture of Senator Keg beer.

 

The product launched in the market in 2004, but today, they find themselves stranded with thousands of tonnes of the crop after the Government levied a 50 per cent tax on Keg, which raised prices of the beer. Subsequently, sales dipped dramatically.

Before the State-led campaign to boost sorghum growing, lack of market for the crop had seen sorghum production in Kenya drop from 220 metric tonnes per year in 1980 to 130 metric tonnes in 2009.

Treasury Cabinet Secretary Henry Rotich told Business Beat the Government is aware of the problems in the sector and has been holding discussions with all stakeholders to find a solution “that we hope will benefit everyone”.

In an interview with Rich Management CEO Aly-Khan Satchu two weeks ago, EABL Group Managing Director Charles Ireland said the introduction of the tax on Keg “destroyed value” for farmers, distributors, retailers and consumers.

When Keg was introduced, it retailed at between Sh21 and Sh25 a mug. After introduction of the tax — which was intended to raise Sh6.2 billion in revenue for the Government — costs went up to between Sh40 and Sh45.

“Since the early days of the excise tax, we’ve taken it on ourselves to reduce the price ... the retail price is now Sh30 for a mug,” said Mr Ireland.

But this has not helped revive sales to pre-2013 levels.

Before the levy, Keg contributed 16 per cent of the brewer’s revenue. Now, the product’s contribution is 4 per cent.

“So, with all of that, 10 years of hard work have been unwound,” said Ireland.

Like most sorghum farmers, Joseph Mutiso has dealt with drought, birds that destroy the crop and the uncertainties that come with toiling in the fields.

But his livelihood now faces a more devastating threat — the possibility that the sorghum sector could suffer a crippling economic downturn.

“I think we have to be worried about this in a big way; we are staring at lower incomes,” he said.

 Land value

Kaloki added: “The sorghum glut and lack of market could be very painful for farmers who had taken loans from shylocks and banks, planning to repay them when they sold their produce. I expect things to get worse.”

While farmers are worried about where they will get the money to pay off loans and meet household needs, what is setting off the loudest alarms is the likelihood of a dip in the value of land as demand for it drops.

Farmland is an economic linchpin and accounts for 85 per cent of a typical farmer’s assets. It served as collateral for many of the loans that were borrowed to fund sorghum growing.

“The situation looks grim, but we are hopeful a solution will be found soon,” Mutinda said.

 [email protected]

Related Topics

Farmers Sorghum