Stakeholders say beer tax making Kenya's sorghum farmers poor

MWINGI, Kenya- Lazarus Mutunga, a farmer in Mwingi area of Kitui County in eastern Kenya invested heavily after embracing sorghum farming from the maize growing he had been accustomed to for decades.

Mutunga started the venture three years ago after regional brewing giant East African Breweries Ltd (EABL) began buying the Gaddam sorghum -- a white variety suitable for making beer, thus guaranteeing a ready market for his produce.

Mutunga obtained a bank loan to convert his entire farm into a sorghum plantation, hoping to cash in on the expected fortunes as demand for the grain grew rapidly.  The interest shown by EABL sparked an instant 500 percent price surge from the low of 5 shillings (0.056 U.S. dollars) per kilo to an unprecedented high of 27 shillings (0.30 dollars) per kilo, with the brewer paying farmers instantly for their deliveries.

During the first season, the farmer harvested 28 bags of the grain on the 3 acres he had set aside for sorghum. This earned him 765 dollars, an amount he had not realized in the many years of growing other low-yielding crops.

"In the first season, I realized a bumper yield of 10 bags per acre even without using of farm inputs like fertilizers, and this encouraged me to increase my sorghum acreage," the 61-year-old farmer said in an interview with Xinhua on Friday. This prompted Mutunga to abandon growing maize and dedicated his entire farm to the new found cash crop, which was earning him enough money for his family upkeep and other needs.

The big sorghum switch was meant to promote locally produced raw materials while encouraging consumers of illicit brews to switch to hygienically prepared beer. However, the venture that has adequately rewarded thousands of farmers in arid regions since 2010 is suddenly under threat of collapsing after the government imposed a 50 percent excise duty on all sorghum related beers. he duty, which stakeholders are describing as "punitive and retrogressive", took effect after the implementation of the Finance Act 2013. This is besides 16 percent VAT that all beers attract.

Like more than 100,000 other smallholder farmers in arid areas who enjoyed a guaranteed market, Mutunga's fate hangs in the balance after the EABL warned that it may not renew contracts. Experts and leaders warn that the tax will gravely affect farmer incomes, nutrition and food security while destroying the sorghum value chain from production to marketing to processing that had registered rapid growth.

According to Lawrence Maina, the General Manager of East Africa Malting Limited (EAML), the introduction of this tax raised the prices of 300 ml glass of Keg brand from 30 shillings (0.34 dollars)  to 45-50 shillings (0.50-0.56 dollars) as the burden was passed on to consumers. "This tax caused a 75 percent drop in sales, reducing the brewer's sorghum use to only 2500 metric tons per month and shutting down production shift from 7 days to 3 days a week," Maina said.

An analysis on the implications of the tax done by Joseph Opiyo of Egerton University's Tegemeo Institute has established that the move is flawed as it destroys demand hence affecting supply.  "Imposing a 50 percent tax is too sudden, too high. The policy is retrogressive and works against the Millennium Development Goal number one, which requires countries to achieve food security by 2015," Opiyo said. Opiyo said promotion of sorghum was not based only on concern for poor farmers but also its contribution to national economic growth; and therefore policies should instead give subsidies and incentives to spur agricultural growth

Dr Stephen Were, a public policy analyst said the poorly thought of huge tax disregards basic economic sense and is watering down all the gains made in the last four years.   "The government hoped to raise 68 million dollars annually in tax revenues through the excise duty but this will instead stifle production and kill the markets," Were told a value chain stakeholders forum in Nairobi last week, adding this excise duty should be scrapped because the government will get a lot more by taxing not just a brand but spreading along the whole value chain.

Former Vice President Kalonzo Musyoka questioned the fiscal logic of taxing locally produced raw materials instead of discouraging the importation of barley and other grains to empower farmers and spur economic growth.

National Assembly Minority Leader Francis Nyenze urged Treasury to scrap the tax, saying millions of poor Kenyans will go back to drinking unsafe illicit brews because they cannot afford expensive beers. "A lot of effort has gone into promoting sorghum growing, we won't allow the government to destroy the lifeline of millions of farmers," he said.