Farmers miffed by Megabrew deal

BREWING giants AnheuserBusch InBev and SABMiller will probably have to agree to further concessions in their quest to get the stamp of approval from South African regulators for their proposed merger.

Topping the list is what they would have to pay local farmers for barley. The price to be paid to the 3 500 barley farmers in the southern Cape after the merger was debated before the Competition Tribunal this week.

Farming body Grain SA presented the issue during the three-day hearing, citing the industry’s fears that the merged entity, dubbed Megabrew, would replace local barley with cheaper imports.

This would cause problems to the industry, because SABMiller was its sole customer, Grain SA said. Barley is used to produce malt — a key ingredient in beer.

At present, Africa’s largest brewer buys barley from Grain SA farmers at a price closely related to that of wheat on the South African Futures Exchange.

That agreement, which has been in place for several years, was intended to bring price certainty to the industry and was part of SABMiller’s plan to grow its local malting capacity.

However, the conditions tabled by Megabrew for the tribunal’s consideration suggested that the pricing agreement would fall away once the merger was approved.

Grain SA CEO Jannie de Villiers asked the tribunal to order that the merged entity buy barley from local farmers for at least another three years.

He said farmers had been rattled by the local beer-maker’s recent removal of certain premiums it paid farmers that produced high-quality barley.

But counsel for SABMiller and AB InBev argued that this was done after wheat prices surged to record highs because of the drought.

The wheat import tariff had also risen to a record R1 224.31 a ton, compounding pressures related to the weak rand.

They said that if the pricing formula remained in place, their cost base would be hit: competitors such as Heineken would be able to compete on better pricing.

But the tribunal did not accept this response, saying that the concerns raised by Grain SA had not been without foundation.

“This [pricing arrangement] has been the industry practice [for years]. Why object now?” said tribunal chairman Norman Manoim.

The tribunal also cited concerns that the merged entity would have greater financial muscle to access cheaper imports globally.

Similar procurement concerns were also raised by the Black Business Forum (BBF).

It said SABMiller had historically bought from white suppliers, and it feared this would continue on a larger scale once the two brewers had united. BBF chairman Tshidiso Mokhoanatse asked the tribunal to impose the condition that black emerging farmers and black commercial farmers

Competitors would be able to compete on better pricing

be given greater inclusion in the merged entities’ procurement processes.

AB InBev and SABMiller have already agreed to revisit the contentious issue regarding SABMiller’s Zenzele broadbased BEE scheme.

Negotiations with the Food and Allied Workers Union are due to take place in about two weeks.

The union is calling for an early termination of the scheme, which matures in 2020, or that its 9 000 beneficiaries each receive a one-off payment of R165 000 each.

Fawu secretary-general Katishi Masemola said this was not a big ask and should be considered in light of the total $2.1-billion (about R31.6-billion) that SABMiller’s 1 700 senior managers and executives stand to receive once the merger is approved.

The union has threatened legal action if its conditions are not met.

So far, the transaction has been approved by the EU, with conditions. South Africa, the US and China have yet to sign off on the deal.