EABL cuts raw material purchases from farmers by 71 per cent

The East African Breweries Limited (EABL) says it will reduce its purchase of raw material from farmers in the upcoming season by 71 per cent in response to a weak demand for its products.

EABL Group Corporate Relations Director Eric Kiniti told Citizen Digital its purchases of sorghum and barley from contracted farmers will decline to 10,000 and 12,000 tons respectively from a combined 77,000 tons last year.

The shrinkage in orders is largely attributable to the closure of bars and the public sale of alcohol as part of COVID-19 containment measures, a factor which has cut demand for its products.

“The government’s COVID-19 containment measures have included the closure of on-trade outlets (bars, pubs and restaurants) where most of KBL’s beers made from barley and sorghum are consumed. This has in turn reduced our demand for barley and sorghum in this planting season, and our field extension team contacted our registered farmers to notify them on this development,” the brewer noted in a press statement.

Lower orders for the essential raw materials are expected to impact the livelihoods of farmers in the EABL value chain which the firm estimates at 60,000 in its 2020 annual report.

Eric Kiniti however says the firm will endeavour to retain its supplies from small-holder farmers as it currently holds discussions with the players.

“Small-holder farmers are the most impacted by the decision unlike the large commercial farmers who can easily switch to the production of a different commodity,” he said.

The closure of bars in March saw EABL overall sales decline by 9 per cent with a 10 per cent first half growth wiped out by a 29 per cent second half decline which left the company’s earnings down 39 per cent at Ksh.7 billion.

EABL has taken a conservative approach to new investments and cash use as it seeks to weather the COVID-19 storm.

The company says it has further suspended environmental investments which include solar energy, biomass and water recovery as a means to manage costs and liquidity.

Spending into advertising and promotions (A&P) was the first to take a cut in light of business risks posed by the pandemic.

“Our market teams re-organized their plans to help us emerge stronger from the crisis and continued to execute with discipline and invest prudently to ensure we are strongly positioned for a recovery in consumer demand,” EABL noted in its annual report.

The company is presently reliant on e-commerce and non traditional channels such as cash and carry Wines & Spirits and supermarkets to keep sales going.

Subsequently the company has made available the majority of its drinks in cans to mirror the shift in consumption patterns away from joints to homesteads.

EABL estimates its contribution to the local economy at one per cent of GDP or an equivalent Ksh.100 billion in a value chain which further supports 110,000 retailers according to the company estimates.