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Grain SA charges that AB InBev has contravened one of the conditions set in its acquisition of rival beer maker SABMiller.
Grain SA charges that AB InBev has contravened one of the conditions set in its acquisition of rival beer maker SABMiller.

Barley farmers cry foul over new AB InBev prices

LIQUOR NEWS

BusinessLive - May 9th 2018, 08:54

Grain SA charges that AB InBev has contravened one of the conditions set in its acquisition of rival beer maker SABMiller. 

Farmers have filed a complaint with the Competition Commission about Anheuser-Busch InBev’s (AB InBev’s) decision to change its pricing formula for buying malt barley, a key ingredient in beer making.

Grain SA says AB InBev, the world’s biggest brewer, has contravened one of the conditions set when the country’s Competition Tribunal approved its $106bn acquisition of rival beer maker SABMiller.

"We are aware of the complaint lodged by Grain SA and have formally responded to the Competition Commission," said AB InBev Africa spokeswoman Robyn Chalmers. "We have, at all times, conducted our operations in compliance with the conditions imposed by the Competition Tribunal."

In a letter to barley farmers, AB InBev said it was changing what it would pay for the 2018 crop to 97% of the price for top grade wheat (B1) from 102% of second-tier wheat (B2).

"We are of the opinion that they are not sticking to what was agreed at the tribunal," said Grain SA CEO Jannie de Villiers.

'Competition issue'

"AB InBev has refused to engage any further. The Competition Commission is the only avenue we can use. As the biggest buyer of barley, this a competition issue."

In the final approval for AB InBev’s acquisition, the tribunal said the merged entity had to comply with the terms and conditions of SABMiller’s existing supply agreements.

Farmers worry that the new formula will leave them worse off. On May 7, B1 wheat cost R3,910 a tonne and B2 cost R3,814, taking into account a fixed discount of R96 a tonne this season. That would mean the price of barley would be about R100 a tonne lower under the new formula.

AB InBev said in its letter dated November 8, 2017, that the new formula ensured the average gross margin for malting barley was competitive versus wheat in all of the South African growing regions. It said it would review the crop pricing formula and the volume of barley it would buy in SA every year.

"We believe AB InBev is in contravention of one of the conditions set by the Competition Tribunal when they approved the merger with SAB," said one farmer, who declined to be named.

AB InBev, which sells local brands such as Castle Lager in SA as well as pricier international brands including Budweiser and Corona, buys 85% to 90% of the malted barley grown in the country.

The Competition Commission investigates cases before deciding whether to refer them to the tribunal for adjudication.

Commission spokesman Sipho Ngwema confirmed that the farmers had written to the watchdog complaining about AB InBev’s new pricing formula.

"We are interacting with Grain SA about this issue. No decision has been made about the merits of the complaint. That’s all I can tell you at the moment," said Ngwema.

The pricing formula AB InBev wants to change was set by SABMiller in 2009. Previously, the barley price was set each year but farmers found it difficult to plan production and mitigate risk. So, in 2009, barley prices were tied to the price of wheat futures on the JSE.

As part of the merger approval, AB InBev agreed to increase the amount of barley it buys in SA to 475,000 tonnes from the 415,000 it hopes to get in 2018.

The brewer said that meant the industry would have to increase production in drier regions and the new pricing formula rebalanced the competitive position of barley versus wheat in all growing regions.

South African farmers are expected to have harvested about 300,000 tonnes of barley in 2017. When there have been shortfalls, SA has imported barley from countries such as Australia and Canada.

"Our goal is to ensure that beyond 2021, SA remains self-sufficient in malting barley production through establishing a competitive, robust and thriving local malting barley industry," AB InBev said in the letter.

With operations in more than 20 countries and output of more than 600-million hectolitres, AB InBev is among the world’s biggest buyers of barley.

Reuters 

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