RESEARCH on beer in sub-Saharan Africa (SSA) shows that consumption mostly consists of homebrews given that commercial alcoholic beverages are unaffordable.

It is also estimated that the volumes of home brewed alcohol in SSA are about four times the size of the clear beer (lager) market. Homebrews are mostly made from fermented fruits, vegetables or grains and are sold at about USD50c/l or less.

While homebrews are much cheaper than commercial beer, consumption is considered unhealthy.

at said, commercial beverages are still considered a luxury for the African consumer. Estimates show that a beer costs three hours of work on average in SSA compared to five minutes of work in the United States (US) or eight minutes in Eastern Europe. is is partly due to differences in employment and salary levels across the different regions. is observation implies that there is indeed a massive opportunity for SSA brewers to tap into the homebrew market in Africa through affordable beer such as sorghum or opaque beer.

Piggy notes that SSA brewers have had to develop several strategies to find cheaper ways to produce affordable beer at good margins.

is has entailed (i) local sourcing initiatives and (ii) substitution of barley with endemic crops such as sorghum or cassava.

Due to the large reliance on imported raw materials (particularly barley) and packaging, brewers have engaged significant efforts in developing local sourcing for grains and packaging.

Barley, which is the key ingredient in beer brewing, is not a traditional crop in most SSA countries (except Ethiopia) as it grows best in temperate climates.

Some areas in East and Southern Africa offer conditions where barley can grow at acceptable yields.

e absence of industrial farming in the region has been a key hindrance to the development of local farming. Brewers have invested in supporting and training a large population of small-scale farmers to grow barley.

Kenya, Tanzania, Zambia, Zimbabwe and Uganda now grow large barley crops, mostly through outgrower programmes.

Endemic crops, such as sorghum or cassava are much cheaper to grow than barley.

ey require less water, monitoring and training of outgrowers.

Brewers have developed beer using endemic crops and the first launched was Eagle Lager, introduced in Uganda by SABMiller (now AB InBev) in 2004.

is beer has grown very fast in the whole southern and eastern African region. Furthermore, SABMiller started brewing lager with cassava starch in 2011. It then launched a cassava-based lager in Mozambique branded Impala.

Growing cassava is even less expensive than sorghum and hundreds of millions of farmers in SSA can grow cassava. However, cassava has limited industrial applications as its supply chain is very complicated. e crop deteriorates very fast after harvest and has a high water content (it is a tuber not grain) and is therefore unsuitable for long distance transport.

It cannot be stored after harvest and is expensive to transport from the field to the brewery. Cervejas de Mocambique (ABInBev Mozambican subsidiary) and an NGO then developed an on-site processing unit that can transport the starch to the brewery and save costs.

Impala also received a tax duty cut and could be sold about 20-30% cheaper than mainstream lager.

It is worth highlighting that Delta Corporation’s sorghum business has seen phenomenal volumes-growth during economic downturns. Further, the “Chibuku” brand has remained a market leader in that category particularly in rural areas where the main economic activities are smallscale mining and subsistence farming.

Delta has taken this business a step further through the acquisition of Natbrew in Zambia and United National Breweries in

South Africa. e South African operations have taken off and there is huge potential in the niche opaque beer market. e easing of lockdown restrictions has underpinned Delta’s volumes recovery across all its units.

is has been complemented by growing USD sales, which have alleviated several production-related constraints, priming the business for sustained recovery visa-vis emerging global risks. Delta continues to ride on its extensive inflation passthrough ability.

We expect margins to strengthen in the short-term because of consistent production and increased sales volumes. e stock is trading on an undemanding Fwd PER of 5,1x. BUY!

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