SOUTH AFRICA – Barley farmers through Grain SA, the commodity organisation for grain producers have filed a complaint with the Competition Commission on a decision by AB InBev to change its pricing formula for malt barley, a key ingredient in beer making, reported Reuters.
The lobby group accused AB InBev, the world’s largest brewing company by volume of infringing one of the conditions laid down when it acquired its rival SAB Miller in October 2016 for US$100 billion.
The bid received approval from both regulators and shareholders as combination between the two elicited no possibilities of competition in individual markets as they had very little geographical overlap.
But Grain SA said the brewer has failed to stick to the agreement at the tribunal which required the merged entity to comply with the terms and conditions of SABMiller’s existing supply agreements.
AB InBev had earlier notified farmers that 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 aware of the complaint lodged by Grain SA and have formally responded to the Competition Commission,” said AB InBev Africa spokeswoman Robyn Chalmers on Monday.
“We have, at all times, conducted our operations in compliance with the conditions imposed by the Competition Tribunal.”
While farmers said the new formula may lower barley prices, AB InBev had indicated that it ensured average gross margin for malting barley was competitive versus wheat in SA, adding that it will review crop pricing formula and the volume of barley it would buy from the country.
AB InBev sells local brands as Castle Lager; international brands including Budweiser and Corona and buys 85-90% of the malted barley grown in SA.
Based on the article by Reuters, the new pricing index to be adopted by AB InBev was set by SAB Miller in 2009 but didn’t come to fruition, so in 2009, barley prices were tied to the price of wheat futures on the JSE.
During the merger, AB InBev agreed that it will source 475,000 tonnes of barley, a figure up from 415,000 tonnes in 2018.
“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.
2017 forecasts for barley were 30,000 tonnes of barley in 2017, but in times of shortage, the country imports from Australia and Canada.