Examination of Witnesses (Questions 307
- 319)
TUESDAY 9 MAY 2006
MS SUE
CLARK AND
MR WALTER
GIBSON
Q307 Chairman: Thank you both very
much. You have heard what we have been talking about but you are
actually practitioners in the field, as it were, and can perhaps
give us some practical examples. One of the things, just taking
up Ann's final shot, is that in many of the poor countries by
definition your customers are poor people with limited incomes,
yet the key is how to find enough of a market there and to grow
it. I suppose the question that then arises is how can a multinational
company that is operating in big markets and big figures operate
at a level that actually develops a market from the kind of people
who are living at the bottom end of the economic scale. The experience
you have had of doing that may well help us find other ways of
growing those markets to the point where they become less poor
people and, by definition, more attractive markets. Perhaps Sue
Clark might start.
Ms Clark: Thank you very much
and thank you for inviting me along today. I am here in my capacity
of Corporate Affairs Director for SABMiller and in that capacity
I sit on our business boards in India and Africa. I am also wearing
the hat of the current chair of Business Action for Africa who
have submitted evidence to the inquiry. Just a word about SABMiller,
we are one of the largest global brewers of beer and bottlers
of Coca-Cola. We operate in about 60 countries and about 80% of
our earnings comes from developing economies. We were founded
in South Africa in the late 1800s and we now operate in 29 countries
across Africa; in fact, Africa provides about 40% of our overall
group earnings. We employ about 14,000 people and I guess with
the multiplier effect that is about 150,000 people through the
indirect supply chains that we operate. One of the things to stress
is that our business is about brewing beer and bottling soft drinks
for local consumption, so it goes right to the heart of what we
were saying about how do we develop those markets with essentially
poor people. There are essentially three things to say at the
outset. One is that we very much believe, as has been discussed
this morning, that successful, profitable businesses are the real
engine for growth and the real key to lifting people out of poverty.
As we have heard this morning and we would concur, and I would
like to share some examples with you, utilising and leveraging
our value chains, both downstream at the supply end and upstream
at the distribution end, are clearly very important and, as we
have found, partnerships are really the most effective way of
delivering the most effective outcomes. Perhaps I could just give
you a couple of examples of where we are actually building markets
on the ground. One of the key experiences we have had is in Uganda
where effectively the issue was providing an affordable product
for people in Uganda where some 70% of people are living on under
a dollar a day. The problem was that to provide a commercially-produced
beer using imported barley was just too expensive, so the issue
was how could we substitute an imported product with local production.
We looked at using a form of sorghum to produce a clear beer so
we worked with the local agricultural institute to select a strain
of sorghum that we could use in the clear beer process. We then
partnered with the Government who basically agreed that if we
could develop a local agricultural base around sorghum they would
give us an excise break on the tariffs. Having got the right strain
of sorghum, having got that agreement with government, we then
linked up with a local NGO, Afro-Kai, and we went out to the farmers
and we offered them the opportunity to grow sorghum, giving them
a guaranteed income at the end of it and giving them the seeds
to do it and, through the NGO, helping them to produce the product
and giving them assistance in that. At the same time we then invested
in developing our brewery to enable us to use that sorghum product.
The first year was quite difficult: 350 farmers came on board
and as you have heard in evidence from your previous witnesses
it is quite hard to get farmers to come to something that is unfamiliar
to them, they have had bad experiences in the past with middlemen
who have not paid them, they are slightly reluctant about putting
all of their eggs in one basket. In the first year we had 350
farmers on board and I am pleased to say that in the year that
has just completed we are now up to 8,500 farmers involved in
the project now. They themselves are earning some four to five
times what an average Ugandan is earning which enables them to
obviously buy education, food and health. That product has now
got a 20% share of the market and we are spending some million
pounds on buying sorghum and, consequently, the effects that that
has for distribution, for transport and processing et cetera
up the value chain is significant. From our point of view as a
brewer one of the key things that we are looking at is where can
we source locally agricultural products that displace imports?
That is the Ugandan example and we have a similar example now,
we have rolled that out in Zambia. We have a very similar example
which I am delighted to share in Ghana where we use maize to displace
imported barley.
Q308 Chairman: In a minute Joan Ruddock
might want to follow some of those points up, she has one or two
specific questions, but you are giving us examples. I am not cutting
you off, we will come back to that, it is a very interesting issue
and we would like to hear more about that and also how it might
translate in other areas. The same applies, I guess, in that Unilever
is a long-established company with a lot of low value, everyday
products, but nevertheless it would be interesting to see how
you do that and also how you interact with the development community,
in other words how the two things can come together.
Mr Gibson: The first thing to
say is that as a business opportunity we see this as really important
and we are committed to—
Q309 Chairman: Your starting point
is that it is a business opportunity?
Mr Gibson: It is a very large
market, we are in a lot of the countries where that market exists
and, as you have said, we have a long history of working in those
markets and trying to reach people on low incomes and trying different
things. Another advantage we have is that the kind of products
we deal in are the products of everyday life, the products of
basic health, hygiene and nutrition and we have a lot to offer
as well in terms of promoting the health and welfare of people,
which is actually motivating for people who know the diverse business,
but it is quite a challenge getting your products to people who
only have a dollar a day to spend. One challenge is distribution,
for example, and if we take India as an example you are dealing
with villages a long way from any shops and the sheer distribution
and penetration of the market is quite difficult. Affordability
is another challenge, making products that are of sufficient quality
for our standards, that people can afford and want to use and
offer them value for money. The other thing that we are learning
more and more is that you have really got to understand those
consumers in the same way that we understand the consumers in
developed markets, you have to offer them products that work for
them in their settings, you cannot just scale down and take the
cost out of a product that works in another market. That is something
we need to do more of. As an example of what we have done I would
take Hindustan Lever in India which wanted to grow its market
in the rural villages of India. The first thing they realised
was that they needed to find new mechanisms of distribution to
get the products out there, they realised that they needed to
help income generation in those communities to generate the flow
of cash that enabled the trading in our goods to take place and
they started quite a innovative scheme called Shakti which, if
anybody is interested, is written up in Prahalad's book, The
Fortune at the Bottom of the Pyramid, you can find out more
information about it there. The basic idea was that all over India
there were self-help groups springing up, mainly women who were
borrowing small amounts of money from the Grameen bank and using
that money to trade, so we decided to try and set up a scheme
where we would work with those self-help groups and see if they
would be interested in trading directly with us in our products.
That has been highly successful as a sustainable mechanism for
breaking through some of the chains that previously existed and
cut out quite a few middlemen so that we are now dealing directly
with these ladies who have become almost like a sales force in
their local areas. One of the huge benefits of this, apart from
increasing our share of the market in the rural areas, has been
that it has given a whole new self-esteem to the women who participate
in the scheme.
Q310 Chairman: I am sure that that
is true, but is there a role for government in that? You are a
multinational company, you are operating a market opportunity
and it has benefits, no dispute. Is that just something you do
and government should just let you get on with it, or is there
a role to interact with government and help?
Mr Gibson: I was reflecting during
the earlier conversation and some of the questions you were asking
earlier about how DFID could help, and I just wonder whether there
is scope for organisations like DFID to get behind or aligned
with some of these schemes at quite a practical level, because
I am sure that in the case of Shakti there were other things that
could have been done around that scheme in driving the commercial
side of it: the supply of the goods, the trading of the ladies
and all that kind of thing, but there are other things around
that that could benefit those communities, for example in health
provision, insurance, savings schemes, the type of thing that
DFID might want to get involved with and that they could do on
quite a small scale to see what worked, and then perhaps with
the private sector develop models which can be scaled up elsewhere.
Q311 Chairman: For example, they
could work in partnership with you to help that and on the back
of that they might identify whether there were other companies
that could be encouraged to go down the same road.
Mr Gibson: Exactly, there might
be multiple alliances that could be developed that could have
quite a big impact.
Chairman: Joan, do you want to come back
on the beer story?
Q312 Joan Ruddock: Yes, the beer
story, it is absolutely fascinating. You spoke about Zambia but
I understand you have a similar operation in Uganda, I believe.
Ms Clark: I am sorry, if I did
not make it clear but Uganda was very much the story I was talking
about and we are now rolling it out into Zambia.
Q313 Joan Ruddock: I wondered where
the balance of benefits lies between what you have gained as a
company and what local people have gained. For example, were people
required to change their farming practices in certain ways, has
there been any change in the gender balance of who is doing the
farming and who you are contracting, how you look at the environment
and the pressures of establishing major plants for drinks—we
know there is a lot of water required et cetera, et cetera.
How did you consult with local communities or did you consult
with local communities? How have they been brought along and therefore
how sustainable is this operation which sounds to be one of considerable
size if you have 8,000 farmers involved?
Ms Clark: There are some interesting
questions there. Broadly speaking there have clearly been benefits
to the farmers in terms of the income. One of the issues that
we saw at the outset was that agriculture is not our core business,
and that was really the key thing about working with an NGO, really
to work with us and to work with the farmers to do that consultation
and to help them to basically understand crop rotation and what
they could do to make sure that they do not become solely dependent
on SABMiller and our business. When it comes to the gender issue,
clearly when you go out into the market you see the women working
very much in the field and it is quite interesting that the people
we deal with are a very mixed gender balance, but I am sure you
have seen yourself how much work the ladies in the field actually
do. On the environment, clearly the water issue is very important
for us and we understand that as a brewer we use a lot of water
in our businesses. All of our breweries meet the UN standard,
so about 78% of them are below the five hectolitres of water to
one hectolitre of water which is the industrial norm. What we
are really trying to do now is to focus on how we can get greater
efficiency of water use, how we can recycle water use, how we
can use water in the local community that we have used in our
breweries, and in many cases we are using this waste water to
benefit the local communities by putting it onto agricultural
land and things.
Q314 Joan Ruddock: May I just ask
in that context whether you are monitoring the water table?
Ms Clark: We are monitoring the
water tables in all of our breweries and one of the things we
are now doing more and more of is watershed management and how
can we actually study our watersheds, how can we actually work
with our suppliers to understand how much they are using in the
production of the agricultural side of things. I have to say that
it is an area that we can see increasingly is going to require
a lot of partnerships with the local communities as we go forward.
Q315 Joan Ruddock: That is very interesting.
What lessons do you believe this case has for our understanding
really of the role of business in development?
Ms Clark: It is the development
of markets, producing affordable products, which is key; we think
there is very much a virtuous circle here in investment which
leads to jobs, leads to creation of products, demand, increased
excise, profit at the end and so the circle goes on. It kind of
reinforces the role that business has in communities and the lessons
increasingly for companies working in Africa are how can you be
more innovative about your supply chains? One of the interesting
things worth mentioning is the agricultural subsidies have come
off sugar in the last year and the sugar price has doubled, so
we are now sourcing sugar locally in Mozambique and Tanzania,
so from a development angle the whole issue of subsidies is crucial
to how it actually affects behaviour on the ground. The partnership
point of view is very important; this was a government/NGO/business
partnership and all three actors in that played a very significant
role.
Q316 Joan Ruddock: Will all those
actors remain, is this entirely sustainable on this basis or would
there be a change to a more traditional commercial model?
Ms Clark: Certainly from our perspective
it is a model that works, from the NGO's perspective it is a model
that works and I guess over time how government perceives it and
how they manage their tax revenue from it will be something we
have to follow.
Q317 Joan Ruddock: Do you think there
is a real consensus now within the business community on the contribution
that business can make specifically to international development
as opposed to being a business for its own sake and just getting
a commercial return?
Ms Clark: There increasingly is.
Something like the Business Action for Africa network that has
been established goes to the heart of that and there is a change
and certainly an understanding increasingly amongst business that
the profit motive is clearly important but you cannot do that
without taking all your stakeholders with you, and when it comes
to emerging markets that does mean actually looking at the market
in a little bit of a different way and being much more innovative,
as I have described.
Q318 Joan Ruddock: You have spoken
about the supply chain in terms of the farmers and then there
will be truckers and all sorts of people involved. Do you see
it as part of your role to ensure some kind of ethical basis for
the operations of those in the supply chain and seeing that they
develop well in the general sense?
Ms Clark: Yes, it is a matter
of degree how far our responsibility goes, but we have a series
of principles that we share with our suppliers in the supply chain.
One of our sustainable development principles is that in places
like South Africa, Tanzania et cetera where we are actually
very much involved at the distribution end and where, as my colleague
from Unilever described, we have established local businesses
to run depots and distribute our beer in the local community we
actually provide them with training, and as part of that business
training there is training about HIV/AIDS awareness and a whole
series of other aspects.
Q319 Joan Ruddock: I was just going
to ask you that. Alcohol and sex often go together so I am going
to ask about whether you have some involvement in the health of
your workers in that sense.
Ms Clark: Yes, alcohol is clearly
used responsibly as part of a normal, healthy lifestyle and there
is no evidence that links increased AIDS with people who drink.
There is some evidence to suggest that people who drink irresponsibly
participate in risky sex, as they do in a whole bunch of other
risky things, and we have programmes to tackle that. When it comes
to our own workforce we basically provide voluntary counselling
and testing and HIV/AIDS programmes, we provide free anti-retrovirals
for our employee and up to four of their immediate dependents.
Joan Ruddock: Excellent, thank you.
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