How to Cost-Effectively Source Rice in Nigeria for Production of Beer in Nigeria and South Africa

Situation

ABlnBEV, a beer manufacturing company, plans on launching Budweiser in South Africa and Nigeria. ABlnBEV is an international beer company with its headquarters in Leuven Belgium. This is one of the worlds largest beer companies. Initially entering into a merger with SABMiller, the company had 200 brands trading. After the merger, now the companys number of brands increased to around 400. Some of the internationally recognized brands include Budweiser, Corona, and Stella Artois (Mittelman, 2008). The company also gained three more brands that are recognized globally as a result of the merger with SABMiller these three are; Leffe, Hoegaarden and Becks. Other brands are termed as local brands as they have not received global recognition. ABlnBEV has subsidiaries across the world some of which include Group Modelo, AmBEV, InBEV, SABMiller, and St. LOUIS Refrigerated Car Company (Persyn, 2010). The situation seeks to address the problem of market competitiveness facing the native Nigerian rice farmers as a result of the increased quantity of the rice imported. According to the key stakeholders, this project is an opportunity to open up a new market for rice farmers in Nigeria and also intensify agricultural activities in the region. The project is also important to identify the usefulness of rice in brewing as opposed to barley which is relatively expensive. Commercial rice farmers are also key stakeholders as they are a potential source of the new raw materials. The project is entirely sponsored by ABlnBEV and SABMiller. The bottom-line of this project is to expand and create a new market for Nigerian rice farmers thereby increasing agricultural production in the region. The project is economically feasible as it will create employment as well as grow the countrys gross domestic product through increased production in the agricultural sector. Failure to implement this project will lead to loss of market share by the Nigerian farmers to the international players in the industry. Therefore, it is important for the government to step up and set up trade policies aimed at protecting the local farmers. This can be achieved through protectionism, imposing import quotas as well as banning the importation of rice or restricting the quantity imported to a bearable minimum.

Concern

Some of the costs associated with failure of implementation include the continued decrease in the revenue realized from agriculture as a result of lack of market for the Nigerian farmers. The study is important to enable the company to understand the perception that the consumers have about rice-based beers. Customer satisfaction is key to the success of any business, and therefore this research will help the company identify areas that need improvement. The study is also significant since it will help the company devise ways in which it can source rice economically. The study is further important to various stakeholders as it will set out their roles and the limits within which they should work. For example, it will help the production team identify with the standards of rice required through quality inspection. Some of the long-term effects of the problem include loss of market share to the import sector by the local Nigerian farmers. The brewing industry also becomes less competitive due to inaccessible raw materials. Substitution of barley with rice will increase brewing capacity of the industry since rice is easily affordable and less costly as compared to barley.

The table below indicates the rice consumption patterns in Nigeria.

Indicators Means

1961-1975 Means

1976-1983 Means

1984-1995 Means

1996-1999

Nigeria

Production 333600 806122 2 307894 3189633

Import 2037 420758 334979 525307

Self-reliance ratio 99% 54% 74% 79%

Total consumption 178198 833638 1 599699 2243239

Per capita income 3 12 18 22

The table indicates the rice consumption trends in Nigeria. The rice imported is minimal which shows that the country can produce enough if the underutilized potential is tapped. The graph below indicates the rice production and importation trends in Nigeria. The source of the problem can be explained as illustrated in the CLD below.

The diagram illustrates how land degradation contributes to low productivity. The problem of low productivity is also associated with lack of farm inputs by the farmers. Therefore the government can intervene by subsiding the cost of inputs. This low productivity leads to the problem of high quantities of importation. Which in the long run jeopardize the market share of the local farmers.

Other costs include the costs associated with the importation of rice from India and Europe. These costs have made imports an issue of concern because payment is made in foreign currency. Continued importation of rice for brewing is likely to sabotage the market for local rice farmers. Importing the raw material is subject to challenges such as trade barriers which may derail the production process. Other costs include shipping and port clearance fees which can all be cut back by use of locally produced rice. The project serves to create numerous employment opportunities for Nigerian and South African nationals once the plant is set up. Therefore, failure of implementation would mean no new job opportunities are created. The project is also important as it will improve trade between the three countries. Improved trade between the ABlnBEV and South Africa and Nigeria will create a trusted partnership which will ease up trade across the regions hence increasing trade activities. The decentralization of production process to the consumer country (that is, bring down the entire production process to Nigeria and South Africa) will hasten the entire process hence increasing the units produced in a day. Budweiser being an already globally recognized brand will easily attract a pool of customers. The stakeholders involved in the process are optimistic that the entire process will run smoothly owing to their teamwork. Even so, the procurement team is set to establish market across Africa if the rice produced obtained from Nigerian farmers will not sufficiently meet the demand. This move will further lead to the formation of more trade links across Africa. This way it will be easier even to market the product in other African nations. The research and development team is also set to benchmark on the marketing techniques and strategies used by the existing market key players like Carlsberg and Heineken. Considering that these have managed to remain in the market for the longest market then the introduction of a new product might technically be a challenge.

Research Questions

This research paper sought to answer the following questions.

What are some of the means that can be used to cost effectively source rice from Nigeria as a raw material for use in brewing Budweiser?

What are the impacts of this project on Nigerian and the South African economies as generally?

Literature review

Introduction

The parent company was established in the 18th century. ABlnBEV, a beer manufacturing company, plans on launching Budweiser in South Africa and Nigeria. In a majority of developing countries rice is grown for subsistence purposes. In countries like India and Pakistan, rice is considered a staple food. These countries are also the leading producers of rice. In most European countries rice is used for brewing purposes alongside barley. Rice is the major component used in the brewing of this type of beer. Recent studies indicate that women have preferences for light beers. Essentially rice gives the beer a light taste and flavor. The quality of rice used also affects the standards of the beer brewed hence it is recommendable to use high-quality rice. Game theory is used to analyze market trends, customer demands and also the key players in the market. This study uses the theory to analyze the relationship between the farmers, suppliers and the production unit of the industry (Myerson, 2013).

Rice in the Brewing process- a discussion of the theory of mashingThe rice species (Oryza), is an African species often cultivated in African as the soils there are fertile and the climate favorable. The byproduct of rice obtained from the milling industry is what is often used for brewing purposes. The rice is milled to separate the paddy rice from hulled rice. The process of milling is important to prevent distraction of the endosperm which is a source of starch that helps in fermenting and making beer tastier. Brewers prefer rice as opposed to corn grits due to its low oil content. The neutral aroma and flavor make it result in clean, dry and light tasting beers when used in the brewing process (Forsythe, 2007).

The process of making beer begins with malting. The process involves steeping, germination and drying the cereals (Taylor, 2013). This process is important in the production of enzymes in the kernel store and modification of their content. After that malt is prepared there follows another process known as kilning which is responsible for drying the malt. Rice is used again as it is gluten free thus making it suitable for celiac persons. The next stage is brewing. It involves mashing and mixing ground malt with water to facilitate starch conversion. Then what follows is lautering accompanied by filtration of wort and inactivation of enzymes to obtain clean dry and tasty beer (Iheanachor, 2016). Rice is used as an adjunct in the process of brewing. Some of the advantages associated with the use of rice as an adjunct include: it is less costly as compared to using malt, if the conditions for malting and the malting facilities are not sufficient, the adjunct can be used in supplementing the content of sugar in wheat and barley. Third, is the fact that rice-based beers with high proportions of the content attract lesser tax in some countries hence lower cost of production. A study done in India indicate that hangovers result from heavy consumption of the beer.

The graph above represents the current capacity of production of rice-based beers in Nigeria since 1980-2012. This is a review of a production of Heineken. It can be used to show the likelihood of producing in large volumes by adopting the use of cheap raw materials. Over time the production trend is upward sloping as a result of structural adjustment taken by the local market. The Nigerian brewery industry considered the use of locally produced rice in brewing instead of barley which has seen the capacity of production go high. The quality control team is also responsible for inspecting the standards of the rice used to ensure consistency in the q...