By Tiisetso Motsoeneng
JOHANNESBURG (Reuters) - Farmers in South Africa have filed a complaint with the country's competition watchdog about Anheuser-Busch InBev's (BR:ABI) decision to change its pricing formula for buying malt barley, a key ingredient in beer making.
The farmers lobby group Grain South Africa believes AB InBev, the world's biggest brewer, has contravened one of the conditions set when the country's competition tribunal approved its $106 billion acquisition of rival beer maker SABMiller (LON:SAB).
"We are aware of the complaint lodged by Grain SA and have formally responded to the Competition Commission," AB InBev Africa spokeswoman Robyn Chalmers said. "We have, at all times, conducted our operations in compliance with the conditions imposed by the Competition Tribunal."
In a letter to farmers in the barley growing region of Western Cape province, AB InBev said it was changing what it will pay for the 2018 crop to 97 percent of the price for top grade wheat (B1) from 102 percent of second tier wheat (B2).
"We are of the opinion that they are not sticking to what was agreed at the Tribunal," said Jannie de Villiers, chief executive of Grain SA. "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 https://www.comptrib.co.za/assets/Uploads/INBEV/Final-Conditions-PUBLIC-VERSION-signature-document-2.pdf for AB InBev's acquisition, South Africa's competition tribunal said the merged entity had to comply with the terms and conditions of SABMiller's existing supply agreements with suppliers.
ANNUAL REVIEW
Farmers also worry the new formula will leave them worse off. On May 7, B1 wheat cost 3,910 rand ($311) a tonne and B2 cost 3,814 rand, taking into account a fixed discount of 96 rand per tonne this season. That would mean the price of barley would be about 100 rand a tonne lower under the new formula.
AB InBev said in its letter dated Nov. 8, seen by Reuters, that the new formula ensured the average gross margin for malting barley was competitive versus wheat in all South African growing regions.
It said would review the crop pricing formula and the amount of barley it would buy in South Africa on an annual basis.
"We believe AB InBev is in contravention of one of the conditions set by 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 South Africa as well as pricier international brands including Budweiser and Corona, buys 85 to 90 percent of the malted barley grown in the country.
The Competition Commission investigates cases before deciding whether to refer them to the Tribunal for adjudication.
The Commission's spokesman Sipho Ngwema confirmed 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 made about the merits of the complaint. That's all I can tell you at the moment," Ngwema said.
SELF-SUFFICIENT
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 Johannesburg Stock Exchange (JSE).
As part of the merger approval, AB InBev has agreed to increase the amount of barley it buys in South Africa 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, South Africa has imported barley from countries such as Australia and Canada.
"Our goal is to ensure that beyond 2021, South Africa 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 20 countries and output of more than 600 million hectolitres, AB InBev is among the world's biggest buyers of barley.
($1 = 12.5794 rand)