Follow the Money

Olivier van Beemen, 25 March 2019

Heineken received millions of euros in subsidies for agricultural projects in Africa, which the government praises as an example of a successful aid and trade policy. They provide the brewer with a lot of good publicity and tax benefits, but now it appears that the objectives are far from being achieved.

Investors and analysts reacted enthusiastically to Heineken’s annual figures last month: revenue and volume have grown and profitability is high. Hidden deeper in the annual report, on page 132, there is less good news: a program that should make African breweries use more local raw materials is off track, which in this case is a euphemism for “failed”. The target of 60 percent local production in 2020, which the world’s second beer brewery has set itself, will by no means be achieved. The current percentage is 37 percent, a decrease of 11 percentage points compared to eight years ago. At the time, the company reported on the progress for the first time and the percentage was 48 percent.

This disappointing result has not prevented Heineken from becoming fully involved in agricultural projects. “You can tell good, positive stories about it that we naturally like to use in PR,” acknowledges spokesman John-Paul Schuirink. Influential Dutch media, such as Nieuwsuur, De Telegraaf, de Volkskrant, Financial Times and Forbes, have taken over these stories almost uncritically in recent years. The image has emerged that Heineken contributes to poverty alleviation and the development of African agriculture.

Politicians and other dignitaries have also frequently praised Heineken for this alleged success story. prime minister Mark Rutte even did that in 2015 during the United Nations General Assembly in New York. “Involvement of the private sector could look like the ambition that Heineken has set itself,” the prime minister said. “The Netherlands supports this effort by offering training. And it works. In Burundi, this partnership enables 18,000 farmers to earn a steady income by supplying the world-famous Dutch brewer. “

“Quite shameless”, a UN expert responded in the Dutch journal the Volkskrant at the time. A second expert said in the same newspaper: “I have heard middle-class officials praise their business at the UN, but never ministers or government leaders.”

Rutte is not the only fan. Queen Máxima and former Minister for Foreign Trade and Development Cooperation Lilianne Ploumen also publicly complimented Heineken on African agricultural activities. In 2013, Lilianne Ploumen personally laid the foundation stone for a new Heineken brewery in Ethiopia.

The government is so enthusiastic about Heineken’s ambition that it supported it between 2009 and 2019 with 7 million euros in tax money. In addition, there is a considerable contribution in kind, in the form of efforts by officials and diplomats at the Ministry of Foreign Affairs, who help set up the projects. The ministry does not consider the costs of this, which are likely to run into the millions, as additional support to Heineken, because the interests of the Dutch business community is one of the tasks of the Ministry of Foreign Affairs. In addition to the Netherlands, the United States, Germany and a UN fund have also contributed to the projects. The total public support amounts to more than 10 million euros.

“You don’t refuse a grant”
With that money, a total of six public-private partnerships were set up, in which the brewer cooperates with development organizations such as ICCO, Eucord and Agriterra. The first project already started in 2006, four years before Heineken expressed its ambition. Two of them are still running. These should result in so-called win-win-win situations: Heineken has cheaper grain at its disposal, the productivity of agriculture in host countries is increasing and the Dutch government has an effective development policy.

Heineken’s agricultural program in Africa grew into an important pillar of Ploumen’s policy that links development aid to subsidies for Dutch companies: aid and trade. The current minister, Sigrid Kaag, continues that policy.

Heineken admitted that it would have carried out the projects without government support
In doing so, the Ministry of Foreign Affairs is not convinced that Heineken does not comply with the principle of additionality : according to its own rules, the government may only subsidize a company if it does not have the means to do so. Heineken, which had a turnover of almost 27 billion euros last year and made nearly 2.5 billion net profit on it, has admitted in a television program (Zembla) that the company would have carried out the projects without government support.

But according to the brewer, they are more efficient thanks to cooperation with the government and NGOs. “They force us to make a commitment,” said Jean-François van Boxmeer, CEO at the end of 2017 during a meeting at the head office. He was referring to the dedication to actually achieving the goals (which therefore did not work). And then also said: “You don’t refuse a subsidy.”

Moreover, Heineken uses the agricultural program in negotiations with African governments to negotiate a tax reduction. This was demonstrated, for example, in Mozambique, where Heineken opened a brewery in March and is also setting up an agricultural project, again with the support of the Ministry of Foreign Affairs. Partly by referring to the earlier projects, the brewer won a hefty discount on the excise duty for three years, as the journalists of ‘Follow the Money’ reported earlier. Also in Burundi, where Heineken works closely with a dictatorial regime, the brewer benefits from an 80% excise tax reduction on beer that is mainly produced with local raw materials.

Child labor, famine? ‘We do not know’
Heineken mentions three causes for the failure of the projects in the annual report. High growth rates in Ethiopia and South Africa have led to more imports of barley malt, bad weather conditions in North Africa destroyed part of the harvest and the local production chains that Heineken has been trying to create since 2006 are still in their infancy, as a result of which the yield is still insufficient. According to figures from 2016, the company only achieved more than 60 percent local production in Egypt and Burundi, but that percentage was (considerably) lower in all other African countries.

It should also be noted that Heineken uses a broad conception of “local production”: the brewer counts all crops from Africa. So also barley from Egypt, which disappears into the brewing kettle 5000 kilometers further in Rwanda or rises from the Congo, which first travels about 1000 kilometers over a river before it reaches the brewery in the capital Kinshasa. “Continental production” is a more adequate term.

The farmers would sell their production to other parties, not to Heineken
It is remarkable that minister Sigrid Kaag points to other causes for the disappointing results. In a written response, the minister announced that, in her opinion, the projects were successful. The farmers would choose to sell their production to other parties and not to Heineken, which increased their income. The Ministry of Foreign Affairs itself provides no evidence for this claim. The Ministry does, however, refer to Eucord, one of the NGOs with which Heineken and Foreign Affairs cooperate, which forwards an “implementation status” from 2017 of one of the projects that are still ongoing, which must show that the most goals have been achieved. The document does not specify how and by whom the check was performed. Nor is it clear whether this evaluation is representative of the other projects.

Ploumen on a working visit in Ethiopia (photo)
The former Minister of Foreign Trade and Development Cooperation Lilianne Ploumen visited in February
2013 the bottling plant of Heineken subsidiary Bralirwa in Ethiopia. The minister toasts Jonathan Hall, director Bralirwa, and his local technical director. © ANP Frank van Bee

Moreover, there are many uncertainties about other possible consequences of the agricultural program. During an interview for my book Beer for Africa at the head office at the end of 2017, program leader Paul Stanger acknowledged that eleven years after the start of the first project, Heineken did not yet know the impact of agricultural activities on food scarcity or child labor, factors that you would expect to see before starting of a project should be investigated as well as possible. Is Heineken’s additional demand for local crops competitive with food supplies? How many children are employed in the Heineken production chain? And what are the consequences of the use of fertilizer on the mostly virgin African fields? “We don’t know,” Stanger said several times.

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