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' 22L. ‘ ‘ . .I‘ . 13.,“ . uh.- .I ' :21} 9:! 2‘ “tum. ,{lyu Il": ‘~'.I“‘1 ,I 331'}, {fig-3,9, 9’" ,g'pg'fl ”21"” "2'2 2121'29'2'4‘23, 1‘1 2" H.22'2'“ . 222229" :1. “33,91 , , ' 2mm. .. . , ' , ‘ "i _ ' ' :. .1 ' ”71,-, "‘1, ‘, -,_,' -~. .‘. ., . , ~ 2, .I I,» 3 . ,,, ,. 3,, ,,,,, .3 2%,, , 2 2': ,. , ,, . ,I: - ,, ,,',',, . 211::“2I2‘1H‘2‘322 . ..‘."" ,, 22 22".12 } 4,5,1,” . u 'l 2‘ ,I h‘ I ,, \- HIM-1v In 9} IL.,L . I . ,II 3 4 (o u ”"3 I \ 9. .9. . 1: mmrar 9‘ . ,. . _———————i 1' HE STE; iIiMiCTGANi MAT MN'TRIS'T" LiTARiTIiI Ll BR AR l ES NHCHmAN SUHE UNWERSfiY 3 1293 10706 3772 EAST LANSING,NHCH. 48824 This is to certify that the dissertation entitled THE SHEBEEN QUEEN OR SORGHUM BEER IN BOTSWANA: THE IMPACT OF FACTORY BRENS ON A COTTAGE INDUSTRY presented by Steven J. Hagngade has been accepted towards fulfillment ofthe requirements for Ph.D. , Economics‘ degree 1n Major pro e or Datejgvugfiy ‘1' l (I 8 5' MSUi: an Affirmative Action/Equal Opportunity Instirulion 0—12771 O " V MSU RETURNING MATERIALS: Place in book drop to LIBRARIES remove this checkout from your record. FINES wit} be charged if book is returned after the date stamped beTow. B 36* 1005 '13 n% ’ ‘iiu, “M H ng213 10 @002 ,gliéLub‘Exiaé 055' ‘ K188 am '97 5:1;le 2 THE SHEBEEN QUEEN OR SORGHUM BEER IN BOTSWANA: THE IMFACT OF FACTORY BREWS ON A COTTAGE INDUSTRY By Steven J. Haggblade A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Economics 1984 Copyright by STEVEN JOE HAGGBLADE 1984 ABSTRACT THE SHEBEEN QUEEN OR SORGHUM BEER IN BOTSWANA: TEE IMEACT 0F FACTORY BREWS ON A COTTAGE INDUSTRY By Steven J. Haggblade This thesis revolves round the case study of sorghum beer in Botswana. Home brewing of sorghum beer has been an important part of the social life and diet in Botswana for many centuries. Within the last 50 years, this age-old craft has become commercialized; and today cash brewing is the most important female-dominated business activity in the country. In the last 15 years, factory-brewed sorghum beer has become available in large quantities in Botwana, and it has been making steady inroads in the market share formerly held by home brewers. A Primary purpose of the thesis is to describe the transition that is taking place in Botswana's soghum beer market and to asess its economic impact. Policy implications are drawn for Botswana as well as for the numerous other African countries whose sorghum beer markets have not become mechanized to the extent Botswana's has. A final objective is to use the case study to evaluate conventional views on industrial evolution, particularly the common beliEf that household and artisanal firms will normally diminish in importance as industrialization proceeds, since they are unable to compete with large factory producers. The major finding of the case study is that the rise of factory brewing has brought with it economic tendencies that run directly counter to every major economic objective of the Government of Botswana: economic returns to capital, aggregate employment and national income have all declined substantially, and the county's income distribution has become increasingly skewed. Policy intervention is called for, and a number of specific recommendations are made . This disssertation is dedicated to Helen. ii ACKNOWLE DGEME NTS I have benefited from the assistance of numerous friends and colleagues in the course of preparing this dissertation. The field work in Botswana would never have been possible without the exceptionally capable services of my two enumerators, Julia Phadi and Kaone Kentshitswe. The interviewing that took place in Mann was ably assisted by the Rural Industrial Officer (RIO), Mark Hopkins and the Assistant RIO, Moses Mahpti. In preparing for the field work, I received sage counsel from Brian Egner, Derek Hudson, Carol Kerven, Emery Roe and Bonnake Tsimako. All respondents - the shebeen queens, licensed retailers, factory brewers, trade maltsters, millers and retailers - were extremely cooperative and cordial. The tribal authorities were uniformly helpful and greatly facilitated the survey work. Both the Ministry of Commerce and Industry and the Ngamiland Production Development Committee were supportive of the study and offered valuable feedback on the preliminary policy reports filed with them prior to my departure from Botswana. During the data analysis and write-up stage in Lansing, I received much valuable assistance and advice. I am extremely grateful to the Small Enterprise Approaches to Development Project iii for financial support during the thesis write-up. My thesis advisor, Carl Liedholm, offered direction, rapid turn-around on ponderous drafts and was a constant source of encouragement and assistance. Michael Weber provided detailed commentary - both analytical and editorial - which was extremely helpful and thought provoking. Bruce Allen and W. Paul Strassmann, my other two committee members, were likewise extremely helpful, and I benefitted on numerous occasions from their input. Peter Schmidt offered good-natured and authoritative guidance on frontier production functions. Don Mead read several sections of the dissertation as well as the detailed outline and provided me with the benefit of his good judgement on both. Garret, Michelle, Laura and Matthew Peaslee provided invaluable professional word processing facilities and bore my unusual working hours with good grace and congeniality. My colleagues at the Cleo Institute - Drs. Stephen Davies, Steven Franzel and John Halloran - were a constant source of intellectual and moral support. Finally, I am deeply indebted to my wife, Helen, who bore the full weight of the lengthy thesis timetable yet remained understanding and supportive throughout. iv TABLE OF CONTENTS Page No. LIST OF TAHOES O O O O O O O O O O O O O O 0 O O O O O O O O O O Xi. LIST OF FIGURES O O O O O O O O O O O O C O O O O O O O O O O O Xiv mFINITIONS O O O O O O O O O O O O O O O O O O O O O O O O O 0 xv CHAPTER I. INTRODUCTION A} Background . . . . . . . . . . . . . . . . . . . . . . l B. Objectives of the Thesis . . . . . . . . . . . . . . . 3 C. Research Methods . . . . . . . . . . . . . . . . . . . 7 D. Organization of the Thesis . . . . . . . . . . . . . . 9 CHAPTER II. BROAD CONTEXT OF THE CASE STUDY A. Sorghum Beer Throughout Sub-Saharan Africa . . . . . . 13 1. Definition of sorghum beer . . . . . . . . . . . . 13 2. Sorghum beer and its close relatives . . . . . . . 14 throughout Sub-Saharan Africa 3. The current economic importance of . . . . . . . 15 sorghum beers 4. Historical overview of sorghum beer production . . 23 a. The era of socially-allocated home brewing . . 24 b. The evolution from social to cash home . . . . 28 brewing c. The rise of factory-brewed sorghum beer . . . 33 5. The current status of the evolutionary spectrum . 36 B. On the Role of Household and Artisinal Enterprises . . 1n 4. 5. C. Co CHAPTER III. Industrial Development Background . . . . . . . . . . . . . . . . . . . Empirical Evidence . . . . . . . . . . . . . . . . Conventional explanations of the historical trends a. Strengths of household and artisinal . . . . . enterprises b. Conventional explanations of the decline . . . of household and artisin producers Common policy implications . . . . . . . . . . . . The role of the case study . . . . . . . . . . . . nelus ion 0 O O C O O O O C C O O O O C O O O O O 0 BACKGROUND FOR THE CASE STUDY OF SORGHUM BEER IN BOTSWANA A. Overview of the History and Economy of Botswana . . . B The Role of Sorghum Beer in Botswana . . . . . . . . . 1. 2. CHAPTER IV. The economic importance of sorghum beer . . . . . . The history of sorghum beer in Botswana . . . . . . THE STRUCTURE AND BASIC CONDITIONS OF THE SORGHUM BEER SUBSE CTOR A. Basic Conditions Affecting the Supply of Sorghum Beer 1. 2. Characteristics of the product . . . . . . . . . . Technology of production . . . . . . . . . . . . . a. Malting . . . . . . . . . . . . . . . . . . . . b. The basic brewing process . . . . . . . . . . . C. Alternative CGCh‘nOIOgleS o o o o o o o o o o 0 vi 39 42 49 50 52 58 62 64 66 77 77 8O 84 84 85 86 90 97 CHAPTER.I7. 3. The mechanics of retailing . . . . . . . . . . . 100 4. Government regulations affecting sorghum beer . . 104 The Analytical Frame: The Subsector . . . . . . . . . 108 1. The basic subsector.concept . . . . . . . . . . . 108 2. The evolution from industry studies to subsector . 110 studies 3. The distinction between industry studies and . . . 112 subsector studies 4. Rationale for using the subsector framework for. . 115 this case study Structure of the Subsector . . . . . . . . . . . . . . 117 1. Schematic overview . . . . . . . . . . . . . . . . 117 2. The Malting Industry . . . . . . . . . . . . . . . 117 3. The Milling Industry . . . . . . . . . . . . . . . 120 4. Brewing . . . . . . . . . . . . . . . . . . . . . 121 5. Distribution . . . . . . . . . . . . . . . . . . . 121 6. Retailing . . . . . . . . . . . . . . . . . . . . 122 7. Vertical integration . . . . . . . . . . . . . . . 123 8. Coordination mechanisms within the subsector . . . 124 THE NATURE OF CONSUMER DEMAND Overview of the Botswana Liquor Market . . . . . . . . 127 1. Current level of liquor consumption . . . . 127 2. Trends in liquor consumption in Botswana . . . 129 vii B. 3. Substitution between sorghum beer and . . . . other liquors a. The short run . . . . . . . . . . . . . . b O The long run 0 O O I O O I O O O O O O O 4. Trends in liquor consumption in Southern Africa General Characteristics of the Demand for . . . . Sorghum Beer 1. Who drinks sorghum beer and why? . . . . . . . 2. Seasonality . . . . . . . . . . . . . . . . . 3 O Incom elastiCity . C O C O O O O O O O O O O 4. Substitution between home- and factory-brewed sorghum beer 5. Price responsiveness of demand . . . . . . . . 6 O FUture trends 0 O I O O O O O O O O O O O O 0 CHAPTER VI. FIRMFLEVEL FINANCES AND THE CONDUCT OF SUBSECTOR A. B. C. MEMBERS Production . . . . . . . . . . . . . . . . . . . l. Home brewing finances. . . . . . . . . . . . . 2. Financial returns in factory brewing . . . . . 3. Economies of scale . . . . . . . . . . . . . . The Economics of Retailing . . . . . . . . . . . . 1. The political economy of retailing . . . . . 2. Retailing budgets . . . . . . . . . . . . . 3. The conduct of home brewers in the face of increasing availability of factory-brewed sorghum beer conCIOQ ion 0 O O O O O O O O O O O O O O O I O . 131 . 131 . 135 . 137 . 141 . 141 . 144 . 148 . 151 . 153 . 162 . 165 . 167 . 171 . 175 CHAPTER VI. PERFORMANCE IN THE SORGHUM BEER SUBSECTOR A. B. D. Home vs. Factory Brewing, Financial and Physicl Measures of Performance 1. A framework for measuring tradeoffs . . . 2. Employment tradeoffs . . . . . . . . . . 3. Income tradeoffs . . . . . . . . . . . . 4. Income distribution . . . . . . . . . . . a. Rural vs. urban income distribution . b. Distribution of income among rich and poor income groups Economic Performance . . . . . . . . . . . . 1. Standard measres of economic performance. 2. Consumer welfare . . . . . . . . . . . . The Potential for Improving Performance by . Increasing the Efficiency of Home Brewers 1. Definitions and measurement of technical, allocative and total inefficiency 2. Computations of inefficiency levels in home brewing 3. Causes of inefficiency . . . . . . . . . summary 0 O O O O O O O O O O O O O O O O O 0 CHAPTER VIII. IMPLICATIONS OF THE CASE STUDY A. Implications of the Case Study for General . Views on Industrial Evolution 1. Empirical implications . . . . . . . . . 2, Explaining the trends . . . . . . . . . . ix 202 202 207 209 210 215 219 224 225 234 239 241 250 258 264 267 267 267 3. Policy implications . . . . . . . . . . . . . . B. Policy Issues Related to Sorghum Beer . . . . . . . 1. 2. 3. 4. 5. A general policy orientation for Botswana . . . Botswana's current policy on sorghum beer . . Recommendations for Botswana . . . . . . . . . Policies in other African countries . . . . . . Recommendations for other African countries . . C- Methodological Implications . . . . . . . . . . . D. 811er O O O O O O O O O O O O O O O O O O O O O APPENDICES Appendix A. Survey Methods and Sampling . . . . . . . Appendix B. Details of Financial Budgets . . . . . . . Appendix C. Detailed Employment and Income Calculations Appendix D. Detailed Caclulation of Economic Budgets . Appendix E. Derivation of Farrel and COLS Indices of . Inefficiency BIBLIOGRAPHY O O O O O O O O O O C O O O O C O O O O O O O O O 272 275 275 278 280 290 296 301 204 309 315 318 335 348 354 LIST OF TABLES Table Number 2.1 2.2 2.3 3.1 3.2 4.1 5.1 5.2 5.3 6.1 6.2 6.3 6.4 6.5 Characteristics of Home-brewed Sorghum and . Related Grain Beers Produced in Sub-Saharan Africa Characteristics of Factory-brewed Sorghum . Beers Produced in Sub-Saharan Africa Status of Evolution in Sorghum Beer Markets Throughout Sub-Saharan Africa, 1983 Botswana's Gross Domestic Product . . . . . Distribution of Cattle Ownership in Botswana Comparative Brewing Procedures . . . . . . . Overview of the Botswana Liquor Market, 1981 Trends in Annual Chibuku Sales in Botswana . Liquor Consumption in the Southern . . . . . African Customs Union Area Technical Coefficients for Sorghum Beer . . Production, Botswana 1982 Standard Financial Budgets for the Production and Retailing of Home- and Factory-brewed Sorghum Beer, Botswana 1982 Financial Returns in Home Brewing of Sorghum Beer, Botswana 1982 Standard Financial Budgets for Factory-brewed Sorghum Beer, Botswana 1982 Financial Returns in the Production of Factory- brewed Sorghum Beer, Botswana 1982 xi Page No. . . 128 . . 132 . . 138 . . 166 O O 169 . . 170 . . 172 . . . 174 6.8 7.1 7.2 7.3 7.4 7.5 7.6 7.8 7.9 A.1 3.1 3.2 3.3 Distribution of Retailing of Factory-brewed . . . Sorghum Beer in Botswana, 1981 Comparative Sorghum Beer Retailing Budgets, . . . Botswana 1982 Evolution of Product Mix Sold by Botswana's . . . Home Retailers of Sorghum Beer, 1982 Projected Evolution of Market Shares in Botswana's Sorghum Beer Subsector Employment Tradeoffs Associated with Evolution in Botswana's Sorghum Beer Subsector Projected Evolution of Financial Value Added in . Botswana's Sorghum Beer Subsector Distribution of Value Added from Sorghum Beer, . . Botswana 1981 Trends in the Geographic Distribution of Sorghum Beer Related Income in Botswana Income Distribution Trends in Botswana's Sorghum Beer Subsector Economic Performance of Home vs. Factory Brewing of Sorghum Beer, Botswana 1982 Economic Tradeoffs with Increasing Concentration of Factory-brewed Sorghum Beer in Botswana Composition of Total Inefficiency Among Botswana's Home Brewers of Sorghum Beer, 1982 Sample Selection . . . . . . . . . . . . . . . . Detailed Financial Budgets for the Production and Retailing of Home-brewed Sorghum Beer, Botswana 1982 Detailed Financial Budgets for the Production of Factory-brewed Sorghum Beer, Botswana, 1982 Budget for Licensed Retailer of Factory-brewed . Sorghum Beer, Botswana 1982 xii 189 191 197 203 208 211 213 218 220 227 233 257 311 315 316 317 C.1 C.2 0.3 0.4 C.5 D.1 D.3 D.4 D.5 E.1 Standard Employment and Income Coefficients in Botswana's Sorghum Beer Subsector, 1982 Breakdown of Financial Value Added in . . Botswana's Sorghum Beer Subsector, 1982 Detailed Income Distribution Calculations for Botswana's Sorghum Beer Subsector, 1982 Botswana‘s Rural Income Distribution Survey, Evidence on Home Brewing and Income Distribution, 1974 Regression Analysis of Income Distribution Among Botswana's Home Retailers of Sorghum Beer, 1982 Detailed Economic Budgets for the Production and Retailing of Home-brewed Sorghum Beer, Botswana 1982 Detailed Economic Budgets for the Production Factory-brewed Sorghum Beer, Botswana 1982 Economic Budget for Licensed Retailers of Factory-brewed Sorghum Beer, Botswana 1982 O and of Economic Budgets for Home Retailing of Factory- brewed Sorghum Beer, Botswana 1982 Economic Value Added from Input Suppliers in . . Botswana's Sorghum Beer Subsector, 1982 Individual Indices of Inefficiency Among Home Brewers of Sorghum Beer, Botswana 1982 xiii 329 330 331 333 334 343 344 345 346 347 353 LIST OF FIGURES Figure Number Changes in the Size Structure of Industries . . Over Time Map, Republic of Botswana . . . . . . . . . . . Home Brewing of Sorghum Beer, Botswana 1982 . . Factory Brewing of Sorghum Beer, Botswana 1982 Schematic of Botswana's Sorghum Beer . . . . . Subsector, 1982 A Shebeen and a Licensed Retail Establishment . Seasonal Brewing Patterns in Rural Botswana, . Shoshong Village Sales of Municipal Factory-brewed Sorghum Beer in Bulawayo, Zimbabwe Economies of Scale in the Production of . . . . Unpackaged Sorghum Beer, Botswana 1982 Unit Isoquant for Measuring Economic . . . . . Efficiency Unit Isoquant for 100 Liters of Home—brewed . . Sorghum Beer Made with Trade Malt, Botswana 1982 Unit Isoquant for 100 Liters of Home-brewed . . Sorghum Beer Made with Home—made Malt, Botswana 1982 Sampling Fraction for Botswana Survey of Sorghum Beer Subsector Decomposition of Inefficiency . . . . . . . . . xiv Page No. . . . 44 O O O 67 0 O O 95 O O O 96 O O 118 . . 142 . . 145 . . 155 . . 176 . . 242 . . 246 O O 247 . . 310 . . 352 DEFINITIONS Currency: 1 Pula = 100 thebe = $ .90 U.S. Batswana: the people of Botswana CHAPTER 1 INTRODUCTION A. BACKGROUND Sorghum beer has been a mainstay of the local diet in Southern Africa for at least five centuries (Bryant, p.279). Originally, it was entirely produced at home by women who brewed for their own families' consumption and for friends. Increasingly, however, women have taken to selling the beer outside the family circle as a means of earning cash income. In fact, during the past 50 years the brewing of sorghum beer for cash sale has become the most important female-dominated business activity in Botswana, accounting for 627. of rural manufacturing income (survey data; Rural Income Distribution Survey, p.52). Women who sell sorghum beer regularly have become known as "shebeen queens"; and their residences, from which they retail the beer, have become lcnown as "shebeens".1 Factory-brewed sorghum beer was first introduced into Botswana fifteen years ago; and since that time, sales have increased 1The term "shebeen queen", technically, refers to a woman who regularly retails any liquor from the home. Infrequent home retailers are not always referred to as shebeen queens. But the regular brewers and retailers account for the great bulk of the home retailing of sorghum beer. Therefore, as a simplifying convention, the term "shebeen queen" will be used in this thesis as a short- hand for all home retailers of alcoholic beverages. It should be emphasized, as well, that shebeen queens sometimes retail alcoholic beverages other than sorghum beer; and some retail both home- and factory-brewed varieties of ' alcohol. Sorghum beer, however, rePresents about 832 of the volume and 80% of the value of liquor sold in shebeens (survey data). 1 Chapter 1 2 steadily. A system of licensed retail outlets has developed in tandem with this growth in sales. Shebeen queens have responded to the inceasing sales of factory-brewed sorghum beer in a number of ‘ways: some have gone out of business, some continue to brew and sell home-made sorghum beer, and others have taken to retailing factory- brewed sorghum beer. The overall effect of these adjustments is imperfectly understood. It is obvious that since the introduction of factory- brewed sorghum beer the relative preportion of sorghum beer retailed by shebeen queens has decreased - from a 1002 market share to something less. Policy makers and other interested observers, however, are less clear about what has happened to absolute levels of home-retailed sorghum beer, what the driving forces are in the rise of factory-brewed sorghum beer and what the overall effect has been in terms of equity and economic efficiency. Chapter 1 3 B. OBJECTIVES OF THE THESIS This thesis aims to investigate the changes currently taking place in Botswana's sorghum beer market. In particular, the thesis has three major objectives: 1. to describe the dynamics of the increasing predominance of factory-brewed sorghum beer in Botswana and to analyze its economic impact; 2. to use that case study to evaluate common views on industrial evolution, particularly long-term trends in the size distribution of manufacturing firms; and 3. to provide policy guidelines: a. to the Government of Botswana (COB) and b. to the many other African countries who will shortly face the same questions about sorghum beer that are now being addressed in Botswana. The first objective, that of description and analysis, constitutes the core of the thesis. It fills a major empirical gap; because although numerous researchers have commented on the importance of home brewing, few have examined urban as well as rural sorghum beer markets, and none has explored the economic interaction between home- and factory-brewed sorghum beer. The filling of this descriptive and analytical void provides the basic platform from which the other two thesis objectives can be attained. In addition, the description of the sorghum beer business in Botswana will add to what is currently a rather limited number of Chapter 1 4 detailed, industry-specific studies in developing countries. While a significant amount of aggregate and cross-section industrial work has been done in the Third World, individual industry studies are not numerous. Commenting on the penchant for cross-section studies, Schmitz (1982, p.442ff) has strongly recommended a reorientation to what he calls "branchrspecific" studies of individual production] distribution systems. Currently, Kilby's study of the Nigerian bread industry (Kilby 1965), White's study of industrial organization in Pakistan (White 1974), Schmitz' study of weaving in Brazil (Schmitz 1982) and Boomgard's study of furniture in Thailand (Boomgard 1982) represent some of the few such studies available. In carrying out the analysis and description of the sorghum beer business in Botswana, this thesis will utilize the subsector framework, a variant of the standard industrial organization approach which emphasizes vertical stages in a production/distribution system. The second objective of the thesis is to comment on long-term trends in industrial evolution, particularly on the shifting size distribution of manufacturing firms over time. Because of the cost advantages conferred by economies of scale, most observers believe that, over the long—run, home industries around the world decline in the face of competition from larger scale factory producers. The case study of sorghum beer in Botswana provides the opportunity to examine an industry in the very midst of such a competitive confrontation. A close-up view such as this one should make it Chapter 1 possible to identify the causal forces at work in such a situation. The third objective of the thesis, the policy objective, is an important one. Over the past three years, the sales of factory- brewed sorghum beer have been rising rapidly in Botswana; and the Government of Botswana (COB) has been attempting to strike a responsible policy stance but on the basis of information that is far from complete. One prime motivation for the present study was, in fact, to provide the key sorghumébeer-related informtion required by policy makers, particularly those in Botswana's Ministry of Commerce & Industry (MCI). In addition, results of this policy analysis can be of substantial use to many other African countries who will shortly be facing the same questions that are currently under discussion in Botswana. The second part of this policy objective is, therefore, to outline explicitly the lessons from Botswana that will be important for those other countries. At least 23 of the 39 countries in Sub-Saharan Africa house large sorghum beer markets. In about five of these countries, factory brewing dominates in supplying sorghum beer to consumers. But in the remaining 18 or so countries, factory brewing has either not yet been introduced or its introduction has been recent and its market share remains small. In these 18 countries, home brewers still supply the predominant share of the sorghum beer market. Botswana is rapidly moving towards the smaller group in which factory brewers supply the majority of the Chapter 1 sorghum beer market. Because its progress can be followed along what appears to be a common transitional path, the lessons learned from the current dynamics in Botswana are extremely important, especially for the 18 countries whose sorghum beer markets have not yet evolved as far as Botswana's. Chapter 1 C. RESEARCH.METHODS The core of information on which this thesis is based was collected in Botswana during five months of intensive field work 'which took place from March to July 1982. During that period, interviews were arranged with participants at all levels of the sorghum beer business - home brewers, factory brewers, licensed retailers, council licensing officers, maltsters and grain millers. In addition, two visits were made to the Sorghum Beer Unit in Pretoria, South Africa. The Sorghum Beer Unit is a government- funded laboratory devoted to doing the technical research necessary to support factory brewing of sorghum beer in South Africa, a country where all such factories are government run. Finally, correspondence with four different countries yielded information on policies and situations outside Botswana. The interviewing of all participants and observers was open-ended, except in the case of the home retailers and home brewers. After sampling, a detailed questionnaire was administered to 304 households representing home brewers, home retailers of sorghum beer and other liquors, and non-retailing households which served as a control group. The details of the sampling and survey procedures are described in Appendix A. The field work took a total of five months to complete. The Chapter 1 8 first month was devoted to obtaining a research permit and to preparatory reviews of existing literature. The actual interviewing and survey work took about three months. The fifth month was devoted to writing up a final report for the government and briefing officials on the findings. It should be noted that, even though three months of actual interviewing seems short, the study benefited considerably from the author's two prior years of close observation of Botswana's sorghum beer business. This long-term interest not only provided many useful longitudinal observations but also the familiarity necessary to focus the field work on areas of particular importance. Because of this, the field work was very much in the spirit of what the Farming Systems literature refers to as a “verification" or "formal" survey (CIMMYT, p.33). That is, the purpose of the field work was to obtain statistically valid data for testing previously formulated hypotheses that had been developed based on an understanding of the technology, economics, sociology and history of the sorghum beer business. Analysis of the survey data included the estimation of important population values (such as the total annual production of home-brewed sorghum beer), cross-tabulations and multiple regression analysis. Hand tabulations of the key pOpulation values and averages were undertaken in Botswana in the course of preparing the report for the Government of Botswana (GOB). The cross tabulations and regressions were performed in the U.S. by computer. Chapter 1 D. ORGANIZATION OF THE THESIS This thesis centers around the case study of sorghum beer in Botswana. Before launching into that case study, however, Chapter 2 supplies background information on two of the main areas, outside of Botswana, in which the present study has a contribution to make. In particular, Chapter 2 describes: a) the status of sorghum beer markets throughout Sub-Saharan Africa; and b) general views on the forces shaping long-term industrial evolution. These two major subject areas form a backdrop on which the findings of the case study can most apprOpriately be framed. The case study itself is housed in Chapters 3 through 7, which consitute the core of the thesis. Chapters 3 through 5 furnish descriptive information about the sorghum beer business in Botswana. Chapter 3 presents an overview of Botswana, its economy and the role of sorghum beer there. Chapter 4 provides basic background on the structure of the supply side of the sorghum.beer market, and Chapter 5 follows with an analysis of the demand issues relating to sorghum beer. It is Chapters 6 and 7 that house the bulk of the economic analysis. Chapter 6 analyzes the economics of production and retailing from the perspective of the individual firm. Enterprise- Chapter 1 10 level finances highlight the incentives facing firms; and this analysis, therefore, flows into a discussion of the conduct of key participants in the subsector. Chapter 7 evaluates the economics of the subsector from an economy-wide perspective. Home and factory brewing technologies are compared in terms of aggregate employment- and income-generating capabilities. Shadow prices are then applied to budgets to compare economic returns in both home and factory brewing. The chapter concludes with a discussion of the overall potential for boosting incomes through increased technical efficiency among home brewers. Chapter 8 provides the synthesis. It ties together a number of common themes that have been woven throughout the case study and the broad contextual analyses. The chapter begins by drawing out the implications of the case study for general trends in industial evolution. The broad diagnosistic and prescriptive analysis from this overview leads into a discussion of policy recommendations specifically related to sorghum beer. These recommendations are provided both for Botswana and for other countries in Sub-Saharan Africa. The chapter next presents a short methodological commentary on the gains derived from adoption of the subsector frame of analysis. The chapter concludes with a summary of the thesis findings. CHAPTER 2 BROAD CONTEXT OF THE CASE STUDY Although this thesis revolves around the case study of sorghum beer in Botswana, the implications that can be drawn from it are not limited to sorghum beer, nor are they limited to Botswana. In addition to a methodological foray to be discussed in Chapter 4, the thesis makes two major contributions that extend beyond the confines of Botswana. The first of these concerns sorghum beer markets throughout Sub-Saharan Africa. At least 23 of the 39 countries in Sub-Saharan Africa house sizeable home sorghum beer brewing industries; and probably 18 do not yet have a significant market share supplied by factory brewers of sorghum beer.1 Since Botswana is significantly further down the road to capital intensification of sorghum beer production than.most, there is much other countries can learn from Botswana about the economic implications and potential pitfalls accompanying the rise of factory-brewed sorghum beer. A second contribution made by this thesis relates to current general understanding of industrial evolution. Numerous observers 1The group of 18 includes Mali, Upper Volta, Nigeria, Benin, Togo, Ghana, Ivory Coast, Chad, Sudan, Rwanda, Burundi, Cameroon, Central African Republic, Kenya, Tanzania, Uganda, Lesotho and Botswana. The 5 that appear to have over a 50% market share supplied by factory-brewed sorghum beer are Malawi, South Africa, Swaziland, Zambia and Zimbabwe. 11 Chapter 2 12 of industrial history believe that, as industrialization proceeds, there is a strong tendency for household and other small manufacturing units to decline in the aggregate at the expense of large factory producers. However, most observers also believe that, in some product lines, the very small-scale manfacturers flourish, while in others fields they atrophy. The present case study is in a position to contribute to these discussions. It provides a current, close-up view of a home industry coming to grips with serious competition from factory producers. The case study can, first of all, supplement existing empirical evidence on which home industries decline and which do not. More important, the availability of good technical, institutional and economic data make it possible to provide some firm indications as to which factors are driving the observed changes in the size distribution of manufacturing firms. The goal of this chapter is to provide the general background information necessary for placing the current case study within these two broader contexts. Background is first provided on sorghum beer throughout Sub-Saharan Africa. A review of conventional views on industrial evolution then follows. Chapter 2 13 A. SORGHUM BEER THRCXJGHOUT SUB-SAHARAN AFRICA 1. Definition of Sorghum Beer Sorghum beer is a soured, fermented drink made with malted sorghum.1 The sorghum malt is combined with a starchy adjunct - usually sorghum, maize or millet flour - to produce a beer, although one significantly different from that with which U.S. consumers are acquainted. One of the most striking differences between the two types of beer is the distinctive sour taste of sorghum beer. It is the production of lactic acid during sorghum beer brewing that accounts for its tangy sour taste. There is a significant difference, too, in alcohol content, with sorghum beer normally containing about 3% alcohol by weight compared with 4.52 in the standard beer consumed in the United States (see Rural Income Distribution Survey, p.48; Novellie 1968, p.27; Schwartz, p.101; Bulse, Table 5.132; Deacon, p.70 and Lender & Martin, p.197). 1 Americans may be puzzled since they commonly associate malt with the grain barley. While barley malt is the malt most commonly used in producing beer in the U.S and.Europe, any grain can, in fact, be malted. Malting involves nothing more than the germination of a grain for several days then the drying and milling of it. The importance of malt in brewing stems from.the fact that, during germination, enzymes not present in the original grain are synthesized. The enzymes created during malting have the property of being able to break down starches into simple sugars, the necessary first step in beer production. It is these sugars, of course, which are subsequently converted into alcohol. Melting is described in much greater detail as part of the technical discussion in Chapter 4. Chapter 2 14 In addition to its sour taste and low alcohol content, sorghum beer is distinguished from U.S. beer by its cloudy appearance. Sorghum beer is an opaque drink, generally pinkish brown in color. Its murky texture results from the large quantity of solid particles and yeast suspended in the beer (Novellie 1968, p.17). While a coarse filtration is performed as part of the production process, the filters used are not nearly of high enough resolution to completely filter out all solid materials present in solution. Because of the solid materials and yeast in it, sorghum beer is a very nutritious drink. It is particularly high in B-vitamins (Novellie 1963, p.29). In order to differentiate between sorghum beer and the more alcoholic, more highly refined beer drunk in the United States, the beer consumed in the U.S. will henceforth be referred to as "clear beer". Clear beer is of only very minor importance in this thesis; and the term "beer", if used without a qualifier, will refer to sorghum.beer. 2. figgghumfgeer and_;§§_Close Relatives Throughout Sub-Saharan Africa Sorghum beer and its very clooe relatives are brewed throughout sub-Saharan Africa. Common to all these beers is a production process involving the use of malted grain to break down starches into fermentable sugars. The beers differ, however, in the type of grain that is malted as well as in the nature of the starchy adjunct Chapter 2 15 used. For malting, sorghum and millet are the two most widely used grains. Maize is sometimes employed, but it does not malt as well as sorghum or millet (National Chemical Research Laboratory, p.24); and maize malt is, therefore, normally only used when sorghum or millet are not available (Bryant, p.274 and Rosenthal, p.55). For the starchy adjunct, unmalted sorghum, millet and maize are most commonly used. On a very localized basis, however, other starches - such as cassava and plantain bananas - are sometimes used. Although by no means exhaustive, Table 2.1 provides an overview of the characteristics of various sorghum and other related grain beers produced by African home brewers. Table 2.2 provides similar information for factory-brewed sorghum and millet beers. For economy of exposition, the plural "sorghum beers" will henceforth be used to refer the full range of beers described in these two tables. 3. The Current Economic Importance of Sorghum Beers Those uninitiated in the joys of drinking sorghum beer will likely be unaware of its considerable economic importance in Sub-Saharan Africa. Originally, sorghum beer occupied a central social and religious role in the grain producing societies of Sub-Saharan Africa. As those economies became increasingly monetized, the production and distribution of sorghum beer has Passed largely into the cash segment of the economies. Conditioned by centuries of sorghum beer consumption, the palate of todays Table 2.1 Characteristics of Home-brewed l6 Sorghum and Related Grain Beers Produced in Sub—Saharan Africa rm . Southern Africa Botswana Malawi South Africa Zambia Zimbabwe West Africa Benin Ghana Ivory Coast Mali Niger Nigeria Togo Upper Volta £32££2l_飣l££ Angola Central African Rep. Chad Rwanda Zaire East Africa Ethopia Kenya Sudan Tanzania Uganda Note: - Sources: Local Name M bojalua ja setswana utshwala j0ula 7-day beer karata zeZuru chapalo pite dolo dolo dolo pito dam raam, dolo talla busaa, pombe merissa, marisa pombe busaa Type of Malt sorghum maize sorghum sorghum sorghum or millet millet sorghum or millet millet sorghum or millet sorghum or millet sorghum or millet sorghum or millet sorghum or millet sorghum sorghum or millet maize sorghum or maize millet sorghum sorghum, maize or millet sorghum or millet millet sorghum sorghum or millet millet indicates no information obtainable. Source of Starch sorghum or maiZe maize sorghum or maize sorghum or maize sorghum or millet maize maize millet sorghum or millet sorghum or millet sorghum or millet sorghum or millet sorghum or millet sorghum sorghum or millet maize sorghum or maize millet plantain sorghum, maize, manioc or millet sorghum or millet sorghum sorghum sorghum or millet sorghum Botswana - survey interviews: Malawi - Miracle 1965, p.137; South Africa - Novellie 1961, p.1; Zambia - Vogel 6 Graham, p.39; Zimbabwe - Mav, p.84; Benin - Sorel, p.166; Ghana - Vogel 5 Graham, p.39; Ivory Coast, Mali 8 Niger — Saul, p.1; Nigeria — Voge] 6 Graham. p.39; Togo — Hulse, et. al., pp.456,809; Upper Volta - Saul, p.l; Angola 6 Central African Republic - Miracle 1965, pp.136,137; Chad - O'Laughlin, p.152; Rwanda - Miracle 1965, p.139 and National Plan. p.216‘ Zaire - Miracle 1965, pp.136,138; Ethopia, Kenya, Sudan, Tanzania and Uganda - Vogel 6 Graham, pp.39,4l and Govt. of Kenya, p.3. .17 Table 2.2 CHARACTERISTICS OF FACTORY-BREWED SORGHUM BEERS PRODUCED IN SUB-SAHARAN AFRICA Local Brand Type of Source of M Name Malt Star ch 1. Southern Africa Botswana Chibuku sorghum maize Malawi Chibuku (sorghum) (maize) South Africa Tlokwe and sorghum maize many others ' Swaziland ‘Imvelo - - Zambia Chibuku (sorghum) maize Zimbabwe Chibuku, sorghum maize Ngwebu and others 2. West Africa Ghana - - - 3. Central Africa none n.a n.a n.a. 4. East Africa Kenya Chibuku - — Tanzania Chibuku sorghum (maize) Uganda (Chibuku) millet - Notes: - indicates no information obtainable ( )indicates an educated guess Sources: Botswana - survey interviews; Malawi - correspondence; South Africa 6 Swaziland — visits; Tanzania - Vogel 8 Graham, p.22 and correspondence; Zambia - Pan, p.110; Zimbabwe - survey interviews; Ghana - Cronje, p.61; Kenya - Cronje, p.249; Uganda - Vogel 8 Graham, p.22. Chapter 2 18 .African is still strongly attracted to the taste of sorghum beer. In fact, today sorghum beer holds a predominant share of the liquor market in many African countries. In meeting the considerable demand for sorghum beer, brewers and retailers generate substantial amounts of employment and income. The amount of income and employment generated depends, of course, on the size of the sorghum beer market. Today, sorghum beer occupies an important position in the overall liquor market of many African countries, particularly in the savanna areas of West Africa and throughout East and Southern Africa. Sorghum beer generally accounts for over half the total volume of alcoholic drinks consumed (that is, sorghum beers + clear beer + wine + spirits); and in terms of value of sales, it normally occupies a substantial market share. For example, in South Africa in 1977, sorghum beer accounted for 74% of the volume of all alcoholic beverages sold and for 15% of total consumer expenditures on such drinks (calculated from Deacon, pp.132,136,247). In Upper Volta in 1970, home-brewed sorghum beer accounted for 432 of the value of all alcoholic beverages purchased (calculated from Planes, pp.33,35,36). Although data on all types of alcoholic beverages are not available, 1972 statistics from Zambia indicate that, on a volume basis, factoryebrewed sorghum beer alone outsold clear beer by a ratio of 1.8 to 1 (calculated from FAO, cited in Pann, p.110). To further underline the important magnitude of sorghum beer Chapter 2 19 production, consider historical evidence on the percentage of total grain consumption taken in the form of sorghum beer. In the Logone Plains of East Africa in the 1930's, approximately one half of all harvested sorghum.was transformed into sorghum beer (Hardy & Ricket, cited in Platt, p.120). In one region of Zambia in the 1930's, approximately l/6th of the grain was used for the manufacture of home-brewed beer (Richards, cited in Platt, p.120). It has also been estimated that, in several hill villages of Malawi in 1939, l/8th of all grain was consumed in the form of sorghum beer (Platt, p.120). Contemporary estimates are equally large. For example, in Rwanda national statistiics indicate that 60% of the country's sorghum production is consumed in the form of banana beer (Third Development Plan, p.216). In Kenya, about three-quarters of the local sorghum production is used in the production of sorghum beer (Vogel & Graham, p.7). ‘Estimates for Upper Volta indicate that 25% of all sorghum is converted into sorghum beer (Planes, p.43). In the capital city of Ouagadougou, that figure rises to 502 (Pallier, p.139). With the rise of factory-brewed sorghum beer, these proportions remain substantial. In Zambia, the manufacture of factoryebrewed beer absorbed 8% of the commercial maize crop in 1972 (FAO, cited in Pann, p.104 who, unfortunately, does not make it clear whether this total includes just sorghum beer or sorghum beer plus clear beer). Chapter 2 20 Given the magnitude of demand for sorghum beer, it is not surprising that the people who supply this large merrket generate considerable amounts of income and employment. Employment generation is one of the most important economic contributions of sorghum beers, especially those that are home brewed. A recent ILO report has stated, "Brewing of 'traditional' beers on a domestic scale may well be the greatest single source of employment - particularly for single women - in some African countries." (ILO 1982, p.69). A number of studies - both current and historical - provide quantative evidence of the important employment opportunities available in sorghum beer production and retailing. Historical evidence, for example, is available for both Tanzania and Zambia in the 1950's. A national accounts study in Zambia in the 1950's found between 72 and 752 of all households selling sorghum beer in the five villages studied (Deane, p.168). Although no employment statistics were provided, a national accounts study of Tanzania in the early 1950's indicates similarly that, "By far the most important 'cottage' industry in Tanganyika (now Tanzania) is home brewing (of sorghum beer)..." (Peacock and Dosser, p.33). More recent evidence is also available, for example in Upper Volta, where a survey of 172 rural households indicated that 552 brewed sorghum beer (Mitchnik, p.31). A comprehensive survey of almost 12,000 non-agricultural enterprises in eastern Upper Volta Chapter 2 21 recently found that 192 of total non-agricultural employment was generated in home brewing of sorghum beer (Wilcock and Chuta, p.458). In Upper Volta's capital of Ouagadougou, it has been estimated that 142 of the economically active women are brewers or retailers of sorghum beer (Planes, p.5). Likewise in Kenya, a 1977 survey of rural non-farm employment activities found that, "the brewing of a traditional beverage, pombe (sorghum beer), is clearly the most prevalent of all non-farm activities..." Half of all rural households were found to be involved in at least one type of non-farm income earning activity, and of these, 13.4% were involved in the brewing of sorghum beer (Govt. of Kenya 1977, p.3 and Tables 1 8 4). These findings hold true in urban Kenya as well. Although they combined brewing of sorghum beer with distilling of harder home-made liquor, a 1970 study in Nairobi found that brewers and retailers of alcohol accounted for 182 of all employment opportunities for families in one large squatter area of Nairobi (calculated from Hake, p.195). In similar fashion, a recent survey of two suburbs of Kampala, Uganda found that 222 of all women earned income from.brewing and distilling. This accounted for 332 of all working women (Obbo, p.126). Home brewing not only generates large amounts of employment, it is also a profitable business which generates substantial amounts of income for the people involved in producing and selling it. In Upper Volta, it has been found that full-time sorghum beer brewers Chapter 2 22 in the capital city earned incomes above the per capita national average (Pallier, p.139). Although he provides no statistics, Little comments on the financial attractiveness of beer selling in Kampala, Uganda by noting that, "although the women of Kampala act as assistants in African-owned shops, none of these occupations can rival the attractions of beer-selling." (Little, p.45). Home brewers and home retailers find sorghum beer related income to be particularly attractive because it is a source of g§§h_ income. Cash is often a scarce commodity essential for the payment of school fees, taxes and other necessities of a monetized economy. In one region of Tanzania, Beidelman (p.542) has noted that, "...it is beer which is the most important ggghrearning commodity." Summarizing from another anthrOpolocial study in Tanzania, it has been said, "that beer selling is the best means which poor people have of securing the gggh_required to buy food in times of want.”(Pan, p.108 paraphrasing Harwood). In Zambia as well, "Beer brewing seems to be an important activity ... in the three areas visited, it accounted for a relatively important proprotion of.gg§h income from local sources." (Deane, p.168). In Nigeria, too, it has been observed that, "Brewing is also a major source of ready.g§§§," (Netting, p.377). Similarly for Zimbabwe, May (p.20) has remarked that, "The proceeds from the sale of beer, traditionally brewed by women, are often the only source of income, the only Eggh procurable for the payment of school fees and equipment." (emphasis added in ,-. v-7 v—fm Chapter 2 23 all above citations). Important to individual brewers, the income derived from sorghum beer production and sales can also constitute a not inconsequential prOportion of GDP. For example, in Malawi in 1945 income from home brewing of sorghum beer accounted for 6% of net territorial output, and in 1948 the contribution of sorghum beer was estimated at 4% (Deane, p.89). In Tanzania in 1954, "craft V industries" were estimated to account for 4% of gross domestic product, and sorghum beer production accounted for the vast bulk of those craft industry earnings. Preparers of those Tanzania national accounts explain that, "Other arts and crafts do not seem very important in magnitude; we have simply rounded up our brewing figures to make allowance for them." (Peacock and Dosser, p.45). Finally, in Rwanda home-brewed banana beer accounted for 9% of GDP in 1970 and for 6.5% of GDP in 1980 (Rwanda National.Accounts, 1970 6 1980). 4. Historical Overview of Sorghum Beer Productigg Sorghum beer has been a prominent feature of the African diet for many centuries at least - and probably for millenia. In fact, it has been suggested that the desire to brew beer may have provided the original stimulus for the development of domesticated agriculture (Braidwood, p.516). In Africa, it is thought that the Egyptians began making grain beer from malted barley from about firwr Wfi, _ Chapter 2 24 3,400 B.C. onwards (Platt, p.115 8 Bryant, p.277). In Southern Africa, sorghum beer production has been prevalent since at least 1505 according to the reports of early Portugese explorers (Bryant, p.279). Likewise, the earliest explorers of West Africa, explorers such as Heinrich Barth and Mungo Park, commented on the existence of sorghum beer in the areas they visited in the mid 1800's (Bryant, p.278). The motivation for brewing sorghum beer and the mechanisms by which it is allocated have evolved considerably in Sub-Saharan Africa over the past five or so centuries. In its broad outlines, the evolution of sorghum beer production and distribution has commonly involved a progression through the following three phases: a) the era of socially-allocated home brewing; b) the evolution from social to cash home brewing; and c) the rise of factory brewing. Each of these phases is described briefly below. a. The Era of Sociglly-gllocated Home Brewing In the earliest centuries of its use, sorghum beers were allocated through social rather than market mechanisms. Although it is difficult to fix exact dates, the era of socially-allocated brewing endured through about the mid-1800's in Southern Africa, with this date being a likely cutoff for much of East and Central Africa as well. In West Africa, however, the era of the entirely social brewing may have ended sooner, perhaps as early as the Chapter 2 25 1300's. The issue of dates is explored in more detail in the discussion of the evolution from social to cash home brewing. During the era of socially-allocated home brewing, sorghum beers were produced for two principal reasons. The first motivation was that of social and household consumption, and the second was to mobilize community labor for work parties (Wolcott, p.69 & Curtis, p.17). Consider first the social role played by sorghum beers. In the grain-producing societies in Sub-Saharan Africa, that social and ceremonial role is of central importance. A multitude of researchers have commented on the importance of sorghum and millet beer in weddings, funerals, birth celebrations, initiation ceremonies, celebrations of the harvest and for festivities of all sorts. As Kringe has said with reference to the Zulu of Southern Africa, "No ceremony is complete unless there is beer; at weddings, at all ceremonies marking the different stages in the life of an individual, there must be beer, and when a man wishes to entertain his friends, he invites them to a beer party..." (in Rosenthal, p.57). Further evidence of the social and ceremonial importance of sorghum beer brewing is provided by Saul (p.1) for Upper Volta, Curtis (p.17) for Botswana, Nolcott (p.71) for Zimbabwe, Netting (p.337) for Nigeria, Sangree (p.10) for Kenya, Gulliver (p.453) for Tanzania, Stefaniszyn (pp.60,62,143) and Richards (p.77) for Zambia, and Middleton (p.576) for Uganda. As indicated by Kringe, part of the social importance of sorghum Chapter 2 26 beer involved day-to-day entertainment of friends and visitors. To brew beer for friends and visitors was viewed as a common social responsibility and was a primary method of status accumulation in many societies. As Huntingford has noted with regard to the Nandi of Kenya, "If a Nandi cannot from time to time give a beer party, even a small party, he will lose social standing; he will be considered mean and will not be asked by his neighbors to partake of beer. He will be, unofficially, but nonetheless effectively, pushed out of his rightful place in the social 1ife..."(in Platt, p.117). Further evidence of the social responsibility for brewing sorghum beer is provided by Sutherland (p.13) for Botswana, by Rosenthal (p.59) for the Xhosa of South Africa, by Netting (p.376,377) for the Koyfar of Nigeria, for the Mossi of Upper Volta and by Richards (p.77) for Zambia. The second motivation for brewing was to mobilize labor in the form of cooperative work parties. In the village economies, it was often important to be able to marshall collective labor for large undertakings such as clearing fields, building houses, plowing and weeding crop fields. A household wishing to obtain assistance for such a task would brew a large batch of beer and invite the rest of the village to work and drink with them. Reference to such practices is provided by O'Laughlin (p.256,267) for Chad, by May (p.20) and Wolcott (p.70) for Zimbabwe, by Curtis (p.17) for Botswana, by Platt (p.118ff for Malawi, by Rosenthal (p.61) for Chapter 2 27 South Africa, by Richards (p.77) for Zambia, by Saul (p.1) for Upper Volta, by Netting (p.377) for the Koyfar of Nigeria, by Vogel & Graham (p.9) for Uganda, and by Barth (1967, p.153) for Sudan. Sorghum beers, with their central role in mobilizing cooperative labor, provided a key lubricant for orienting village social mechanisms towards economic ends. Social mechanisms provided the primary means of allocating sorghum beer among consumers in those early years of sorghum beer brewing. It was generally the men, and among them the elders, who drank first in households and at large village gatherings. Drinking was generally from a large common gourd that was passed frOm one drinker to another. Considerable ceremony was involved in beer drinking, even in a household among friends. Women, in some areas, were not allowed to drink the men's beer, and minors could not drink without the permission of their parents. Evidence on the social allocation of sorghum beer is provided by Solway (p.6) and Sutherland (pp.12,13) for Botswana, Sangree (p.18) for the Tirki of Kenya, Wolcott (p.74) for Zimbabwe, Rosenthal (pp.58,62) for the Zulu of South Africa and Richards (pp.80,81) for the Bemba of Zambia. The brewing technology in the era of socially-allocated brewing was simple (Novellie 1968, p.17; Bryant, pp. 274—276; Schapera, p.14). Exclusively hand methods were used in turning grain into beer. Malting of the grain was done in clay pots or on dampened Chapter 2 28 grass mats. Milling of malt and grain was all done by hand, with a mortar and pestal. Cooking and fermentation both took place in locally-made clay pots. Beer was strained through hand-woven strainers. Thus sorghum beer production was, throughout the era of socially-allocated brewing, a simple, socially-focused activity; and it played a very important role in cementing the social relations that held the village together. b. The Egglution from Social to Cash Home Brewing Of the broad trends taking place in sbrghum beer production, one of the most striking has been the increasing tendency among home brewers to manufacture beer for cash sale. Although this has proceeded at differential rates in different countries and in different regions. The earliest evidence of home brewing for sale comes from West Africa. Both Margin (1912) and Tauxier (1916) indicate that the sale of sorghum beer was common when they visited the West African markets of Upper Volta around 1900 (Skinner, pp.259,260). The monetization of the Sahelian economies during the trans-Saharan trade and the early use of cowries as a currency throughout Vest Africa is likely the cause of this early development of brewing for sale in West Africa. Upper Volta was linked into this trade as early as 1300 A.D., and it is possible that brewing for sale began as early as that. In Southern Africa, cash ‘brewing initially took the form of women providing sorghum beer to men who had migrated to urban areas to work. This probably began Chapter 2 29 around 1850, and certainly by the early 1900's cash brewing was well-entrenched in SOuthern Africa. Rheinalt Jones (p.180) gives an account of cash brewing in Johannesburg in the 1930's; and Richards comments that cash brewing was occurring alongside ceremonial brewing in Zambia in the early 1930's (Richards, p.77). Mackenzie (p.129) indicates that cash brewing was operating in Malawi at least as early as 1925. Evidence from Central Africa is pr0vided by Vansina (p.304) and Stanley (Volume I, p.512) who both indicate that at least as early as 1880 maize beer was being produced for sale in the Tiko area of what is now Congo and Zaire. Evidence for East Africa is limited to that from Gulliver (pp.437,438) which indicates that cash brewing began among the Arusha of Tanzania around 1920. It seems probable that cash brewing would have begun earlier along the coast, likely by 1900 at least. Limited quantative evidence exists on the relative proportions of cash versus social brewing. A single early report is provided by Platt who cites data fr0m three Malawian villages during 1939. At that time, he found that 26% of the sorghum beer produced was brewed for cash sale, while 532 was used in cooperative work parties and 202 was for household consumption (calculations from Platt, pp.18,19). The smattering of more recent evidence suggests that today cash brewing is by far predominant. In Manga village in Upper Volta, Saul estimates that 972 of all sorghum beer produced in 1979 was for cash sale (calculation from Saul, p.8). Chapter 2 30 A number of factors have been responsible for the rise of cash brewing. First and foremost is the increasing monetization of the African economies. Internal long—distance trading led to the development of currency systems long ago. The use of cowries in the Trans-Saharan trade in West Africa, for example, has been common since about 1000 A.D. (Hopkins, p.68). The increasing penetration of European trading shops and monies further stimulated the development of a cash economy. The imposition of head taxes in most of colonial Africa in the late 1800's and early 1900's is commonly cited as a landmark in accelerating the monetization of those economies. For further details, the numerous case studies in Bohannan and Dalton's Markets in Africa provide a good overview of the rise of cash economies in Africa. A second factor promoting cash brewing has been the rapid increase in urban and migrant labor beginning in the late 1800's and early 1900's. This is especially so in Southern Africa, an area in which Cooper (p.26), Sutherland (1976, p.7), Gulbrandson (p.84,85), Platt (p.120) and Koijman (p.92) have all stressed the importance of labor migration in stimulating the rise of cash brewing. Returning mineworkers and urban laborers have injected substantial amounts of cash into rural econOmies. In addition, the migration of male laborers to urban areas and to the mines was in large part responsible for the rise of the female-headed households that are so common in a wide number of countries (see Obbo, p.90 on the Chapter 2 31 prevalence of female-headed households in various African countries). Without men to plow and with school fees, clothes and taxes that all require cash payment, many women have been forced to raise cash with one of the few marketable skills they possess - brewing. Accelerating urban population growth is the third and final important sthmulus promoting the rise of cash brewing. Unlike rural areas where the transition from social allocation of goods and services to market mechanisms proceeded more slowly, the newer urban areas in Africa have tended to rapidly replace social mechanisms with the cash allocation system of the market. While sorghum beer is still used for religious and ceremonial purposes in urban areas (Obbo, p.129 & Wolcott, p.78ff), all studies of urban brewing of which this author is aware - for example Hake, Little, Rheinalt Jones, Obbo and the present study - emphasize that urban brewing of sorghum beer is predominantly aimed at earning cash. Thus, as urban poulations rise, a greater and greater proportion of sorghum beer will be consumed there; and it will be sold for cash, increasing the overall proportion of cash brewing in the country. In sum, the three forces of increased monetization, migrant labor and urbanization are working in concert to foster the rise of cash brewing of sorghum beer. The rise of chash brewing has brought with it several changes in rural life patterns. In Southern Africa at least, the most striking Chapter 2 32 change is that the young are now important consumers of sorghum beer. When young laborers return from the mines or from work in urban areas, they come with cash earnings which they can use to purchase however much sorghum beer they wish. The allocation of sorghum beer has, therefore, come to be controlled according to purchasing power rather than according to social rank and age. The structures whereby the elders had been able to control the allocation of beer have gradually broken down as has the old social system in general. Sutherland (pp.12,13), Solway, (p.6), Gulbrandson (p.85), Wolcott, (p.74), Kooijman (p.11) and Richards (p.81) have all provided evidence on the decline of social allocation of sorghum beer. Recipes have also changed along with the increasing predominance of cash brewing. The sizes of brews, for example, have increased (Novellie 1966, p.1). In addition, many women have come to specialize in sorghum beer brewing. The extreme seasonality that formerly characterized home brewing has been dampened with the advent of steady year-round incomes and demand as well as by the increasing size of marketed grain flows which make raw materials available virtually year-round. Home brewing technology has also become increasingly modernized and refined. Part of the production process has been mechanized with the introduction of hand and diesel hammermills in many villages. A further, and very important, development has been Chapter 2 33 specialization in the manufacture of brewing inputs. Most important, a malting industry has grown up in many parts of Africa to provide sorghum malt to home brewers. Specialization in input suppy has continued, in Southern Africa at least, to the point where it is now possible to purchase a powdered sorghum beer to which the home brewer merely needs add water. c. The Rise of Factory-Brewed Sorghum Beer The culmination of the trend of commercialization, mechanization and brewing on increasingly large scales was achieved when factories began manufacturing sorghum beer itself rather than just inputs used in its production. It is in the Southern African countries of South Africa, Zimbabwe, Zambia and Malawi that factory-brewed sorghum beer developed first; and in those countries, it has grown to the point where factory-brewed sorghum beer controls a predominant amount of the overall sorghum beer market. Factory brewing of sorghum beer began in Southern Africa as part of an effort to provide adequate amounts of drink to the large concentrations of male workers in urban areas and in the mines (Novellie Nov./Dec. 1966, p.1). Factory brewing was first begun, on a very small scale, by the municipal authorities in thbabwe (then Southern Rhodesia) and in South Africa. The township of Salisbury, Rhodesia (now Harare, Zimbabwe) opened the first factory sorghum beer brewing operation in Africa in 1908 and was closely followed by the umnicipality of Durban, South Africa in 1910 (Wolcott, p.23; Chapter 2 34 Novellie 1968, p.17). Commercial brewing really took off, though, in the late 1930's when the South African government banned home brewing for sale in urban areas and required that municipal governments assure the supply of sorghum beer in those areas (White, p.1). In the 1940's and 1950's, private enterprise entered the factory brewing business. They were much stronger in Zambia and Zimbabwe than in South Africa. In South Africa from 1946 to 1953, some private companies did produce factory-brewed sorghum beer; but these efforts were limited, and municipalities now produce all the factory-brewed sorghum beer in that country (Schwartz, p.101). Elsewhere the Heinrich's Chibuku Company, established by a German immigrant named Richard Max Heinrich, was a pioneer in private factory brewing of sorghum beer. This company began brewing sorghum beer in Zambia in the mid 1950’s, and by the mid-1960's they were operating numerous sorghum beer breweries in Zambia and Zimbabwe (Heinrich's Chibuku, p.4). In East Africa, factory brewing of sorghum beer has begun on a limited scale, largely, it appears, due to the expansionary efforts of the Heinrich's Chibuku company. This expansion occurred mainly during the 1960's when the company was owned by the large multinational corporation, Lonrho. Although Lonrho sold the Heinrich's Chibuku company in 1971 (Cronje, p.165), they left a legacy of scattered expansionary initiatives throughout the Chapter 2 35 continent. Chibuku brand factory-brewed sorghum beer is currently sold in Tanzania, Kenya and probably Uganda. Vogel 8 Graham provide (misspelled)1 evidence for Tanzania (Vogel & Grahan, p.22) and Cronje does so for Kenya (Cronje, p.249). In Uganda, Vogel & Graham (p.22) indicate that small factory breweries currently manufacture millet beer. It very possibly carries the Chibuku brand name, since Lonrho did have brewing interests in Uganda according to newspaper account (Rand Daily Mail, February 2, 1982). Unlike East Africa, west and Central Africa have been largely ignored to date by factory brewers of sorghum beer. In all of West and Central Africa, the only factory brewing of sorghum beer of which this author is aware was the brewery set up in Tamale and Obuasi, Ghana by Lonrho in 1969 (Cronje, p.61). It is possible that these breweries have since been shut down ("West Africa", September 20, 1969, p.1126). The legacy of rapid urbanization, heavy concentrations of black wage workers and a strong white settler presence are likely the reasons that factory-brewing of sorghum beer began first in Southern Africa and remains most heavily concentrated there today. 1They state that "oibuku" brand sorghum beer is sold in Tanzania, but this is undoubtedly a typographical misrepresentation of "chibuku ". Chapter 2 36 5. TherCurregt Status of the Evolutionary Spectrum Table 2.3 summarizes the current state of evolution in sorghum beer markets in Sub-Saharanforica. All African countries have been classified by the present author as being at one of five stages of evolution. Within this five-stage classification system, Stage 0 represents a state of affairs in which a country's entire output of sorghum beer is produced by home brewers and is allocated by social mechanisms. Stage 1 is that in which home brewers still produce 1002 of all sorghum beer but in which a substantial proportion of that sorghum beer is produced for sale rather than for distribution through social mechanisms. This stage, thus, represents the beginnings of the evolution from social to cash brewing. At Stage 2, both home- and factory-brewed sorghum beer are sold, although home-brewed sorghum.beer holds a dominant market share. Stage 3 is the point at which the factory-brewed sorghum beer attains a predominant share of the market. At this stage, some home brewing is still carried on to supply low income consumers who cannot afford the higher priced factory-brewed sorghum beer; and a very modest amount of home brewing is carried on for allocation through social mechanisms. Stage 4 is the stage at which factory-brewed sorghum beer supplies 100% of the sorghum beer market. As can be seen from Table 2.3, all countries have evolved past Stage 0; and a large number, particularly those in West and Central Africa, are now at Stage 1, the stage at which the bulk of sorghum 37 .vouam«> omega coco amnuo mouuucaoo scum manoeum< oneness: so“: cofimmaomav so new “xzemuwouaewp cw vouwu mwcavmou co ”mu~o> Home: new owoa .mauowaz .uowaz .«Hm: .coouoemo .umaoo Auo>u .uveuax .mmcox .ncaafiuoam .moauu4 zuaom .scmsmuom ca nHo>ouu no women coausofiuammsao o>«uoofinam "oonaom Aoquasmnoz was manocum .oHameo newv ceaumofiuammoao hwozu cu mm >u¢wMuuooca Hmaucoumnsm mumfixo opozo “a mouufieo mum moauucaou AN newumouuammmao mega cw mmauucsoo o: mwumouvcw I AH "mouoz steam: wasaucmp I I uhcox I I cavam mucosa vase .aom cuoquw< Houucou :oouusoo I I I «cabana I wuHo> yuan: owes aauowwz “an: ounce auo>H I I mango canon I manuaauu cameos vcuauusam oowuw< zuoom ozuomoa I «swam: acoamuom I I w _ _ so»: meow meow wcuamum aneuomm msaawun ammo oaom _noom ssnwuom museum new: loan aneuoom uo mcacauwon mafia .Houooo oaom noun sec: vmuauoaam _ Ithuooh mace hauascueovoum noun 05o: “noun use: HH< Imaamqoom %~co .IIIIIMImNWum n owoum N ommum H owoum o ommum SS .62.: gunman Sofiaoée megs. sums £528 .3 22.5.85 no 325 n.a Manna ouuuu< unum mowum< Hmuucoo mounm< any: moanu< anonuaom acqumooa .n Chapter 2 38 beers produced are manufactured by cash home brewers. Another large group of countries is currently at Stage 2. Factory-brewed sorghum beers have been introduced in these countries but have not yet gained a predominant market share. These countries lie primarily in East Africa, although Botswana, the country that will form the basis for the present case study, also falls into this category. Stage 3, at which the sales of factory-brewed sorghum beer exceed those of home brew, has been achieved by several countries in Southern Africa. South Africa, Zimbabwe, Zambia, Malawi and probably Swaziland fall into this category. No countries have arrived as far as Stage 4, the point at which no home brewers are in business. The reasons for this will be explored in Chapter 6. The important point to be derived from this overview is the following: that Botswana, the country to be used as a case study for the present study, can potentially offer some insights of value far beyond its own borders. Botswana's sorghum beer market is currently at Stage 2 and, as we shall see presently, is rapidly moving towards Stage 3. A number of lessons can be learned from Botswana about the economic impact of the expansion of factory brewing and regarding potentially important policy interventions. These lessons have direct applicability in all African countries with large sorghum beer markets, but especially those at Stages 2 and 1. Thus, most of West, East and Central Africa can benefit from the lessons derived in this in-depth study of sorghum beer in Botswana. Chapter 2 39 B. ON THE ROLE OF HOUSEHOLD AND ARTISAN ENTERPRISES IN INDUSTRIAL DEVELOPMENT 1. Background The case study of sorghum beer in Botswana provides a current example of a household industry reacting to a changing environment - one in which new, larger scale brewing technologies are becoming available, in which incomes are rising and tastes are changing, in which transportation costs are dropping and urban population concentrations are increasing. By providing a close-up view of the transformations that are taking place, the case study may potentially be able to offer some insights into: 1) the empirical question of how the market share held by household producers changes over time; 2) analytical issues regarding the forces which direct those trends; and 3) policy implications flowing therefrom. The case study, too, will benefit greatly by being framed within this broad context. A number of hypotheses regarding trends and forces at work can be derived from a review of the work done to date on the general process of industrial change. A review of this work should, therefore, highlight key issues to consider in examining the sorghum beer case study in Botswana. A wide range of academics and practitioners have examined the question of how the importance of household and small manufacturing enterprises changes over time. In developed countries, a number of historians and economic historians - for example, Toynbee (1964) and Chapter 2 40 Parker (1979) - have paid considerable attention to the decline of household and small industries during the course of the industrial revolution. In addition, a number of industrial organization researchers have compared the size distribution of firms in various countries to determine what factors influence the growth of large and small firms. The works of Banerji (1978), Scherer (1973), Silberston (1972) and Teitel (1975) fall into this category. In developing countries, the role of small and household manufacturers in industrialization has been widely discussed. Hoselitz (1959), for example, provided an early exposition of the issues involved. In addition, Staley and Morse, after many years of industrial promotion work in Asia, produced a book, Modern Small Industry for ngeloping Countries, which provides what is still probably the most comprehensive policy analysis of the role of small and household enterprises in the industrial development of Third World countries. Following these two early works, several large bodies of literature have developed on the role of small firms in industrialization. One such body of writing, the "choice of technique" literature, has grown up around the question of whether or not small firms can provide levels of capital and labor efficiency comparable to those achieved in large finms. Merawetz (1974), White (1978) and Chuta and Liedholm (1979) provide a good summary of the choice of technique literature. More recently, a broad range of institutions - the Chapter 2 41 International Labour Office (1L0), the World Bank and bilateral donors such as the U.S. Agency for International Development - have increased their focus on very small and household firms, primarily because of their potential for employment generation. The rising interest in the very small and household industries has been most commonly associated with the ILO World Employment Programme, particularly their early country missions to Kenya (1972) and the Philippines (1974). With the ILO interest in small, household and artisinal firms has come the new vocabulary of the "informal" and "formal sector". This terminology was first advanced by Hart (1970) (see Mbser, p.1052) but has been heavily promoted by and most closely identified with the ILO (see Bromley, 1978a). Largely mirroring the ILO interest in the informal sector has been the political economy writers who discuss the same issues and situations but who use Marxist terminology and methods of analysis. They refer to the ILO's informal sector as "petty commodity production" and to the ILO's formal sector as "capitalist production". Despite the different vocabulary and analytical orientation, both schools have done empirical work and have contributed to an understanding of the reasons for the shifting size distribution of industrial firms over time. (See Worldigevelopmggg, vol. 6, no.9/10, 1978 for a comparison of the "informal sector" and "petty commodity" analyses.) Thus, in one form or another, the role of household and small Chapter 2 42 manufacturing finms in industrial evolution has received a substantial amount of attention. In order to frame the current case study within the broad context of this literature, three principal questions will be addressed: 1) What empirical evidence is available regarding the importance of small and household firms over time? 2) What are the key forces directing the observed trends? and 3) What are the principal policy implications drawn from these empirical and diagnostic analyses? Each of these questions is discussed in turn. 2. ~Empirical Evidence Empirical evidence on the changing role of the very small and household industrial enterprises has been best summarized by Anderson (1982). He cites time-series evidence from the United States, Germany, India, Turkey, Japan, Korea, Taiwan the Philippines and Colombia and cross-section data for a large number of countries in Africa, Asia, North and South America (Anderson, pp.8-l3). This evidence includes a compilation of information from a number of soruces including Hoselitz (1959), Banarjee (1977), Page (1977), the ILO, various World Bank missions and individual country manufacturing censuses. From all this empirical evidence, Anderson has produced a simple, stylized rendering of what appears to be a common pattern of industrial development. His rendering, reproduced as Figure 2.1, indicates that household and artisinal activities decline in Chapter 2 43 relative importance as industrialization proceeds and that factory producers (both small and large) come to occupy increasingly large industrial market shares. Five comments are required on this general depiction. First, it must be emphasized that the data on the group of particular interest, the household and artisan producers, are not of exceptional quality. They are largely derived as a residual, by subracting data from manufacturing establishment surveys from that obtained in household labor force surveys. Problems of seasonality, underreporting and variable sampling procedures invariably surface to compromise the comparability of the two types of surveys. As Anderson says, "It is impossible to reconcile the series precisely, but it is believed that the inconsistencies are not such as to obscure the changes taking place." (Anderson, p.14). Second, it is important to point out that the vertical axis on Anderson's diagran is calibrated in percentage rather than in absolute terms, so a relative decline in household and artisan employment could be consistent with an absolute increase in their numbers if the overall manufacturing growth rate were high enough. Anderson does, in his text, indicate that in the initial stages of development the household and artisinal firms do increase in absolute numbers while at the same time supplying a decreasing proportion of the market share of output. Subsequently comes a point at which household and artisinal firms decline in both Percentage Sheree at Total Menulecturlng Employment FIGURE 2. a Change: in the Size Structure of Industry Over Time Smell Workshops and Factories 44 A Most African Countries P . t : "‘6" hIlippines. Korea, Europe. ..___. Colombia Turkey , N . M w T.'W.n JODan . ANTON“ | I l I ' I | | Household | | end I Artisanel i | Activities i | i l I i Time i : (or level of I industrialization) Phase I l Phase II Phase III : 4 I ‘3“ at r;— ; l l i I \ l l I i Time Large FeetOries -——---—--—-Ibn__ p—_—_-‘- I l I I l :. (or level of indusrrielizetioni Time (Source: taken directly from Anderson, p.15) ; (Or level of industrializenon) Chapter 2 45 relative and absolute terms (Anderson, p.32). Third, it should be emphasized that the general trends displayed in Figure 2.1 disguise considerable industry-specific variation. Anderson (p.17), Staley & Morse (Chapters 2 & 3) and virtually all other observers emphasize that, as development proceeds, technology, demand, shifting prices and a multitude of other factors work together to generate growth potential in some small manufacturing industries and lead to the obsolescence of others. According to the composition of output, the location of raw materials, dispersion of consumers and a whole host of country- specific characteristics, therefore, the absolute height of each curve will vary from country to country. While carefully pointing this out, Anderson indicates his belief that the points of inflection and general shape of the three curves do appear to be consistently of the form displayed in Figure 2.1 (Anderson, p.14). Fourth, it should be empahsized that Anderson's curves represent trends in manufacturring only; they exclude trade, services, agriculture and all other sectors of the economy. Thus, even if accurate for manufacturing, the conclusions may be misleading when considered in light of a more complete view of the economy. This could be so; because, while the growth of large manufacturing finms may put many small producers out of business, it can also promote the development of a broad supporting cast of small service, retailing or agricultural enterprises. For example, the Chapter 2 46 production of many factory goods - such as automobiles, radios and appliances - generate considerable ancillary activity in small-scale servicing and repair enterprises. Many times, too, centralized large factories require extensive distibution networks; and distributors, particularly at the retail level, are often small firms. Thus, it may be that a broader view of the economy would generate curves of substantially different shape, because large manufacturers may support small-scale activities in non-manufacturing roles. A final comment has to do with definitions. What Anderson refers to as "household and artisinal activities" are variously referred to by other analysts as dwarf industries, microenterprises, cottage industries, the informal sector and petty commodity producers. Since the ensuing discussion will draw on the contributions of a number of bodies of literature, it is necessry to establish from this diversity some standard terminology and translations. In the ensuing discussion, size, as measured by employment, will be the key variable used in categorizing firms. The bulk of the empirical work to date has in fact used number of workers as the basis for firm classification. Use of the size breakdown in categorizing industrial firms, has been adopted by Hoselitz (1959), Staley & Morse (p.14), Anderson (pp.8—13) and a host of government statisticians. It is Kilby (1982) who has most clearly articulated Chapter 2 47 the rationale for using a size breakdown for classifying production enterprise. Kilby provides his defense of size breakdowns as a response to the increasing proliferation of studies adopting the ILO—promoted vocabulary of the "informal sector". He points out that use of the informal sector concept is not particularly useful either for analytical or policy purposes. Size, on the other hand, is a critical variable which, among other things, has a bearing on: scale economies; bargaining power; conditions of entry; and on costs of delivering technical, management and financial assistance (Kilby, pp.42-47). A breakdown of firms by size is, therefore, extremely useful both for analytical and for policy-making purposes. The following size breakdown and terminology will be adopted in the rest of the present analysis: 1. Household and Artisinal Enterprises l.a. household enterprises, those employing less than 10 workers and which take place at home (although not necessarily inside the house ); l.b. artisan workshops/factories, those employing less than 10 workers and whose production takes place at a specialized location away from the proprietor's home; 2. Small Factories 2.a. previously existing small workshOps/factories, those employing between 10 and 100 workers and which have been practiced in the country for a minimum of about one generation; 2.b. new small factories, those employing betwween 10 and 100 workers and which have been introduced within the last generation; Chapter 2 48 3. Large Factories, those employing 100 or more workers. While Anderson may not explicitly endorse such detailed specifications, he does clearly define small and large factories as is done above. The precise employment cutoff for household and artisinal industries and the subdivision of his first two categories are not attributable to Anderson. The subdivision of the first two groups will prove useful for subsequent analytical and policy purposes. It must be admitted that these definitions are aribtrary as, indeed are any others. It is also true that the size cutoff of 5 workers for small firms and 50 for the large are used by some analysts. In defense of the above definitions, one is forced into the refuge sought by Anderson who says, "The precise choice of the dividing line between these groups is unavoidably arbitrary. It is important, of course, that the conclusions to be drawn from the analysis would not change with another (equally arbitrary) choice, which I believe is the case below." (Anderson, p.7). Reconciling the present classification system with the numerous other lexicographies currently in use is the final administrative necessity to dispatch before the contributions made by each group can be martialed towards the common end of consolidating understanding of the causes of industrial evolution. Since Hoselitz (1959), Anderson (1982), Banarji (1978), the bulk of the government statitisticians and numerous other analysts use the same, or very similar, size breakdowns, this reconciliation is only necessary for Chapter 2 49 the "informal sector" and "petty commodity" analysts. Perhaps the easiest place to start is by observing that the informal sector and petty commodity producers are essentially the same. The petty commodity terminology is merely a Marxist label and the informal sector a more neoclassical label for the same thing. In comparing these two bodies of writing, Moser (p.1057) indicates that, "The vast majority of small-scale enterprises, of the type described as being in the informal sector, fit into the category of 'petty commodity production'." In addition to being essentially the same, it is clear from the descriptions involved in the various petty commodity and informal sector studies that both are referring to the smallest size classification in the present system (see Schmitz 1982, p.430). Therefore, the term "household and artisinal" producers or enterprises will be used to encompass what has been referred to as both informal and petty commodity production. 3. Conventional Explanations of the Historical Trends Having coaxed definitions from the various schools of analysis into the current classification system, it is possible to draw on all bodies of literature in synthesizing current understanding of the principal forces responsible for Anderson's observed, stylized trends in industrial evolution. This task is easier than it might appear; because, despite the divergences in terminology and analytical focus, the various schools of observers have reached Chapter 2 50 strikingly similar conclusions regarding the causes of industrial evolution. a. Strengths of the_ggusehold and Artisinalggnterprises. Household industries are the starting point for any discussion of industrial evolution. In the great long ago, virtually all production was undertaken in the home. Shoes were made at home. Yarn was spun, cloth was woven and clothing was produced. Food processing activities such as the production of beer and cheese were also undertaken in each household. Specialization began slowly as some home or artisinal producers began to sell to others in their hamlets. Until the late 1700's, household and artisinal producers were the dominant suppliers of manufactured goods throughout the world. The industrial revolution, which took place in Europe in the late 1700's, is largely a tale of the decline of the household and artisinal industries and the concomititant rise of the factory production system (see Toynbee (1956) or Peters (1968) on the industrial revolution). In the face of competition from factory producers, household and artisinal enterprises showed a durability that surprised many contemporary observers (Staley & Morse, p.45). Several factors allow the household producers and the artisans to maintain a substantial market share for considerable periods of time as they are shown to do in Figure 2.1. Household producers, in particular, benefit from two specific cost advantages. They benefit, first of Chapter 2 51 all, from lower overhead costs derived by producing at home instead of renting or building a separate premises. Secondly, as strongly emphasized by Lipton, is the advantage of the fungibility of household assets - the use of a cart to haul water for beer brewing when it would otherwise sit idle; the use of a dining table for sewing; and so on (see Lipton 1983). Artisan firms do not possess these latter two advantages, which is likely why Staley & Morse (Chapter 3) emphasize that the artisan firms must modernize (develop into Group 2.a.modern small factories) or cease operating. Both household and artisan producers benefit from low labor costs, as they are normally unregulated and can take advantage of low seasonal labor costs and the generally low opportunity cost of the labor of some household members. Furthermore, by using low-wage labor and with lower overhead costs than large factories, both artisan and household producers many times offer profitable opportunities for the development of subcontracting arrangements, producing inputs or final goods on contract for larger firms. As incomes rise over time, a number of new demands arise, and initially at least, the household and artisan producers are sometimes able to meet that new demand. As long as transport costs remain high, they operate protected from large-scale producers. In sum, wage structures, the dispersion of markets and the nature of scale economies in production process can, in many cases, result in long periods of viability for household and artisan producers. Chapter 2 52 b. Conventional explanation of the decline of household and artisangprodgpers. While the these factors can allow household and artisinal firms to compete - and sometimes for protracted periods of time - against factory producers, most observers agree that the ultimate demise of the household industries is only a matter of time. As Hoselitz says so matter of factly, "It is probably not necessary to consent on the rapid decline of handicraft and cottage industries. These industries have been unable to withstand the competition of larger, normally more mechanized establishments..." (Hoselitz, p.604). The reasons for the ultimate decline of household and artisan enterprises are numerous. While it is difficult to do justice to the rich array of commentary on industrial evolution in a brief space, there are several very strong common themes recurring throughout the writings on this subject. On the supply side, economies of scale are generally viewed as the driving force in the decline of household and artisan enterprises and the consequent increasing market share held by factory producers. Technical change, accompanied by falling transport costs and rising incomes, results in the development of increasingly large markets, thereby opening up increasing production Processes to the gains of scale economies. Analysts from.Adam Smith onwards have emphasized the importance of scale economies in industrial evolution. (See, for example, Hoselitz (p.611); Staley & Morse (p.98); Anderson (p.26) and Schmintz (p.160).) As pointed out Chapter 2 53 by many observers, economies of scale exist not only in production but also in management, marketing and input procurement (for example, Anderson, p.26). As markets grow larger and larger, they bring with them the possibilities for large factory producers to manufacture at costs substantially below those achieved in household and artisinal firms. In addition to strictly technical factors on the supply side, the existence of market power excercised by large firms is another factor commonly associated with their rise to prominence and with the consequent decline of small producers. While observers from different ends of the political spectrum differ in the tone with which they describe the advantages of market power, analysts of all persuasions agree that large firms have market power which they use to enhance their competitive position. Staley & Morse (p.99), ILO (1974, p.140), Gerry (p.1152) and Tokman (p.1066) are just a few of the writers who have given examples of the importance of size and market power. Often large finms are able to use their market power to bargain for special advantages such as quantity discounts and special credit terms. They are sometimes also able to demand higher prices for their output than are the smaller firms. Industrial organization literature in the United States largely takes it for granted that large firms will attempt to collude and take full advantage of market power in maximizing their profits. In developing countries, it is the political economy writers who Chapter 2 54 generally highlight such predatory use of market power. They point out that large firms are sometimes able to exercise market power by monopolizing the supply of inputs critical to smaller producers. Gerry (p.1152) gives an example of such a case among shoe makers in Dakar, Senegal. In Tanzania, Bienfeld (p.62) points out how large firms are able to use their considerable financial reserves to temporarily underprice their output in order to drive smaller competitors out of business. These authors, along with many other political economy writers, have adopted what Tokman calls the "subordination approach" (Tokman, p.1066) which emphasizes the efforts of large firms to squeeze smaller competitors, to "extract surplus value" and to either run them out of business or maintain the small finms in a highly tenuous and dependent position. The role of government is another important supply side factor that is commonly credited with fostering the rising market share of large-scale factory producers. Virtually all analysts agree that large firms have been consistently favored by government policies in a large number of developing countries. Chuta and Liedholm (1979, pp.52-64) provide a good overview of the range of government biases in favor of large producers. Large-scale producers, for example, often receive tariff protection and privileged access to foreign exchange (see, for example, ILO (1972, p.140); ILO (1974, p.504). Finance, too, is often artificially subsidized and application procedures directed at large enterprises. Common policies of Chapter 2 55 subsidized interest rates result in banks lending only to large, less risky enterprises, thus often depriving small firms of equal access to institutional sources of credit (see ILO (1974, p.158), for example). Licensing and other legal restrictions have often hampered the operation of the smallest enterprises (see ILO (1972, p.228). Government legislation in some countries has also outlawed subcontracting, a major source of employment in many home industries (Staley & Morse, p.23). Expensive, government-financed infrastructure is commonly supplied in urban areas where it is specifically adapted for use by large manufacturers. There is little doubt that government policy in developing countries has generally benefitted the rise of large-scale firms at the expense of the small. A final important and often mentioned cause of the decline of home and artisinal industries is that of consumer demand. Staley & Morse (p.46) emphasize how the products of many household producers are made obsolete by large factory producers. They give the examples of how demand for well diggers, roof thatchers, farriers (horseshoers) and coopers are made obsolete by the advent of digging machinery, corrugated roofing, automobiles and factory-made drums. In addition to the obsolescence of some products, many authors stress the improved quality of factory-produced articles over those of household and artisinal enterprises. Factory-made cloth (Toynbee, p.372), shoes (Robertson, p.193), carpeting (Cole, p.22) and a whole Chapter 2 56 array of other products were deemed to be of higher quality than home-made substitutes. Thus, as consumers' incomes rise, they switch from home- to factory-made goods. Many commentators have observed that the products made by home and artisinal businesses are, in many cases, viewed by consumers as inferior goods; and as incomes rise the quantity demanded declines.1 Thus, all these forces - especially economies of scale, market power, government preference and consumer demand — work in concert to provoke the decline of home and artisinal industries. Because they cannot benefit from scale economies, household and artisinal firms produce at higher costs than do the factory producers. Because they lack market power, the smaller firms pay higher prices for inputs than do large factory producers. Because of the common network of government preferences for factory producers, the disadvantages faced by household and artisinal enterprises are compounded even further. The resulting decline of the household and 1This view is at the center of Hymer and Resnick's theory of the evolution of "Z-goods", which are largely the output of home and artisinal producers. See also ILO (1972, p.229); Weeks (in Moser, p.1055); and Staley & Morse, p.230 for evidence supporting the contention that these goods are inferior. See Byerlee and King (p.51) and Leurquin, (p.313) for two pieces of contrary evidence. Chapter 2 57 artisinal enterprises takes place largely to the benefit the factory producers, particularly the large-scale manufacturers. The steadily rising market share held by small and large factory producers represents the obverse of the declining importance of home and artisan production. It is the small factories which often develop first and then lead into the development of large factory production units. In the commonly described scenario, markets grow and gradually become large enough to accomodate firms producing on a larger and larger scale. Small factories - either new ones or modernized artisan workshops - rise up to exploit these openings. The small factory producers enjoy scale economy advantages over the home and artisan industries. To a more limited extent, the small factory managers are also able to exercise market power in negotiating contracts; and they sometimes receive special government-conferred advantages, for example in the form of access to subsidized infrastructure, credit or government extension services. More and more small factories develop as larger and larger markets are opened up through the improvements in transportation and rising income levels. As markets grow still larger, the potential grows for further exploitation of scale economies. Either the small factories grow into larger ones, or they become supplanted by large factories who are ultimately able to take full advantage of scale economies. The rise of the small factories is, thus, viewed as the first stage in a Chapter 2 58 process which ultimately results in the dominance of the large-scale production units. 4. Common Policy Implications In recent years, many analysts have been disappointed with the overall economic results brought about by existing trends in industrial development. Many have been particularly disappointed with low levels of employment generated in large-scale manufacturing and with what has commonly become an increasingly skewed distribution of income. In response, advisors and policy makers have increasingly focused attention on small, household and artisinal firms as being potentially better equipped than large firms to meet employment and equity objectives. When government economic priorities lead to a focus on the smallest of the industrial establishments, two broad sets of policy recommendations are normally invoked in response to the preceeding diagnosis. The first deals with existing government discrimination against small enterprises, the man-made factors promoting the decline of household and artisinal producers. The second set of recommendations focuses on the "natural" causes of industrial evolution such as economies of scale and consumer demand preferences. Consider first the responses to man-made policy biases against small firms. Where governments do discriminate in favor of large Chapter 2 59 firms, it is widely agreed they should alter their stance in order to create a more neutral environment, one in which the household and artisan enterprises are not artificially handicapped by government financial, fiscal, tariff and procurement policies. While efficiency-oriented economists are reluctant to recommend discrimination in favor of labor-intensive household and artisinal enterprises, it is widely held that one should at least g9; discriminate ggginst the small and normally labor-intensive producers. A few government policy makers, for example the Government of India, actively discriminate in favor of household and artisinal producers through licensing and other restrictions on large firms in certain product lines. Most economists, however, favor a neutral stance, one which is not discriminatory in favor of either large or small enterprises. This preference for non-discriminatory policies has been clearly expressed by the ILO mission to the Philippines which indicated, ... "There is no reason to be doctrinaire as to the optimum size of establishment. ... We need policies that encourage the development of the most efficient industries, and the most efficient finms, regardless of size." (ILO 1974, p.146). Most recommendations, therefore, concentrate on unraveling the current network of distortions which discriminate against household, artisinal and sometimes small factory enterprises ( ILO (1974, p.148) and IL0 (1972, pp.226-231). The political economy writers, too, agree that current Chapter 2 60 government stances which place household and artisanal enterprises at a competitive disadvantage should be altered. These writers, however, feel that the relationship between owners of large factories and the structure of government preferences in favor of large firms are not coincidental. Therefore, instead of the marginalist approach outlined above, their general feeling is that only a drastic restructuring of political and economic structures will be effective in lifting the current heavy government discrimination and in.mitigating the use of market power by large firms which currently suppress the petty commodity producers. As one writer indicates, "The structure and orientation of the economy has to undergo a rapid and radical transformation..." (Gerry, p.1158). Thus, while disagreeing on the degree of policy change required, both neoclassicists and political economy writers normally recommend shifts in the current policy environment in order to alter the discriminatory nature of the current climate in which household and artisin enterprises operate. The second broad class of policy responses is aimed at addressing the natural causes of the decline of home and artisin producers. Underlying these responses is a general acceptance of the inevitability that large firms will ultimately dominate the production of a.wide range of products. The predominant view is that economies of scale and consumes' desire to buy higher quality products as their incomes rise are natural progressions which cannot (Shapter 2 61 l>e combatted. Since both shifts in demand and the potential for scale-induced cost reductions vary widely across product lines, the policy focus is oriented around picking winners, helping small producers in viable fields modernize and expand to supply the growing markets. On the other hand, in industries where small producers face declining market shares, government efforts, it is felt, should aim at smoothing their exit and subsequent transfer into more promising activities. Staley 6 Morse refer to this general approach as "assisted adaptive response" (Staley & Morse, p.52). In areas that have been identified as particularly promising for the smallest firms, the most common recommendations are to provide financial, technical and management assistance to those firms. Credit reform and the development of agencies capable of delivering funds to very small firms are commonly prescribed as, for example, in the case of the ILO mission to the Philippines (ILO 1974, p.148). Technical assistance is another ubiquituous recommendation for helping to orient and expand small producers. Since small firms do not normally have the contacts or resources necessary to engage in research and development work, governments often shoulder this responsibility. Management assistance and training is also commonly recommended. While not wishing to discriminate in favor of household and artisan firms, many analysts do recommend that government intervention provide institutional Chapter 2 62 support to make it possible for the very smallest firms to benefit :Erom the natural advantages of economies of scale. This is the 'mmtivation, for example, behind the frequent recommendations for 'marketing assistance and for schemes promoting the bulk purchasing of inputs for small producers. Together these efforts aim to orient small, household and artisinal firms into product areas in which they can viably operate. In sum, the common view is that large firms will eventually predominate but that governments should not unnecessarily accelerate the growth of the large firms at the expense of small ones. In addition to maintaining a non-discriminatory policy environment, governments are called upon to help smooth the inevitable transition to large-scale production by assisting those small firms and artisans amenable to modernization and growth and by retraining and reorienting those in hopelessly declining fields. 5. The Role of the Case Study The case study of sorghum beer in Botswana provides an example of a household industry in the process of responding to a changing environment which, like so many others, includes rapid technological change, increasing incomes, changing tastes and declining transport costs. This overview of the empirical, diagnostic and policy analysis from elsewhere helps point to several questions that should be kept in mind when reading through the case study. First is the Chapter 2 63 empirical question. Is the output of home brewers declining or growing, and in relative terms what is happening to their market share? Are the commonly cited economies of scale, government discrimination and negative income elasticity of demand at the root of the obseved trends? Are the commonly prescribed policy interventions likely to be of any use? In responding to these questions, the material in this section offers some clues as to factors of potential importance. In addition, by providing this background it may be possible to use the case study to help refine these standard views on industrial evolution in developing countries. Chapter 2 64 C. CONCLUSION This completes the background description of the prominence of sorghum.beer throughout Africa and of the general views on industrial evolution. These are two areas, beyond the borders of Botswana, in which the present thesis is most appropriately framed. It is in both of these subject areas that the case study has a potentially useful contribution to make. The next major portion of the thesis, Chapters 3 through 7, is devoted to the case study itself. Following the case study, in Chapter 8, the strands of the analysis from Chapter 2 are picked up once again; and it is there that the general implications of the case study are outlined in detail. CHAPTER 3 BACKGROUND FOR THE CASE STUDY OF SORGHUM BEER IN BOTSWANA This chapter innaugurates the case study of sorghum beer in Botswana, the case study which will unfold from here through Chapter 7 of this thesis. Some necessary background is provided beginning, in Section A, with a general examination of Botswana's economy and history. Section B focuses specifically on sorghum beer, describing its current importance and its historical evolution in Botswana. 65 Chapter 3 66 A. OVERVIEW OF THE HISTORY AND ECONOMY OF BOTSWANA The rapid aggregate growth of Botswana's economy over the past 20 years has given it the fastest-growing national income in Sub-Saharan Africa (Accelerated Development in Sub-Saharan Africa, p.144). GDP per capita has grown at a real rate of over 10% per year since 1965 (calculated from Colclough, p.58 6 National Accounts of Botswana 1978/79, p.15). This impressive aggregate growth, however, masks a number of structural weaknesses as will be seen from the following description. Botswana is a land-locked country located in the center of the southern African plateau. As the following map shows, it is bordered by the countries of Zimbabwe, Zambia, Namibia, and South Africa. Botswana is sparsely populated, being about the size of France (582,000 m2) and with a population of 916,000. Eighty percent of the population is concentrated along the corridor that runs along the southeastern boundary of the country. Botswana's population is predominantly rural with 852 of the people living in villages and in small rural settlements (Central Statistics Office, Preliminary Results, 1981 Census). Botswana is an arid country with the Kgalagadi Desert occupying two-thirds of its area. Average rainfall is 16 inches per year, but it is highly variable from year to year (NDPV, p. 3). On average, the southeastern corridor receives more rain than the north and FIGURE 3.3 MAP, REPUBLIC OF BOTSWANA 67 '\. ‘ 00¢] \ ANGOLA \-,,___\__ . ZAMBIA f; 1"" , nguls ' \ ~._. .-.—.-.,w’ l 5""? 0° . “ -—- -._-~.- \ ... CAPSN CFO ° 1 HOBE \ W 35:. . C ZIMBABWE ‘ 06‘"ng "'-"‘;-‘" (SOUTHERN < ZQQLEQLE_:.:’ j}: : x R H0 DE SIA) ‘ - N(3A4AlLAth I \ m -_--,Maun \___ ,7 l __ .3 ‘ 5% «//°@/ —;{‘3iSML \ : --:_::3:§:3:§:3_ P33.” '\ f \ < __ ___________ .J\ Mak:_ayikgag{ Pan \ / .E. _- ....._. 3‘» z _ \\ Orafiii/X ',’ r cistown \ .Ghanz: \ ,a/ i ‘ \ CENTRAL [\b _ F'— G H A N Z ' \ Selebu- \ Serowe f/Phukwe \\ Palag‘ye ' 9':- -- \ /3 \Mahalapy w/é‘Q . _'-'—-'—-___T --------- \ A l K w E N E N G . lI‘ /’ Tshane. r\_‘ M l I | 'KGAT NG : Jwan\g‘v2c:‘;° o o udi K G A L A G A 01 ._S_OU_THERN ‘ °'°"" Kanye / Tshabong' REPUBLIC OF - SOUTH AFRICA Road —==— Railway — - —- International Baundafv — —— District Boundary 9——-—1-0L—-—402'00 km l'"—‘“'% O 100 miles Chapter 3 68 western parts of the country. Except for the Okavango Delta in the Northwest, surface water is scarce. The vegetation covering most of the country is scrub and tree savanna. Only five percent of the land in Botswana is arable (NDPV, p.3). While crop production is marginal except in the Southeast, much of the country is well-suited for raising livestock. The transportation network in Botswana is reasonably adequate, and it is improving rapidly. There is a good highway running north and south along the eastern border, and it will soon be paved all the way to Zambia. Other main roads, however, are mainly dirt and sand tracks. The railroad that runs along the southeastern border is a key transportation link. It connects Botswana with the rest of the world, on the southern end via South Africa and its ports and on the northern end with Zimbabwe which, via Mozambique, provides a second outlet to the sea. The railroad is a key economic link, and it has played a major role in Botswana's political history as well. Except for a very sparse sprinkling of nomadic hunter- gatherers, the area that is now Botswana was largely uninhabited until the 18th and 19th centuries. During this period, several waves of the Bantu-speaking Tswana peoples migrated into the area, often having been pushed there by movements of hostile black Africans or by land-hungry Boers (white descendants of the Dutch settlers of South Africa) (Colclough, p.7). The area now called Botswana was largely a political backwater Chapter 3 69 until the late 1800's when it acquired a strategic importance in southern Africa. As activity increased in the British colonies of Northern and Southern Rhodesia (now called Zambia and Zimbabwe), the territory occupied by Botswana became a main thoroughfare leading from.the British Cape Colony to the British colonies in Rhodesia. In order to protect this key tranport route from potential German incursions from the west and from Boer intrusions from the east, the British established the Bechuanaland Protectorate in 1885. The railroad along Bechuanaland's southeastern border was completed in 1897 providing the important rail link between the Cape Colony and Rhodesia and further cementing Bechuanaland's strategic importance. The Bechuanaland Protectorate was granted independence in 1966, and thus the country of Botswana was born. Botswana is, and has always been, a black-ruled, democratic state. Its foreign policy has been molded from a blend of two different forces — a political and ideological bond that ties it closely with black Africa, but this tempered by the pragmatic acceptance of intimate economic links with South Africa. Thus, while Botswana condemns apartheid (the strict racial segregation practiced in South Africa) and even refuses to exchange diplomatic representatives with South Africa, Botswana's geographic position and resource endowments dictate a high degree of economic interchange with South Africa. The economic history of Botswana is one of transition from an impoverished, cattle-dependent economy to a propserous one paced by Chapter 3 70 rapid, mineral-led growth. Before about 1900, cattle raising, crap production and hunting were the predominant economic activities. In a marginal crop-producing area such as Botswana, cattle rearing has always been the predominant partner in the agricultural economy. During the period of the Bechuanaland Protectorate, the British made very little effort to promote economic development in Bechuanaland. They spent next to nothing on infrastructure, education, or health; although they did spend small amounts on veterinary services (Colclough, p.31). Probably their main economic influence on Bechuanaland resulted from the Hut Tax they imposed on residents from.1899 onwards. This tax was extremely important in stimulating the growth of a pervasive feature of Botswana's modern economy - labor migration to South Africa. By 1950, 30,000 Batswanal were employed in South Africa, while only 10,000 found wage employment inside Botswana (Colclough, p.32). Given Bechuanaland's harsh physical environment, its apparent lack of natural resources and its dependence on remittances from migrant labor, it is not surprising that at independence there was widespread pessimism regarding the country's prospects for economic survival. However, since independence in 1966, Botswana has confounded the pessimists. GDP per capita has grown at a rate of over 10% per year since 1965; in today's prices, GDP per capita has increased 1The pe0ple of Botswana are called the "Batswana". Chapter 3 71 from $200 in 1965 to $800 in 1979 (Colclough, p.58 and National Accounts of Botswana 1978/79, p.21). This growth results from expansion in two main sectors, minerals and cattle. As Table 3.1 indicates, growth in the mineral sector has been extremely rapid. Over the past 15 years, Botswana has become one of the world's leading diamond producers as well as an exporter of copper and nickel. It also has some of the world's largest coal deposits, and these are scheduled to be exploited in the very near future. Outside of minerals, agriculture has grown rapidly; but this is almost totally due to increases in cattle revenue. The importance of cattle in Botswana's overall growth can be demonstrated by two facts. First of all, cattle sales typically account for 80% of value added in agriculture (National Accounts pp. 27,29 and 31); and secondly, one third of manufacturing income is derived from the Botswana Heat Commission, the parastatal responsible for exporting all Botswana's beef (NDPV, p.13). Growth in Botswana's cattle income was initially the result of good weather - the 5-years of drought that ended at independence. Improvements in veterinary services have also helped, but the cattle industry received its major boost as the result of a favorable marketing arrangement made in 1975 with the European Economic Community (Colclough, p.51). This agreement, made under the Lome Convention, results in Botswana's receiving 100% over world prices for their beef exports to Europe. Table 3.1 72 BOTSWANA'S GROSS DOMESTIC PRODUCT (in millions of 1982 dollars) Sggtgg 1265_ 1978 79 Agriculture $44 34% $130 18% Minerals 1 1 176 24 Manufacturing 15 11 64 9 Services 8 6 65 9 Government 18 14 94 13 Construction, 42 _3_4_ 29_ __2_8_ hotels & other Total 131 100% 738 100% Source: Colclough, p.58 and National Accounts 1978/79, p.21 Chapter 3 73 Botswana's current economic position is closely tied to South Africa. Since the 1890's, Bechuanaland, and subsequently Botswana, has been joined in a customs union with South Africa. Today, the Southern African Customs Union Agreement allows for free movement of goods among Botswana, South Africa, Swaziland and Lesotho. Although this makes it difficult to protect domestic industries, the Botswana Government feels that the financial incentives built into the customs union agreement outweigh the disadvantages. This is because the formula for allocating revenue received from the common customs revenue pool provides Botswana with a 140% of its share of the revenues. In 1978/79, the revenue from the customs union amounted to 30% of government revenues (calculated from NDPV, p.34). The customs union reinforces the tight economic links between Botswana and South Africa. For example, in 1980 over 85% of Botswana's imports came from the Common Customs Area, the bulk of these from South Africa (1980 External Trade Statistics, p.27). Botswana is still heavily dependent on South Africa as an employer of migrant labor, but the scale of migrant labor movements has been declining rapidly over the past 10 years. The total number of Batswana workers in South Africa has declined from a high of 70,000 in the mid-1970's to 25,000 in 1979 (Colclough, p.171 8 Field, Table 13.1). That 25,000 acccounted for about 25% of Botswana's wage labor force (Field, Table 13.1). The number of Batswana laborers employed in South Africa will continue to fall, as Chapter 3 74 South Africa has announced its intention to phase out the hiring of Batswana workers in an effort to provide jobs for its own black population. Having for so long depended on South Africa as an employer, Botswana now faces a major challenge in trying to provide domestic work opportunities for the former migrant workers. In monetary matters, Botswana has broken free from its links with South Africa's currency, the rand. Although originally part of the rand monetary area, in 1976 Botswana broke away and established its own money, the pula, which currently floats against a basket of currencies. From 1976 through mid-1981, the pula has appreciated steadily against the South African rand and the U.S. dollar. Since mid-1981, the slump in the world diamond and copper prices has led to a substantial decline in foreign exchange earnings that finally forced the Botswana Government to devalue the pula in early 1982. The pula is currently worth 90 0.8. cents. In spite of its rapid aggregate growth, Botswana has been left with an increasingly skewed distribution of income and wealth. Consider first the disbtribution of wealth. Cattle ownership is commonly used as a proxy for wealth in Botswana, and cattle ownership has become increasingly skewed over time as can be seen from Table 3.2. In 1975, the last year for which reliable figures are available, the wealthiest 2% of rural households owned 35% of the cattle and the top 15% of the households owned 94% of them (Rural Income Distrbution Survey, p.111). The distribution of 75 Table 3.2 DISTRIBUTION OF CATTLE OWNERSHIP IN BOTSWANA Number of Qgttle Owned Percentage of Rural Households .1_9_£L3_l_9_7_5. None 7% 45% 1 - 9 19 20 10 or more _J§ 1§_ Total 100% 100% Source: for 1943, Schapera, Migrant Labor, p.133; for 1975, Rural Income Distribution Survey, p.111. Chapter 3 76 income is also highly skewed. Again in 1975, the Gini coefficient for rural Botswana was .52; and three-fourths of the rural households had below income below the mean. (Rural Income Distribution Survey, pp. 78,86). In summary, Botswana's economy has been characterized by rapid aggregate economic growth since independence, although growth has fallen off in the past year due to a drOp in the world diamond and copper prices. Its growth has been concentrated mainly in two sectors - minerals and cattle; and it remains a predominantly rural country with wide disparities in the distribution of its income and wealth. The principal challenges facing Botswana today are those of broadening its economic base and addressing the problem of the inequitable distribution of income and wealth that is accompanying its rapid overall growth. Chapter 3 77 B. THE ROLE OF SORGHUM BEER IN BOTSWANA 1. The Economic Importgnce of Sorghum Beer Sorghum beer holds a not insignificant position in Botswana's economy. The local market for sorghum beer is large, and the businesses that supply this market earn sizeable amounts of income in so doing. Even.more important than the aggregate income generated from sorghum beer is the fact that much of this income is earned in rural areas and by mediumr and low-income groups within the population. The demand for sorghum beer in Botswana is substantial. Per capita consumption in 1981 was 30 gallons which is 40% higher than U.S. per capita consumption of clear beer (Botswana figures, Table 5.1; U.S. consumption from Elzinga, p.224). Consider, too, the disposition of Botswana's two principal cereal foods, sorghum and maize. In 1980, 15% of all the maize and sorghum consumed in the country was taken in the form of sorghum beer (calculation from survey data plus Ministry of Agriculture statistics). Given the magnitude of the demand for sorghum beer, it is not surprising that the first modern manufacturing industry established in Botswana was set up to supply this huge sorghum_beer market. Millions of pula in income are earned every year by the companies and individuals that supply Botswana's sorghum beer Chapter 3 78 market. In 1981, these individuals and companies earned a total of P 11 million (Table 7.3). Sixty percent of this was earned directly by brewers and retailers; while the remaining 40% was earned by individuals and companies that supply inputs such as malt, milling and fuel to brewers of sorghum beer. This sorghum beer-related income accounted for 1.2% of Gross Domestic Product in 1981 (Table 7.3 plus depreciation; National Development Plan V, p.54). Large numbers of people earn income from brewing or selling sorghum beer. In villages, 50 to 90 percent of households normally brew sometime during the year (see Dixey, p.166; Hamilton, p.186; Kjaer-Olson p.5; Opschoor, p.34; Vierich & Shepard, p. 101; & Kooiijman, p.205); and probably 30% do so regularly (see Hamilton, p.186 & Kjaer-Olsen, 1978, p.5). In low-income urban neighborhoods, approximately 15% of the households regularly brew or retail sorghum beer (calculated from Peri-Urban Study, pp.37,48 and from survey data). More important than the aggregate income it generates and more important than the absolute numbers of people earning sorghum beer related income is the fact that much of the earnings from sorghum beer accrue to important yet difficult-to-reach target groups - the rural dwellers and the low income groups. Rural inhabitants, for example, earned three-fourths of all income generated from the sale of home- and factory-brewed sorghum beer during 1981 (Table 7.5). In aggregate terms, earnings from l Chapter 3 79 home-brewed sorghum beer alone accounted for roughly 3.5% of total rural earnings in 1974/75 (Rural Income Distribution Survey, pp.52,78 combined with survey data on linkages and survey estimate that 80% of home brewing is sorghum beer). Income distribution effects are equally important. In 1981, poor and medium income groups earned three-fourths of all income generated by sales of home- and factory-brewed sorghum beer (Table 7.6). This income was found to be particularly important for female-headed households. Female-headed households are generally regarded as being economically disadvantaged (Kossoudji and Mueller, 1983), and numerous observers have comnented on the importance of sorghum beer income to such households (Schapera, p.225; Egner, p.64; Gulbrandson, p.11; Sutherland, pp.4,5; Curtis, q.20; RIDS, p.49 and Wolcott, p.227; see Appendix C for elaboration). The present survey data indicate that on average male-headed households earn 8% of total household income from sorghum beer, while for female-headed households that figure rises to 23%. It is perhaps appropriate that the migrant labor system that characterized Botswana's economy and which led to the phenemenon of the female-headed household should also contribute to the rise of a cash brewing system that provides partial support for those households. Chapter 3 80 2. The History of Sorghum.Beer in Botswana Sorghum beer has a long history in Botswana. It has been brewed at least since the eighteenth century with the in—migration of the Tswana peoples (see Rosenthal, p.51 & Colclough, p.7). Since that time, trends have closely followed those in evidence throughout the rest qf Sub-Saharan Africa. Until about 1870, Botswana's sorghum beer market was at Stage 0, the era of socially-allocated home brewing. Home bewers supplied the entire sorghum beer market; and both motives for brewing as well as allocation methods were socially oriented (Curtis, p.17; Solway, p.6; Wolcott, pp.69,74; and Rosenthal, p.58). It was in the late 1800's that Botswana began the transition to Stage 1, the era of cash home brewing. The increasing penetration of trading shops in Bechuanaland around 1830, the introduction of a Hut Tax in 1899 and the beginning of sizeable labor flows to the South African mines around 1870 (Schapera, p.7) all contributed to the growth of a cash economy and hence to the rise of cash brewing. The labor migration to South Africa was particularly important, it being in large part responsible for the rise of the female-headed household with limited economic options outside of brewing and responsible as well for providing a stream of returning mine laborers with ready cash and a thirst for home brew (Cooper; Sutherland 1976, p.7; Gulbrandson, pp.84,85; and Kooijman, p.92). As elsewhere, the rise of cash brewing has brought with it the allocation of sorghum Chapter 3 81 beer based on ability to pay rather than on social rank and age; and this has resulted in a dramatic increase in drinking by young adults, particualrly young returning mineworkers (Sutherland 1976, pp.12,133; Solway, p.6; Gulbandson, p.85; Wolcott, p.74 and Kooijmann, p.11). Within the past 30 years, the mechanization and technical change that has developed in sorghum beer brewing in other parts of Africa has also reached Botswana. Part of the home brewing business has been mechanized with the introduction of hand and diesel hammermills in many villages. A malting industry, initially in South Africa and now also in Botswana, has grown up to provide sorghum malt to home brewers. Today it is even possible to purchase powdered sorghum beer to which the home brewer merely needs to add water. In the mid-1960's, Botswana entered Stage 2, the period of the rise of factory-brewed sorghum beer. Beginning as early as it did, factory brewing of sorghum beer became the first modern manufcturing industry in the country (interview with Ministry of Commerce & Industry Licensing Officer). The first factory brewing in Botswana was a very small beerhall operation run by the Tati Company in Francistown in about 1964. The Heinrich's Chibuku Company, however, quickly moved in; and it is they who really launched factory brewing of sorghum beer in a big way. Chibuku brand sorghum beer was first produced in Botswana in 1965, athough other brands have also been Chapter 3 82 produced at various times. In the early 1970's, for example, one company brewed sorghum beer in the village of Mmadinare for a short time; and one did so in Palapye for about an 18-month period starting in 1975 (personal interview with former brewer). Today Botswana Breweries is the company that has the rights to the Chibuku trademark in Botswana, and it is currently the only commercial manufacturer of sorghum beer left in the country. New management took the helm at Botswana Breweries in 1979, and since then they have run an aggressive progran of expansion. Today Chibuku and a South African import, Tlokwe, are the only two commercial sorghum beers available on the Botswana market. Currently, factory brews are continuing to expand sales and home brewers are in the process of adjusting to the new market situation. The remainder of this case study is aimed at describing this evolution, unraveling its internal dynamics and assessing its economic impact. CHAPTER 4 THE STRUCTURE AND BASIC CONDITIONS OF THE SORGHUM BEER SUBSECTOR This chapter provides a review of the structure and basic supply conditions in Botswana's sorghum beer subsector. The basic conditions on the demand side of the market are discussed separately, in Chapter 5. Basically descriptive, the information in the present chapter provides a foundation necessary for understanding the dynamics of the sorghum beer business and for informed policy intervention. Section A of this chapter begins with a description of the basic conditions on the supply side of the sorghum beer market: product characteristics, the technology of production, the mechanics of retailing and the regulations affecting sorghum beer. Section B then provides a definition of the subsector approach, the analytical framework that will be used in the present case study. Section C describes the structure of the soghum beer subector; it enumerates the participants, decribes their relationships to one another, and quantifies the size of the material and product flows within the subsector. 83 Chapter 4 84 A. BASIC CONDITIONS AFFECTING THE SUPPLY OF SORGHUM BEER l. ghgggcteristics of the Product Sorghum beer receives its name because sorghum malt is so important in its brewing process. The sorghum malt is used, first of all, to convert grain starches to sugars; and then in home brewing, it is used as a source of yeast to convert those sugars to alcohol. In addition to sorghum malt (and malted millet in northwestern Botswana), the raw materials used to produce sorghum beer include unmalted sorghum, corn or millet as well as yeast and water. As was emphasized in Chapter 2, slight variations of the sorghum.beer brewed in Botswana is produced throughout Africa under many different names. Sorghum beer is the traditional alcoholic drink in Southern Africa where it has been referred to at various times as kaffir beer, bantu beer, opaque beer, and now is referred to as sorghum beer. While sorghum beer is the English name for this beer, in Setswana, the other official language of Botswana, sorghum beer is called "bojalwa ja setswana". Several of the physical characteristics of sorghum beer have important implications for the methods used in producing and distributing sorghum beer. Most significant is the fact that sorghum beer has a shelf life of only about three days; if left Chapter 4 85 unconsuned beyond that point, excessive amounts of acetic acid and unwanted microorganisms are formed altering the taste of the beer unacceptably. Sorghum beer is sold in an actively fermenting state which means it must be shipped in vented containers, making transport both messy and difficult. It also has a very low value for weight. Unpackaged (or bulk) beer retails for 14 thebe a liter which comes to about 60 U.S. cents per gallon or 5 cents per 12 ounce serving. Even packaged sorghum beer retails for only 7.5 cents for 12 ounces. Together, these product characteristics have a profound influence on the strategies used for distributing ad producing sorghum beer. 2. Technology of Production The production of sorghum beer, both in back yards and in large factories, is based on tribal recipes that are centuries old. These recipes have been passed down and refined, particularly over the past 50-or-so years by cash brewers who began producing beer more often than they had previously and in larger and larger batches. Factory brewers, initially operating on the same scale as home brewers (Oxford, p.315; Wolcott, p.23), have refined these recipes even further. Gradually, the factory operations came to use larger and larger brewing vats, but they retained the same basic brewing process practiced by the home brewers (Novellie Nov. 1966, p.1). In the 1950's, industrial chemists began to carefully study the (Zhapter 4 86 1>iochemistry of sorghum beer production; in fact the South African (Sovernment set up a Sorghum Beer Institute in 1954 specifically for ‘this purpose (Novellie 1968, p.27). Private companies, particularly the Heinrich's Chibuku group, have also engaged in such research, and great advances have been made over the past 30 years in understanding and refining brewing procedures. Even so, the fundamental processes used today by home and factory brewers remain remarkably similar as will be seen below. a. Malting Production of high-quality malt is the single most important step in successful brewing. For this reason, the first substantial research efforts on the technology of sorghum beer brewing focused on the study of malting (Novellie Nov. 1966, p.1). Malting simply involves the germination of grain followed by its drying and milling. The process of germination causes the production of enzymes, called amalyses, that are not present in the original grain. It is these enzymes in the malt that break down grain starches into simple sugars. Malt which contains a large amount of sugar-forming enzymes is said to have high diastatic power. Use of high diastatic malt is the key to economy in brewing, because alcohol production is directly dependent on the amount of sugar available for conversion into alcohol. With poor-quality malt, a brewer must use a large amount of grain and/or a large amount of malt to produce a given (Zhapter 4 87 amount of sugar. However with high-quality, high-diastatic malt, a I>rewer can economize by using less grain and less malt to produce the same amount of sugar. Good malt is, therefore, critical to efficient brewing. Until about 1950, all home brewers made their own malt as the first step in making sorghum beer. Today, 70% of the home brew produced in Botswana is made with home-made malt, while factory-made ‘malt is used in the remaining 30% (calculated from survey data). The factory~made malt is used by virtually all home brewers in urban areas and by some rural brewers as well. It is used by urban brewers because they often do not have enough space for spreading home-made malt out to dry and because hammermills necessary for milling the malt once it is dried are normally not available in urban areas. In rural areas, factory-made malt is used to some extent by regular home brewers who appreciate its higher diastatic ‘power, and it is also used by infrequent brewers just before harvest ‘when grain supplies are low and it is expensive to buy grain for malting. The 70% of home brewers who make their malt do so as follows (Bryant, pp.274,275). They first soak their sorghum grain for about 12 to 24 hours. After the grain is thoroughly soaked, they place it in a pot or in a damp grass basket which is left in a.warm place. The grain is allowed to sprout for about 2 days in the summer and for about 3 days in the winter when it is cooler. After the shoots (Shapter 4 88 sand roots are about 3/4 of an inch long, the sprouted grain is spread out on the ground to dry. After drying, the sprouted grain is milled either by stamping with a mortar and pestal or by grinding in a hand- or diesel-powered hammermill. Factories making sorghum beer also made their own malt in the early days of the factory brewing industry (Novellie Nov. 1966, p.2). In the mid-1940's, however, a specialized malting industry began to develop to support the factory brewers and the growing demand from regular home brewers. The Sorghum Beer Institute in Pretoria did extensive research on malting techniques from 1954 onwards (NOvellie 1968, p.27) and was in large part reaponsible for the increased effeciency of that industry. As the malting industry became more and more efficient at supplying consistently high quality malt, factories brewing sorghum beer stopped doing their own.malting and began contracting with specialized producers for ‘malt at precise diastatic specifications. Today, all factory brewers purchase factory-made malt (Novellie Nov. 1966, p.2). Factory-made malt is produced in two basic ways. Historically, the first method used was floor malting, which is essentially the same process used by the home maltsters. In floor malting, the grain is first soaked then spread out on cement floors and allowed to germinate. The germinating grain is kept damp and turned with shovels periodically to provide adequate aeration. As in home malting, the germination time with this method is dependent on the (Zhapter 4 89 vveather. When the sprouted grain has reached the desired degree of t;ermination it is spread out on the ground to dry, and when dry it is milled and packed for distribution. Malt made in this way is called "trade malt". The second method of malting is performed indoors with a substantial amount of specialized equipment. Rather than spreading soaked grain out on the floor to germinate, malting is carried out in a saladin box, a special piece of equipment that allows for strict control of temperature, moisture and aeration at all stages of the malting. Turning of the malt is done by mechanical means, and drying is performed by heaters and fans. This method generally produces the highest quality malt which is called "municipal malt" (Novellie 1968, p.20). Although it was not always the case, factory brewers today normally use only municipal malt in their brewing. Several factors are important in the production of high quality sorghum malt. The most important factor governing diastatic power in malt is genetics (Daiber 1980, p.1). Certain varieties of sorghum produce good malt and some do not. Much of the research on malting has, therefore, concentrated on the study and breeding of sorghum varieties with good malting characteristics. Two other factors important in determining diastatic power are moisture content and temperature during malting. A temperature of between 25 and 30 degrees centigrade (77 to 86 degrees farenheit) has been found to be optimal (Novellie 1968, p.20); and since the weather in Chapter 4 90 Southern Africa lies near that level for much of the year, carefully-handled outdoor or floor malting can produce very good malt (Grieff, p.1). While home malting and floor malting can produce high quality malt if the right sorghum varieties are used and if done carefully, the sophisticated commercial malting produces consistently high-quality malt and is preferred by the factory brewers. b. The Basic BrewinggProcess Production of sorghum beer involves the transformation of grain starches into sugar and then converting those sugars to alcohol. While this same basic sequence underlies the production of clear beer, there are several important differences in the way sorghum beer is made. First of all, sorghum beer production involves two fermentations - a lactic acid fermentation and an alcoholic fermentation (Novellie 1968, p.21). The production of clear beer involves only the alcoholic fermentation. Secondly, clear beer has all the solid matter filtered out prior to bottling. Sorghum beer, on the other hand, has only the largest particles of solid matter filtered out and retains a large amount of solids in suspension in the beer. Finally, clear beer is pasteurized while this is not done in sorghum beer production because it would kill off the yeast and alter the flavor of the beer unacceptably (Keddie & Cleghorn, p.90). The first step in sorghum beer brewing, the lactic acid formation, is extremely important. To a large extent, it performs Chapter 4 91 the same function hops does in clear beer - it flavors and preserves the beer. Lactic acid flavors the beer by producing the sour taste that characterizes sorghum beer. Consuners have grown to appreciate this sour taste and demand its presence. In addition to flavoring, lactic acid plays an important role in the biochemistry of sorghum beer production. The highly acidic solution created by the lactic acid is a natural preservative; most pathogenic bacteria will not grow at the ph at which sorghum beer is produced. This helps prevent the brew from spoiling by inhibiting the growth of unwanted microorganisms. The lactic acid also softens the proteins which enclose the granules of starch and thereby allows for a faster and more complete breakdown of starches into sugars. The subsequent stages of the brewing process, as well as the similarities between home and factory brewing, are most easily explained in tabular form. This is done in Table 4.1. It should be emphasized that hone brewers do not all follow identical procedures. The general home brewing process laid out in Table 4.1 is, however, commonly used throughout much of Botswana, in rural as well as urban areas. The similarities between hone and factory brewing are readily apparent from Table 4.1. Particularly important is the observation that home brewers, from their long experience over the years, have refined their brewing process so it comes close to achieving the ideal temperature ranges for each set of procedures. 92 cowpaowcumac no» mcmucmoucou xpsa cw two, to momxoma .ocpucmeLwe pawum w_wzz Amino; m - o to» ucoELme ou zeppm momma» new mowm ou Pooo ”cameum cowuznweumwu com mewcwmucou xpaa :v umop co wamxumg .mcwpcmEwa Pawum open: "vowing «toga cow ucmELme ou zoppm «ammo» one n.a oom cu mcauxwe Poou ”camcum m>com new graham amaze; om . 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Non Noe Now Immmame Assn some I wacm>wh Kwu moo so“: mu«>umm co comma mumaaumm Now Nee New No~.ma unwashw>ow Hmuucwu I . afiuoun .auou maoa>uouca no woman macawumm NooH No no one .mHOumo>n« oum>fiun I emcee xan ecu to consanunumae use an masseuse NON Nee Noe soo.mn Samoan usumusoe one I = No NooH No Hon.fi assess: eoHHsam I = no no woos moo.o Susana: own: essence I mucnooon vocmwfipsm wwwhw3mum acm3wuom £ufi3 COmquHamcou vcm Human Ahmaoun sues m3mw>umu¢w co momma mumEaumm Noofi No No owH.< m momma unmamwmcne I ceauosvoum .s ACES uzgem EOE: .N ouusom A+ Nose mama I was Reno I om saunas sedans: Loam Esucoz uoom use oEoocH Aeoacuncouc n.a oases Table C.4 BOTSWANA'S RURAL INCOME DISTRIBUTION SURVEY, EVIDENCE ON HOME BREWING AND INCOME DISTRIBUTION, 1974 Percent of total household income Percent of total home brewing in come Percent of total rural households Percent of total rural income Source: calculations from Dahl's (1980) breakdown of the Number of Cattle Owned Per Household o - 9 1o - so §g_1, ,ggggl 5.22 1.6% .12 2.22 61% 372 2% 100% 64% 32% 4% 100% 27% 46% 27% 1002 Rural Income Distribution Survey (RIDS) data, various tables. 333 334» 36am; + csmuow + amenafizo Hoozumm + mmmaom + m Hamam I mommaafi> echo: I amusx HH< amps: mmmum Ha< wmu .m mmmmaaw> HHmEm I mmmeHH> acnmz I Hausa HH< amen: mmmum HH< mmm .N mmwmnaa> Hamsm I mmmeHH> noun: I amusm HH< amen: mmmnm HH< meA .H APPENDIX D DETAILED CALCULATION OF ECONOMIC BUDGETS Appendix D. 335 This appendix provides a detailed breakdown of the calculations used in computing the economic returns displayed in Tables 6.7 and 6.8. The bulk of the background information required for the economic calculations is provided in the following tables: Table D.l. Economic Budgets for the Production and Retailing of Home-brewed Sorghum Beer Table D.2. Economic Budget for the Production of Factory-brewed Sorghum Beer Table D.3. Economic Budget for Licensed Retailing of Factory-brewed Sorghum Beer Table D.4. Economic Budgets for Home Retailing of Factory-brewed Sorghum Beer Table D.5. Economic Value Added from Input Suppliers. These tables are built up from the financial budgets in Chapter 6 into which shadow prices have been substituted for market prices. The following discussion explains in detail how the shadow prices have been obtained. Appendix D 336 The prices of the following six inputs diverge from their 'market prices: i) home brewers' labor; ii) minimum wage labor; iii) retail management labor; iv) sorghum; v) trade malt; and vi) capital. The shadow price of each is computed in the following few pages. i) Home brewing labor, the unpaid labor of the brewer or her family members, has a market price of zero. The opportunity cost of that labor, however, is estimated to be 72 thebe per day. This estimate is likely on the high side, since the vast majority of home brewers - in fact, 90% of those interviewed - indicated that, other than brewing, they have no means of earning income. This is not surprising given the tremendous unemployment problem that currently exists in Botswana (see Lipton, 1978) and given the fact that most brewers live in rural areas and are generally poorly educated (see Tsimako, 1983) making them probably the least employable members of the population. In addition, most women have substantial family obligations, and it is difficult to find other income-earning opportunities that can be woven in and around their household duties as beer brewing can. Ten percent of the brewers, nonetheless, did indicate they had other income-earning opportunities. Three percent of all home brewers interviewed indicated they could find wage employment, while the remaining 7% felt they could, if not brewing, find alternative self-employment in areas such as sewing and baking. Appendix D 337 Given this background, the 72 thebe per day shadow price of home brewing labor was calculated as follows. The 3% of home brewers who could find wage employment would earn the minimum wage of P2.88 per day. The self-employed could earn about P4.08 per day (average earnings in female-dominated activities whose budgets are provided in Section 3.B of the Rurgl Industriglgpffiger's ngdbook). While the 90% without opportunities probably have an opportunity cost very close to zero, a figure of 40 thebe per day has been used to indicate that, if not brewing, the women would likely be caring for children or in some other way increasing the welfare of their community. Using a weighted average of these three figures, we arrive at an opportunity cost of home labor of (.03) x 2.88 + (.07) x 4.88 + (.9) x .40 = P .72 per day. ii) The labor of unskilled urban factory workers, who constitute a large proprotion of the work force in the factory breweries, also has a very low opportunity cost. Minimum wage regulations, however, raise the cost of that labor above its opportunity cost. The Ministry of Finance estimates that the opportunity cost of unskilled urban wage labor is 50% of the current minimumeage (Government of Botswana, March 1982, p.14). The shadow wage rate for minimum wage workers is, therefore, P1.44 per day compared to the P2.88 per day minimum wage. iii) Management labor used in licensed retailing is another input whose opportunity cost must be estimated. While most of the Appendix D 338 labor employed in the licensed sorghum beer outlets is unskilled minimumewage labor, the proprietors are required to spend some time looking after their business, most importantly in regulating the flow of cash and stocks. As can be seen in Appendix B, Table B.3, it is estimated that proprietors must Spend an average of one hour per day attending to their licensed sorghum beer outlets. They receive no salary for this; instead all the profits from the business accrue to them as income. Their labor, however, carries an opportunity cost that must be accounted for in assessing the economic returns in retailing. The Opportunity cost of the proprietor's labor is estimated to be P5 per hour. This may well be conservative, since management labor is considered to be very scarce in Botswana. Botswana Breweries management personnel receive pay on the order of P10 per hour. A mid-level government functionary received P5 per hour, so this likely represents a conservative valution of the opportunity cost of that management input. iv) The market price of sorghum grain is also slightly higher than its true opportunity cost. This situation has prevailed since 1981; because at that time, in order to encourage sorghum production, the Botswana Agricultural Marketing Borad (BAMB) raised their guaranteed minimum buying prices to levels above the price of imported sorghum from South Africa. The price differential in the 1981/82 cropping year was roughly 1 thebe per kilogram. For example, the Mahalapye shadow price of sorghum.(computed as the Appendix D 339 border price plus transport) was 19.5 thebe per kilo compared with the BAMB-set minimum market price of 20.5 thebe per kilo. v) Trade malt also has a market price that is slightly above its shadow price. The gap between shadow and market prices is due primarily to the differential between the market and shadow price of sorghum, sorghum being the principal raw material from which trade malt is produced. The use of minimum-wage labor in trade malt production also contributes to the distortion of trade malt prices. In addition, it is important to know that the Ministry of Agriculture no longer allows the importation of trade malt (made with lower-priced South African sorghum), so home brewers buying trade malt in Botswana have no choice but to purchase locally-produced trade malt at a market price above that for which imports would sell. The shadow price of trade malt is estimated by assuming that the cost of sorghum accounts for 35% of the final cost of trade malt and that minimum wage labor accounts for 10% of final cost. After making adjustments for these two input prices, one arrives at a shadow price for trade malt of P.38 per kilogram. vi) Capital is the final input whose shadow price requires discussion. In the economic analysis that follows, a 20% opportunity cost has been used for capital. This figure is obtained by taking the 6% real opportunity cost of capital recommended by the Ministry of Finance and Development Planning (Government of Botswana, March 1982, p.14) and adds to it the 14% annual rate of Appendix D 340 inflation. Adjustments for the opportunity cost of capital need to be made to both the initial stock of capital held by firms as well as to the flow of receipts and expenditures occurring over the course of the year. In explaining why two adjustments are necessary, it is important to remember that the following analysis uses nominal prices along with flow data over a one-year period as a basis for comparing returns in various techniques of production. We are making observations at the end of year 1 and trying to project into the future the net economic benefits to be derived from using each technique for ever more. In project evaluation, the standard formula for evaluating the economic worth of a stream of costs and revenues is as follows: NPV = sum (Bt - Ct)/(1 + r + i)t where NPV is net present value, Bt is the revenue in period t, Ct is the cost incurred in period t, r is the real rate of interest and i is the rate of inflation. Normally, the initial stock of capital, Co, is not discounted; and all flows of revenue and expenses during each year are fully discounted at the rate (i + r). That is, the flows are taken as if they occurred on December 31st of each year. The flows are fully discounted even though they should technically only be discounted at a portion of the total annual discount rate. Flows in June, for example, should only be discounted at half the annual rate. For simplicity, however, many analysts take all the flows to the end Appendix D 341 of the year (see Gittinger, p.351). While this may be a reasonable simplification in cases where one has flow information over the life of a project, it is less defensible in cases, such as the current one, where one year of flow information must be used to provide an accurate ranking of alternative projects - or in this case, alternative technologies. To use the standard simplification in the current case would bias the outcome against those technologies with the highest ratios of capital to net annual income. In an effort to avoid such a bias in comparing techniques of production, the following analysis discounts the flow of net annual revenue at 10%, half the annual opportunity cost of capital. Since must of the brewing and retailing activity is more or less even throughout the year, this effectively takes account of the fact that each businessperson has had the use of much of his or her revenue during the course of the year. To summarize, two adjustments will be made in valuing economic revenues and costs in order to take account of the opportunity cost of capital. First, 20% of the initial cost of capital and start-up working capital required at the beginning of the year is deducted as the opporutnity cost of those funds. Secondly, 10% of the net annual income flows (revenue - cost) is added as a benefit to reflect the value of early investment or early consumption of those flows. The effect of these two adjustments is clearly laid out in Tables 1 and 2. The effect of these six shadow prices on the economic budgets of sorghum beer producers is shown in the following tables. 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