Bangalore's microbrewers bring innovation to alcohol

Tremendous scope for organic farm produce in microbreweriesBengaluru, Karnataka: Besides the exponential growth of the IT sector in India’s Silicon Valley, a quiet revolution has been brewing in the F&G industry as well. Vivek Cariappa, 53, is one of the beneficiaries. Apart from practicing organic farming in a 20-acre farm in HD Kote taluka for over three decades, Cariappa also supplies an integral component required for a beer that is served nearly 200 kms away—malted ragi.Since over one and a half years, the organic farmer has been supplying malted ragi to the Biere Club, a microbrewery in Bangalore, that has been actively experimenting with the grain by incorporating it in their beer. Rohit Parwani, brewmaster at the Biere Club, says that about 1.6 tonnes of ragi malt that is procured from Cariappa, is used in their brewing process. In addition to that, they also buy mangoes and organic jaggery from Cariappa that they use in a few of their beers.Parwani is not the only one to do so. Bangalore’s recent upmarket microbreweries have managed to give a shot in the arm to the economy of villagers in the nearby districts by creating a demand for different kinds of traditional grains like millet and others like quinoa.Sakshi Sagaraju, co-owner of Bangalore Brew Works (BBW), said that the healthy quinoa grains incorporated in their brews are sourced from a farmer in Ananthpur, Andhra Pradesh via Oriller Foods International. The grains are later processed as per needs and used to produce smooth beer. Apart from quinoa, locally-sourced sugarcane and green chillies grown on Sakshi’s farm are also used for some of their other beers.  Founder of Oriller Foods International Jeevan Prashanth has employed farmers working on a contract basis in about 250 acres of land cultivating millets and quinoa. “We have about 40 to 50 farmers working in about 100 of 250 acres of land to produce over 400 kgs of quinoa per acre. Since it’s difficult for farmers to sell the grain directly in the market because of low demand, we make sure we pay them at least Rs. 71 per kg,” he says adding that he is lucky that BBW agreed to purchase the malted quinoa from him even though it is half a ton as other breweries were very skeptical as they are still experimenting with the taste.Brewers in the city reported that when they make these millet based beers, if they only use millet, the end product (Beer) is not very smooth, so they need to use wheat or barley to balance the flavour of the beer.The concept of craft beer originated in the United States and has had a notable impact on its economy. Though there isn’t much research on Indian microbreweries as the field is relatively new, the scope of the industry can be gauged by its contributions in America. The US-based Brewers Association report states that in 2016 over 6,000 American breweries with craft breweries contributed $67.8 billion to the country’s economy and the craft breweries alone added 4.5 lakh jobs.Farmers cultivating different grains for different microbreweries, however, do not have it so easy. “The process of malting takes about a week to ten days starting from sprouting it, drying it to roasting it. It also has to be cleaned after that and the level of hygiene has to be really high. There have been times when batches of ragi malt have been wasted because of the rains or faults in the roasting process,” Cariappa says while explaining the process of malting ragi. He added that he has been roasting ragi malt since the time he began farming around 32 years back, using it as baby weaning food as it is very nutritious. Cariappa prepares batches three times a year based on demand with a total of over one and a half tonnes in a year and makes a profit of about 40 per cent. Grains are not the only reason why these brewmasters look towards farmers. Ajay Nagrajan, CEO at Windmills Craftworks, has been actively experimenting with fruit beers. “For our Alphonso mango ale, each batch requires over 200 kgs of organic naturally ripened mangoes that we source directly from Ratnagiri,” he says adding that they also add organic jaggery to their Extra Special Bitter and Coconut Brown Ale categories of beer.Co-founder of Brewsky and Geist Narayan Manepally’s interests lie in millets. “It doesn’t require too much water to grow and can thrive in brackish water. It is not only healthy but it can also earn better revenues for the farmer in addition to being organic,” Manepally, a member of the Craft Beer Association, says while listing the positives.Manepally said that incorporating these grains in the brews is still in a nascent stage which means there is scope for a greater demand. For instance, the millet beer produced at Brewsky and Geist has a millet concentration of a little above 30 per cent and the brewery is engrossed in experiments to raise it till 100 per cent. Manepally also believes there is great potential here as those who are gluten intolerant can easily chug down this beer. However, it would take some time to increase the volume of grains procured from the farmers. Since the malting process influences the quality of the beer, Manepally informs that breweries, who are a part of the association, are also working with MS Ramaiah University to understand how to improve the process and make the required technology more accessible to farmers. If the farmers can produce and malt before selling the grains, it will ensure them a higher price, he adds.The breweries report that most of their experiments with grains have been more or less successful and have been well received by customers as they are willing to try something new. In January, the Karnataka Agriculture department and the Craft Beer Association organised a meeting before the Organic Millet fair to discuss how breweries can help to further the cause of the millet production. Several farmers cooperatives across Karnataka also took part in the millet fair. Jeevan Prasanth, who was also present in this fair, is hopeful that more breweries, other than a handful, would be more forthcoming with the idea to incorporate these grains. “Breweries had announced during the millet fair that they would produce millet beer to support the government initiative. However, the current method of sourcing grains from those who malt as well as produce is three times more expensive than imported grains. Therefore, we have listed the farmers’ cooperatives in areas like Mandya and Mysore and these have been identified by the government to actively engage with. We also want to equip them at some point so that they can have their own laboratories to do their own testing,” Manepally says.Arun George, the co-founder of Toit brewpub, says that while they do brew a few special beers that contain locally-sourced grains, currently they haven't engaged in long-term commitments with farmers in the area as the quantity of these grains they are using is very low. “This is definitely part of our plans as we expand into setting up our own production facility. When that facility is completely set up, it will enable us to engage with and support local communities,” George adds.The Karnataka state government is promoting the collaboration between microbreweries and farmers. It has identified 14 farmers cooperatives across the state who microbreweries could collaborate with. The government is also holding millet festivals in different parts of the state.However, Cariappa says that the idea could work if there is better connections. “The millet festival felt like an eyewash and there is a need for a permanent solution,” he said. He emphasised the need for a solid demand and supply chain that connects the supplier (farmer) with the retailer.

AB InBev's Indian unit accused of avoiding tax

Bengaluru, Karnataka: Indian authorities have accused SABMiller, the erstwhile second-largest beer-maker in the world, of tax evasion since 2011. It is alleged that the beverage giant avoided paying up millions of dollars by renaming royalty services as a management services.The New Delhi-based Authority of Advance Rulings (AAR), an adjudicatory body which handles the income tax liability cases of non-residents in India, has said in a June 2018 order that the services provided by Netherlands-based SABMiller Management (IN) BV to its Indian sister concerns qualify as technical know-how and hence, the amount received by the company for rendering these services is taxable under law.The unpublished ruling of the tax authority upheld the report of the Indian income tax department which said SABMiller had been evading tax on royalty payments for the last seven years.Earlier in 2010, a case of tax evasion had been made against the SABMiller Group when ActionAid in its report accused the beverage giant of evading taxes in India and African countries. The rights organisation estimated that SABMiller companies in the two nations had deprived these governments of over $12.38 million in tax revenue. However, in 2015, the Competition Appeal Court in Africa dismissed the case against SABMiller, while upholding the decision of the sister tribunal that stated there wasn’t enough evidence to prove the company was breaking the law.SABMiller is in the business of brewing and distribution across more than 70 countries. It produces and markets brands like Pilsner, Miller, Peroni, Foster, Haywards and Nasto Azzuro. In 2016, the company was acquired by Anheuser-Busch InBev (AB InBev) for over $100 billion to become the largest beer-maker in the world.The ‘diversion’In 2008, SABMiller Management entered into a Technology Transfer Agreement (TTA) with its two Indian units, SKOL Breweries and SABMiller Breweries Pvt Ltd, which manufactured SABMiller brand beers. Under the agreement, the Netherland based company was paying tax on the royalty it earned from its Indian units.In April 2010, however, the company replaced the TTA with a Group Services Agreement (GSA), and since then declared zero income from royalty.SABMiller has claimed that under the GSA, it was only providing “managerial” services to enable the Indian companies to meet global standards in the absence of facilities for research and development in the brewery sector, which is not classified as royalty. It said so in its response to the allegations of tax evasion by Bangalore office of Income Tax department.But a source in the Indian income tax department privy to the case said “the rewording is nothing but a transaction designed prima facie for the avoidance of income tax”. While the computation of total tax liability since 2011 is pending, the source estimated it may run into millions of dollars.SABMiller also told AAR that while under the TTA it provided technical assistance in the form of processes, methods, manuals and technical knowledge related to brewing, under the GSA it was providing financial consulting, improved personal strategy, marketing, corporate affairs, business advisory services, trade secrets and technical consulting.The Indian tax authorities contested the claims and submitted a clause-by-clause analysis of the two agreements to the AAR. The same technical services that were made available under the TTA were covered under the GSA as well, reported the tax authorities undertaking the investigation, which was acknowledged by the AAR.The only difference between the two agreements is that the services have been broken down under different categories while being worded differently. "Analysis of information like presentations, email exchanges and other documents, provided by SABMiller shows there isn’t any difference between the two agreements,” said the tax department source.SABMiller has not responded to queries sent by Nikkei despite reminders.'Profit element not relevant'Eric Mehta, a Partner with Price Waterhouse & Co LLP Bangalore chartered accountant, said group companies are often structured such that a centralised group of executives across locations provides support across various verticals from time to time. This could be anything from finance to supply chain, quality control, human resources, research strategies, etc. “Each company has its own way of functioning and sometimes they restructure things without nearly changing anything,” he said.Narendra Jain, a Bangalore based chartered accountant and expert in International Taxation, pointed out that SABMiller re-characterised the service to move it from the ambit of royalty. “When declaring business income, the non-resident will be taxed only if they are a permanent establishment in India or have a place of business in India,” said Jain. "What the company is trying to do is to establish that this is not royalty, and also that the income is not accruing in India".“They (SABMiller) have stated a cost-to-cost allocation situation as well, where they are saying they haven’t made any profits so why should they pay taxes. This, however, is not applicable on royalty as it is assessed on a gross basis. The profit element of a non-resident is not relevant here,” Jain said.The AAR in its order questioned how “world class beer could be manufactured and plant machinery upgraded and maintained by mere managerial/administrative instructions” - as the company suggests.Since the services provided by the company under the GSA were exclusive and special in nature, they qualify as technical service, the AAR has inferred. It has further suggested that in the face of growing competition where the company needed to protect and expand its brand, it is unlikely that technical services would not be disseminated.The AAR has also stated that if the benefits of the services provided by a foreign company are reaped in their own country, then it is taxable in the country of the company’s origin. In this case, since the benefits of the services provided by SABMiller are got in India, it would be taxable in India.Jain said such a situation is applicable to all foreign companies but some may want to plan their affairs in a way that they don’t have to pay taxes, or minimise the tax payable in the source country. “When such a judgment comes, it is a warning which emphasises that rewording the agreement won’t work,” he added.The ruling of the AAR is binding on foreign companies unless they decide to move the high court with a writ petition in case of change in law or facts or if the applicant has a case to prove that the ruling has been influenced by fraud or misinterpretation.If there has been a change in services at the company’s end, SABMiller will have to prove that in the HC. “If they are able to distinguish between the two agreements, the verdict will be different,” said Jain.Google, in a similar case of tax avoidance in India involving royalty payments, had to give in after a legal battle that lasted six years. The company was asked to cough up about $225 million.

For timely completion of irrigation projects, review proposals first: Experts

Bengaluru, Karnataka: The recently released Comptroller and Auditor General's (CAG) report on 16 national irrigation projects have revealed patchy implementation, inordinate delays and massive escalations over the past decade. The report states how only five of these projects are under execution, with the remaining 11 yet to start work. Experts and policy makers are of the opinion that along with expenditures, a study of the project proposals is also a must to untangle management flaws.The CAG report shows how failure of project authorities to adhere to the contract norms has led to a whopping Rs 32.16 crore (non-recovery) loss and a cost escalation of Rs 224.54 crore.Himanshu Thakkar, water expert and coordinator at the South Asia Network on Dams, Rivers and People (SANDRP), a group of organisations and individuals working on water issues, said, “A project should be given ‘national’ status only after its impact on the environment is assessed and its cost-benefit studied, among other factors. The national auditor should also look at the protocols that were followed before sending proposals for government approval."The 16 irrigation projects were brought under the Accelerated Irrigation Benefits Programme in 2008 by the central government. The five projects that are under execution are Indira Sagar Poolavaram Project, Gosirkhurd Irrigation Project, Shahpur-Kandi Dam project, Saryu Nahar Pariyojana and Teesta Barrage Project. The CAG report also states how slow progress of work in the five ongoing projects has resulted in an escalation of 2,341 %, from an initial estimate of Rs 3,530 crore to the current Rs 86,172.23 crore. Also, out of these five, some had commenced work as far back as 1977-83.Crucial detailed project reportsOne of the major reasons for delay, as cited by the CAG, is shortage of sufficient and accurate detail project reports (DPR), which has incurred an additional total cost of nearly Rs 903.67 crore. A DPR is the final document that contains information about a project’s costs, benefits, impacts and its implementation strategy.“A DPR is prepared by the project development authority and is essentially a technical document. Clearances for a project are given on the basis of a DPR. But the process of preparation and appraisal of these documents are not transparent. The Environment Impact Assessment (EIA) and DPRs are not publicly available, making them less credible,” said Thakkar.Sripad Dharmadhikary, coordinator at Manthan Adhyayan Kendra, a centre which analyses, researches and monitors water and energy issues, said, “Project assessments were made to get clearances, at the cost of overlooking financial, human and environmental concerns. But the involvement of all stakeholders is necessary for a smooth functioning of all projects.”Land acquisition and statutory clearancesPulling up the Ministry of Water Resources, River Development and Ganga Rejuvenation, the CAG had said how in four projects, out of the five ongoing ones, the process of land acquisition has not been completed because of unreasonable administrative delays. Hurdles around land acquisition, inter-state cooperation and rehabilitation of the affected people have been attributed to the slow pace of work.Thakkar gave the example of Indira Sagar Polavaram Project, which has seen the most number of interruptions in terms of land acquisition and getting clearances. This dam across Godavari river is under construction in west Godavari and east Godavari districts of Andhra Pradesh. But its reservoir spreads in parts of Odisha and Chhattisgarh. “There is no inter-state agreement with Odisha and Chhattisgarh and the two states have protested against the dam's construction in the Supreme Court. The environment management plan has not been implemented and there is no submission of compliance reports. The project has also violated the Forest Rights Act and there is no study on backwater impact which will affect Telangana,” he said.Thakkar further explained, “The purpose of this particular project is to transfer water from Godavari to Krishna but both rivers are interstate basins. The dispute tribunal focuses on equal distribution of water between states. However, the Andhra Pradesh government has termed it an internal project when the dam itself is built between two states.”Rehabilitation and resettlement methodsThe national auditor’s report also pointed out how delayed rehabilitation and resettlement measures have caused total escalations worth Rs 1,414.26 crore.  “There is not one project that has successfully rehabilitated the displaced people. Our country lacks proper policies to rehabilitate those affected by government projects. Even the few policies that exist are not legally binding,” Thakkar said.Dharmadhikary said, “Losses suffered by humans because of delayed projects are massive. The lives of thousands come to a standstill since welfare schemes to aid construction of roads, schools, hospitals or laying power lines are stopped.”Feasibility of dam projectsAccording to the CAG report, irrigation potential from the five projects has only been 37 % whereas power generation and drinking water arrangements have been nil. Irrigation potential aimed at from the five national projects was 14.53 lakh hectares but only 5.36 lakh hectares has been utilised till date.“Some environmental hazards were initially overlooked to get benefits of irrigation facilities and power generation. But when these needs are not fulfilled, building big dams, which show no signs of completion, makes little sense,” said Dharmadhikary.Also, four out of the five ongoing projects have made negligible contribution to irrigation facilities. The Saryu Project, in Uttar Pradesh, itself contributes to 74% of the irrigation potential. A scenario such as this also raises concerns about practicability of these initiatives.Thakkar further said, “Many of these projects should not have been approved in the first place by the Central Water Commission (CWC). But this central body is politically compromised. It is time the CWC understand that big dams are necessary but it is also extremely crucial to assess their cost benefits and impact on the environment.”“Re-engineering of the projects which are already underway is required to expedite their completion,” said Dharmadhikary.