Dairy sector raises red flag
Illegal second-hand clothing vendors. . .
DESPITE Government’s timely intervention last year to scrap a wide range of imported dairy products off the Open General Import License (OGIL) as a means to boost local dairy players to gain market space, the dairy industry has recently been going through a receding path.
Following complaints by manufacturers and food-processors of uneven competition between locally produced products and imported ones which were in favour of the later; Government last year introduced Statutory Instrument 64 of 2016 which saw a list of imported items including a wide range of dairy products restricted of unfettered access into the local market.
More noticeable on the list were dairy products like cremora, raw milk, chocolates, cheese, margarine, yoghurts, ice creams and milk juices which the country’s dairy players posses the capacity to meet local demand.
While there have been tremendous figures of positive growth in raw milk production output last year as a quick response to SI 64, market watchers have commended Government for extending goodwill to local dairy players but less than a year down the line the sector seem to be losing its oomph.
Weak aggregate demand for dairy products and challenges to do with balancing reduced product prices against high operating costs for dairy players have seen processors of raw milk slowing uptake from producers.
This has literally slowed down growth across the entire dairy value chain.
This week the Dairy Services Department in the Ministry of Agriculture, Mechanisa- tion and Irrigation Development said raw milk production for the month of February dropped 12,7 percent to 4, 39 million litres from 5,03 million litres recorded during the same period last year as a result of dampened uptake by processors.
Zimbabwe needs about 120 million litres of milk annually and currently produces less than half the requirement as producers of milk lack adequate funding to boost capacity.
Raw milk is an essential input product in various food, beverages and dairy product industries and is an essential ingredient to boost industrial value chains in line with government ethos of value addition.
Raw milk intake by processing companies fell 12,39 percent to 3,86 million litres from 4,4 million litres compared to last year.
Dairy processors in turn cite weak aggregate demand, price adjustments to remain competitive and continued smuggling of cheaper dairy imports as the major reason for the challenges.
In a monthly report seen by Post Business, Dairy Services Department highlighted that retail milk declined 15,4 percent to 532 075 litres from 628 914 litres realised last year.
Analysts say the reduction in demand is a combination of resistance of import products on the market through smuggling which still get wider market preference and waning consumer power which cannot sustain luxuries such as yoghurts, cheese, chocolates and ice creams. This has grossly affected sale volumes in the sub-sector.
They however say Government has to ensure protectionist measures outlined in SI 64 are safeguarded through strict monitoring of various items removed off the OGIL from dominating the market.
Most of the restricted import products are seen on the black market.
“Continued smuggling of various goods continues to distort pricing on the market and this has a far reaching consequence to what Government is trying to achieve through import substitution,” Zimbabwe Retailers Association president Mr Denford Mutashu recently said.
This has also led to most players in the dairy sector lowering their product prices against high operating costs in order to remain competitive.
Unfortunately this has not augured well with the current operating business environment characterised by high cost of production which is threatening sales profit margins.
Dairibord Holdings, the country’s biggest dairy products company, this week posted an operating loss of US$ 3,99 million for the year 2016 against a profit of US$ 2,3 million realised last year translated to a overall US$ 5.4 million loss.
More worrying is the fact that the company seems to have competed much better prior to the introduction of the Statutory Instrument 64.
Dairibord Holdings chief executive officer Anthony Mandiwanza while speaking at the company’s full year 2016 interim results this week said the dairy products giant had to slash prices for its products in order to remain competitive yet their operating cost remained high leading to failure to recover their investments.
“We had to respond and adjust our prices to maintain volumes and remain competitiveness. We do not expect prices to go further down,” he said.