Dairy sector pushes for protectionism

…as competition bites

CUT-THROAT competition in the dairy processing industry has forced local players to submit a paper to the government proposing to be shielded from the influx of cheap products.

BERNARD MPOFU,ACTING BUSINESS EDITOR

Currently the industry is operating at 45% capacity, producing 51 million litres of milk annually against estimated national demand of 120 million litres.

The local processors say government should consider a 25% levy on milk imports thereby levelling the playing field between imports and locally produced milk products.

But experts argue that while protectionist measures may save the dairy industry from collapse, such intervention should be temporary.

National milk production peak was 256 million litres in 1990 and the all-time low was 36 million litres in 2009.

“Protectionism has to be on a temporary basis. The industry in question must be doing something to ensure that the intervention is not inflationary, adding a burden to consumers,” said Itai Chirume of MMC Capital.

Protectionism is the economic policy of restraining trade between economies through methods such as tariffs on imported goods, restrictive quotas and a variety of other government regulations designed to allow fair competition between imports and goods and service produced domestically.

High utilities, labour costs and a smaller herd of dairy cows, experts say, has resulted in the limited supply of milk as well as the high cost of production.

A litre of milk costs 62 cents locally compared to an average 40 cents in South Africa.

This has resulted in local companies struggling to compete with imported milk products.

Zimbabwe Stock Exchange-listed Dairibord Zimbabwe Holdings Limited (DZHL) last week said its plans to grow the business were being clipped by the acute shortage of raw milk supplies in the country.

Early this year Dairibord announced that limited supplies and a relatively high cost of raw milk had forced the company into toll manufacturing, as problems confronting the economy continue to make local companies uncompetitive.

The constrained milk supply, according to analysts, has necessitated the importation of milk in the form of whole milk powder living DZHL exposed to commodity price risks.

Group chief executive officer Anthony Mandiwanza in March told an analysts briefing that the decision to produce cartonised “Chimombe” milk (through toll arrangements) was part of the group’s plans to contain overhead costs.

Already Dairibord management is seeking to improve the outcome of the raw milk supply in Zimbabwe by importing more heifers.

A total of 250 heifers are already in the country, distributed to 10 farmers with an additional 90 expected before the end of the year.

The heifer importation scheme in Zimbabwe, according to DZHL, is expected to provide an additional 4% of raw milk per month.

Official figures show that several large commercial producers in Zimbabwe have taken 25 to 30 years to reach levels of efficiency, management and production that make them comparable to their counterparts in other milk-
producing countries in the world.

In its submission to the Parliamentary Portfolio Committee on Industry and Commerce last month, the Zimbabwe National Chamber of Commerce (ZNCC) said Zimbabwe’s industrial policy should mainly focus on agriculture to ensure availability of inputs.

“The quality of the food being imported into Zimbabwe is unknown and, therefore, it is imperative that we safeguard the quality of products coming into the country and regulators such as the Standards Association of Zimbabwe and Food and Drug Control Council should be active.

“Whereas protectionism may not be right for regional integration, the ministers responsible for commerce and finance should introduce ‘smart tariffs’ to restrict all unwarranted manufactured imports,” ZNCC said.