The baking industry is importing over 85 percent of the country’s wheat requirements annually, contributing to an expanding trade deficit that has drained the country of much-needed liquidity, the Financial Gazette’s Companies & Markets can report.A trade deficit is harmful to the current account balance, which is this year projected to deteriorate from a deficit of US$3,351 billion in 2014 to US$3,431 billion.
The deterioration will largely be due to huge trade deficits incurred by the country since dollarisation of the economy in 2009. The trade deficits have been supported by low transfers and incomes to worsen the current account balance.
Although the trade deficit was this year projected by government to narrow by two percent to US$2,828 billion due to projected growth in exports, it is now clear imports will grow faster than exports due to a poor agricultural season.
Government has already declared that many regions failed to make meaningful harvests and has begun mobilising cash resources for food imports to curtail starvation. The bill for wheat imports has been running into US$100 million every year, industry players said. Zimbabwe had been self-sufficient in wheat production until a land reform programme destabilised the agricultural sector, turning a country that was once a regional bread basket into a basket case.
Speaking at a baking industry stakeholder conference in Harare last week, Buy Zimbabwe chairperson, Oswald Binha, said the import costs were too high and should be brought down by increasing wheat farming and co-ordinating its marketing.
“An industry that continually imports and continues to import without exporting will surely collapse,” Binha warned.
The baking sector contributes 2,5 percent to gross domestic product and employs 3 500 people, down from a peak of 6 000 before agrarian reforms. Grain Millers Association of Zimbabwe president, Tafadzwa Musarara, said the milling industry, which provides flour and other inputs to the baking industry, was on the market for money to import enough wheat for the current year. He said they required US$130 million to boost capacity and viability.
“The milling industry is currently operating at 45 percent capacity and there is still more room for improvement,” said Musarara.
He said this year, millers were willing to contract farmers as government had introduced a statutory instrument that guides production of cereals and grains. He said they were willing to contract local farmers to produce 75 000 tonnes of wheat, despite failure to do so through previous initiatives. Industry and Commerce Deputy Minister, Chiratidzo Mabuwa, said the baking industry had potential to spur industrial and agricultural growth, employment creation and consumer satisfaction.
“The viability of this sector depends on the value chain in the bakery industry, which includes wheat milling and the wheat production sectors. It is critical to identify the value chains in the bakery industry in order to enhance domestic production and supply of bakery products,” said Mabuwa.
“There is lack of detailed and consolidated information on the structure of value chain in this specific industry which acts as a constraint to policy advocacy by stakeholders in which advocacy informs the design of trade and related policy interventions by government. If these challenges stay unchecked, bakeries will either close down or opt to import their supplies that are otherwise available within our local market. This scenario is not the best to grow the national economy.”
National Bakers Association of Zimbabwe president, Givemore Mesoemvura, said the baking sector had capacity to produce two million loaves per day, but due to economic challenges, production was currently at 850 000 loaves per day.
Zimbabwe requires between 350 000 and 450 000 tonnes of wheat per year but production has been on the decline due to a myriad of challenges. Farmers have complained that the cost of wheat production was too high and returns based on local prices too low to allow viability. But they contended that the wheat industry was a strategic industry that required support and funding.
Bankers Association of Zimbabwe senior economist, Sanderson Abel, said it was difficult to support wheat farmers with capital because of lack of security on land.
He argued that bankers were supporting tobacco farming because of the orderly marketing in the tobacco industry which allowed banks to recover loans.
“The 99-year leases are not bankable, banks cannot pour money in unsecured land; it is very risky. Money follows order,” Abel said.
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