Harare - Demand for dairy foodstuffs such as ice cream and yoghurt is softening in Zimbabwe and Malawi, the two struggling Southern African economies.
Revenues and volumes in Dairibord Holdings, which produces and supplies dairy foods and beverages in the two countries, are taking a knock as a result.
Dairibord Holdings is a Zimbabwean listed nutritious foods and beverages company.
In May, it announced $10 million (R106m) in capital expenditure, expected to be sunk into new plants.
PTA Bank advanced the company a $6m loan to cover more than half of this capital expenditure, while the other $4m would be funded from international cash resources.
In the half year to the end of June, Leonard Tsumba, the chairman of Dairibord Holdings said on Thursday, the company posted a $627 000 interim loss after turnover declined by 11 percent to $43.8m.
The decline in revenues at the company has been attributed to worsening economic conditions in Zimbabwe.
Sales volumes for the period slowed by 6 percent to nearly 30 million litres.
Tsumba said price adjustments carried out during the period as well as product mix variations had contributed to the slowing revenues.
“Volumes of liquid mils recorded a 2 percent growth while foods and beverages declined by 14 percent and 11 percent respectively. A weak performance in Malawi negatively impacted the overall growth of the milk portfolio,” said Tsumba.
The dairy industry in Zimbabwe has been on the decline since President Robert Mugabe’s Zanu PF party initiated farm invasions in 2000.
The mostly white commercial farmers were displaced, with the agricultural sector suffering a fall in productivity.
The government is attempting to restore productivity in the dairy sector and to guarantee steady milk supplies to dairy companies such as Dairibord, Nestlé Zimbabwe and Mugabe’s Gushungo Holdings, which also produces yoghurts and other dairy products.
In doing so, it has started giving land offer letters to white dairy farmers after protecting them from ongoing farm invasions.
The supply side of the dairy agro-processing industry in Zimbabwe is still facing bottlenecks, which is compounded by a slowdown in market offtake of the finished products.
Dairibord has attributed this to the economic difficulties in Zimbabwe and Malawi.
“The decline in disposable incomes [are affecting sales] that include a greater percentage of the group’s foods and beverages. As the disposable incomes decline, consumers are shifting more towards basics and smaller stock keeping units,” Tsumba said.
Analysts told Business Report that economic conditions in Malawi and Zimbabwe were slowing down and that an improvement would be a positive development for companies with exposure there.
In Malawi, interest rates have remained between 35 percent and 38 percent.
The new government in that country was “expected to enact policies that are focused on rebuilding the economy” as well as “restoring donor support”, which had previously accounted for up to 40 percent of the country’s budget.
In Zimbabwe, Dairibord Holdings says the worsening economy, which tipped into deflation in the past five months, is fraught with low levels of investment as well as other liquidity constraints.
Other dairy foods manufacturers, such as Nestlé Zimbabwe, have raised concerns about rising imports, which the company said were also being carried out by government departments, were causing unfair competition for goods produced in Zimbabwe.
“Prices in the [Zimbabwe] foods and non-alcoholic beverages sector recorded a decline of 3.5 percent compared to an increase of 1.7 percent in other goods in the consumer price index. It is expected that the deflation will persist for the rest of the year.”
Dairibord, which also makes liquid milk products, owns 60 percent of the Malawi unit.
In the Zimbabwean market, its products compete with those produced and imported mostly from South Africa and Botswana.