How land reform affected milk industry

By Daniel Chigundu
Dairibord Holdings Limited Zimbabwe chief executive officer Anthony Mandiwanza has told the Parliamentary Portfolio Committee on Industry and Commerce that the land reform program is to blame for milk shortages in the country.

Zimbabwe is currently producing about 70 million litres of milk against a current demand of 120 million. Before the land reform program, the country was processing about 260 million litres.

As a result of the milk shortages, Mandiwanza said his company has been forced to put of dairy plants in Bulawayo, Gweru, Kadoma, Chipinge and Mutare into mothball while the Chitungwiza powder milk plant has been converted to make Maheu (Pfuko), Quench and Fun ‘n’ Fresh.

He also revealed that to cover the supply side gap (50 million litres) the milk sector has had to import powder milk worth US$7 million per month.

Below is Mandiwanza’s explanation of the challenges that Dairibord has faced and is facing due to the land reform program starting from the time government divested from the company in 2000 and went on to also deregulate the sector.

In the year 2000, the government being so happy with what Dairibord was doing it further proceeded to divest out of Dairibord the remaining 25 %, so that today as we sit, government is 100% out of Dairibord Zimbabwe Limited they sold that bid, the acting Minister of Finance was Hebert Murerwa and Minister of Agriculture was Kumbirai Kangai and I remember handing him a cheque of $41 million for that remaining 25% and they were so happy that they got a good market price, then government completely left Dairibord.

Now the period going forward and the challenges, I should have told you that when we were producing 260 million litres in 1990/91 we had 550 commercial farmers, so government played the stimulus role to grow milk production to assist the infrastructure development, that is what caused the phenomenal growth.

So when government left us in 2000 it coincided with the land reform program, it is at that point in time when milk production started to go south, for a number of reasons and I don’t want to spend time speculating what happened but that is the issue to the extent that by the year 2008 into 2009 milk production had dropped from the peak which I spoke of (260 million litres) it had dropped to 39 million litres milk production in the country.

Thank goodness that we as Dairibord Zimbabwe had developed our agenda our footprint into 3 areas (milk, foods and beverages), so we survived not because of milk but because of these other activities such as the foods and beverages that is what carried the company in that most difficult tumultuous period, milk production had dropped to 39 million litres

Furthermore because the market had been deregulated, opened up to all and sundry we moved from a period where we used to have only two processors in the country that is Dairibord Marketing Board (Dairibord Zimbabwe) and Nestle Zimbabwe, DMB handled 90 % of the milk while Nestle processed the 10% those were the two companies but now the market had been deregulated.

As a result and as of today we have more than 15 companies that are processing milk in Zimbabwe but when you think about it, it’s a very interesting development. Whilst, on the one hand, it speaks to opening up the market, but on the other hand 15 companies handling as of today approximately 70 million litres of milk so you can see the strategic challenges which we face with the diminishing milk production base against a backdrop of government having had invested significantly in infrastructure such as the brand new dairy in Bulawayo, a completely refurbished dairy plant in Gweru, a cheese making plant in Kadoma, Harare producing ice crème and yoghurt with the new plant and equipment, Chitungwiza having been designed for 300 000 litres a day, Mutare for lacto and fresh milk Chipinge for sterilised milk.

We had massive, excessive infrastructure against a diminishing milk supply base to the extent that the milk supply nationally had dropped to 39 million litres by 2009 and with many other players having come on board, so you can see the share of milk per player within the market was diminishing and the typical issue that arise is the unit cost goes up immediately. The unit price goes up because you have a huge fixed investment but carrying very little milk which is being processed that is a very costly model in any country.

The demand now as of last year 2018 for milk and milk products is approximately 120 million litres and the supply side is 70 million litres which means a deficit of 50 million litres now when you have a deficit of 50 million litres you ought to ask the question so what is happening between the demand and supply.

The major development which has been taking place it’s the importation of powder and buttermilk into the country, we are spending as a country more than US$7 million a month importing powder and butter the dairy industry combined, and this is a very important issue for your Committee, which then speaks about the competitiveness of that industry going forward where you have a demand-side gap that is being plugged by importation of powdered milk into the country means the country is consuming foreign currency and yet we have scarcity in foreign currency.

That’s what it means US$7 million per month that’s what we are spending and the ability to export and earn foreign currency disappear because we have a shortage and in addition we have the US$7 million that I am referring to that is what formal processors are spending but you know where there is demand and there is a supply gap, opportunity arises for people outside Zimbabwe to bring the product into Zimbabwe so we started seeing our shelves being filled up by imported products from outside the country.

The attractions are two-fold the first one is that there is a market gap, the second attraction is that Zimbabwe is hard currency market which is US dollar so a supplier from South Africa is able to bring products into Zimbabwe at a discounted price, the product will land at our market at a competitive price, converted into our local currency but the advantage is when they take the foreign currency back to South Africa they convert into Rands and make money.

It’s an issue to do with a currency and a role of the currency in stimulating economic growth and what it does if you have a hard currency in an environment which is surrounded by soft currencies you invariably have very serious competitive issues arising and those competitive issues will hurt your ability to value-add and export rather it will be an attraction to bring products into your own domain.

Number one challenge is we don’t have sufficient milk and if you nudge back your memory I have mentioned deliberate steps which were taken by the state to promote milk production in the country those very deliberate measures paid dividend and so we need ourselves today to do what is required to make sure that we again reboot milk production in the country and clearly to us the first level is if you focus on the market, the market for dairy and dairy products is there both domestically and within the region.

For your own information at our peak, we were exporting milk to as far as Kenya, Zanzibar and Tanzania where we were exporting our super milk and our steri-milk could be found in those regions. In Botswana we were the second largest supplier of milk second to Clover of South Africa, and because of Botswana, Bulawayo Dairibord was so close to the market and so the Bulawayo Dairy plant had to provide those markets, so we have the market. We have excess capacity in the country which we have put into mothball, it’s not running today because there is no milk production to keep those factories operating, so they are in a mothball but we have it.

We have Gweru plant in a mothball because we don’t have adequate milk production to support the Gweru plant, we have put Kadoma into a mothball, it is sleeping right now where we used to make the best cheese in the region beating South Africans, we have put it into a mothball because we don’t have sufficient milk production. In Chitungwiza, that powder milk plant, it was originally powder milk plant we are now using it for producing Maheu, Fun ‘n’ Fresh and Quench, it’s a plant which is not using full potential because we don’t sufficient milk production and Mutare we have done the same, what is left in Mutare is distribution so that plant is there.

So the processing capacity in the country and as a nation if you put the other 14 players I mentioned means Zimbabwe has far excess plant capacity so the initiative needed is not from the market, it’s not on the processing side, what is required is the supply base, so what can be done at the supply base? Unfortunately, the nature of agriculture whether it is maize or its milk requires two strategic interventions which are not mutually exclusive that speaks to developmental investment and commercial investment.

The Developmental investment is championed by the state because it is long life it has got a long gestation period, while the commercial investment is championed by the private sector so there is a need for private sector-public sector partnership to develop milk production in the country. I know it’s a loaded statement, but where are the nodes, the low hanging fruits, where are they?

Here are the low hanging fruits. I am starting with the developmental side during our time in 1987 as Dairy Marketing Board, we established cooperatives throughout the country we have 10 cooperatives that were set up those cooperatives are still there and what is needed is to harness those cooperatives and provide them with kind of back up needed for milk production.

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