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Profits Possible in Difficult Zimbabwe, Malawi Dairy Markets

17 March 2016

ZIMBABWE, MALAWI - Zimbabwe and Malawi are difficult markets for dairy companies which have to deal with constrained milk supplies and difficulties in accessing milk from suppliers, but a Harare listed company is raking in the profits in the two countries, writes Tawanda Karombo.

Floods in Malawi in early 2015 prevented companies from accessing milk suppliers and there are projections that milk consumption in the two countries will rise although prices for milk and other dairy products are likely to fall this year.

The East and Southern African Dairy Association says Zimbabwe has capacity to produce over 200 million litres of milk while other experts say the milk farming industry has suffered setbacks after the farm seizures instituted by President Robert Mugabe’s government in 2000.

The Dairy Services Department in Zimbabwe says the southern African country’s milk output for the 11 months to November increased by 3.3 per cent to 52.28 million litres although the dairy industry is operating below 45 per cent of capacity.

Zimbabwe has a raw milk demand capacity of 120 million litres per year and agriculturalists say the country will continue to partly rely on imports from neighbouring South Africa to offset the milk supply deficit it currently has.

A report released this year by 7thSpace Interactive says the “dairy sector in Malawi may be characterised as a segmented market that has both formal and informal milk markets,” with this said to be a barrier to the growth of the industry.

Zimbabwean dairy company, Dairibord Holdings that has operations in the two countries is flying high, thanks to a heifer importation project and diversification into dairy beverages.

“We are investing in a full processing plant for cartonised liquid milk. Of course the environment remains very difficult and there are problems to do with exchange rates, liquidity shortages and the government failing to meet its obligations on time,” said Anthony Mandiwanza, chief executive officer of Dairibord Zimbabwe, on Wednesday.

Basic earnings per share for the period to December grew from 0.2 cents to 0.65 cents while it had an operating profit of about 5 cents per litre. After tax profits for the period jumped by a massive 281 per cent to $2.3 million, finance manager, Mercy Ndoro said at a briefing in Harare.

However, with the El Niño dry weather phenomenon buffeting the southern African region, Dairibord has stopped its heifer importation program as it fears that the heifers will be affected by dry weather conditions that have been predicted to persist until the end of next year.

“In Malawi, there was a 24 per cent decline in milk production because of floods which made us unable to access milk supplies. Malawi has a different and difficult milk supply system which depends on individual communal dairy farmers and you have to go down to them to collect the milk,” Ndoro said.

The company said its dairy operations in Malawi had also been affected by continued weakness in the country’s Kwacha currency against the United States Dollar.

It said the exchange rate deteriorated during the period, and resulted in an end of year exchange rate of Malawi Kwacha (MK)673: USD1, compared to MK490: USD1 at the beginning of the period under review.

A research study undertaken by VSO and titled Making Milk Work, the dairy market in Malawi confirms that the “smallholder dairy sector accounts for roughly 80 per cent of total milk production” in the country. It adds that dairy farmers in the country are organised into milk bulking groups, which are coordinated and supported by three regional associations.

Dairibord also has to do with competition from dairy imports from South Africa in its Zimbabwe and Malawi markets. Regional dairy industry players say imports from South Africa have a significant market share in Zimbabwe.

The group’s milk intake into operations declined 2 per cent to 26.509 million litres although Zimbabwe recorded a milk intake increase of 3 per cent. In 2015, Dairibord Zimbabwe imported 300 heifers, down from a project import scheme for 500 heifers.

“This was in line with the growth in national milk production. The cost of producing raw milk in Zimbabwe remains uncompetitive compared to regional economies,” it said.

Twanda Karombo

Tawanda Karombo
Freelance Writer, ThePoultrysite.com

 



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