Value chain bottlenecks strain food firm capacity

BULAWAYO-based diversified food manufacturing firm, Arenel, says its operations are being severely constrained by the high prices of its key raw materials which are sugar and wheat.

Since 2009, the food processor has invested a cumulative US$15 million in state-of-the-art plant and equipment but operating at an average of 35 percent. It emerged during a tour of the company by Finance and Economic Development Minister Professor Mthuli Ncube last Friday that the low capacity utilisation was due to shortage of sunflower oil. The visit saw Prof Ncube, who was accompanied by the Minister of State for Bulawayo Provincial Affairs, Judith Ncube, touring Arenel’s water and mayonnaise, soft drink, flour milling and biscuits factories in Belmont Industrial area.

Arenel managing director, Mr Joshua Lepar, said the prices of sugar and wheat were too high.

“The pricing of sugar, if we can reduce it, our volumes are going to come up again. What we are saying is that to keep the factories going, without exports, we can’t because the driver is exports. We need exports but at the moment we can’t do miracles; we have put in the equipment but if our base raw materials (sugar and wheat) are up-priced like that, there is nothing we can do,” he said.

“We can be as efficient as we can in our production process, but if our raw material is up-priced, we can’t keep our head out of the water.”

Some of the units at the factory such as soft drink segment are not operational. The firm’s factory units include water and mayonnaise, biscuits, sweets and flour milling plants. In an interview with journalists after the tour, Mr Lepar said:

“Obviously, as I mentioned, we are having an issue on sugar pricing. Sugar is a key raw material we use in all our products and we need regional pricing of sugar.

“We are putting a capex (capital expenditure) to produce but if our base raw materials are up-priced, it negatively affects us. Sugar prices locally are too high compared to the regional prices hence the call for regional pricing of the product.”

Arenel, which among others produces chocolates, biscuits and beverages such as amahewu, recently installed a US$750 000 carbonated drink manufacturing plant. Owing to higher pricing of sugar on the local market, Arenel is importing the ingredient from regional countries such as South Africa.

“We believe we’ve put in the capex to be able to compete with any player in the region whether in South Africa or as far as Brazil but as I said the price is higher in Zimbabwe and we are negotiating to try and bring that down so that we can compete and continue growing our exports,” said Mr Lepar.

At the moment, Arenel employs 713 workers and the coming on board of the new plants, the firm’s employment figure is expected to rise to about 1 200. In an interview, Prof Ncube said the purpose of his tour was to see how best the Government can intervene and assist value chains in the productive sectors of the economy as the upcoming national budget, which is due for presentation before the end of next month, is being crafted. “One of the pillars of the pre-budget strategy paper for 2021, which I launched this morning in Harare before I came down here, is how to domesticate and support value chains.

“I have come here to really understand that micro-economy, to see which part of the value chain we as Government should intervene at and we usually intervene through incentives and through taxes,” he said.

Already, Prof Ncube said the pricing of sugar and wheat as well as availability of sunflower oil that Arenel raised, were value chain bottlenecks.

“What we have done is we’ve put duty on certain imported raw materials but no duties on the final imported products obviously, we got this the other way round,” said the minister.

“We want to make sure that we promote local production of these raw materials, but if they are not available why impose duty on it. “I am even asking myself those questions and I’m the taxman. So I’m also learning to understand that value chain,” he said. —-chroncile.co.zw