Millers incur US$6m exchange losses

PLAYERS in the grain milling sector say their operations are being adversely affected by the prevailing exchange rate volatility resulting in the distortion of supply chains and artificial product shortages in the market.

With 80 percent of their production costs now denominated in foreign currency, the Grain Millers Association of Zimbabwe (GMAZ) chairperson, Mr Tafadzwa Musarara, says credit supplies have become unsustainable in a volatile currency environment, which has seen their members being owed ZWL$12 billion in outstanding payments for goods supplied in the past 90 days.

The scenario has disrupted the smooth flow of product supplies into the formal shops, which have suffered shortages in the past months, while informal sector players, who pay for goods upfront are seemingly adequately stoked, he said.

In a latest circular to members of the Confederation of Zimbabwe Retailers (CZR), Retailers Association of Zimbabwe (RAZ), and other wholesalers, retailers, and purveyors of basic commodities, Mr Musarara said their members have so far incurred US$6 million exchange losses due to the rapid exchange rate movement.

He noted that since May this year to date, the local currency has depreciated faster against the USD from an average of US$1:ZWL$1 072 on May 2 to US$1:ZWL$5 886 this week. This has seen the price of a 10kg roller meal rising from about ZWL$7 000 within the same period to about ZWL$35 400. Amid these distortions, refined brands such as Pealenta and mixed wholegrain fibre have totally disappeared from the market.

In view of the above, Mr Musarara said as the milling industry, they have resolved to review the business terms of trading on maize and wheat flour so as to ensure business sustainability and adequate market supplies.

“The volatility in the past weeks that continue to negatively characterise our macro-economic environment has, regrettably, created phenomenal challenges and limitations that are debilitating our operations,” he said.

“Our members are currently owed an aggregate of circa ZWL$12,8 billion, being outstanding payments of goods supplied in the past 90 days. Major exchange losses of over USS$6 million have been incurred and continue to be incurred.”

Money – Image taken from Pixabay

“Circa 80 percent of our production costs are now denominated in USD. These include, but are not limited to: product/service USD percentage — a) imported maize and wheat 100 percent payment upfront, b) GMB maize 54 percent payment upfront, c) repair and maintenance 100 percent payment upfront, d) transport 100 percent, e) rentals 100 percent, f) staff allowances 100 percent.”

In view of the foregoing challenges, Mr Musarara said GMAZ has widely consulted its members and they have resolved unanimously that going forward, the following measures will be adopted.

“All purchases from wholesalers and retailers in ZWL will require upfront payment, or at least cash on delivery, USD priced transactions will continue to obtain credit terms considerations,” he said.

“Prices will be negotiated bilaterally between individual miller, and wholesalers/retailers. Wholesalers/retailers, we plead, must desist from forward pricing as it hurts the brands so priced.”

Mr Musarara said the concerns over the availability of products to the informal sector was not an intentional and mischievous act to unfairly deprive mainstream retailers from getting products.

Instead, he said the informal sector “has been paying upfront or at point of collection” unlike the formal traders.

“Their (informal sector) quantities are much smaller. Our businesses cannot do without the mainstream retailers, and we cannot wait to increase supplies to the big retailers,” said Mr Musarara.

The GMAZ is the apex representative body of the grain milling industry, whose 130 members are in the business of milling and processing maize-meal, flour, stock-feeds, salt, sugar beans, rice, popcorn, among others.

The sector accounts for 95 percent of the national supplies of maize meal and flour in the country.

Despite the recent operational challenges, Mr Musarara said the milling industry remains solidly behind the Government’s national goal of sustaining food sufficiency, as espoused in the National Development Strategy 1. -chronicle