Meanwhile, a Mauritius based firm, Afrigran Trading, has terminated its cereal supply contract with National Foods Limited (Natfoods) after the Reserve Bank of Zimbabwe (RBZ) failed to honour a US$55 million debt on behalf of the local agro-processing firm.
RBZ, which is battling a foreign currency crunch, assumed the debt after entering into an agreement with Natfoods, which paid the full amount owed to Afrigran Trading to RBZ.
RBZ, however, failed to settle the obligation to Afrigrain Trading, a major supplier of wheat and grain to Zimbabwe, a move which has resulted in Afrigran Trading cutting wheat and grain supplies to Zimbabwe and Natfoods. This could have “dramatic consequences” on the market, potentially crippling the sector. The situation could result in critical shortages of flour, consequently bread in the local market.
Zimbabwe relies on imports mainly from Turkey to meet its wheat demands as the local cereal is of lower grade required by millers.
Natfoods chief executive officer, Michael Lashbrook, and board chairman, Todd Moyo confirmed the latest development.
“The supplier is Afrigrain Trading and they are based in Mauritius,” Lashbrook told Business Times.
Moyo said the company, which is Natfoods’ major supplier, had cut wheat supplies due to RBZ’s failure to service a debt amounting to about US$55 million, despite Natfoods paying the full amount owed to the RBZ, which assumed the debt.
The failure by RBZ to settle the debt in question, which resulted in the supplier stopping supplies to Natfoods had led to a critical shortage of wheat in the country and consequently bread.
“An agreement was reached between the Reserve Bank of Zimbabwe and the group’s major grain and wheat supplier (Afrigrain Trading) wherein the RBZ assumed the (National Foods’) legacy foreign currency debt to its supplier amounting to US$54,9 million as part of a funding agreement, which will see this debt being settled over an agreed period,” Moyo said.
“As part of the agreement, National Foods settled the full amount owing to the supplier locally to the RBZ and the RBZ retained the obligation to service the foreign amount owing to the wheat supplier.
“The timely settlement of the legacy wheat position by RBZ in accordance with the agreement is critical to enable the continued and consistent supply of imported wheat into the country and National Foods. Regrettably, the RBZ has had to delay payments on the facility and is currently two months behind its payment obligations to the supplier, which in turn has resulted in a disruption of imported wheat supplier into the market. The group continues to work closely with the RBZ to resolve the matter and remains fully capacitated to produce adequate volumes of flour provided the necessary foreign currency to import wheat is availed timeously.
“In the interim, limited supplies of local wheat have been released by the Grain Marketing Board and this product is currently being milled for use by plant bakers,” Moyo added.
Zimbabwe is currently producing less than 200 000 tonnes of wheat against a national demand of 400 000 tonnes. To cover for shortages due to low local production, the country has been relying on imports, mainly from Europe, America and Asia. But, players are grappling with huge debts, which they are failing to service, due to shortage of foreign currency. Now, millers, have warned about the possible huge impact of debt default.
In its financial results for the six months to December 2018, Natfoods, a behemoth, reported $16,84 million profit for the period, a 78,47 percent increase from $9,43 million delivered in the same period in the previous year.
Revenue grew 41,16 percent to $207,75 million from $147,17 million recorded in comparative period in prior year. This was due to the volume increase of 18 percent and average selling price per unit which increased by 19,3 percent during the period under review. EBITDA for the period increased 77 percent compared to the same period in prior year. Operational expenditure for the company increased by 58,6 percent to $37,4 million, compared to the same period in the previous year.
Moyo believed the group would have delivered better performance, had grain and wheat supplies had not been interrupted due supplies which were stopped by the company’s major foreign supplier.
Meanwhile, Grain Millers Association of Zimbabwe (GMAZ), has embarked on contract wheat farming, a move meant to stimulate farmers’ production. GMAZ will supply inputs to farmers.
GMAZ spokesperson, Garikai Chaunza, this week told Business Times that his organisation will splurge US$80 million towards production of about 150 000 metric tonnes of wheat each year.
“GMAZ is embarking in contract wheat and provide the inputs for the next three years starting this month (March),”Chaunza said.
“We are going to spend about US$80 million towards this project and each year, we expect to produce about 150 000 metric tonnes,” he added.