- The group suffered a 23% contraction in downpacked volumes
- This was due to the government's reinstatement of the standard VAT (Value-Added Tax) policy
- The group is set to commission a new biscuit manufacturing plant, after the recent commissioning of their biggest-ever pasta production plant
Harare- Innscor Africa Limited, a blue-chip firm listed on the Victoria Falls Stock Exchange (VFEX) which is also the largest food processor in the country, has reported a 23% contraction in the performance of its downpacked division at its flagship subsidiary, National Foods, over the cumulative nine-month period to FY2024 according to the latest trading update.
The downpacked division, which is responsible for packing and distributing food products in smaller, more compact sizes or quantities with a focus on staples like rice as well as other products like salt, was the worst performing unit for Innscor during this period.
National Foods is a subsidiary of Innscor, which is the biggest food producer in Zimbabwe.
In this division, volumes contracted by 23% mainly rice. This impacted pricing for the local consumer and was partly due to India's ban on rice exports. India is the second-largest rice producing country, trailing only China, which produces more than 200 million tonnes of rice annually.
The ban on exports by India, followed by Indonesia (the fourth-biggest producer), led to high demand versus low supply. Although China produces more rice, 60% of its production is dedicated to its own large population, while the lean remainder is for export.
This narrowing of supply led to high demand, thus pushing prices up.
The primary effect was that the Zimbabwean government then promulgated Statutory Instrument 15 of 2024 in accordance with Section 78 of the Value Added Tax Act Chapter 23:12, which reinstated VAT on rice. This made locally produced rice more expensive and less competitive compared to smuggled rice from the informal sector.
Previously, rice was completely exempt from VAT in Zimbabwe, meaning no VAT was charged on its sale. However, the government has now reclassified rice to be subject to the standard VAT rate, which has increased the cost to consumers.
As a result, rice prices went up significantly, from around US$1.80 per 2kg in 2023 January to US$3 per 2kg, while the informal traders were able to sell it for a lower price of US$2.10 per 2kg.
This price increase due to the VAT change is what caused a 23% contraction in rice sales volumes in this division.
However, other operating units of the company, including Bakeries, Colcom, Irvines, AMP, Natpak, Prodairy, Probottlers, and TBBC, all recorded growth in the 9-month period compared to the prior period.
Looking ahead, the company is expecting to commission a new biscuits plant at National Foods in June 2024, following the recent commissioning of its world-class, short-cut pasta manufacturing plant in February 2024.
This is noted as the first large-scale pasta plant to have been built in Zimbabwe.
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