• Revenues for the quarter were flat at US$89 million compared to the same period last year
• Volumes for flour and rice declined during the quarter
• Overall volumes were marginally up by 5% compared to the previous year

Harare- National Foods, the largest food manufacturing and distribution company in Zimbabwe, has expressed concerns about the challenges posed by the government's continuously evolving policy landscape during the first quarter of the year. These policy changes have significantly impacted the company's operations across most basic commodity categories, affecting its topline performance.

During the quarter, the Valued Added Tax (VAT) status of most basic food items through SI 10A of 2024, including flour, rice, and sugar, was changed from "zero-rated" to "VAT exempt". Previously, these essential commodities were subject to a 0% VAT rate, meaning no VAT was charged on their sale. However, the government then reclassified these products as "VAT exempt".

When a product is deemed exempt, it is not subject to VAT at all. Businesses do not collect VAT on exempt items, and they also cannot claim input VAT credits on related purchases. This change from zero-rated to exempt status means consumers will no longer benefit from the 0% VAT rate on these basic food items. This increases the overall prices for consumers, as businesses can no longer offset the VAT they pay on inputs through the zero-rated sales.

Separately, the VAT status of rice was altered from "exempt" to "standard-rated". Previously, rice was completely exempt from VAT, meaning no VAT was charged on its sale. But now, rice has been reclassified to be subject to the standard VAT rate, which has increased the cost to consumers.

The company has highlighted these evolving VAT policy changes as significant challenges that have impacted its operations in the first quarter of the year. The shift from zero-rated to exempt status, as well as the change from exempt to standard-rated for rice, has resulted in higher prices for these essential food items due to the increased tax burden on businesses and consumers.

The changes made to the VAT status of many goods will make it increasingly difficult for the formal sector to compete against the informal sector and grey market imports. Unfortunately, after the end of the quarter, the IMTT (Interbank Money Transfer Tax) has been increased from 1% to 2% on USD transactions, which places additional pressure on the entire value chain.

"We are hopeful that the authorities will maintain some policy consistency in the period ahead to enable local players in the formal sector producing basic commodities to focus on consistently supplying the consumer, as it will be a challenging period ahead.

"The Group's focus will be to ensure adequate stocks of competitively priced, basic goods for consumers across the country over the next 12 months," said the company.

The financial impact of the zero-rated to exempt change has increased costs within the business by around 3%, while the exempt to standard-rated change for rice has increased costs by 15% to the consumer. This was an unfortunate policy shift, as rice is a key basic food item for many consumers.

The changes in VAT status have impacted volume momentum in some categories, notably flour and rice, during the quarter. However, overall volumes for the third quarter at 145,000 tons were 5% above the prior year, with strong performances in maize and snacks offsetting the losses in flour and rice.

However, revenues for the quarter at US$89 million were flat compared to the same period last year.

Despite this, the various major capital projects being undertaken by the business are now reaching completion. The new flour mill in Bulawayo is performing to expectation, and the efficiency gains from this investment have been encouraging.

Additionally, the new pasta plant which has been installed in Harare was commissioned in February 2024. This is the first large-scale pasta plant in the country, and deliveries of product to the market have commenced.

The new biscuit line is expected to be commissioned in June 2024.

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