Alarm bells for Zim’s beverages industry

BUSINESS REPORTER

Zimbabwe’s largest brewer, Delta Corporation, has warned that the new sugar tax might have a devastating impact on the country’s  beverages industry, which is already facing unprecedented  difficulties.

This might result in decreased sales as higher prices may arise from the new laws.

It comes after the Minister of Finance, Economic Development and Investment Promotion, Professor Mthuli Ncube, first set the surtax  at US$0.02 in his national budget  for 2024.

However, the surtax, which came into force in January this year, was cut to US$0.001 after the intervention of Parliament and business lobby groups.

Even with the cut in the surtax, Faith Musinga, the company secretary of Delta Corporation, is concerned the beverage industry may be severely impacted  by the inevitable price hikes brought  on by the surtax.

“The sector will be adversely affected by the unavoidable price increases arising from the introduction of the sugar tax. This will be in addition to the pricing distortions that have prevailed in the market,” Musinga said.

She added: “The sugar tax will result in price increases which will consequently impact the volume recovery efforts. The measures adopted in the 2024 budget will have a far-reaching impact on the business and the market in general. The beverages sector will be affected by the sugar tax and the restrictions arising from policies impacting the route to market.”

Musinga anticipates a further slowdown in demand this year. “Aggregate demand may be impacted by the high inflation and reduced foreign currency inflows arising from lower mineral prices and the anticipated reduction in agricultural output resulting from the forecasted below normal rainfall,” she said.

In a trading update for the quarter to December 31, 2023, Delta Corporation reported a 19% surge in revenue in United States dollar terms over the same time in the previous year.

“Group revenue for the quarter increased by 19% in United States dollar terms compared to prior year and grew by 12% for the nine months.

“This reflects the volume growth across business units, with the proportion of United States dollar sales averaging above 70% for the year,”Musinga said.

She added: “Consumer spending remained buoyant, driven by stable United States dollars pricing and liquidity from mining activities, the marketing of commercial crops, government infrastructure projects and diaspora remittances. “There were also benefits from the payment of year-end bonuses during the third quarter.”

According to Musinga, the lager beer industry kept up its volume growth pace and exceeded previous monthly peak volumes to expand by 15% for the quarter and 14% for the nine months over the previous year.

The new packaging line, which was put into service in August 2023, according to her, has helped to stabilize the supply of products overall. Other advantages include the injection of returnable glass, a steady supply of essential raw materials, and a dependable manufacturing platform.

Musinga claims that the emphasis is still on maximizing the route to market and matching brand and pack availability to demand.

The total volume of sorghum beer in Zimbabwe, including exports, climbed by 4%  for the year to date  and by 3% during the quarter under review. However, the greater availability of lager beer caused a 5% decline in domestic sales of sorghum beer.

Supply for both local and regional markets was stabilized by the opening of the Chibuku Super plant in Harare.

“The volume at United National Breweries South Africa grew by 10% during the quarter and is up 3% over prior year for the nine months.

“Chibuku Super continues to penetrate the formal liquor stores and retail chains ahead of the local production of Chibuku Super which is now rescheduled to the fourth quarter,” she said.

Natbrew Plc in Zambia reported a volume increase of 23% during the quarter and 50% over the course of the nine months.

“There was a slowdown in volume following the cost induced price increase in October 2023. The market has been impacted negatively by the measures adopted to contain the cholera outbreak,” Musinga said.

“The business has also been adversely affected by the shortages and high prices of maize and the depreciation of the Kwacha.”

According to Musinga, the sparkling beverage category continued its impressive volume recovery, rising 38% in the quarter and 25% so far this year over the prior year.

“This momentum was fuelled by competitive retail pricing and increased availability of diverse flavours and packaging options, she said.

“The unit recorded its highest ever monthly volume in December 2023,” Musinga said.