POULTRY PRODUCTION AND PATRONAGE - COPING DURING

C O N F I D E N T I A L SECTION 01 OF 03 HARARE 000772 SIPDIS SIPDIS AF/S FOR S. HILL NSC FOR SENIOR AFRICA DIRECTOR B. PITTMAN STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN TREASURY FOR J. RALYEA AND T.RAND COMMERCE FOR BECKY ERKUL ADDIS ABABA FOR USAU ADDIS ABABA FOR ACSS E.O. 12958: DECL: 01/12/2016 TAGS: EAGR ECON ETRD PGOV ZI SUBJECT: POULTRY PRODUCTION AND PATRONAGE - COPING DURING ZIMBABWE'S PRICE CONTROL MADNESS REF: HARARE 0598 Classified By: Deputy Pol/Econ Chief Frances Chisholm under Section 1.4 d. -------------- Summary -------------- ¶1. (C) Irvine's Day Old Chicks, Zimbabwe's largest poultry and egg producer, has managed to maintain full production and profitability during the GOZ's price control blitz thanks to the combination of a highly cost-efficient, export-oriented operation and cozy RELATIONS with top ruling-party officials, including Reserve Bank of Zimbabwe (RBZ) Governor Gideon Gono. Nevertheless, the owners of Irvine's, a multi-million dollar white family-owned business, are nervous about the impending indigenization bill and working assiduously to stay on the right side of government. Paradoxically, the company's founder was closely aligned with the Ian Smith regime as Member of Parliament and Minister from the mid 1960s until independence. End Summary. -------------- Major Local Supplier and to the Region -------------- ¶2. (U) Irvine's Day Old Chicks, which produces about 350,000 chicks weekly for the domestic and export markets, is Zimbabwe's largest poultry producer. On August 23, at the company's modern plant located on the outskirts of Harare, Managing Director David J. Irvine told econoff that his family-owned company air freights 80,000 day-old chicks a week to Botswana; in addition, Irvine's is the main supplier of chicks to Mozambique and Malawi, and recently began exporting day-old chicks to Tanzania and Angola, as well. Irvine's imports its breeder stock from Cobb, a division of Tyson Foods in the U.S. The poultry manager maintained he had no competitors in breeder chickens in the region. In eggs, Irvine's controls 80 percent of the Zimbabwe market. -------------- -------------- Initially Not Spared Wrath of Price Control Taskforce -------------- -------------- ¶3. (SBU) On July 3 the Price Control Task Force descended on the Irvine plant accusing management of hoarding chickens and eggs rather than selling them to the domestic market at the controlled price. Two weeks later police returned and locked up a senior executive for two days on charges of sabotage for having shut the plant down for three days for repairs. "They are paranoid about non-production," said Irvine. He told econoff that he then pursued "the POLITICAL route" with key ministers to secure a price increase. His primary contact was Price Task Force member and Minister of Public Service, Labour and Social Welfare Nicholas Goche, whose extensive commercial farm is a major grain supplier to Irvine's. (Goche is also one of President Mugabe's two negotiators in the Pretoria talks.) While Irvine said that his highly efficient plant could "live with" the new regulated price of whole chickens that the GOZ announced last week, the price cut backpedaling had failed to differentiate between whole HARARE 00000772 002 OF 003 chickens and chicken parts, or to address the price of day-old chicks. As a result, allegations of overcharging were resurfacing. -------------- -------------- Profit in Exports and "Special Deals" with GOZ Bigwigs -------------- -------------- ¶4. (C) Irvine's has increased its egg exports from about one third to one half of its production since the price control blitz began. In a special arrangement with RBZ Governor Gono, Irvine's manages Gono's chicken projects in return for permission to retain 90 percent of the company's monthly US$750,000 export earnings. (RBZ regulations otherwise require exporters to remit 40 percent of their foreign exchange earnings to the RBZ at a small fraction of the parallel exchange rate ) an effective steep export tax that acts as a stranglehold on production.) Irvine said he had recently declined, for the time being, an offer by Gono to issue the company a permit to export frozen chicken. Adding to the company's special benefits, Irvine's also has a generous allocation of grain ("enough to build up stocks") from the Grain Marketing Board (GMB) at the GMB's low, highly subsidized, controlled prices. ¶5. (C) Irvine boasted that he was selling "spent breeders," that he otherwise would have frozen until the price frenzy blew over, out the back door to a ZANU-PF bigwig ("she,s high enough to protect me") at twice the controlled price. Passing through her hands, the chickens ended up on the Harare black market at triple the controlled price. ¶6. (SBU) Internally, the company had reduced black-market dealing by its own staff by supplying a package of chicken and eggs to every employee weekly and prohibiting their access to the company's retail site next door; until these measures were implmented, staff had been spending more time at the company gate reselling poultry and eggs at up to five times the controlled price than in the plant. Irvine added that he had sharply cut retail outlet opening hours and only opened under the protection of riot police to reduce the incidence of injuries and property damage that the hungry crowds had been causing. -------------- Seeking Friends in High Places -------------- ¶7. (C) Irvine and his elderly father and company founder William Irvine visited Dydimus Mutasa, Minister of State for National Security and Lands, Land Reform and Resettlement, at his rural home last month seeking protection from possible takeover under the pending Indigenization Bill (reftel). Irvine said Mutasa received the two businessmen warmly and told them not to worry about the Bill, "it was just meant for the mines, not for them." The three then proceeded to discuss investment possibilities in new agrobusiness projects in Mutasa,s home province of Manicaland. ¶8. (SBU) Note: William Irvine was a Member of Parliament from Salisbury from 1965 to 1980. During this period, he served variously as Minister of Local Government, Minister of HARARE 00000772 003 OF 003 Transportation and Power, and Minister of Agriculture. As an MP in the early 1970s, he is known for having put forward the failed Residential Property Owner's Protection Act. The legislation, a diluted form of South Africa's Group Areas Act, was intended to prevent non-whites, including domestic workers, from living in low-density (i.e. white) suburbs. End Note. -------------- Comment -------------- ¶9. (C) For now, at least, Irvine's appears to have worked out enough sweetheart deals to avoid production losses during the price crackdown. Apparently, the company has even come out on top, propelled by a surge in exports that are further sweetened by a particularly generous forex retention allowance from fellow chicken farmer RBZ Governor Gono. Being in bed with the devil could protect the family's multimillion dollar operation indefinitely - and win valuable time for the company. But the uncertainty and risk inherent in patronage deals must weigh heavy. Bidding econoff farewell, Irvine pointed to a warm winter coat hanging on the back of his office door, packed, he said, with his blood pressure pills and "a lot of cash," for the day when they come to get him. DHANANI