ZIMBABWE'S BREAD SHORTAGE - NO RELIEF IN SIGHT

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 000994

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: ECON PGOV ETRD EAGR ZI
SUBJECT: ZIMBABWE'S BREAD SHORTAGE - NO RELIEF IN SIGHT

REF: A. HARARE 822


B. HARARE 657

C. HARARE 605

Classified By: Pol/Econ Deputy Chief Frances Chisholm under Section 1.4
b/d

--------------
Summary
--------------


1. (C) Zimbabwe has been enduring an acute bread shortage
since the recent price crackdown began. Although the GOZ
subsequently revised the bread price upward, the shortage has
persisted due to low wheat production, continued gross price
distortion, and a lack of foreign currency to import grain
through the usual channels. The politically well-connected,
including Reserve Bank of Zimbabwe (RBZ) Governor Gono,
appear to be benefiting personally by entering the scene as
grain or flour importers. While it may appear to be
politically expedient to provide cheap food to the people,
the cost of the only available bread is approaching sixfold
the official price and the cost of subsidies is immense and
unconscionable. End Summary.

-------------- --------------
Bread Price Revised Upward, But Nothing on the Shelves
-------------- --------------


2. (SBU) Zimbabwe has been hit by a severe bread shortage
since the price crackdown in late June (Ref A, B, C).
Notwithstanding subsequent reviews that lifted the controlled
price from Z$30,000 a loaf to Z$100,000 (Note: the Zimbabwe
dollar is trading at one million:USD on the street),there is
practically no bread on shop shelves. Although the GOZ seeks
to blame manufacturers for the shortage, David Govere, former
President of the Baker's Association of Zimbabwe, explained
to econ specialist on October 30 that the root of the problem
lies, in fact, in prices that are distorted by government
intervention.

-------------- --------------
Farm Seizures/Power Outages Lay Waste to Wheat Production
-------------- --------------


3. (U) Historically, Zimbabwe never produced enough wheat to
meet the annual domestic requirement, which is close to
500,000 metric tons according a statement made by Grain
Marketing Board (GMB) acting chief executive Retired Colonel
Samuel Muvuti before the Parliamentary Committee on
Agriculture, Lands, Land Reform and Resettlement last month.
At best, Zimbabwe's commercial farmers produced around
300,000 tons, with the balance met by imports. Production
has been in decline since the farm invasions under fast-track
land reform. This year the GOZ set a production target of
144,870 metric tons, but the crop is likely to fall well
below this figure, largely due to disruptions in irrigation
caused by widespread power outages. Consequently, Zimbabwe
must rely more than ever on imports to fill the gap.

--------------
The High Cost of Price Distortions
--------------


4. (SBU) The GMB is offering farmers Z$42 million per metric
ton of wheat this season; transportation and handling costs
push the unit price to Z$57 million. Bizarrely, the GMB is

HARARE 00000994 002 OF 002


required to turn around and sell the wheat to millers at
Z$230,000 per ton ) less than a half percent of its cost and
a loss of Z$56.7 million per ton. Confronted with these
figures, the GOZ is reappraising the sale price of wheat to
reduce the parastatal's losses. Govere believes this
season's wheat will not be sold to the millers until the
pricing issue is resolved.

--------------
Getting Rich Quick on Bread
--------------


5. (C) Govere said Zimbabwe has two import sources: Holbud,
which has supplied wheat to the GMB in the past; and
Intshona, the RBZ's preferred supplier. Holbud is prepared
to deliver 36,000 tons of wheat anchored at the port of
Beira, Mozambique to Zimbabwe once it receives payment. As a
goodwill gesture, it released 2,000 tons of wheat to Zimbabwe
about three weeks ago without prepayment. Intshona is
supposed to supply 2,000 tons of wheat per week up to a total
of 120,000 tons, but lacks the stock to ensure steady
delivery. Asked why Intshona is the RBZ's preferred
supplier, Govere explained that RBZ Governor Gono had an
interest in the company. He recalled how Gono was drawn into
the public mire a year ago in a fertilizer scandal in which
Intshona, also the RBZ's preferred supplier for that
commodity, delivered product that turned out to be
substandard and inappropriate for Zimbabwe.


6. (C) Zimbabwe's largest bread manufacturer, Lobels, has
received permission (and forex) from the RBZ to import flour
from Malawi. Govere said Lobels is importing 8,000 tons of
flour at Z$30 million per metric ton, and the
Innscor/National Foods group is sourcing 9,000 tons of wheat
from local farmers at Z$42 million per ton under an outgrower
scheme. In addition, a number of politically-connected
commodity brokers are importing flour and selling it for as
much as Z$800 million per ton. General Constantine Chiwenga
and his wife Jocelyn, for example, are importing flour
through their company Broadhaven and selling it for
Z$35,000/50 kg bag, or Z$700 million/ton, according to
Govere. But the total amounts are modest for the nation: all
in all, Zimbabwe has only managed to receive and convert
1,400 tons of wheat per week against a requirement of
9,000-10,000 tons, resulting in the current bread shortage
and prices rising as high as Z$600,000 a loaf on the street.

--------------
Comment
--------------


7. (SBU) While it may appear to be politically expedient to
provide cheap food to the people, the cost to the treasury is
non-transparent, immense, and unconscionable. The huge
subsidy will have to be funded by money creation, which will
expand the money supply and trigger more inflation. In the
meantime, the well-connected, as usual, make hay as Zimbabwe
digs itself deeper into a hole.
DHANANI