MISGUIDED POLICIES SPAWN ACUTE BREAD SHORTAGE

UNCLAS SECTION 01 OF 02 HARARE 000531 AF/S FOR S.HILL ADDIS ABABA FOR USAU ADDIS ABABA FOR ACSS COMMERCE FOR BECKY ERKUL NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN TREASURY FOR D. PETERS AND T.RAND SENSITIVE SIPDIS E.O.12958: N/A TAGS: ECON EAGR PGOV ZI SUBJECT: MISGUIDED POLICIES SPAWN ACUTE BREAD SHORTAGE REF: 07 HARARE 994 -------------- SUMMARY -------------- ¶1. (U) Bread shortages have reappeared as Zimbabwe's wheat and flour stocks collapse. Wheat production has been declining since the commercial farm invasions of 2000. While farm takeovers and low prices explained much of the poor wheat output in the early 2000s, in more recent years, shortages of fuel, electricity, foreign exchange and fertilizer have predominated. Zimbabwe has relied on imports to fill the gap, but due to foreign exchange shortages, they have not met the growing demand for bread. Nevertheless, affordable substitutes are still available along with the staple maize meal. We don't foresee the bread shortage sparking bread riots. END SUMMARY. -------------- Price Distortions Worsen Shortages -------------- ¶2. (U) Bread is disappearing off Zimbabwe's supermarket shelves and, for the most part, is only available at exorbitant prices either on the black market or as rolls, which are not under price controls. Although the government blames producers for creating "artificial" shortages, bakers counter that the highly distorted controlled price of a standard loaf of bread is strangling production. The industry is calling for a price increase to Z$1.7 billion/loaf to regain viability, while the GOZ has pegged the price at Z$400 million. David Govere, CEO of Harambe Holdings which owns Super Bake, Zimbabwe's largest bread producer, told us that the government initially had agreed to subsidize the Z$1.3 billion/loaf price difference to bakers, but, upon doing the math, had found the financing unsustainable: Assuming that, for lack of flour, the industry met only half the normal demand, i.e. one million instead of two million loaves per day, the subsidy would have cost the government Z$1.30 quadrillion a day. -------------- M[QQQQh?r commercial-farm disruptions began. Ninety-five percent of the crop used to be grown on large-scale commercial farms. Cereals expert George Hutchison of the Commercial Farmers Union (CFU) told us that Zimbabwe put 65,000 hectares under wheat production with an annual yield of close to 350,000 tons before 2000. Production plummeted to 187,000 MT in 2002, and below 150,000 MT in the following years. This year, the GOZ claims that 25,000 hectares have been planted and will produce 75,000 MT of wheat. Hutchison, on the other hand, believed only 20,000 hectares had been planted, with a maximum yield of 60,000 MT against national demand of over 400,000 Mt. He blamed the collapse on lack of fuel, fertilizer, and electric power for irrigation, plus constant irrigation equipment breakdowns, in addition to the obvious loss of large, productive farms. ¶4. (SBU) The CFU regards pricing as the lesser issue in the production shortfall, on paper at least, as the Reserve Bank of Zimbabwe agreed to pay farmers the import parity price, currently pegged at around US$630/MT, for the crop. However, farmers are still waiting for the promised foreign exchange component of their HARARE 00000531 002 OF 002 2007 crop. Under these circumstances, the remaining embattled commercial farmers who formerly grew wheat had little incentive to plant this season. Former CFU President Doug Taylor-Freeme, for example, told us he had planted 500 hectares to wheat in 2001, 200 hectares in 2007 (of which he had abandoned 60 hectares for lack of electric power to irrigate),but only 50 hectares this year, primarily due to uncertain electric power supply and payment arrears for last year's crop. He has the capacity to plant 800 hectares of irrigated winter crops if inputs and payment were assured. -------------- Imports to Sustain Bread Production -------------- ¶5. (SBU) To meet demand, Zimbabwe is importing wheat. Govere said Zimbabwe had ordered some 50,000 MT of wheat from a South African company called ASP, which is under the same management as Intshona (reftel). As with Intshona, RBZ Governor Gono is said to have an interest in ASP, which would explain why it is consistently the GOZ's preferred commodity supplier. However, because of foreign exchange shortages, Zimbabwe has managed to pay for only 12,500 MT of wheat, of which 6,000 MT have been delivered. ¶6. (SBU) Govere explained that Zimbabwe also buys wheat from Hobuld in Beira, Mozambique, and at more favorable prices than from ASP. Zimbabwe bought 10,000 MT of wheat from Hobuld in March 2008, which sustained bread production until the end of May. Although Hobuld is said to have 11,000 tons of wheat in stock to sell to Zimbabwe, lack of foreign exchange has held up a further deal. Under the circumstances, Govere expects the bread shortage to intensify in lockstep with the collapse of the local currency. -------------- COMMENT -------------- ¶7. (SBU) Promising people cheap bread may be politically expedient in the short term but without wheat, or the foreign exchange to import it, its supply is unsustainable. Until productive farmers can access the range of required inputs in a timely and reliable manner to grow wheat, and get fair payment for their crop, bread is likely to fade out of the Zimbabwean diet. Will its disappearance cause bread riots? We think not, as maize meal still reigns as Zimbabwe's staple food and there are some reasonably affordable substitutes for bread, like sweet potatoes. Bread became the starch of choice for the emerging urban middle class; having to forego it is just one more belt tightening measure in the descent into poverty. Until these substitutes and the staple maize meal disappear, we don't see Zimbabweans taking to the streets over food. END COMMENT. MCGEE