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‘Economy should remain liberalised, open’

BAKERS Inn MD Marcus Athitakis (MA) believes the economy should remain liberalised. Businessdigest’s chief business reporter Paul Nyakazeya (PN) spoke to Athitakis about the price of bread, bakers and millers worst fears and how the industry could be sustained to ensure that the price of bread does not go above US$1.

PN: Bakers and millers are accused of being quick to review their prices upwards when there is a movement of wheat price on the international market, but adopt a “see no evil or hear no evil” when the opposite happens. What do you say to this?
MA: The price of a superior loaf has dropped from US$1,30 to US$1 since dollarisation. During the same period, the costs of producing a loaf increased by 24% due to increased world wheat price, and the strengthening of the rand. Despite both these factors getting worse, we dropped our wholesale prices in November last year to 90 cents (US$1 retail), but this was after we managed to increase factory and distribution efficiencies. Apart from those two months when the price of bread increased last year, prices have been on a downward trend.

 

PN: How would you view the current obtaining market price of bread?
MA: The market price is extremely competitive, and the single biggest factor driving this is the issue of (small) change. In Zimbabwe once prices go above US$1, there are huge difficulties with change and will be a disaster. A 700g superior loaf (square loaf) costs R8,50 (US$1,21) in South Africa, despite the fact that their raw materials cost about 20% less. A 650-700 gramme standard loaf that costs 85 cents in Zimbabwe, sells for 90 cents – US$1,00 (6 pula) in Botswana; and $1 (5 000 kwacha) in Zambia; and $1 (R7,20) in South Africa. This is in spite of them landing all key raw materials at much lower prices than us.

PN: You have an acceptable brand, but the market says you have not really gone above Proton in terms of your bread market share. How far true is it?
MA: This is completely true for Mashonaland East. But nationwide, between three and four Bakers Inn loaves are sold for every Proton loaf.

PN: Are you looking into other ventures besides bread?
MA: There are two ventures that we hope will contribute 10-15% of turnover by end of the year. We commissioned a premix plant in 2010, which currently supplies 250 tonnes per month of bakery premixes to in store bakeries. We hope to double this by December 2011. There is also mass production of quality confectionery for supply to retailers. The lack of consistent electricity supplies has severely affected major retailers, and they are looking to supplement what they produce on site.

PN: Word on the market is you want to take over the Lobels brand. How far true is this?
MA: We still have so much work to do to ensure we make Bakers Inn a world-class bakery brand. We are not looking at any other brands right now.

 

PN: Do you have any synergies with other corporates outside your own?
MA: We work closely with most Zimbabwean companies –– either as suppliers or customers. We supply all the major retailers with bread. We procure 85% of our raw materials locally and work with our suppliers to ensure they always provide according to detailed specs, and that they are competitive with world-class markets. Last year, we bought world-class flour and signed contracts with National Foods, Muga Foods and Manyame. After investing recently in plants, Tregers is now producing and supplying excellent packaging. It is a cliché but we need win-win relationships with our customers and suppliers.

PN: What capacity are you currently operating at?

MA: Currently, our three lines in Harare are at 89% and our two lines in Bulawayo are operating at 74%.

 

PN: How much wheat is Zimbabwe expecting this year and what is the national requirement monthly?
MA: We speak with no authority here, but we have heard that the last local crop harvested in October to December 2010 was about 20 000 tonnes, of which only 10 000 tonnes was suitable for bakers flour (high protein). We would estimate that Zimbabwe uses 20 000 tonnes of flour a month (27 000 tonnes of wheat).

PN: Bakers and millers are said to be importing more than 50% of their flour requirements until the next wheat harvest, a bill which could raise production costs, the price of bread and other flour products. What do you say to this and by what margins could prices of bread increase by?
MA: I can only speak for ourselves here. We procure more than 85% of our flour through local millers. Because of the lack of local wheat, local millers have already been importing wheat since dollarisation, and therefore this “import” factor is already priced into local flour prices. The bigger concern is international wheat prices. Since June 2010, Chicago Board of Trade (CBOT) wheat prices have gone from US$160 to US$345 per tonne before transport and finance, and analysts are forecasting this trend will continue this year. Should this CBOT price go up to US$370/380 per tonne, millers and bakers will be under immense pressure to increase prices by 10 – 20%.

PN: What do you think should be done to ensure that the bakery industry remains viable?
MA:There are five main issues. Maintaining a liberalised economy where the open market sets competitive prices and bakers have the ability to source and/or import raw materials duty free.
There should be consistent electricity supplies, which affect the entire production chain. Farmers are scared to plant wheat which they may not be able to irrigate. We thus import more expensive wheat.
The millers cannot plan their production and have to rework their product; this affects their yields and efficiencies, as well as their quality, which drives up their costs.
Similar obstacles affect all our suppliers, and drive up their costs. Bakers face same problems too, but have one more significant cost. Due to the fact that it takes two hours from the time you mix dough, until you get a finished loaf of bread –– a power cut can result in a loss of 10–20% of a baker’s production.
Flour prices need to remain between US$650–700 per tonne for high protein bakers’ flour to maintain a retail price of US$1.The other issue is of reasonably priced finance to fund working capital and recapitalise the industry paying more than 20% interest a year is crippling all businesses.
We need to lift our game and compare ourselves to international benchmarks. We are now part of a global village.

 

PN: What do you think are bakers and millers’ worst fears or threat to the industry?
MA: I would say the biggest threat is the increase in the price of international wheat, which will trigger other prices increases.

PN: What do you say to people who say Bakers Inn was “unnecessarily and overzealously” targeted by the National Incomes and Pricing Commission (NIPC) during the Zimbabwe dollar era so that they could be seen to be doing something because you were an easy target?
MA: The NIPC was just doing their job, and all bakers in the industry were affected. We have always engaged the NIPC constructively and openly to ensure survival of the baking industry.

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