HomeBusiness DigestAgric firms slam price controls

Agric firms slam price controls

Eric Chiriga

LOCAL agricultural inputs manufacturing firms have condemned price controls imposed by the government saying they are causing serious viability problems.

dana, Arial, Helvetica, sans-serif”>They said the arbitrary prices do not take into account the costs of production and the inflation rate.

“The company hopes that it is allowed to charge prices that can sustain the business going into the future and normality returns to its main markets,”

Nicholas Nyandoro, the chairman of Seed Co Ltd, said.

He said price controls meant that profit margins obtained were quickly eroded.

Seed Co was awarded price increases of around 60% at a time when inflation was close to 300%.

“This significantly reduced margins thereby affecting viability,” Nyandoro said.

He said Zimbabwe was one of the group’s most important markets and that price controls would endanger the viability of the company.

Shingi Mutasa, the chairman of TA Holdings Ltd, said his group subsidiary, Sable Chemical Industries Ltd (Sable) made a shocking loss of $9 billion because of price controls.

The loss was made in only six months, from June 30 to December 31, 2004.

“At a time of rising global fertiliser prices and rising profits of fertiliser companies in countries as far flung as South Africa, Norway, Canada and USA, Sable attained the shameful distinction of losing $9 billion,” Mutasa said in the group’s annual report for 2004.

In 1999, Sable produced over 240 000 metric tonnes of ammonium nitrate but it now produces around 140 000 metric tonnes.

“These losses arose because of a government freeze on the price of domestically-manufactured AN in the midst of triple digit inflation.”

Mutasa said meanwhile the government permitted the importation of fertiliser at ever-increasing prices.

Sable could not generate sufficient cash to meet operating costs and capital expenditure.

Mutasa said some officials in the government seem to believe that Sable’s solutions to the pricing problem was to borrow from the Productive Sector Facility (PSF).

The PSF was introduced by the Reserve Bank of Zimbabwe to provide funding to troubled institutions at favourable interest rates.

However, RBZ governor Gideon Gono has called in the debts, citing abuse of the facility.

“I believe that causing the company to borrow without the capacity to repay the loan is irresponsible and poor corporate governance,” said Mutasa.

He said with agriculture being so critical to the future of Zimbabwe, the one industry that gives a competitive edge to a viable agricultural sector should not be degraded.

“No country has raised its agricultural productivity without a strong domestic fertiliser industry,” he said.

“Consequently by forcing Sable to incur losses today through the sustained refusal of the Ministry of Industry and International Trade to allow Sable to raise its prices to match the prices of imported ammonium nitrate and match inflation,” Mutasa said, “the government was sending a long-term signal to Sable to cease production.”

The government introduced price controls on basic commodities and agricultural inputs, accusing companies of profiteering and putting the goods beyond the reach of many newly-resettled farmers.

The prices imposed by the government were not enough for companies to break even, let alone make a profit.

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