Sugar tax bites into demand, hikes production costs

05 Jul, 2024 - 00:07 0 Views
Sugar tax bites into demand, hikes production costs Mr Makamure

eBusiness Weekly

Nelson Gahadza

Zimbabwe’s beverage makers are reeling under pressure from the recent introduction of a sugar tax on beverages, which has slowed demand across various categories and increased production costs.

Initially, Finance, Economic Development and Investment Promotion Minister Mthuli Ncube had proposed a sugar tax of US$0,002 per gramme, sparking an outcry and intense lobbying from industry.

This led to a downward review to US$0,001 per gramme of sugar after conceding the potential catastrophes the tax would bring to industry viability and employment. The law to that effect was gazetted on February 8, 2024.

Beverage companies contacted by Business Weekly confirmed the sugar tax has impacted businesses in many ways, including upward adjustment of prices resulting in low demand, increased production costs, and making the local product uncompetitive.

Delta Corporation Limited, the manufacturers and marketers of international and locally produced beverages in Zimbabwe operating through segments, non-alcoholic beverages, sparkling beverages, lager beers and traditional beers, said the sugar tax resulted in retail prices going up by 10–33 percent depending on the sugar content of each beverage.

“This has slowed demand across various categories. Maheu was impacted by both the sugar tax and changes in VAT from zero rating to vatable,” Alex Makamure, the group’s finance director, told Business Weekly.’

He added that the group is also seeing a surge in informal imports of Coke products and Mazoe from Zambia and Mozambique, which have no sugar tax.

“The full impact on volume is still to manifest as we are in winter,” he noted.

Makamure noted that Delta has a full range of low- and zero-sugar offerings; however, the generality of consumers prefer sugar-added products even when the taste of the zero-sugar products remains unchanged.

“We continue to explore ways of reducing the value chains as we strive for affordability,” said Makamure.
Among the industry leaders that initially responded to the sugar tax was Schweppes Zimbabwe, which effected two price adjustments since the tax was announced by Minister Ncube last year. Initially, Schweppes increased prices for a 2Lx6 pack of the popular Mazoe cordial by 17 percent and further hiked the price to US$24 for the same pack.

Dairibord Holdings chief executive officer Mercy Ndoro said the implementation of a per-gramme sugar tax on beverage products resulted in a direct and quantifiable increase in production costs as sugar is a significant and essential raw material in the manufacture of beverages.

“The cost of production has significantly increased, making Zimbabwean products uncompetitive, and there is a significant risk that the beverage industry as a whole will become uncompetitive compared to our neighbouring countries,” she said. Ndoro said Zimbabwe’s sugar tax, currently the highest within the Southern African region, has demonstrably exacerbated price sensitivity among consumers within the beverage sector.

“This poses a significant challenge to the overall competitiveness of domestic beverage manufacturers, and there is also an elevated risk of increased grey imports of unauthorised, potentially lower-quality, and untaxed substitute products,” she said.

Ndoro noted that the requirement to remit the sugar tax on a monthly basis, potentially preceding the settlement of invoices by retailers and distributors, exerts a significant strain on the company’s working capital, which, in turn, negatively impacts overall liquidity and hinders operational efficiency.

“There is also a need to remove some basic commodity beverages from the sugar tax on products that include Maheu and Dairy Fruit Drinks, as they form part of the basic needs of our population,” said Ndoro.

Dairibord Holdings is a leading manufacturer and marketer of food and beverage products.The company offers various products, including liquid milk products, such as short and long shelf life, cultured and cream milk products, food products comprising yoghurts, ice creams, cheese, ice cream cone shells, condiments, spreads, sauces, butter, and ghee, and beverages, which include cordials, ready-to-drink dairy and nondairy beverages, teas, mineral water, juices, and drinking chocolate.

Schweppes Zimbabwe said the tax on sugar content in drinks is heavily weighing on demand, resulting in declining volumes.Schweppes Zimbabwe is a manufacturer and distributor of beverages whose portfolio includes Mazoe crushes and syrups, Minute Maid juices, Bonaqua Still Water, and Schweppes Still Water.

Demos Mbauya, General Manager Schweppes, told Business Weekly that volume on Mazoe cordials has declined by 20–30 percent over the past year due to a fall in demand as a result of price increases.She noted that while the company has not yet relaunched the low-calorie Mazoe variations, it is planning to do so.According to the Treasury, the special surtax on the sugar content of beverages is only levied on added sugar.

Meanwhile, reports are that the Zimbabwe Revenue Authority (Zimra) approached beverage companies in an effort to collect US$0,002 in sugar taxes for the period between January 1 and February 8 this year, prior to the levy being reviewed downward.The tax sparked concerns from industries, which said up to US$1.6 billion would be wiped out of the beverage producer sector this year.

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