VZCZCXRO1287
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0531/01 1751556
ZNR UUUUU ZZH
R 231556Z JUN 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3063
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1994
RUEHAR/AMEMBASSY ACCRA 2078
RUEHDS/AMEMBASSY ADDIS ABABA 2198
RUEHRL/AMEMBASSY BERLIN 0740
RUEHBY/AMEMBASSY CANBERRA 1475
RUEHDK/AMEMBASSY DAKAR 1833
RUEHKM/AMEMBASSY KAMPALA 2254
RUEHNR/AMEMBASSY NAIROBI 4685
RUEAIIA/CIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEFDIA/DIA WASHDC
RUZEHAA/CDR USEUCOM INTEL VAIHINGEN GE
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/JOINT STAFF WASHDC
RHEHAAA/NSC WASHDC
RUEHGV/USMISSION GENEVA 1344

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 
 
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SUMMARY 
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¶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. 
 
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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. 
 
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COMMENT 
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¶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