Dairy Industry: Discussing Challenges and Opportunities with Mercy Rufaro Ndoro of Dairibord Holdings

Interview with Mercy Rufaro Ndoro, Group CEO at Dairibord Holdings Limited

Could you provide an overview of Dairibord Holdings Limited and its history?

Dairibord originated over 70 years ago under the name Dairy Marketing Board, established through an Act of Parliament. Initially, it held the exclusive mandate of collecting raw milk from farmers, processing it, and serving as the sole processor in the country. Later, Nestlé entered the market. In 1994, amidst the government’s economic structural adjustment program, Dairy Marketing Board underwent transformation into a company, registered under the Companies Act, fully owned by the government of Zimbabwe. In 1997, under the stewardship of Antony Mandiwanza, the company debuted on the Zimbabwe Stock Exchange through an oversubscribed IPO, amassing over 5000 shareholders. Following privatization that same year, employees acquired 10% equity, later increasing it to 19%. The government initially held 25% at listing but subsequently divested, rendering Dairibord a success story of Zimbabwean privatization.

Over time, Dairibord evolved from solely relying on milk to boasting a diversified product line, achieved through acquisitions, such as Lyons in 2001, and substantial research and development efforts, yielding new products.

Presently, the business is organized into three primary product categories: liquid milks, foods, and beverages. Liquid milks encompass UHT processed milk, sterilized milk, and cultured milk, constituting 28% of our operations. Foods, comprising yogurt, ice creams, condiments, sauces, and peanut butter, represent 7% of our business. Beverages, comprising dairy fruit blends, flavored and traditional maheu, Quick Brew tea, and drinking chocolate, constitute 65% of our volume sales. Additionally, we maintain a property portfolio for leasing to the operating company and third parties. That encapsulates our business structure.

Could you elaborate on the competitive advantages your company holds within its sector, considering the challenging environment it operates in?

In our sector, where competition is intense, product differentiation emerges as paramount. We place significant emphasis on the inherent quality of our products, which sets us apart from competitors. Our dynamic research and development team is dedicated to enhancing our products, ensuring improved quality and alignment with evolving consumer and market trends.

Considering the competitiveness within the industry, what do you perceive as the primary challenges and opportunities?

Our operating environment presents numerous challenges, characterized by its dynamic nature. In the dairy sector specifically, we have observed a fluctuation in milk production, with a notable decline from 256 million liters per annum in 1990 to approximately 59 million liters in 2009. However, thanks to investments from both government and the private sector, by 2023, the country witnessed a remarkable increase to around 100 million liters annually. Despite this growth, demand for milk and its derivatives remains high, estimated at 140 million liters, indicating a persistent gap between supply and demand. Presently, processors are mitigating this shortfall by importing milk solids from Europe, South Africa, and New Zealand. Yet, the opportunity lies in closing this gap domestically, thereby reducing reliance on imports.

Another significant challenge revolves around the high cost of producing raw milk in Zimbabwe. Currently, processors are burdened with an average cost of approximately 60 cents per liter, considerably higher than neighboring countries like South Africa (43 cents), Malawi (26 cents), and Mozambique (30 cents). The looming prospect of the Africa Continental Free Trade Area further amplifies this concern, as borders open and competition intensifies.

Furthermore, securing funding for scaling up operations poses a significant hurdle. In Zimbabwe, the cost of funding for capital expenditure hovers between 12% to 18% in US dollars, deterring long-term investments. However, with the anticipated changes in monetary policies and the introduction of instruments supporting multi-currency operations until 2030, there is optimism for improved access to long-term funding.

Moreover, the persistent issue of skills flight exacerbates our challenges. The rapid depreciation of the Zimbabwean dollar prompts skilled individuals to seek opportunities abroad, leaving a void in our workforce. Addressing this gap in expertise becomes imperative for sustaining growth and innovation within the industry.

However, amidst these challenges lie promising opportunities. The growing population and urbanization trends in Zimbabwe indicate an expanding market for dairy products, especially with the emergence of a burgeoning middle class. Moreover, the African Continental Free Trade Area (AfCFTA) presents a vast market of approximately 1.3 billion people and a robust economy valued at around 1.3 trillion US dollars, offering significant growth prospects.

As a business, we have long struggled to meet demand both domestically and regionally. Thus, there is a compelling opportunity to enhance our capacity and efficiency. In 2023, we allocated approximately $4 million towards capacity expansion and cost reduction efforts. Looking ahead to 2024, we have earmarked a budget of $24 million to further bolster our capacity expansion initiatives, propelling us towards meeting the burgeoning demand and capitalizing on the opportunities within reach.

Considering your aspirations for growth and expansion, are you actively seeking investors and potential partnerships to fuel your company’s development?

Absolutely. Our vision entails becoming a prominent food and beverages company across Africa, which is a substantial undertaking given the continent’s size and potential. Achieving this vision necessitates forming partnerships with like-minded entities and aligning our strategies for mutual growth. Therefore, we are keenly open to exploring opportunities for collaboration and securing additional funding to propel our company forward.

Can you provide insight into the countries where your products are currently exported? Are your exports primarily regional?

Currently, our exports are predominantly focused on the region, including South Africa, Zambia, Botswana, Mozambique, and to a lesser extent, Malawi. However, sporadically, we receive orders from individuals purchasing our products for shipment to England, catering to the Zimbabwean diaspora seeking familiar products from home. While we do engage in occasional consignments to Europe, our primary challenge has been limited capacity. Due to the lower margins associated with exports compared to domestic sales, we have prioritized the latter.

Nevertheless, we acknowledge the substantial potential in the export market. To enhance our presence in key destinations like South Africa, we have established agreements with manufacturers in the region who possess idle capacity. These partners produce our goods in South Africa according to our specifications, distributing them not only in South Africa but also in neighboring markets like Eswatini and Botswana. This strategic approach aims to bolster our brand visibility in the broader regional market.

Export remains a vital aspect of our business, and as we expand our capacity, we anticipate meeting both domestic and regional demand more effectively. Leveraging a toll manufacturing strategy in South Africa, we provide our inputs to manufacturers who produce goods to our standards while safeguarding our proprietary ingredients, ensuring our competitive edge. They manufacture to our specifications, and we handle distribution in these markets accordingly.

Can you provide insight into the newest projects and additional business ventures you are currently engaged in?

Our primary focus at the moment is on expanding our capacity, with a $24 million CAPEX project primarily allocated to the beverages sector for the 2024 to 2025 period.

Additionally, we are heavily involved in a toll manufacturing initiative in South Africa. This project holds significant promise for us, as it not only promises increased volume but also provides access to foreign currency and enhances our brand presence in that market. We are fully committed to its success.

Regarding projects initiated in 2023, our current efforts are directed towards optimizing their outcomes, maximizing production, and ensuring widespread distribution of our products in the market.

Would you like to discuss your Corporate Social Responsibility (CSR) initiatives? Are there any specific CSR endeavors you would like to highlight?

We are highly conscious and attentive to the environment in which we operate. We are committed to minimizing the adverse effects of our business operations on the environment. To this end, we focus on clean energy and solid waste management. We have established partnerships with small-scale recycling companies to collect and recycle our solid waste, particularly HDPE bottles. Additionally, we collaborate with PetrecoZim to gather PET bottles for recycling. Recently, we have partnered with Tetra Pak to collect Tetra boxes, which are then recycled in South Africa.

In our commitment to poverty reduction, we engage with small-scale farmers through our milk supply development unit. This initiative empowers farmers to supply raw milk to our company while earning a livelihood. Simultaneously, it addresses nutrition challenges by providing milk for their households, contributing to alleviating hunger.

Education is another cornerstone of our CSR efforts. We operate a bursary scheme for the children of our low-level workers, offering support from high school through university. This initiative aims to assist talented but financially disadvantaged students, enabling them to access quality education. Furthermore, we extend our support to grassroots-level primary schools, fostering sports programs to promote healthy lifestyles and build familiarity with our products from a young age. These initiatives underscore our commitment to corporate social responsibility.

What are your goals for the next three to five years?

Our reliance on raw milk remains pivotal to our business. Hence, one of our primary objectives is to ensure that we procure approximately 40% of the raw milk produced in the country. Currently, we receive around 34%, but we aim to elevate this figure to 40% within the next year or two. This goal underscores our commitment to bolstering our milk supply.

Furthermore, we strive for consistent volume growth, targeting double-digit expansion annually over the next three to five years. Additionally, we aim to enhance our export capabilities and expand our regional presence, prioritizing the success of our regional footprint.

Additionally, fostering a highly motivated and engaged workforce is imperative. We are dedicated to implementing programs that cultivate a deeply engaged and motivated workforce. Moreover, we remain steadfast in our commitment to environmental consciousness. Our ongoing projects are geared towards minimizing the adverse environmental impacts of our operations.

Could you share a bit about your professional journey leading up to your current role?

I began my career at Dairibord as a trainee accountant after graduating from the University of Zimbabwe. Through various roles within the finance function, I gained a profound understanding of the company’s operations. In 2009, I was appointed as the Finance Director and Company Secretary, furthering my development by pursuing an MBA program and attending leadership courses at Harvard Business School. In October 2022, I assumed the role of Chief Executive. Although relatively new to this position, my goal, along with the team, is to elevate the company’s performance from good to great, ultimately rewarding our shareholders.

Could you share a story or achievement that you are particularly proud of, either personally or something the company has accomplished?

One of our greatest strengths as a business lies in our vibrant and robust research and development department. Thanks to their dedication, we have received numerous accolades. In 2023, our prominent brand, Cascade Baobab, was recognized as a top three finalist at the International Dairy Federation Innovation Awards, a moment of immense pride for us. What is noteworthy is that our research and development team is entirely Zimbabwean, showcasing local talent and innovation on a global stage. Another recent achievement was the recognition of our new brand, Pfuko Ginger, as the Best New Product of the Year by the Zimbabwe Association. Additionally, our products consistently excel in the Super Brand Awards in Zimbabwe across various categories, further solidifying our market presence. We are thrilled about these accomplishments and believe that our strong brands will continue to drive our success into the future.

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