Starafrica feels the pinch of sugar tax

Local sugar producer Starafrica Corporation says it is grappling with weak demand for industrial sugar, with the government-imposed sugar tax on beverages negatively affecting some of its key customers.

In 2024, the Zimbabwean government introduced a surtax on added sugar in beverages at a rate of US$0.002 per gramme. The levy, aimed at supporting the healthcare sector-particularly cancer treatment-was later halved to US$0.001 following pushback from industry players. The tax applies to both ready-to-drink and cordial beverages.

Despite this policy headwind, Starafrica recorded a gross profit of ZiG339.7 million for the financial year ended March 31, 2025, driven by price reductions aimed at stimulating market demand. However, company chairman Rungano Mbire said these efforts were undermined by the broader impact of the tax on the beverage sector.

"While we reduced prices to be competitive against imports and anticipate realising the benefit in the upcoming year, demand for industrial sugar in general is weak as some of our key customers in the beverage sector suffered from the negative effects of the added sugar on beverages tax," Mbire said in a statement accompanying the group's financial results.

He added that a record tobacco harvest and higher gold prices could boost forex inflows and support currency stability. However, the sugar tax remains a significant constraint, and Starafrica would continue to lobby for policy adjustments through the Zimbabwe Sugar Association.

Mbire also welcomed the government's recent decision to impose a 30% surtax on imported white sugar, saying the move would shield local producers from unfair competition and regional dumping.

During the review period, Starafrica's revenue grew 22% to ZiG1.71 billion from ZiG1.41 billion in the previous year, supported by improved volumes at its Goldstar Sugars and Country Choice Foods units.

Despite difficult trading conditions, the company managed to reduce its operating loss significantly-from ZiG501.5 million to ZiG79.8 million-owing to cost-cutting and operational efficiencies. It, however, closed the year with a net loss after tax of ZiG129.4 million.

Starafrica's sugar refining business posted a 7% increase in sales volumes, with white granulated sugar volumes reaching 59,613 tonnes. The specialty products division also recorded a 14% growth in sales, rising from 1,244 tonnes to 1,416 tonnes, driven by enhanced market strategy and product offerings.

"The performance is particularly encouraging given the subdued trading environment in the latter half of the year," Mbire said. "Our focus remains on improving our value proposition to customers while implementing process refinements to counter imports and diversify our portfolio."

The group's properties business posted stable gains, with rental income climbing to ZiG9.5 million from ZiG7.6 million in the previous year, boosted by rent increases. Starafrica's associate company, Tongaat Hulett Botswana, contributed ZiG9 million in profit share for the year.

Starafrica's future outlook hinges on further operational improvements, increased export volumes, policy adjustments, and shielding from imports as it seeks to regain profitability and restore shareholder value.