HARARE – Hippo Valley Estates Limited suffered a 10.6% decline in sugar production in the three months to June (Q1) due to delayed deliveries from farmers resulting from late finalization of sugarcane supply contractual agreement with private farmers.
The company contracts over 1000 private farmers operating on approximately 20 000 hectares of land as part of its strategy to augment its capacity. Private Farmer cane deliveries contributed 42% of the total cane supply in the just 2023 financial year ended in March.
The contractual delays emanated from the implementation of the outcome of the arbitration processes which resulted in there being two cane supply arrangements with private farmers, namely a sugar milling agreement and a cane purchase agreement.
The cane purchase agreement results in the Company purchasing cane from private farmers for a fixed price with the company alone exposed to the risks and rewards of sugar prices. The sugar milling agreement aligns with the arrangements in the previous season and results in the Company and the private farmers sharing in the total revenue realized from the sale of sugar with both parties sharing in the risks and rewards of sugar prices
In its Q1 trading update, revenue in historical terms was however 785% up to $131.9 billion from $14.9 billion recorded the same period previous year driven by price adjustment in response to hyper inflation pressures in the local market. Strong revenue performance was also sustained by increased use of foreign currency for domestic transactions spurred by the constrained Zimbabwe Dollar liquidity. Group margins were however adversely affected by the cost push inflation on business operations.
“Inflationary pressure and exchange rate volatility persisted in the first quarter to 30 June 2023, with the inflation rate rising drastically from 238.5% in March to 1 043.7% and the ZWL suffering a 517% depreciation in the same period, negatively impacting Company revenues and increasing the cost of doing business,” said group chairman, Canaan Dube.
The Company’s share of the total industry sugar sales volume of 91 239 tons for Q1 receded by 2.38 percentage points to 52.12% from 54.50% last year. Industry sugar sales into the domestic market for the same period, amounting to 87 816 tons was 4% above the comparable period in the prior year on account of firm demand from industrial customers during the quarter.
Industry exports amounted to 3 423 tons (2022: 10 039 tons) with the differential being due to the fact that in the prior year there were carry-over export allocations which were rolled over while in the current year the bulk of the export orders will be processed in the 2nd and 3rd quarters of the year.
Total industry sugar production for the 2023/24 season is forecast at 414 773 tons up from 396 682 tons last but still well below the nameplate industry capacity of 600 000 tons.
“The industry is implementing both vertical (yield and quality improvements) and horizontal strategies (new developments) to improve capacity utilization in the medium to long term. In particular, planned plough out and replant programmes and introduction of new varieties will significantly improve yields in future seasons.”
The local sugar industry is currently grappling with cheaper imported sugar following government lifting of duty on imported basic commodities in May this year.