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Zim’s listed agro-firms under threat

By Thomas Mupfuka

LISTED agro-based companies run the risk of folding as the effects of a delayed and erratic rainy season coupled with economic hardships felt across the country during the 2018/19 season are threatening the industry’s viability, a recent report has shown.

Zimbabwe’s agriculture sector suffered an onslaught of disasters, including late rains, an outbreak of fall armyworm and a destructive episode of cyclonic flooding.

According to a recent report titled Zimbabwe’s Agriculture Sector: The Economic Bolster, which was released by an investment research firm, IH Securities,
there is need to improve irrigation systems across the country so as to reduce risks associated with drought.

“Having experienced an El Nino-induced drought twice within the last three years, it is clear that it is an unavoidable phenomenon that the country will
continue to grapple with.

“Nothing can be done to prevent it, but methods and techniques can be implemented to reduce the effects and ensure that the country is food secure and that
production of key crops is sustainable,” part of the report reads.

“Positive results have been observed at Hippo Valley Estates, which appears to be reaping the benefits of irrigation through Tokwe-Mukosi dam, as production
disruptions due to the drought have been mildly felt by the sugar producers.”

Early forecasts suggest that crop production for the 2018/19 season is likely to be below average across all provinces, and significantly below average in typical deficit-production areas where a high proportion of households are expected to have no harvest.

“Maize production in Zimbabwe has been hampered in the last couple of years due to the drought and infestation of the fall armyworm.

“Going forward, we anticipate an increase in demand for SeedCo Limited’s products, as the government will require seed for the input and support programmes ahead of the 2019/20 season.

“However, production levels at both SeedCo Zimbabwe and SeedCo International are expected to be subdued with the main drivers being prevailing macro-economic pricing models and lean season demand.

“As a result, we anticipate staple maize grain and maize meal prices will continue to increase across the markets, with imminent shortages across Southern and Eastern Africa.”

The current tobacco marketing season does not look too promising for producers of the gold leaf as output has been reduced by drought. Cyclone Idai has also caused immense damage to barns used to store the crop.

“Despite clarity surrounding forex retention and the removal of the 2% IMT (intermediary money transfer) tax, we anticipate that several farmers may be deterred from growing the crop next season, which will not only significantly impact the country’s future foreign currency earning capacity and contribute to Zimbabwe’s inflating trade deficit, but may also have a negative impact on TSL’s prospects,” the report reads in part.

“In attempts to reduce the country’s import bill, Government introduced SI 252A of 2018 which allows government to charge excise duty on cigarettes in foreign currency.

“This will negatively impact British American Tobacco Zimbabwe, as the company does not generate forex to support their raw material imports and the excise duty and will not be able to generate hard currency through exports, as by doing so they will be infringing on other BAT territories.

“However, the company needs to come up with systems to bolster itself from the prevailing macro-economic pricing trends.”

During the last quarter of 2018 and the first half of 2019, consumers rushed to the bourse in search of a store of value as uncertainty surrounding currency grew.

“These FMCG (fast-moving consumer goods) businesses requires hard currency to purchase certain raw materials, and due to the challenges in procuring forex from the interbank market, National Foods, Zimbabwe’s leading flour and food producer, has been producing below capacity or temporarily shutting down mills as it has been facing difficulties in procuring the product on time, as a result of battling to pay their foreign wheat suppliers.”

There are eight agro-based concerns listed on the ZSE (Zimbabwe Stock Exchange), representing 14.2% of the total market capitalisation.
Going forward, the report went on to stress that government investment in agriculture was necessary to reduce the country’s reliance on food imports and cut the ever-widening trade deficit.

“Government support in terms of funding of inputs remains key in the short term and we expect the command agriculture programme to continue yielding good results.

“Shortages of basal and top dressing fertilisers due to the macroeconomic challenges negatively impacted crop yields this season.

“Thus, efforts to ensure adequate supply of the products at viable prices should be made to ensure increased agri output. Additionally, in most parts of the country small grain and legume seed was not readily available on the local market.”

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