eBusiness Weekly
Nelson Gahadza
Zimbabwe Stock Exchange (ZSE) listed agro-focused firms, are worried over the rapid deteriorating exchange rate as well as adverse weather patterns that they fear could erode their margins.
The listed firms can be sub-divided into manufacturers and processors while some produce for the local market while others are into exports.
Ariston Holdings in its latest quarterly update said inflationary pressures and lack of disposable income continued to affect the operating environment with the rains also a matter of concern.
“The widening of the exchange rate gap between the interbank auction rates at which 40 percent of the group’s export revenue is retained at and the exchange rate that suppliers are charging for locally purchased goods continues to put substantial pressure due to the mismatch in the two rates,” the company said.
The central bank recently lifted its key interest rate to a record high, to halt a decline in its currency and rein in surging inflation amid food and fuel price pressures.
The monetary policy committee (MPC) hiked the rate to 80 percent from 60 percent, being the highest level since the Southern Africa nation’s MPC set the rate at 70 percent in September 2019.
In addition to that, the RBZ is allowing banks to set their own rates for exchanging US dollars in transactions of up to $1,000, as it seeks to ease pressure on weekly currency auctions and to tame a runaway parallel market.
On the weather pattern, Ariston said although the weather was cooler than prior year, rains were less and came very late, with most rains only being received at the tail end of December 2021.
“In Chipinge and Chimanimani where the majority of our operations are located 172mm of rain had been received in the first quarter to 31 December 2021 compared to 532 mm received in the prior comparative period.
Operations in Chipinge and Chimanimani were relatively least affected by the changes in weather pattern. Irrigation was available but was adversely affected by power cuts,” said the company.
Ariston is an agricultural enterprise operating in diverse markets that range from tea, macadamia nuts, horticulture and deciduous fruits to fish farming, beef cattle and poultry.
It also produces fruits that include bananas, apples and peaches; while staple crops include potatoes, tomatoes, peas, and maize and soya beans.
On its part the company said cost containment will continue to be an area of focus while greater focus is being given to the effect of the exchange rate mismatch which has had the effect of depleting value for the group.
SeedCo Limited in its financials highlighted that the significant disparity between the official exchange rate that is the benchmark of the company’s selling prices and the parallel exchange rate which is the benchmark of most of the company’s operating costs, including the cost of raw seed from growers, has put significant stress on margins and business model viability.
“This mismatch is now further compounded by the increase in finance costs following the policy rate hike from 40 percent to 60 percent by the Reserve Bank of Zimbabwe announced on 28 October 2021,” the company said.
SeedCo is one of the leading certified seed companies authorised to market seed varieties developed by itself, government and other associated seed breeders in its markets.
The company develops and markets certified crop seeds, mainly hybrid maize seed, but also cotton seed, wheat, soya bean, barley, sorghum and ground nut seed.
“Whilst the Board and Management are alive to the structural challenges, there is little headroom to invoke strategies to mitigate the adverse impact of these largely exogenous economic headwinds.
“Nevertheless, the Company continues striving to preserve the balance sheet, through among other things, tangible capital expenditure and price adjustments to the extent possible, in anticipation of an improvement in the operating environment,” the seed giant said.
It added that despite the foregoing adverse conditions, the economy is still earmarked to grow buttressed by the agricultural sector which bodes well for the group’s operations.
CFI Holdings noted that while the economic environment benefitted from relatively slower inflation and increased use of foreign currency for domestic transactions, the environment remained hyperinflationary and generally more challenging for business.
“Annual year on year inflation for the quarter to December 31, 2021 averaged 57.9 percent compared to 407.2 percent for the comparable prior period.
“During the quarter, the Zimbabwe Dollar depreciated by 24 percent on the auction market and inflationary pressures resurged on the back of sharp currency depreciation and the widening gap between the official and alternative markets exchange rates,” the company said.
CFI is a leading agricultural-based industrial holding company in Zimbabwe; primarily involved in manufacturing and selling fresh produce and manufacturing stock feed, as well as property management and letting.
On weather patterns, the group said the late onset of the 2021-2022 rain season negatively affected demand for agricultural inputs.
TSL Limited whose agro-operations are tobacco related on its part said reported backlogs in foreign currency settlement on the interbank auction system resulted in a widening disparity between the official exchange rate and the rates obtaining in the marketplace, spurred divergent multiple exchange rates and pricing mechanisms in the business environment.
The company noted that the country witnessed an above-average rainy season in the year 2021, which benefitted production of key strategic crops such as maize and soya beans.
Meanwhile, the Reserve Bank of Zimbabwe (RBZ) has been putting in place measures aimed at curtailing the resurgent inflation and to stabilise the volatile parallel market exchange rate.
In its latest measures through recommendations from the Monetary Policy Committee (MPC), the RBZ increased key interest rates and further cut down the quarter target for money supply growth.
The adverse developments in the market have seen annual inflation surging in the past few months, closing at 67 percent in March 2022.
The pass-through effects of the exchange rate volatility have also seen the value of local currency, which was floated at $2,5/US$1 upon de-dollarisation in 2019, slide to over $320 to the greenback on the black market currently.
