eBusiness Weekly
Michael Tome
Business Writer
LISTED sugarcane producer, Hippo Valley Estates says high-cost pressures on account of rising inflation and exchange rate volatility manifesting in the economy are presenting overwhelming challenges to the company’s operations in the current milling season.
The local currency has lately been facing strong headwinds characterised mainly by a deteriorating exchange rate against the United States dollar mostly on the parallel market where the exchange rate is almost double the official exchange rate.
Annual inflation accelerated from 72,7 percent in March 2022 to 191,6 percent in June 2022 as the economic environment remains volatile and hyperinflationary.
According to Hippo high-cost pressures have been compounded by the growing cost of funding which is inhibiting the farmers’ ability to access sustainable funding for production.
Presenting its first quarter trading update to June 2022 the sugar processor noted that geo-political instability in Russia and Ukraine was stoking global inflation leading to higher operational costs in many areas of production.
Organisation for Economic Co-operation and Development (OECD) has since acknowledged that the world economy is likely to pay a huge price for the conflict in Eastern Europe characterised by weaker economic growth, stronger inflation and potentially long-lasting damage to supply chains.
And in a statement accompanying the first quarter update, Hippo chief executive Aiden Mhere acknowledged that a myriad of obstacles had made it tough for the sugar producers to price its merchandise.
“Operating and trading conditions are likely to remain challenging in the current milling season, with farmers and millers contending with high-cost pressures on account of both local and global inflationary dynamics, exchange rate volatilities, high cost of funding, and supply chain bottlenecks, resulting in difficulty in terms of product pricing,” said Mhere.
Adding that, “The price realisations in both local and foreign currency on the local market suffered negatively from the adverse exchange rate dynamics on currency.”
However, in the course of the period under review, cane deliveries from the company’s plantations were 22 percent above the same period in the prior year driven by increased harvesting targets and improved mill uptime.
During the financial year 2022, total sugar industry sales volume went down to 394 000 tonnes compared to 440 000 tonnes achieved in the prior year.
Hippo accounted for 53,2 percent which was an improvement from 50 percent contribution in 2021.
Total harvested cane by companies in the quarter to June grew by 22 percent to 347 178 tonnes from the same period last year while private farmers cane harvests declined 13 percent to 235 264 tonnes.
On the other hand milled cane increased by five percent to 582 442 tonnes.
Contrarily, total tonnes of sugar produced by the industry declined seven percent to 119 430 tonnes in the quarter.
In the outlook, Hippo anticipates an increase in cane supply to the mills owing to selected operating efficiencies.
According to Hippo the current crop is projected to yield more than the prior season following improved irrigation regimes, repairs to pumping installations and proactive initiatives to contain the yellow sugarcane aphid discovered in the region.
