Seed Co taps into growth opportunities

19 Aug, 2022 - 00:08 0 Views
Seed Co taps into growth opportunities Seed Co believes its positioning at the genesis of the food chain will benefit from anticipated import substitution and increased investment in agriculture in Africa to cut imports.

The Herald

Business Reporter

SeedCo, a leading seed producer in Zimbabwe and Africa, says there are opportunities for primary food and commodity producers in African countries to step up and fill the gap created by supply disruptions caused by the Russia/Ukraine  war.

Board chairman David Long said, “Africa is set to benefit largely from its minerals, and this has been the reason regional currencies have been somewhat resilient amidst the upheaval in global financial markets. “The agricultural sector is now receiving more attention in Africa in a bid to enhance production and reduce import dependence.”

According to the World Food Programme, a global food crisis fuelled by the Ukraine-Russia conflict, climate shocks and the Covid-19 pandemic is growing because of the ripple effects of the war in driving rising prices of food, fuel and fertiliser.

Russia and Ukraine are prominent players in the global trade of food and agricultural products. In 2021, wheat exports by Russia and Ukraine accounted for about 30 percent of the global market, according to the Food and Agriculture Organisation (FAO)> Russia’s global maize export market share is comparatively limited, standing at 3 percent between 2016/17 and 2020/21. 

Ukraine’s maize export share over the same period was more significant, averaging 16 percent and conferring it the spot of the world’s fourth largest maize exporter. Combined, sunflower oil exports from both countries represented 78 percent of global supply. The Russian Federation is also a key exporter of fertilisers. 

In 2021, it ranked as the top exporter of nitrogen fertilisers, the second leading supplier of potassium, and the third largest exporter of phosphorous fertiliser in the world. Nearly 50 countries depend on the Russian Federation and Ukraine for at least 30 percent of their wheat import needs.

Of these, 26 countries source over 50 percent of their wheat imports from these two countries, FAO says.

Seed Co said its positioning at the genesis of the food chain is expected to be supported by the anticipated inevitable import substitution and increased investment in agriculture to cut the gap that used to be bridged through imports from Ukraine and Russia.

“The extent of the growth opportunity is, however, expected to be diluted by unavoidable imported inflation that will offset higher commodity prices and increased investment in agriculture,” Mr Long said.

Additionally, monetary tightening to curb inflation will also give rise to higher interest rates translating to increased cost of funding business operations.

SeedCo believes the central bank’s policy rate of 200 percent, is a hindrance to the financing of the productive sectors of the economy.

“The Zimbabwean socio-economic environment remains challenging with hyperinflation continuing, no respite to the wide disparity between the official and alternative market exchange rates while the recent hike in interest rates is making productive financing unviable,” the group said.

Meanwhile, despite the headwinds, the group’s revenue grew by 36 percent in the first quarter compared to the same period in 2021 on the back of price adjustments to preserve value in view of the general increase in the cost of doing business.

Operating profit increased 3,3 times during the quarter under review from a loss position encountered in 2021.

“The return to profitability is attributable to margin recovery in which margins however remain under pressure due to official and alternative market exchange rate disparities whose negative effect on the cost of doing business cannot always be sustainably recouped through local currency selling price adjustments,” the group said.

However, total sales volumes for the quarter decreased by 18 percent from the corresponding period last year with wheat seed making up just under 90 percent of total volume sold which is typical for the period under review.

“The volume decline is because of a 13 percent reduction in wheat seed sales due to stringent measures applied on farmer selection by input funders and no repeat early legume and sorghum sales during the 1st quarter as happened during the same period in financial year 2022.”

Going ahead, the group expects volatility to continue in the economic environment. However, the group said it has adequate stocks both in Zimbabwe and on the continent to contribute meaningfully to primary food production subject to favourable climatic and economic conditions.

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