• Production went up, sales down: 6% increase in sugar production, domestic sales and exports declined
• ZiG creates created a complex financial landscape despite ensuring price stability
• The company can mitigate the impact of domestic market volatility by developing value-added products, leveraging on exports

Harare- Hippo Valley, Zimbabwe's largest sugar heavyweight , has reported a satisfactory first quarter ended 30 June 2024, despite facing a perfect storm of challenges.

While the company saw a 6% increase in sugar production, driven by improved yields and increased harvesting targets, domestic sales and exports took a hit, reflecting the turbulent economic landscape.

Production Up, Sales Down: A Tale of Two Trends

Hippo Valley's sugarcane production saw a 3% increase, reaching 297,902 tonnes, fueled by better yields and a consistent rate of cane delivery. This represents an increase from the previous year's 288,923 tonnes.

Private farmers also contributed significantly, with an 18% rise in output, leading to a 9% increase in total sugar production to 519,086 tonnes.

This resulted in a 10% increase in total industry sugar production, reaching 124,059 tonnes.

However, this production boom was not reflected in sales figures. Domestic sales dipped by 7% to 81,626 tonnes, while exports decreased by 1% to 3,385 tonnes.

The company attributed this decline to the lingering effects of duty-free sugar imports, a slow start from local sugar refineries, and the impact of the newly introduced ZiG currency.

ZiG: A Double-Edged Sword

The introduction of the ZiG currency, while aimed at stabilizing the economy, has created a complex financial landscape for Hippo Valley.

The widening gap between the formal and parallel market exchange rates, reaching a premium of 74% by July (35% in April, 30% in May, and 45% in June), has made it extremely difficult for the company to secure the USD needed for critical imports and local supplies.

This currency mismatch has created a cash flow problem, making it challenging for Hippo Valley to manage expenses and maintain a stable financial footing.

The company is forced to operate in a two-tiered system, with the official rate inadequate for essential transactions and the parallel market rate inflated for USD purchases.

Policy Slippages Add to the Volatility

The repeal of Statutory Instrument 80 of 2023, which allowed duty-free sugar imports, has further exacerbated the market volatility.

While intended to stabilize the market, the policy change has led to a surge in imports, impacting domestic sales and creating uncertainty for local producers like Hippo Valley. 

This has led to a tough competitive landscape with over 16 brands of imported cheap sugar entering the market in 2024.

Despite these challenges, Hippo Valley remains optimistic going forward.

The company can leverage its strong market share to advocate for policies that support local sugar production, including clarity on the future of duty-free sugar imports and policies that stabilize the currency market, is crucial.

Factoring in the shift from El Niño to La Niña conditions, Hippo Valley forecasts a production range of 395,000 to 400,000 metric tons of sugar in FY25, with a projected revenue of US$385 million, up from US$366 million in the prior year.

The company is also targeting a 4% increase in cane harvesting and private farmer cane deliveries in the 2024/25 season, aiming to enhance milling efficiencies and sugar production outcomes.

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