• Total sugar produced during the 5 months to August 2023 dropped by 9% to 66,319 tons
  • Local sales have experienced a decline of 12%
  • Upcoming months will be crucial for Hippo Valley as rainfall patterns can impact both the quality of the cane and logistical operations,

Harare - Hippo Valley has experienced a slight downturn in its overall sugar production since 2018. In an effort to reverse this trend, the company has initiated Project Kilimanjaro, which aims to enhance production capacity. Furthermore, Hippo Valley is strategically pursuing vertical scaling to bolster its prospects. However, a major hurdle for the company lies in Statutory Instrument, which allows for the unrestricted importation of cheap duty-free sugar.

This dynamic raises concerns about unfair competition, as Hippo Valley must contend with the requirement to pay duties in order to secure raw materials, while facing a significantly different operating environment compared to the source of the imported sugar. Consequently, Hippo Valley finds itself ill-equipped to effectively compete against these inexpensive imports. Engaging in such a battle becomes an exercise in futility. From an economic standpoint, this practice is commonly referred to as "dumping," which involves the sale of goods or services in a foreign market at prices lower than their production costs or domestic market prices.

The crushing period at Hippo Valley typically commences in April and concludes in early December. However, the company has encountered challenges in the current season. In the first five months leading up to August 2023, both the tons of cane crushed by the company and farmers have witnessed a decline of 15% and 10% respectively. Consequently, the total sugar produced during this period has also dropped by 9% to 66,319 tons.

A notable aspect is the significant reduction in throughput, measured in tons of cane per hour, from 419 tons in 2018 to 316 tons in 2022. This decline in throughput reflects a decrease in the milling efficiency of Hippo Valley. Additionally, the cane yield has been 8% lower than the previous period, primarily due to a decrease in harvested plant cane and delayed processing of cane carried over from the previous season. The delay in milling agreements with farmers, which were concluded three weeks into the season, has disrupted the balance required to efficiently process the company's own produce in conjunction with the farmers' output.

Despite these challenges, the five-month period has witnessed a positive aspect in the form of good cane quality, with an average estimated recoverable crystal (ERC) of 12.03 compared to 11.22 ERC in the previous period. Taking all these factors into account, Hippo Valley still anticipates a 2% increase in sugar production for the current season compared to the 207,430 tons produced in the 2022/23 season.

Looking ahead, the upcoming months will be crucial for Hippo Valley as rainfall patterns can impact both the quality of the cane and logistical operations, potentially further disrupting production at the company.

Hippo Valley's total sales have been adversely affected by the impact of the statutory instrument. In order to mitigate these challenges and safeguard its market share, it is crucial for the company to intensify its marketing efforts. One concerning aspect is the importation of non-standard sugar, which further complicates the market situation.

Despite these obstacles, Hippo Valley still maintains a dominant position in the local market, holding a 53% market share. The sales mix within the country primarily favors the US dollar, accounting for an average of 80%. However, local sales have experienced a decline of 12%, while sales of Raw Sugar and SunSweet Brown have also dropped by 6% and 15% respectively. These figures clearly indicate the adverse impact of cheap imports on the company's performance.

To counterbalance the effects of the domestic market challenges, Hippo Valley has significantly increased its exports by 188%. However, it is important to note that the proceeds from export sales are currently lower than those generated from the local market. Therefore, this dynamic is expected to eat into the company's revenue and ultimately impact its bottom line. Consequently, the company will need to carefully consider the export market as an alternative outlet in case of further loss of market share.

Presently, the notable increase in exports is primarily driven by heightened exports to the USA and Europe, with the reallocation of the USA-TRQ (Tariff Rate Quota) playing a key role in this growth.

The sharing ratio between private farmers and Hippo Valley has remained relatively stable at around the 50% mark over the past five years. This indicates that both parties, the farmers and Hippo Valley, are actively involved in scaling up their production efforts. In terms of growth, both entities play significant roles in the industry.

Hippo Valley and Triangle, its sister company, are prepared to provide input support to over 1,000 outgrowers farming on more than 20,000 hectares of land. These companies also collaborate closely with the South African and Australian Sugar Industry to introduce and adopt new varieties, aiming to expand vertically within the sector. Currently, a delegation comprising farmers and representatives from Hippo Valley is in Brazil, seeking to benchmark operations and gain insights for further improvement.

In relation to Project Kilimanjaro, approximately 700 hectares of the designated 4,000 hectares have already been planted, while the remaining land has been cleared of bushes. This project represents a focused effort by Hippo Valley to expand its operations. Additionally, the Pezulu project, which is being financed by ZB Bank, presents another opportunity for horizontal expansion. Located in the northern part of Chiredzi, this project has the potential to develop over 12,000 hectares of land within a span of five years.

These initiatives, both vertical and horizontal, demonstrate Hippo Valley's commitment to growth and its collaboration with farmers and industry partners to enhance productivity and expand operations effectively.

Equity Axis News