• Seed Co International has successfully reduced its financial losses to US$3.9 million
  • Improved volume growth and favorable product mix contributed to the reduction in losses
  • However, Seed Co may benefit from diversifying its revenue streams beyond agriculture

Harare- Seeds producer, Co International has reduced loss after tax for the half-year period ended 30 September 2023 from US$4.3 million in the same period last year to US$3.9 million.

This was due to two key factors: improved volume growth and a more favorable product mix. These factors have contributed to a noteworthy 23% increase in revenue, which has risen from US$25.5 million to US$31.3 million.

The company is anticipating a return to profitability in the full year 2023, following a 9% reduction in losses during the previous half-year.

The company also transitioned from a loss position in operating profit, registering a positive operating profit of US$1.3 million, compared to a loss of US$2.6 million in the previous year. These positive developments reflect the company's efforts to improve its financial performance which currently is in negative territory.

Itl holds a prominent position among Africa's foremost certified seed companies. It was established in Botswana on July 7, 2000 and is closely affiliated with Seed Co Limited, a long-standing organization founded in Zimbabwe in 1940.

On August 9, 2018, shareholders of Seed Co Limited granted approval for a partial split and independent listing of Seed Co International. Despite the separation, Seed Co Limited continues to maintain an associate stake in Seed Co International.

The company holds a primary listing on the Botswana Stock Exchange and a secondary listing on the VFEX. It is actively involved in various aspects of the seed industry, including the breeding, multiplication, and distribution of hybrid seeds for crops such as maize, wheat, soybeans, beans, rice, potatoes, sorghum, cotton, and vegetables.

Its operations span across multiple countries, with a significant presence in Botswana, Zambia, Malawi, Kenya, Tanzania, and South Africa.

Expansion beyond Botswana began in 1997 with the acquisition of Semoc, marking its first venture into the seed business outside of its home country. Subsequently, the company expanded its operations to Zambia in 1998, Malawi in 2000, Kenya in 2002, and Tanzania in 2010. These strategic moves have allowed Seed Co to establish a strong presence across different markets in Africa.

However, the agricultural business faces a precarious situation due to two primary factors: recurring droughts in Sub-Saharan Africa and ongoing geopolitical tensions. These factors present additional challenges to the global economy, as governments respond to geoeconomic fragmentation by increasing interest rates.

Global disputes have also caused a spike in fertiliser prizes weighing on maize yields. This is a key challenge given the recurring drought spells. 

Higher prices amid high interest rates affect consumer purchasing power, as companies pass on the higher costs of borrowing and inputs to the end-user of their products. These combined factors create a complex environment for the farming industry.

In East Africa, Kenya has experienced significant sales revenue impact due to recurring drought spells, while governance issues in Malawi have led to a shortage of foreign currency. These two markets, Kenya and Malawi, are crucial for Seed Co as they represent key customer bases.

The majority of the company's customers are small-scale farmers who rely on natural rainfall rather than irrigation for their agricultural activities. Consequently, their dependence on rainfall makes them particularly vulnerable to the adverse effects of drought.

The recurring droughts have had a significant impact on the profitability of farming, leading many farmers to scale back their investments and focus on smaller portions of land. This, in turn, affects the revenue streams for companies like Seed Co.

An illustrative example is Seed Co Limited, which experienced poor sales of its flagship seeds, 527 and 513, in the last farming season as farmers opted for other varieties that are better suited to rain-intensive conditions and small grains.

To address this situation, Seed Co Limited has taken steps to invest in short-term varieties and prioritize drought-tolerant crops. They introduced a modified version of SC513, called SC555, which has been well-received by the market. 

Zimbabwe has downgraded its GDP growth forecast for 2024 due to the anticipation of a poor rainy season. Since the success of seed companies heavily relies on rainfall, the lack of rain negatively affects their business operations.

Given this situation, it may be prudent for Seed Co and similar companies to consider diversifying their revenue streams beyond agriculture. One potential avenue for diversification is mining. A notable example of successful diversification can be seen in Padenga Holdings, which initially started as a complementary business to agriculture but has now shifted its core revenue focus to mining since 2019.

By diversifying into other sectors, such as mining, Seed Co can reduce its dependency on agriculture and mitigate the adverse effects of unpredictable weather patterns.

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