RYAN CHIGOCHE
Sugar producer Hippo Valley is hunting for a new consultant to come with an acceptable division of profits (DOP) model as it seeks to end the wrangle with commercial sugarcane farmers over milling fees.
The current DOP model, which allows Hippo Valley to charge 23% of the total value of sugarcane milled under the arrangement, was developed by EY Chartered Accountants.
But, farmers say they are struggling to sustain operations at that rate and want milling charges to be pegged at between 5% and 15%.
The DOP model is used to determine how proceeds are shared between farmers and millers in Zimbabwe.
Hippo Valley CEO, Aiden Mhere, said the company was consulting the commercial farmers and the Ministry of Industry and Commerce over the new consultant.
“The current DOP was done by EY. The argument is on what it costs to grow sugar cane and what it costs to mill it so these are the determinants of the new prices,” Mhere said.
He added: “So farmers were saying the method used by EY was not correct so it’s not our fault as a company. At the moment, we are trying to see who we can hire to replace EY to properly check the audited costs of growing and milling sugar cane. The discussions are ongoing and together with farmers we must agree on the new consultant to be hired. The Ministry of Industry and Commerce is assisting us in the process.’’
As a stop gap measure, a tribunal was set up to determine the new prices for the 2022/23 milling season.
According to Hippo Valley board chairman, Canaan Dube, the process is at an advanced stage.
“A tribunal constituting three arbitrators was set up to determine commercial issues relating to the sugar milling agreement for the 2022/23 milling season. The arbitration is at an advanced stage, with anticipation of concluding the process within the current financial year,” Dube said.
In its financials for the 6 months ended September 30, Hippo Valley revenue was up 61% from prior year to ZWL$63.1bn whose movement was affected by dynamics introduced by hyperinflationary accounting. The growth in revenue came despite a 5% dip in sales volume.
Resultantly, earnings before interest deductions, taxation and amortisation grew 63% to ZWL$18.9bn from ZWL$11.6bn. The company had a net borrowing position of ZWL$1.4bn from ZWL$900m as at March 31 in response to “more cash consumed in working capital”.
“The company has established borrowing facilities in both local and foreign currency to finance both operating and capital expenditure requirements,” Dube said.
