Hippo Valley in DOP quandary

SAMANTHA MADE

Hippo Valley Estates Limited, a publicly traded sugar producer, is grappling with a legal and financial quandary following the Government’s recent revision of the Division of Proceeds (DOP) agreement, which underpins Zimbabwe’s cane milling framework.

The Government directive now mandates that sugar sales proceeds be split 80.5% in favour of the private farmers and 19.5%  to millers, a significant shift from the arrangements.

In response, Hippo Valley has lodged an appeal with the Supreme Court, according to the company CEO, Tendai Masawi.

“Hippo Halley filed an appeal with the Supreme Court regarding the recent adjustment to the Division of Proceeds (DOP) agreement under the cane milling agreements, which increased the DOP allocations to private farmers. Further updates will be provided when available,” Masawi said.

This action highlights Hippo Valley’s deepening concerns over the restructured DOP allocations, which now grant a greater share of sugar proceeds to private outgrower farmers.

As the cornerstone of revenue sharing in Zimbabwe’s sugar industry, the DOP agreement governs how proceeds are distributed between millers and growers, factoring in costs for milling, transport, and administration. While it serves to balance returns and sustain industry-wide cooperation, the recent amendments have tilted the scale, triggering pushback from Hippo Valley.

For private farmers, the changes offer increased returns and financial stability, reinforcing the incentive to maintain or expand cane production.

Conversely, for Hippo Valley, the reduced share threatens profit margins and investment flexibility. The company’s appeal to the Supreme Court underscores its concern over long-term operational sustainability, particularly as costs across the value chain continue to rise.

Amidst this quandary, Hippo Valley reported a 16 percent year-on-year increase in revenue for the third quarter ending December 31, 2024. This was largely driven by a strategic focus on the local market, where sugar sales surged by 22 percent to 279,112 tonnes. At the same time, export volumes were scaled back by 53 percent to 32,003 tonnes, allowing the company to capitalize on stronger local demand and pricing.

Despite the top-line growth, the company continued to face pressure from escalating operational costs, especially in cane procurement and labor.

In response, it rolled out cost containment initiatives and streamlined operations. Central to these efforts is Project “Zambuko,” a workforce transformation programme aimed at aligning the company’s human resources with the evolving needs of the business environment.

Project Zambuko, which translates to “bridge” in Shona, is designed to transition the company into a leaner, more agile operational model. Recognising that a bloated cost structure was unsustainable amid falling profit margins, Hippo Valley initiated a phased retrenchment process. This involved voluntary separation packages, re-skilling initiatives, and the realignment of key roles to match shifting operational priorities.

The company worked closely with labor unions and regulators to ensure that the process was humane, compliant with labor laws, and did not disrupt core production. The ultimate goal is to achieve a cost structure that supports competitiveness while preserving the institutional knowledge necessary to drive operational excellence.

The company is also investing in boosting agricultural efficiency. For the 2024/25 season, it expects a 4 percent increase in cane deliveries from private growers, reaching 739,329 tonnes. This growth is attributed to targeted productivity support and strategic interventions.

Simultaneously, Project “Kilimanjaro”—a flagship expansion initiative—is progressing steadily, with 682 hectares already harvested and offer letters issued to 116 new farmers to cultivate the remaining 3,300 hectares of the planned 4,000-hectare development.

Regulatory dynamics have also played a role in shaping Hippo Valley’s market strategy. The repeal of Statutory Instrument 80 of 2023 and the reimposition of sugar import duties in early 2024 revitalized domestic demand for the company’s “Sunsweet” brand. However, the presence of illegally imported, unfortified sugar brands remains a disruptive factor. Hippo Valley has alerted the relevant authorities and continues to advocate for stricter enforcement of quality and import regulations.

Looking ahead, the company remains cautiously optimistic.

It is prioritizing adequate stock levels to serve both domestic and critical export markets, while maintaining its focus on liquidity, debt reduction, and sustainable profitability. Environmental sustainability is also at the forefront, with investments directed toward clean energy, afforestation, and improved waste management systems.

As of the third quarter of FY2024, Hippo Valley’s financial indicators reflect a stable yet cautious outlook. Gross profit margin stood at 21.3 percent, with operating and net profit margins at 12.7 percent and 9.8 percent, respectively. Liquidity and leverage ratios were healthy, with a current ratio of 1.62 and a debt-to-equity ratio of 0.74. The company also posted a return on assets of 6.5 percent and return on equity of 11.2 percent.

Hippo Valley’s situation exemplifies the challenges of balancing inclusive growth in agriculture with the financial realities of industrial operations.

The current DOP quandary is not merely a legal dispute—it reflects broader tensions in Zimbabwe’s sugar industry that demand careful navigation to preserve both grower welfare and corporate viability.