TAURAI MANGUDHLA
LISTED seed producer SeedCo plans to increase open market seed sales in Zimbabwe nearly 80 percent from 50 percent as the company reworks its pricing model to mirror the current inflationary environment, Group CEO Morgan Nzwere has said.
Currently, Government sales account for half of volumes of the SeedCo business while the other half goes to open market sales.
This has left the company hamstrung in terms of price increases as products and service chase the foreign currency related inflation.
“Ideally we would want government to be in the minority, maybe 20 percent, but it’s a result of liquidity. The reason government is getting involved is because its constituency doesn’t have the money to buy, so they are looking for ways to fund the communal centre,” Nzwere said on the sidelines of the company’s annual results briefing in Harare last week.
“Obviously, for us as a business if you have one big customer it reduces your bargaining power because you are reliant on that one customer. So in terms of price negotiations you then get hamstrung,” he added.
Zimbabwe’s industry largely depends on imports for raw materials, spares and other supplies. This has seen pricing, one way or the other, chasing the hard currency rates both on the interbank market and the parallel market.
In the case of SeedCo, 80 percent of its costs are in local currency and only requires about US$4 million per year in the absence of major capital projects.
“We probably need inputs of between US$3 and US$4 million per annum, but we are also doing a big project. Those dryers that we are putting up require about US$10 million which requires funding” Nzwere said.
Nzwere said in terms of pricing, the company would be comfortable selling its seed at US$2,100 per tonne, which translates to about RTGS12,800 on the interbank market or almost RTGS 20 000 using parallel market rates.
“The ideal price would be around US$2,100 per tonne which we have been selling at, but remember the farmers who produce seeds for us need tractor implements. We are busy putting up irrigation facilities which need forex. The fertilizer and chemical guys are also charging us in forex so that has to play up in the pricing scenario,” Nzwere said.
SeedCo International’s turnover slipped 7 percent due to a decline in maize seed sales as a result of drought in East Africa especially in the second season, seed shortages in Kenya in the first season and late seed deliveries as well as second season drought. Gross margins remained strong at 50 percent.
Profit for the period also slid 16 percent to US$3,8 million.
Group sales volumes were 3 percent lower than prior year due to drought in East Africa, logistical challenges in seed exports to markets.
Going forward, the group expects earnings to recover on the back of the need to replenish granaries following floods in Malawi and Mozambique, intensifying donor relief input support programs to restore food security as a result.
