Rising costs suck sweetness out of sugar sector

starafricacorporation CEO Robson Nyabadza

ZIMBABWE’S major sugar maker, Hippo Valley Estates, said on Wednesday it had entered its third month operating without a key factory, a day after GoldStar Sugars mothballed its Harare plant, as raw material costs hit the roof.

Economic analysts immediately predicted painful times ahead for Zimbabwe’s sugar markets, with some projecting a wave of rocketing prices and shortages, before Hippo indicated that its own plant was out of production.

In a trading update for the third quarter ended December 31 2022, the firm said the line closed in November.

Sugar output fell by 1% to 207 430 tonnes during the period, compared to 209 239 tonnes during the comparable period in 2021.

It was a massive slowdown for the Zimbabwean market, given that Hippo controlled 52,3% of the domestic market’s total sugar sales volumes during the period.

Hippo board chairperson, Canaan Dube said the Zimbabwe Stock Exchange (ZSE)-listed operation had to reroute cane to the Triangle milling plant.

But the firm was working around the clock to complete repairs before the upcoming milling season, the trading update said.

“In November 2022, one of the company’s two production lines suffered a breakdown that resulted in early closure of the affected production line for the balance of the season,” Dube said, as he said results for the review period with investors.

“Repair work is in progress to ensure the line will be operational in the upcoming season. In order to crush the remaining cane, the milling season was extended to 29 December 2022 to accommodate the reduced production capacity. In addition, 27 001 tonnes of cane had to be diverted to the Triangle sugar mill for crushing,” he said.

GoldStar, a unit of the ZSE-listed conglomerate, starafricacorportion Limited, said it had to make the bold decision to place production on ice after the raw material supply situation was hit by a wave of price hikes by suppliers.

“The outage of raw sugar is a result of the raw sugar price increase effected by the Zimbabwe Sugar Sales (Pvt) Ltd (ZSS) on February 9 2023, which makes it difficult for the company to operate the refinery viably as well as the onerous trading terms that ZSS has imposed, which have constrained the supply of raw sugar to the extent that the refinery is experiencing frequent raw sugar stockouts,” said starafrica chief executive officer Robson Nyabadza.

“Management is engaging ZSS and the Ministry of Industry with a view to procuring a viable pricing and raw sugar supply arrangement that will ensure an uninterrupted supply of adequate tonnages to the refinery,” Nyabadza said, before filing a cautionary with the ZSE on Wednesday.

In the cautionary, starafrica said it has expanded the scope of its negotiations to raw material suppliers, in order to secure a viable deal.

“The board of directors of starafricacorporation Limited wishes to advise the company’s shareholders that it is engaged in discussions with its sole supplier of raw sugar, following a significant raw sugar price increase and untenable trading conditions,” the statement said.

“While the negotiations are in progress, the company has had to shut down its sugar refining plant at GoldStar Sugars. The outcome of the deliberations and impact of the action taken by the company may have a material impact on the value of the company’s shares. The board, therefore, advises the company’s shareholders to exercise caution and to consult their professional advisers when dealing in the shares of starafrica until finalisation of the aforementioned matter. The company’s shareholders and members of the public will be updated on the matter in accordance with the ZSE listing rules,” the firm said.

Independent economic analyst Vince Musewe told businessdigest that stakeholders in the private sector should now set aside their differences and save the sugar industry from collapse. Economist Prosper Chitambara said the temporary closure of GoldStar would result in price hikes. He implored the government to come up with positive economic policies that would address production challenges in the country. “The temporary closure of the Harare refinery plant by GoldStar is going to result in a temporary decrease in supply of sugar on the market. Obviously, that will also see the price of sugar increasing. Tongaat’s increase in pricing may be in response to challenges that businesses are facing in the country and also the power outages that have not helped matters,” Chitambara said.


Related Topics