Michael Tome — HIPPO Valley Estates Limited recorded a seven percent decline in domestic sales in the first quarter to June 2024, due to the spillover effect of duty-free sugar imports on the domestic market.
This follows the repeal of Statutory Instrument 80 of 2023, which took effect on February 1, 2024.
Following the publication of the statutory instrument 80 in May 2023, domestic market sales for the sugar industry experienced immense pressure from the cheaper imports.
The sales performance was also negatively impacted by the slow start of the country's sugar refineries, but the situation has since normalised.
According to Hippo, the industry has enough sugar to meet both local and export demand, but there is still a noticeable influx of imports from regional countries and beyond, including unfortified sugar.
"Domestic sales for the quarter dropped by seven percent in comparison to the prior period, with the spillover effects of duty-free sugar imports still noticeable during the period under review.
"This is despite the repeal of Statutory Instrument 80 of 2023 that came into effect from February 1, 2024.
"Sales performance was also impacted by a slow start from the country's sugar refineries, but this has since recovered," said Hippo Valley Estates Limited chairman Mr Canaan Dube in the trading update for the first quarter ended to June 2024.
The company believes there will be no need to reintroduce duty-free sugar imports in the current and future years if strong production, positive milling performance, and continuous engagement with the authorities are maintained.
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Despite the drop in domestic sales, revenue for the first quarter grew by 15 percent, driven by better sales mix and price realisations, albeit overall decrease in sales volumes.
However, the increase in revenue was not enough to offset the rise in the cost of doing business, particularly in terms of manpower and cane costs.
Hippo stated that despite El Nino-induced weather patterns, the industry was generally not adversely affected due to adequate irrigation water from the supplying dams, except in the Mkwasine area where the water coverage is less than a year for private farmers.
The decrease in export sales volume for the industry was mainly due to companies prioritising the domestic market in the first quarter to ensure consistent product availability for local consumers and customers.
According to Hippo, currency dynamics have also negatively affected the cost of doing business, as the company is currently experiencing a mismatch between the ZiG and US dollars on revenues and expenditure.
This is due to a decrease in US dollar-denominated sales and an increase in ZiG-denominated sales, while providers of goods and services prefer settlement in US dollars.
