Growing investment in R and D, La Nina prospects to boost agro-firms performance
ANALYSTS project growing investments into research and development coupled with transition from El Niño to La Niña will be advantageous to Seed Co Limited’s performance both on the domestic and regional markets.
Zimbabwe and the rest of the Southern Africa region experienced prolonged dry periods due to the El Niño weather phenomenon which weighed on agriculture related and related businesses as they recorded depressed performance.
Businesses like Ariston, Seed Co Limited, Seed Co International and farming implements supplier Zimplow Holdings, have recorded depressed demand due to the adverse impact of the bad weather pattern.
Ariston reported that rainfall received at its Chipinge estates was 19 percent below prior season while it was worse at its Norton operation where the amount of rainfall received was 21 percent below prior season. This contributed to a depressed earnings performance with the group recording a gross loss for the half-year to March 31, 2024.
Demand for farming implements at Zimplow was also slow resulting in declines in sales for both local and export markets. This has also created room for businesses to innovate to cushion themselves from further suffering the adverse impacts of the bad weather.
For Seed Co, market watchers have guided an improved performance for FY25 and going ahead supported by its increased investments into research and development. The seed making giant has been churning out new seed varieties suitable for all climates to cushion farmers during prolonged dry spells.
In addition to improved seed varieties, the La Nina weather pattern, which is characterised by more rainfall will be another added advantage for not only Seed Co, but the whole agriculture sector.
“In the outlook, growing investments in research and development aimed at producing climate-responsive products and anticipated favourable weather conditions as El Niño transitions to La Niña next season, are expected to boost demand of SeedCo’s products and improve shareholder value,” said FBC Securities in an earnings flash for the seed producer.
“This improvement will be more pronounced if the prevailing liquidity crisis for both USD and ZiG is tamed so that the company reduces its overdependence on debt capital, which is currently expensive, to finance operations,” said FBC Securities.
During the just ended financial year to March 31, 2024, Seed Co reported mixed performance navigating through a difficult economic environment and El Niño-induced drought to deliver an 8 percent profit increase supported by increased export earnings.
However, overall sales volumes declined by nearly a third due to the drought, impacting maize and soya seed sales.
“The extensively publicised drought dampened cropping plans as farmers cautiously tried to curb the risk of crop failure because of moisture stress.
“Sales volume of the flagship crop, maize seed, was below prior year by nearly a third,” said group company secretary Tineyi Chatiza.
In terms of financial performance, revenue dropped 10 percent to $813 billion year-on-year due to lower sales volumes. Other income increased due to exchange gains on USD denominated receivables and increase in non-seed sales
The seed processor continues to invest in research and development, introducing new drought-tolerant maize and high-yielding wheat varieties. The company is also expanding its export sales to mitigate the impact of lower domestic demand.
“The maize seed portfolio has been expanded with the release of SC661 and SC657, both medium-maturing hybrids. Additionally, a high-yielding wheat variety, SC W9104, has been introduced,” said Chatiza.
Going forward, the business maintains cautious optimism regarding Zimbabwe’s economic outlook despite prevailing challenges.
“The agricultural sector, a vital economic driver, is expected to improve with anticipated favourable weather conditions as El Niño transitions to La Niña in the upcoming season.
“Moving forward, the focus will be on increasing the contribution of exports and USD-denominated sales while ensuring competitive pricing and effective cost management,” said Chatiza.