Tinaye Agere
Michael Tome
Research and stockbroking firm IH Securities says the agricultural sector still maintains economic relevance in Zimbabwe for the foreseeable future, with its linkages to the manufacturing sector being a key driver of the country’s Gross Domestic Product (GDP).
In its Zimbabwe 2024 agriculture sector report, IH said decreased production in the current season will likely impact the raw input pipeline for agro-processors in the short term.
“However, the Government has notably taken steps to cushion both the consumer and manufacturer by allowing strategic importation of maize to cover the current deficit.
“In the same vein, the removal of import duties on basic goods and services has introduced increased competition for food manufacturers in the market,” it said.
IH said the latest Hippo Valley trading update showed that industry volumes in the domestic market were down 7 percent owing to the spill-over effects of duty-free sugar imports.
“With projected improvement in the sector, the expectation is an improvement in the health of incomes and consumer spending post March 2024,” it said.
IH said traditionally, National Foods performs well in drought years as it is able to leverage its balance sheet to import grain into the market to fill the gap.
“However, at current levels the stock is full, trading at a price-to-earnings ratio PER(+1) of 10,5x compared to peers at 11,1x. We currently favour Seed Co. International at current levels, trading at US$0,20 against a target price of US$0,33,” it said.
“Business development efforts are ongoing in the emerging markets of Angola, the DRC, Ethiopia, Mozambique, and Nigeria, as well as in the Francophone West and Central Africa regions, in order to increase their service area.”
Climate change has remained a key focus for the group, with Seed Co. International investing in research and development for climate-resistant seeds.
Seed Co. International’s primary advantage over its local counterpart is the market spread across Africa to allow for the diversification of risks and earnings.
“With the turn of El Nino into La Nina, we expect that seed volumes will rebound, particularly in the category of rain-dependent farmers, thereby providing upside for revenue growth,” IH said.
According to climatologists, the second half of 2024 is expected to bring forth a change in weather conditions, with regions such as Southern Africa expected to receive heavy rains from December 2024 to August 2025.
The Government has begun preparations for the 2024/2025 summer cropping season at a cost of ZWG22 billion, which is expected to be 40 percent funded through the Presidential Inputs Programme.
Total cereal production is targeted at 3,2 million metric tonnes, with the area under hectarage expected to increase to 2,5 million hectares, with small grains expected to increase yields from 180 kg/ha to 800 kg/ha post-drought period.
Online Reporter