Usually, a company doubling exports would be the sort of result executives proudly frame on the boardroom wall.
Hippo Valley Estates, Zimbabwe’s biggest sugar producer, has reported that sugar exports more than doubled in the year to March, rising 114% to 92,518 tonnes. Normally, that would be 100% good news. But Hippo says there’s a bitter taste in the story.
The company explains: “Exports are generally viewed as attractive due to incoming foreign currency, but with our business environment circulating the same currency locally, our exports are undermined despite positive volume performances.”
That shows the impact of Zimbabwe’s currency policy. Exporters surrender 30% of their foreign currency earnings. When most local sales are already in US dollars, the advantage of earning forex from exports shrinks. Add lower international sugar prices, and selling overseas becomes even less attractive. Hippo says “export realisations do not fully cover the fixed cost of private farmer cane at US$71 per tonne.” This means those extra export sales were made at a loss.
The picture is different on the local market. Hippo supplies half of all the sugar sold in Zimbabwe, and local sugar sales rose 12% to 379,319 tonnes. These sales generated “higher margins compared to low-priced exports,” the company says.
Even here, there is a shift. Hippo’s biggest industrial customers, beverage producers like Delta, are buying a little less sugar as they respond to the sugar tax by reformulating products and replacing sugar with alternative sweeteners. Instead, retail sales, where margins are stronger, are Hippo’s main driver of sales growth.
The company says it “continues to deliberately prioritise the local market over lower-priced export markets.” The jump in exports, it adds, came largely from selling surplus stocks carried over from last year, rather than a strategic shift towards overseas markets.
Production was steady. Hippo produced 221,017 tonnes of sugar, up 1%, while total industry production reached 443,501 tonnes. On the farming side, Hippo’s own cane deliveries fell 5% after harvesting a smaller area and recording lower yields. Private farmers filled the gap, increasing deliveries by 8%. For Hippo, more privately grown cane means more purchases at fixed prices, pushing up its production costs. According to the company, the shift is “progressively reducing the company’s ability to manage its average cane cost and increasing exposure to loss-making export markets.”
