Liquidity crunch hits fertiliser firms

Source: Liquidity crunch hits fertiliser firms | Sunday Mail (Business)

Martin Kadzere and Enacy Mapakame

Fertiliser firms have raised a red flag over a cash crunch to buy foreign currency needed to unlock fertiliser acquired last year but could not be released due to forex shortages.

While the availability of forex has improved on the interbank market, the cost of buying the hard currency has sharply risen after the Government abolished the 1:1 peg of the US dollar against the local currency in February. Until end of June this year, daily average trades amounted to US$500 000, but have since risen to US$5 million.

Traders are shunning the risky black market for the interbank since the rates are now almost at par.

Since the introduction of the interbank market, the exchange rate of the Zimbabwe dollar against the US dollar rose to 10 by close of business on Friday from 2,5 in February.

Zimbabwe Fertiliser Manufacturers Association (ZAFM) chairman Mr Tapuwa Mashingaidze told Sunday Mail Business in an interview this week that the biggest challenge with its members was raising the local currency to buy foreign currency.

He said fertiliser firms had at least 100 000 tonnes  of fertiliser locked under consignment arrangement, which could not be brought into the country last year due to forex shortages.

“The real challenge that we are facing is the Zimbabwe dollar to buy foreign currency needed to unlock our stocks because of the exchange rate,” said Mr Mashingaidze.

“Even to borrow at the prevailing rate will not be feasible. But otherwise in terms of the availability of the commodity, barring all these challenges, we have enough stocks.”

Apart from undelivered consignment, fertilizer producers are holding huge stocks carried over from last season as a result of low uptake following a drought.

While rainfall is projected to improve this year compared with last season, Mr Mashingaidze projected that high prices of fertiliser might also result in subdued demand.

“For farmers, we foresee a challenge of affordability because the prices will be too high,” he said.

But this could be offset if Government’s farming programmes are implemented on time.

The Government set aside about $3,2 billion this season to support farmers under various schemes including command and vulnerable housing support programmes.

Meanwhile the largest seed producer, SeedCo Limited says it has adequate stocks to meet local demand for the upcoming 2019/2020 farming season.

Group chief executive Mr Morgan Nzwere said the group has a significant seed carry-over stock at 16 000 tonnes, which will augment current production currently at 51 000 tonnes to satisfy re-bound demand across markets on better rainfall prospects.

Despite economic turbulence, he said the market was guaranteed of enough supplies for seed this season as the group was working to ensure product availability.

While the availability and affordability of the commodity was Seed Co’s priority Mr Nzwere acknowledged that the price would be much higher due to inflationary pressures.

“The group is expecting improved seed deliveries compared to prior year. For maize, we took in 49 000 tonnes last year and this year we are expecting to receive 51 000 tonnes, an increase of 4 percent,” said Mr Nzwere. Maize seed deliveries are currently at about 50 percent in Zimbabwe and 40 percent in the region.

For soyabean, the group expects to receive 8 100 tonnes compared to 7 000 tonnes in prior year of which close to 80 percent has already been received for processing.

Elsewhere, Seed Co is also geared to meet demand from its regional markets this season on the back of enhanced production capacity in such markets. Kenya is expected to recover this season after it suffered product shortages as well as depressed demand last year due to drought and other supply chain related constraints.

But Seed Co has since increased production capacity and has adequate stocks to meet demand during next season.

In Nigeria, production rose 60 percent to 1 000 tonnes from 600 tonnes and Seed Co’s focus is now on selling and distribution while new trials are being done in Ghana.

“We have commenced production at our own farm in Nigeria. Last year first pilot production of SC719 in Ghana offered valuable lessons on hybrid maize seed production in low altitude areas (less than 150 metres above sea level). Production trials of SC719 and SC649 (varieties) are continuing in Ghana,” said Mr Nzwere.