RBZ forex policy chokes exporters

LISTED agricultural concern Ariston Holdings says the 25% export retention coupled with the huge disparity between the interbank exchange rate and the fair market rate used by suppliers is making some export lines unviable.

Exporting agricultural businesses are required to surrender 25% of their export proceeds to the Reserve Bank of Zimbabwe (RBZ) in exchange of the local unit.

“The economic environment continued to be challenging, especially so for exporting agricultural businesses as the 25% RBZ export retention coupled with the significant disparity between the interbank rate and the fair market rate used by suppliers became very significant,” Ariston said in a trading update for the first quarter ended December 31, 2023.

“This disparity is making some export lines unviable due to loss of value on the 25% RBZ retention. It is hoped that the authorities will implement positive policies that will support the growth of exporting businesses.”

It added: “In an effort to protect value, more tea sales are being channelled into the local market as the 25% RBZ export proceeds retention is having a significantly negative effect on the tea business’ profitability given the significant disparity between the interbank rate and the fair rate used by our local suppliers.”

The firm said the local environment continued to be characterised by further dollarisation of the economy, increasing inflationary pressure and liquidity challenges.

In the period under review, revenue increased by 5% to US$1,04 million, mainly attributable to sales of macadamia stocks which were carried over from the prior comparative period coupled with an increase in tea sales volumes.

Current year tea production volume at 716 tonnes increased by 2% when compared to 700 tonnes achieved in the prior comparative period. The financial year (FY) 2023 volume was, however, 20% behind the 898 tonnes produced in FY 2022.

“The 20% decline was due to the deliberate decision made by the board to focus the business on quality of tea produced as opposed to quantity so as to increase the percentage of tea whose quality meets export parameters which would result in improved selling prices and hence export revenue,” the update read in part.

“Macadamia harvesting only commences towards the end of the second quarter, so it is too early to make a determination on macadamia nut production. In the current period, there were some early macadamia nut drop noted. These amounted to 76 tonnes.”

In the current period, Ariston said other products only consist of bananas, whereas the prior comparative periods also included potatoes which were not part of the cropping plan in the current period.

Potatoes were not grown to preserve the dam water for seed crop irrigation given the predictions for an El Nino this season. Accordingly, there was a volume decline in this category.

Tea sales volumes stood at 529 tonnes, 12% ahead of the sales for the prior comparative period of 473 tonnes. These were also 20% ahead of the 440 tonnes sold in FY 2022.

“Average selling prices for both export and local sales held at the same level as those experienced in the prior comparative period,” it said.

Sales volumes for macadamia nuts were higher than production volumes due to sales in the current year of stocks being held at prior year period end. The 132 tonnes of macadamia nuts sold in the current period were 415% more than the 26 tonnes sold in the prior comparative period. Sales of poultry and other products were in line with production volumes.

Due to the cyclical nature of the group’s operations, sales in the first quarter are minimal. Most of the harvesting and selling occurs in the second half of the year. The first quarter is mainly characterised by incurring costs in preparation for the new agricultural season.

The group said the 2023/24 agricultural season was expected to receive lower than normal rainfall. As such, the firm would mitigate the impact of low rainfall through heavy reliance on its irrigation systems.

“Early indication is that demand for macadamia nuts will be firm. However, it is still too early to have a view on the market prices, although sales of our early drop nuts have been at an improved price compared to prior year’s for similar quality,” it said.

In the outlook, Ariston said the operating environment was expected to continue to be challenging.

“Focus will remain on cost containment measures, improvement of product quality and production processes.”