Fertiliser firms hit crisis

Fertiliser firms hit crisis
JOSEPH-MADE

Agriculture minister Joseph Made is amongst those who feel strongly that fertilisers should land in Zimbabwe cheaply to cushion farmers from high input costs as well as guaranteeing adequate supplies on the domestic market.

By Dumisani Ndlela
Deputy Editor-in-Chief

FERTILISER manufacturing companies have lurched into crisis after a devastating El Niño-induced drought which plagued the country this year partnered with cheap fertiliser imports to ruin their operations, the Financial Gazette can exclusively report.
While the industry had budgeted to supply farmers with about 360 000 tonnes of fertilisers in the current season, nothing of the sort has happened, pointing to a lean spell ahead for the sector, which is at the nerve centre of the country’s agro-based economy.
Estimates suggest that only 40 percent of the product was taken up by farmers this season as most of them opted to cut their losses by scaling down on the amount of inputs applied in their fields in the wake of a devastating drought ravaging parts of the country.
Combined with the influx of cheap imports into the domestic market, the net effect was that local fertiliser manufacturers were faced with severe cash-flow constraints impacting on their ability to service the market in the coming season.
Most of the companies had borrowed heavily, banking on a buoyant 2015/16 agricultural season, which has not happened.
The situation has become so dire that Sable Chemicals, the country’s sole manufacturer of ammonium nitrate, has had to suspend production because they could not continue to pile up stock. The Kwekwe-based company, a subsidiary of TA Holdings, had carry-over stock from last year of about 20 000 tonnes.
Sable, which has been in business since 1969, is likely to resume production before the end of the current half of the year.
Reports also suggested this week that the Zimbabwe Fertiliser Company (ZFC) recently closed its Msasa plant due to viability problems although this could not be independently verified by the time of going to print.
Across the industry, the situation is dire, according to industry spokesman, Misheck Kachere.
“We’re busy doing maintenance. There’s so much stock in the industry. We sold 25 percent less than we sold last year,” said Kachere.
The current situation does not bode well for agriculture, which constitutes 16 percent of the country’s gross domestic product.
The fertiliser sector grew in leaps and bounds from the 1930s until mid 1990s, spurred by growth in large scale commercial agriculture and the liberalisation of markets.
The industry has been bleeding since the turn of the millennium as a result of food insecurity-related challenges triggered by the haphazard land reforms of 2000.
Not helping matters has been the El Nino-induced drought, probably the worst since 1992.
Sable Chemicals’ chief executive officer, Jack Murehwa, confirmed yesterday that the company, which employs about 470 workers had “held back on manufacturing” until further notice.
“We’ve too much product in stock,” Murehwa said, indicating to the Financial Gazette that his company had fertiliser stock amounting to 20 000 tonnes produced last year.
“We’ll start running in April or May,” said Murehwa.
In total, local fertiliser manufacturers are said to be sitting on 100 000 tonnes of fertiliser, which they now have to push into the coming season.
In the meantime, they shall be incurring costs of carrying the stock, which should have been consumed in the current season at a time when their facilities at the banks are incurring interest.
Under normal circumstances, fertiliser produced for the current season should have long run out but this has not been the case this year owing to the drought.
“The impact of this is that everything has slowed down. There is minimum activity across the sector,” said Murehwa, highlighting the gravity of the situation.
An executive with another fertiliser manufacturing firm who declined to be named told the Financial Gazette: “Yes, we have been affected by the drought and do have carry-over of fertiliser stocks. Our fertiliser off take has been less than 40 percent of what we consider normal for this time of the year.”
He said there was no need for imports into the country, particularly of compound fertilisers, because “fertiliser manufacturing plants are currently operating below capacity”.
“There is no need to import compound fertilisers and blends. Zimbabwe has fertiliser granulation plants at Windmill and ZFC and there are also five blending plants in the country, including at Windmill and ZFC, all of which are operating below capacity,” he said.
“Imports of ammonium nitrate on the other hand are being regulated through the licensing system by the Ministry of Agriculture in consultation with the Ministry of Industry and the local fertiliser industry to ensure that there is no oversupply in the market but without risking top dressing shortage in the coming season.”
Windmill and ZFC, which have cross shareholding, are the other fertiliser manufacturing companies in the country.
The others are Dorowa Minerals and Zimphos.
ZFC’s managing director, Richard Dafana, said last year that his firm had experienced low uptake of fertiliser and other agricultural inputs due to a liquidity crunch and climatic conditions. It is expected that the situation could have worsened this season.
Dafana was not available for comment when contacted at his offices by the Financial Gazette yesterday.
Local fertiliser manufacturers were expected to supply 360 000 tonnes of fertilisers, comprising 200 000 tonnes of compounds and 160 000 tonnes of blends, during the current 2015/16 season, according to Finance Minister Patrick Chinamasa.
This, he said, had been meant to “enable full utilisation of the production capacity in the country”.
“There is need for proper planning and early conclusion of contracts between the fertiliser producers and buyers, including government. These contracts can then be used by fertiliser companies to secure adequate financing as is happening in other countries such as Zambia,” Chinamasa said during his midterm fiscal policy review last year.
Clearly, this plan has unravelled.
The local fertiliser industry has installed capacity capable of producing 900 000 tonnes of compound and ammonium nitrate per annum, against demand of 330 000 tonnes.
Despite local industry’s capacity, only 440 000 tonnes were locally produced during the 2013-2014 agricultural season, according to official statistics. The low capacity utilisation in the local industry is due to subdued demand, since a larger share of the market is dominated by imports.
Most of these imports, said sources, come from South Africa and, interestingly, Zambia, which used to depend on local supplies.
Industry sources said there were about a dozen firms exclusively dedicated to the import of fertilisers into the country. These were competing against the four local producers, all of whom had huge production overheads that made their products more expensive than the cheap imports.
Government’s Industrial Development Policy for 2012–2016 had identified the fertiliser industry as one of the priority sectors to anchor industrial growth.
“This, however, was undermined by the current policy whereby imports of fertiliser were exempt from customs duty and import Value Added Tax.
Chinamasa had last year proposed to levy customs duty of 25 percent on imported compound and blended fertiliser.
Duty free importation of fertiliser was, however, to be ring-fenced in cases where local production was insufficient to meet demand.
To complement this gesture, local fertiliser manufacturers undertook to reduce prices by about 20 percent from last year’s price range of about US$640 to US$720 per tonne.
“Imports had already landed into the country. It happened in November and it was already too late. We’ll probably benefit from that duty levy on imports next year,” said Kachere.
Agriculture minister Joseph Made is amongst those who feel strongly that fertilisers should land in Zimbabwe cheaply to cushion farmers from high input costs as well as guaranteeing adequate supplies on the domestic market.
 newsdesk@fingaz.co.zw

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  • ziv12

    Another forensic needs to be carried out here too!

    We remember this half brained doctor for causing a drought not many years ago, -“Made” made drought!- Remember him?

    tax payers are still paying his salaries!

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