IN a recent report, Inter Horizon Securities highlighted Seed Co Limited's significant reliance on government contracts, which poses a significant risk of payment delays due to the government's current liquidity constraints. This could lead to funding gaps, increased borrowing, and higher finance costs, ultimately impacting the company's profitability. To gain insight into Seed Co's strategies for mitigating these risks, our business reporter, Tafadzwa Mhlanga (TM), sat down with chief executive officer Morgan Nzwere (MN) to discuss the company's plans for navigating these challenges and staying afloat in a turbulent market. Below are excerpts of the interview:
TM: In your financials, you noted that the company experienced some volume sales decrease due to the El Niño. What are you doing to prepare for future occurrences?
MN: What we are trying to do in our research programme, we are coming up with varieties that mature early. So, you know that we always started from the four series, five series, six series. Now, we have a variety called the three series, which does mature early to enable farmers to get something in case we have a repeat year. However, all the varieties that we try and come up with have what we call a drought escape mechanism. So, it always enables the farmers to get a little bit better than most other varieties.
TM: Climate change is a real threat indeed...
MN: Climate change is a real issue and dealing with it is a key research goal. So, all breeders, when you look at them and the research goals that they have, what they are breeding for, climate change is a key issue and it has to do with the varieties that are drought tolerant, varieties that can escape drought, varieties that can mature early so if they get just enough water, they can be able to produce something. But also, we are doing work in terms of small grains like sorghum and so on to try and make sure that those dry areas can even have something that they can plant with limited rains. As I said in my presentation, we also did the highland products for the Kenyan highlands. In Kenya, 60% of the land is in the highlands, which are above 1 800 meters above sea level. So, our varieties are mid-altitude varieties, and we did not have a variety that could participate in those highlands. Our research team has now come up with a variety that we can sell in those highlands, so we are now looking forward to taking market share in that region.
TM: So, they are being produced locally?
MN: They are being produced in Kenya there.
TM: The global weather forecast has predicted that there will be a La Niña. What are you doing to position yourself as a company to fully benefit from it?
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MN: We have got lots of seeds. We have got lots of carob seed. We expect huge demand in the market, and we have started our exports into the regional market early. We will also be putting seed early in the local market to take advantage of the demand that we expect to see coming out of this La Niña.
TM: You also talked about some debtors, how much is owed to you to date?
MN: Well, the main amount is about US$13 million which is still owed by the central government. However, the government is an important customer so every year they buy a lot of seeds.
TM: How is this affecting your operations?
MN: There have been some liquidity challenges that have arisen as a result of that debt not being cleared, however, it does not worry us that much, as we have never written off government debt. We know that there will be some payment challenges but eventually, they do clear their debt. The big challenge that it creates for us is we then have to go to the banks to borrow to cover that gap and that results in finance charges which then eat into the profit.
TM: What does the government say are the reasons for the payment delays?
MN: That is for the exchequer really, I cannot know why the government would delay payments. But, we engage them, and we have been receiving some payments. It is just that we would like the payments to be cleared a lot quicker to save on interest so that we do not go to the banks to borrow. But you know, the government has got many priorities.
TM: Has there been any commitment to clear it soon?
MN: We have been seeing payments coming through. What they can do is give you a definite plan to say we will pay you so much by such and such a date, but we have been seeing payments coming through.
TM: Do you owe your farmers any money?
MN: No, we paid our growers for all the deliveries that they have done so far.
TM: What are some of the challenges that you are facing as a company?
MN: Funding. There is no liquidity in the local market. The drought is affecting demand, and it is affecting our producers even on the seed production side. Like I said, we expect production to be down by 40%, but even as a nation I think we have had figures of around 70% to 72% in terms of reduced harvest, that speaks to the demand for our product. Since the farmers are not getting anything this year, next year we expect that the demand will be huge, if La Niña happens.
TM: You also noted that you need to prioritise exports going forward. What are your target markets?
MN: East Africa by and large at this stage. So, we are sending seed to Kenya, Tanzania, Uganda, Sudan, Burundi, and Rwanda, those are the key markets that we are targeting.
TM: What is your outlook for the next coming financial year?
MN: We are very positive. We think demand should be huge. People need to refill their granaries because of the reduced yield that they got this year, so we expect some very good sales, and also, coupled with the good rains that people are anticipating, we are expecting a very good season.
TM: Are you looking into getting new partnerships?
MN: So far, we are going to leverage the partners we already have. Our major partner is Limagrain. We are a shareholder in the business, but we also partner with other research institutions. We partner the government in terms of seed distribution. It is a business of partnerships. We partner with farmers for production. We partner with distributors to distribute our seed. We do not sell it directly ourselves, and so on.
